**Rally in Tech Giants as Nasdaq 100 Records Best Ever First Half**
The Nasdaq 100, a benchmark index for technology stocks, has achieved its best first-half performance ever. At the same time, Apple has reached a significant milestone by hitting a market value of $3 trillion. The rally in tech megacaps, fueled by advancements in artificial intelligence, has contributed to these impressive gains. Additionally, big banks such as JPMorgan Chase, Wells Fargo, Morgan Stanley, and Goldman Sachs have announced higher dividends, resulting in the first monthly gain for this sector since January.
**Tech Stocks Defy Bubble Warnings, Nasdaq 100 Surges**
Despite concerns of a tech bubble, the value of companies in the Nasdaq 100 has soared by almost 40% since the beginning of the year, adding nearly $5 trillion to its overall worth. This surge has not only boosted the Nasdaq 100 but also contributed to a 16% increase in the S&P 500 in 2023. The megacap space within the technology sector has been particularly successful, experiencing a remarkable 74% growth.
**The Ongoing Role of Artificial Intelligence in Tech Stock Success**
Prominent investment figures like Larry Adam, chief investment officer at Raymond James, remain optimistic about the future of big tech. Adam believes that technology, with its latest addition of artificial intelligence, will continue to reinvent itself and drive future earnings. The so-called “Big Seven,” including Apple, Microsoft, Alphabet, Amazon.com, Meta Platforms, Nvidia, and Tesla, have collectively increased their profits by 14% yearly over the past decade. Although their earnings slumped by more than 20% last year, a swift recovery is expected.
**Positive Performance in the Stock Market Amid Decreasing Inflation Concerns**
Traders have adopted a positive outlook as data indicates a moderation in inflation rates, albeit at the expense of economic growth. This sentiment has driven equities to extend their gains, with the Nasdaq 100 rising over 1.5% and the S&P 500 reaching its highest level since April 2022. These developments have contributed to the strongest first half for US equities since 2019. Nvidia, a prominent tech company, has nearly tripled in value this year alone.
**Historical Trends Suggest Positive Expectations for the Nasdaq 100**
Historical data reveals a positive correlation between the Nasdaq 100’s performance during the first half of the year and its performance in the second half. Years that experience an initial rally of at least 10% have, on average, achieved returns of approximately 14% during the latter half. However, when the first-half gain surpasses 20%, the average return decreases to 8.3%.
**The Influence of Generative AI and Earnings Growth**
The market’s focus on generative AI has overshadowed major concerns that could affect investor sentiment, such as recession fears, elevated inflation, potential Fed rate hikes, geopolitical risks, debt-ceiling debates, and bank failures. While the rally in AI has resulted in comparisons to the dot-com bubble of 2000, investment firm BlackRock remains confident in the growth of earnings in this sector. The firm’s chief investment officer of US fundamental equities, Tony DeSpirito, affirms that the demand for AI is real and backed by significant orders.
**Growing Concerns About Valuations and Surge in Bearish Bets**
Despite the impressive performance of tech stocks, concerns about valuations have emerged, leading to a surge in bearish bets against major tech companies. Short interest as a percentage of available shares is near 12-month highs for companies like Microsoft, Tesla, and Amazon. To mitigate risks, UBS Global Wealth Management advises investors to be selective when investing in AI-related stocks and looks to mid-cycle industries and tech laggards for better risk-reward opportunities.
**Expectations for Market Performance and Impact of Bond Market Activity**
Based on current trends, it is likely that markets will continue to rise into mid-to-late July before a possible minor correction in August. According to Mark Newton at Fundstrat Global Advisors, abandoning this rally based solely on overbought conditions would be premature, as technical trends remain intact. Additionally, subdued action in the bond market has contributed to the positive performance of tech stocks, with Treasury 10-year yields falling to around 3.8% and the dollar extending its losses for the year.
**US Inflation Cools, Muted Consumer Spending**
Key measures of US inflation have shown signs of cooling in May, and consumer spending has stagnated, potentially indicating a slowing economy. The personal consumption expenditures price index, a preferred inflation gauge for the Federal Reserve, rose by only 0.1% in May. Compared to the previous year, the measure experienced the smallest annual advance in over two years at 3.8%. This data suggests that the Fed may only deliver one more rate increase instead of the initially expected two.
**Oil Market Performance and Concerns Over Demand**
Brent oil, a global benchmark, has posted its longest run of quarterly losses in over three decades due to ample supplies and persistent concerns regarding demand. With its fourth consecutive quarterly loss, Brent settled below $75 per barrel, while West Texas Intermediate experienced its first back-to-back quarterly declines since 2019.