MOLINE, Ill. — The first half of 2024 proved to be a profitable time for stock market investors. In the first six months of the year, the S&P 500 gained 14.5%, well above its historical average gain of just 4.7%. The tech-heavy NASDAQ also surged 18.1%. So, what’s driving this rally in the US stock market and what potential challenges might investors face in the second half of the year?
News 8's Devin Brooks spoke with Mark Grywacheski from the Quad Cities Investment Group to give some insight into these questions.
Devin: Despite this current environment of high inflation and high interest rates, why are we seeing this continued surge in the US stock market?
Mark: The first half of 2024 is pretty much a continuation of what we saw last year. For the full year 2023, the S&P 500 gained 24% while the NASDAQ — which contains a lot of those Big Tech heavyweights — rose a massive 43%.
The main catalyst for this 1.5-year rally in the US stock market is this groundswell movement towards AI. And this movement is being led by these massive companies that either directly create AI technology or are expected to significantly benefit from AI technology. For perspective, the S&P 500 tracks the stock performance of the 500 largest companies in the US. As you mentioned, in the first six months of the year, the S&P 500 gained a hefty 14.5%. 63% of that gain was driven by just five companies: NVIDIA, Meta, Amazon, Alphabet and Microsoft. And these five companies are all major players in the AI movement.
Devin: How much longer do you think this AI movement will impact the stock market?
Mark: Back in the late 1990s/early 2000s, I was a trader on the floor of one of the financial exchanges in Chicago. And I witnessed first-hand the impact to the stock market from the technology boom. The technological innovations of the internet, cell phones, and laptops and how that influenced consumers, businesses and the economy.
And I think the feeling on Wall Street is that the innovations that AI will bring to science, medicine, R&D, engineering, finance, and the arts will exponentially be much more profound. And I think the stock market is projecting this profound impact that AI will ultimately have on our economy and on our daily lives. That impact is being reflected by this 1.5-year rally in the stock market being driven by these big tech companies spending billions of dollars each year to drive this AI revolution.
Devin: What do you think are some of the bigger challenges the stock market might face in the second half of the year?
Mark: On the AI front, one of the bigger concerns is how quickly can these big companies start to monetize their investment in AI technology. Companies like Meta, Tesla, Amazon, Alphabet and Apple are spending billions on AI technology. How quickly can they start using that new AI technology to reduce their operating costs or develop new consumer products that drive added revenue. They can’t be spending all this money without seeing some type of financial benefit — that’s not a model for success.
For the broader stock market, the biggest concerns remain high inflation and high interest rates. On Thursday, the latest inflation report showed that inflation continues to moderate. However, there are still significant concerns that this inflation problem is clearly not over and that it might remain elevated for quite some time.
________________________________
Quad Cities Investment Group is a Registered Investment Adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.
Watch more Your Money with Mark segments on News 8's YouTube channel