Why the Nasdaq and S&P 500 Hit All-Time Highs Last Week

Last week was a mixed one for stocks. The S&P 500 and the Nasdaq Composite both finished in positive territory last week, notching new record highs. Meanwhile, the Russell 2000 and Dow Jones Industrial Average both closed out the week lower.

The S&P 500 ticked up 1.6% for the week to 5,432, gaining for the second straight week. The Nasdaq did a bit better, rising 3.2% to end the week at 17,689.

However, while those were both new records, the Dow fell 0.6% last week; in fact, it has fallen 3.6% since it topped 40,000 on May 17. The Russell 2000 has struggled the most, falling or remaining flat for four straight weeks. Last week, the Russell 2000 fell another 1% to 2006.

Year to date, the Nasdaq has gained 17.8% in 2024, while the S&P 500 has returned 13.9%. The Dow has increased just 2.2% YTD while the Russell is down 1% so far in 2024.

AI stocks lead the way

The S&P 500 and Nasdaq were driven higher by technology stocks, which had a good week overall. Two leading artificial-intelligence stocks were the key drivers for the sector: NVIDIA (NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO).

Broadcom was the top gainer last week, returning 23.4%. As of Monday morning, Broadcom had topped $1,800 per share and was up 61% YTD.

The semiconductor company specializes in AI chips for networks, and its stock was fueled by a blowout quarterly earnings report that topped estimates. In that earnings report, Broadcom also raised its guidance for the full fiscal year.

However, the primary catalyst for Broadcom was the announcement of a 10-for-one stock split, which is set to take place on July 15. This follows what NVIDIA did on June 10, when it implemented a 10-for-one stock split that brought the share price down to about $120 per share.

Trading at its new, lower, post-split price last week, NVIDIA stock generated a lot of investor interest, rising 9% for the week.

The other possible catalyst for Broadcom supported stocks in general. At its meeting last week, the Federal Reserve decided not to make any interest-rate changes. However, this expectation had been baked in to investor expectations, so it was not a net negative for equities last week.

The Fed also indicated that it would only lower rates once this year, but even that wasn’t perceived negatively. The latest economic numbers are heading in the right direction, and there is a sense that the Fed is being overly cautious.

For example, inflation rates dropped for the second straight month just last week, with the Consumer Price Index falling to 3.3% -- lower than expected. This gave the markets a boost, outshining an uneventful Fed report.

Why the divergence?

Many investors may be wondering why the Dow and the Russell were down last week when the other two major indexes were higher.

Unlike the S&P, the Dow is not market-cap weighted, so the big jumps in large tech stocks don’t have the same effect. Additionally, some of last week’s big gainers, like NVIDIA and Broadcom, are not in the Dow.

The Dow also includes several big financial stocks, which the Nasdaq doesn’t have, and they have struggled. The financial sector is off 2.6% over the past month as financial firms continue to face challenges from high interest rates eating into their profit margins, particularly banks and consumer-finance companies.

It's the same issue for small-cap stocks in the Russell 2000. The high interest rates make it harder for companies to invest and grow, and smaller companies such as those in the Russell 2000 generally don’t have the excess capital or multiple revenue streams to thrive in this environment.

Looking forward, this week appears to be a slow one without any major economic reports or earnings releases. The indexes were all flat or down slightly during morning trading on Monday.

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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