The S&P 500 had a strong quarter on record

The S&P 500 hit an all-time closing high on Friday, reflecting stunning gains by a host of big tech companies against a backdrop of a surprisingly stable economy.

The broad-based index closed at 4,839.81 ― more than 1 percent a day — breaking the previous record high set in January 2022.

Despite the Federal Reserve's campaign to raise interest rates, the stock market edged higher in the final quarter of 2023 as evidence gathered that the economy had not entered a recession. At the same time analysts point to an AI-driven frenzy on Wall Street rivaling the dot-com boom of the late 90s, investors sought to capitalize on the transformative gains brought by the early Internet.

A rising S&P 500 is a welcome sign for millions of Americans who invest in the index through retirement accounts. According to S&P Global, in 2022 investors owned about $5.7 trillion in assets for the S&P 500 and another $5.7 trillion in funds.

Voters' feelings about the stock market and the economy could affect the 2024 election, as President Biden and presumptive challenger Donald Trump each have to defend their economic records. If Trump doesn't win, he predicts a market crash. Biden has already faced attacks from the right over inflation and gas prices, while his office argued he was in control and pointed to a strong job market.

Economic sentiment is finally improving and consumer sentiment is picking up

Tech companies led the way, including some names heavily associated with artificial intelligence work The S&P 500's gains. Seven of the biggest tech stocks — Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta — the so-called “Magnificent Seven” — are up an average of 75 percent in 2023 and represent 30 percent of the index's total market value at the end of 2023. .

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“AI is the new dot-com,” said Michael Farr of Farr, Miller & Washington. “It's a new magic that's going to change the world, and we don't understand it yet. But we all understand that it's very powerful.

Those seven stocks accounted for half of the S&P 500's gains last year. Nvidia, whose high-performance chips have become popular for AI applications, had the best year of the bunch, at one point valued at nearly $190 billion overnight, a 24 percent gain.

Stock Market Rises in 2024, Brushing Off Recession Fears

Skyrocketing valuations for big tech stocks in 2022, following a year of declines for the industry. In 2024, investors can expect the sector to be “good, but not great,” said Ross Mayfield, investment strategist at Baird & Co.

“There was concern about the rally earlier in the year that it was too short, not solid fundamentals, but AI excitement,” Mayfield said. “It's been put on hold in the last couple of months. You're really starting to see leadership emerge from more cyclical and economically connected stocks, and the market is expanding.

Other stock indexes are also rising, with the Dow Jones industrial average and tech-heavy Nasdaq composite index posting early December gains.

While other parts of the market have lagged behind Big Tech, analysts say promising economic data in recent months has boosted optimism about the broader economy.

Everyone expected a recession. The Fed and the White House found a way.

In early 2023, Goldman Sachs will be kept The probability of a recession is 35 percent, with the highest consensus estimate at 65 percent.

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But a recession has yet to materialize. By November, when the S&P 500's recent rally began, Goldman cut its probability estimate to 15 percent. declared The economy was “on its final descent” to a soft landing.

“Hard Landing turned into a fictional Netflix documentary,” said Don Ives, senior analyst at Wedbush Securities.

The stock market's path forward depends on the Fed's continued approach to interest rates, with many investors now expecting rate cuts as early as March, said Wayne Wicker, wealth manager at Mission Square Retirement.

“The only thing that contributes a little bit to the uncertainty that we've seen in the last couple of weeks is, 'Where is the Fed going with inflation?' Wicker said. “Whether the Fed starts rate cuts in March or waits until later in the year is a key target for the market.”

The last rate hike was in July, and the central bank left interest rates unchanged at its year-end meeting, Fed Chair Jerome H. Powell said officials “generally think we're close or close.” [the final level],” and another rate hike is unlikely.

Now analysts are seeing signs of a resilient economy. Inflation eased to 3.1 percent in November, well below the June 2022 peak and close to the central bank's 2 percent target. Number of people filing initial unemployment claims 202,000 came in According to preliminary estimates by the Department of Labor, Dec. 14, down 19,000 from the previous week. Consumer spending was also flat as it rose 0.2 percent in October.

The S&P 500's path to Friday's close wasn't entirely smooth. The leading stock indexes appeared to plateau in the final weeks of the year, with the S&P 500 repeatedly stumbling as it neared a record. Farr, a DC-based investment adviser, cited the trend of many funds and investment advisers reallocating their portfolios at the beginning or end of a year. And he said a certain level of anxiety must be overcome to break a new stock market record.

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“Someone has to pay a price that no one has paid before,” Farr said. “When you get to that point, the emotions will chase you until you believe that the setback you feared won't work, and you'll move forward.”

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