Record-Breaking Market Surge: S&P 500, Nasdaq, and DJI Soar as Tech and AI Boom Fuels Major Gains
August 1, 2023
Stellar Market Performance
The stock market opened the month of August with some significant gains. In 2023 alone, the standard benchmark S&P 500 Index (SP500) has already surged by an impressive 20%, marking the best performance during the first seven months of a year since 1997. This robust performance has been driven by the market’s optimism that the Federal Reserve is likely to succeed in its inflation combat efforts soon.
Role of Tech and AI
The recent rebound in technology stocks and the growing frenzy around Artificial Intelligence (AI) have contributed substantially to these gains. This buoyancy in the tech and AI sectors has propelled the Nasdaq Composite (COMP.IND) forward by 37%, achieving its best seven-month streak since 1975. Additionally, the Dow Jones Industrial Average (DJI) has maintained a significant winning spree since the early days of July.
Anticipating Earnings Season
Up next is one of the biggest weeks of the earnings season, with 170 S&P 500 companies, including four DJIA components, set to announce their Q2 results. Major tech players such as Apple (AAPL) and Amazon (AMZN), healthcare heavyweights Merck (MRK) and Pfizer (PFE), industrial giant Caterpillar (CAT), energy contenders BP (BP) and ConocoPhillips (COP), as well as consumer-oriented firms like AB InBev (BUD) and Starbucks (SBUX), are all on the reporting docket. Despite the general market direction seeming detached from the Q2 earnings season at this stage, several figures have been exceeding expectations.
Earnings Outcomes and Market Impact
According to a research note from Societe Generale, 81% of companies have surpassed EPS estimates so far this season. This statistic is the highest it’s been since 3Q21, spanning the past seven quarters. The note further highlighted seven key points about the current earnings season. The topic of inflation has also been significantly guiding market movements. The latest WSB survey regarding the Fed’s battle with inflation remains open and results are pouring in rapidly, with more than 1,350 participants in the poll so far.
Revised Market Predictions
Morgan Stanley strategist Mike Wilson, a long-standing bear on equities throughout the 2023 rally, now foresees a late-cycle surge triggered by monetary policy. Wilson stated, “In our view, the favorable policy effect has been buttressed by a strong fiscal thrust, a persistent supportive global liquidity backdrop, and a growing confidence that the Fed can successfully shift to a more relaxed monetary policy in light of decreasing inflation data. These circumstances culminated in a vigorous rally in 2019, fueled predominantly by multiples, as has been the case this year.”