The S&P 500 achieved a major milestone on February 10, closing above the 5,000 mark for the first time in history. This landmark was driven by a rally in megacap stocks and the strong performance of chip stocks, particularly Nvidia. Investors showed confidence in artificial intelligence (AI) technology, leading to increased bets in this sector.
Nvidia enjoyed a 3.6% increase in its stock price and reached a record high following reports that the company was establishing a new business unit focused on designing specialized chips for cloud computing firms and advanced AI processors. The announcement by OpenAI Chief Executive Sam Altman about raising funds for a tech initiative aimed at boosting chip-building capacity for power AI further fueled investor interest.
David Lefkowitz, the head of US equities at UBS Global Wealth Management, noted that the focus on AI infrastructure is attracting significant demand. While the S&P 500 and Nasdaq reaching round number milestones may not impact investors’ risk and reward calculations, it does bring attention to the market’s developments.
Contributing to the index gains were technology giants such as Microsoft, Amazon.com, and Alphabet, along with the outperformance of the Philadelphia semiconductor index, which closed up 1.99%.
Positive earnings reports from S&P 500 companies also played a role in the market’s upward trajectory. With about two-thirds of the companies having reported their results, estimates for fourth-quarter earnings growth now stand at 9.0%, compared to the 4.7% growth predicted at the start of the year. Additionally, 81% of companies have beaten estimates, surpassing the 76% average from previous reporting periods.
Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, pointed out that strong earnings and the AI growth opportunities for Nvidia, especially in cloud computing, were the driving forces behind the market’s success.
While the Dow Jones Industrial Average fell by 0.14%, the S&P 500 gained 0.57%, and the Nasdaq Composite jumped 1.25%. These gains reflect the continued optimism surrounding earnings and AI.
The S&P 500 has achieved 10 intraday record highs this year alone, with the Nasdaq coming close to surpassing its record closing high of 16,057.44 set in November 2021.
Looking ahead, market participants are eagerly awaiting the release of January consumer price data to gain insights into potential interest rate cuts by the Federal Reserve. Recent strong economic data and hawkish remarks from Fed policymakers have dampened expectations for rate cuts in March. However, Ghriskey emphasized that the Fed’s own projections still suggest a rate cut later this year.
Overall, the market appears to have the support of the Fed, with predictions pointing towards a downward trajectory for interest rates. While the timing remains uncertain, there is a growing belief that the second half of the year will see easing measures from the central bank.
In terms of individual stocks, Cloudflare saw a significant rally of 19.5% after forecasting optimistic first-quarter revenue and profit. On the other hand, PepsiCo experienced a 3.6% decline as its fourth-quarter revenue fell short of estimates due to multiple price increases impacting demand. Similarly, Pinterest saw its shares sink by 9.5% after projecting first-quarter revenue that was largely below Wall Street expectations.
In summary, the S&P 500 crossing the 5,000 milestone, driven by megacap and chip stocks, demonstrates the market’s optimism in AI technology. Positive earnings reports and growth opportunities for Nvidia in cloud computing have also contributed to the market’s recent successes. While the timing of rate cuts remains uncertain, market participants are closely monitoring economic data and the Federal Reserve’s projections.
