new york
CNN
—
The bear market is over.
But a bear economy is not. Some economists fear the euro zone will slip into recession and the United States will be next. We worry about rate hikes, inflation, spending cuts, job cuts, rising mortgage costs, and war in Europe.
It’s a strange place to find a bull market.
“Bull markets tend to coincide with an economic expansion, not a contraction,” said Samir Samana, senior global market strategist at Wells Fargo Investment Institute.
So why are bulls running around in a bear economy? It comes down to just two letters: AI.
The recent surge in market power has been largely driven by just a few mega-cap tech stocks. After his worst year of 2022 for big tech, the atmosphere of optimism is back as ChatGPT pushes his AI into Silicon Valley IT. Investors are betting big on Alphabet, Meta (META), Apple (AAPL), Amazon (AMZN), Nvidia (NVDA), Tesla and others, hoping they can power a new technological revolution with artificial intelligence. ing.
These five companies have posted their biggest profits this year in 20 years, according to Matt Bartolini, head of SPDR America research at State Street Global Advisors. Nvidia’s stock has surged 163% this year. Meta is up 120%. Tesla jumped 90%. And Apple, Amazon, and Google are all up more than 40%.
because those companies are directly profitable From the AI boom.
“AI is a very big tent,” said Bartolini. It’s not just search and ChatGPT, he said, but covers everything from auto-fixing Apple iPhones to ads served to Amazon customers.
These companies are six of the top seven companies in the S&P 500 by market capitalization (with Berkshire Hathaway just ahead of the meta in sixth place) and account for 28% of the S&P’s total value. In other words, technology drives the market.
The S&P 500 rallied on Thursday to end the day in a bull market, up 20% from its most recent low on Oct. 12, 2022. That ended the bear market since the 20% rally that began in January 2022. A rise from recent lows is generally accepted as the definition of the beginning of a bull market.
However, there is no precise definition. And the current market conditions are a little more nuanced than the typical bull/bear market dichotomy.
Very narrow market leadership by AI-related tech stocks “isn’t a signal of a quality rally or bull market, and the phenomenon will lead to some sort of market correction,” said James, chief investment officer at Main Street Research. Demato warned.
On the surface, big tech companies seem to be “solving” market problems, but cyclical small and midsize businesses are suffering underneath.
“Real estate, materials, energy and finances are in the doldrums,” Bartolini said. “This is not a cyclical recovery.”
He said the S&P 500 index is up about 12% so far this year, but the underlying strength doesn’t mean we’ll see a similar rally over the next six months. “Not all boats are rising in this current.”
Less than a quarter of stocks actually beat the S&P 500 index. “That’s a pretty low amount,” Bartolini said.
A bull market can increase investor sentiment and increase market momentum. Investors are certainly in a buying mood, with Friday’s CNN Fear and Greed Index marking “extreme greed.”
“We are not going to put a lot of stocks on an arbitrary definition (pun intended),” Bank of America analysts wrote Friday. But after crossing the 20% mark, the S&P 500 index had a 92% chance of continuing to rise over the next 12 months, with an average return of 19%, they noted.
“The direction of surprise remains positive,” they wrote.
