This New Bull Market Has Lasting Power

Wall Street Bull statue in Manhattan
Credit: Carlo Allegri / Reuters -

If you blinked you might have missed it: The bear market is over. With a gain of 3.25% for the week, the Nasdaq Composite has now been positive for eight consecutive weeks, driven by the technology surge in tech heavyweights like Nvidia (NVDA), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), Meta Platforms (META) and Tesla (TSLA). The latter has gone on an impressive run, closing in the green for 14 of the past 15 days.

Meanwhile, the S&P 500 Index gained 2.58% and the Dow Jones Industrial Average added 1.25%. Both indexes have just logged their fifth straight week of positive gains. On a year-to-date basis, the gains are even more pronounced. The Nasdaq has risen 31.8%, compared with a 2022 decline of 34%. The S&P 500 is up 15.31% year to date. The index has risen from 3,500 to 4,450, netting a staggering 27% since the bottom. Meanwhile, the Dow Jones Industrial Average has gained 3.5%.

The bulls are now in control of this market. The collective optimism and the reasons for the year-to-date increases are attributed to several factors: Investors have broadly applauded the earnings results that S&P 500 companies have reported for Q1. Look no further than Nvidia, which has soared 198% this year, to help the Nasdaq outpace the S&P 500 and Dow Jones Industrial Average so far in 2023. Nvidia skyrocketed close to 30% after its blowout first quarter earnings results and better-than-expected Q2 guidance.

The stock gained $184 billion in one day, vaulting the stock north of a trillion-dollar valuation, passing momentum darlings such as Tesla. It was Nvidia’s Q2 guidance and its proclaimed leading position as an AI chip supplier that got investors excited, guiding for Q2 revenue of $11 billion, crushing estimates for revenue of $8.5 billion. All told, Nvidia has been a major catalyst for the recent surge in both chip stocks and artificial intelligence stocks.

In essence, Nvidia’s guidance kicked out the bear market “glass-half-full” mindset or settling for “less bad” results. It has been replaced by strong growth expectations, and companies have delivered. As a result, the market has celebrated strong performers, with many top stocks surging by 50% to 100% and more. Tons of articles are now being written about this bull market, many of which are proclaiming its arrival, while some are questioning whether it can last. Some critics are even calling the rally a fantasy, proclaiming a correction is right around the corner.

Part of the argument stems from what some perceive as limited stock participation in the S&P 500’s rally. For example, the top seven mega-cap technology companies currently account for the lion's share of the S&P 500's weight, or roughly 28%. Leading the way is Apple, which has surged close to 50% from its 52-week low. The iPhone maker carries a S&P 500 weighting of 7.5%. Microsoft (MSFT) is next with a weighting of 6.8% after rising near 70% from its bottom. With a weighing of 3.8%, Google parent Alphabet (GOOG , GOOGL) is third after rising near 60% from its 52-week low.

Rounding out the next four in order are Amazon (up 61% from its low) with a weighting of 3.1%, the aforementioned Nvidia (weight: 2.9%), Tesla (weight: 1.9%) and Meta Platforms (weight: 1.7%). The latter has surged close to 220% from its bottom. While these arguments are fair to point out, it’s also worth noting that the Fed on Wednesday held interest rates steady for the first time after ten consecutive hikes. I would consider the Fed’s decision the long-awaited pivot we have waited for, if not the start of one.

Rising interest rates is what triggered the bear market in 2022, applying pressure on businesses, forcing high growth names to borrow money at higher rates to fund their operations. Stocks got punished due to lack of liquidity. The market is forward-looking: Although the Fed signaled it is not done with the rate hike cycle, investors are nonetheless positioning their portfolios to be on the right side of the pivot, especially amid clearer signs of dampening inflation risk. Combined with the fact that the recessionary risk has receded, this new bull market is likely here to stay.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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