Nasdaq registers best start to the year in four decades – 7/1/2023 – Market

The Nasdaq Composite posted its best first half since 1983 as investors flocked to companies in the main technology index that hope to benefit from the rise of artificial intelligence.

The index gained 32% in the first six months of 2023, at the close of markets on Friday (30), the last day of June. For any quarter, first or second, the Nasdaq posted its best performance since the peak of the dot-com bubble in the second half of 1999.

US equity markets have overcome a series of challenges since January, including turmoil among regional banks, discussions over the government debt ceiling and higher interest rates implemented by the Federal Reserve and other monetary policymakers.

The biggest contributors to the market rally were the big tech companies: Apple, Amazon, Microsoft, Nvidia, Alphabet, Meta and Tesla. Apple reached a new record high on Friday with a valuation of more than $3 trillion, while chipmaker Nvidia has nearly tripled in price since the start of the year.

The Nasdaq rose twice as much as the broader S&P 500 index’s 16% rise since the start of the year, highlighting the effects of large tech groups. If all stocks in the S&P 500 were equally weighted, the index would have gained a much more modest 5% this year.

“We’ve had some inflation moderation, which clearly supports stocks, and clearer messages from central banks. This increased certainty has helped enormously (…) but in the United States, in particular, it was really these ‘Magnificent Seven’ that generated the most of the earnings,” said Sinead Colton Grant, head of investor solutions at BNY Mellon Asset Management, referring to the largest technology groups.

The lack of breadth in the rally has left some analysts and investors skeptical that the gains will continue, mainly due to fears that the Fed’s continued efforts to curb inflation will tip the economy into recession.

“If you believe the Fed will succeed in slowing the economy, it’s hard to justify where the stock market is,” said Greg Davis, Vanguard’s managing and investment director. “Right now, something is a little out of whack.”

In its first-half review earlier this week, asset manager BlackRock said the recent performance of US equities was “unusual”, but that did not mean a reversal was inevitable.

Tony DeSpirito, BlackRock’s chief investment officer for fundamental equities, said the recent enthusiasm for AI is more real than the “hype” around other new technologies.

“The demand is really real. You can compare what’s happening in AI versus [o entusiasmo pelo] metaverse or virtual reality a year or two ago. Orders are really there. The profit boost is coming,” he said.

Markets were helped on Friday by a drop in the main consumer spending price index, the central bank’s preferred inflation gauge. The S&P and Nasdaq were up 1.2% and 1.4% on the day, respectively.

European blue-chip indices also saw gains in the first half as investors bet that inflation would slow and the European Central Bank’s historic tightening campaign would peak. The pan-European Stoxx 600 ended the half year nearly 9% higher, including a 1.2% gain on Friday.

France’s Cac 40 and Germany’s Dax gained 14% and 16% during the first half respectively, although the UK’s FTSE 100 lagged behind with a 1% gain. The FTSE was hurt by stubbornly high UK inflation and the index’s disproportionate exposure to falling oil prices.

The encouraging inflation data released on Friday helped euro zone stocks end the quarter higher. The main rate of price increases across the currency bloc fell more-than-expected to 5.5% in June, fueling optimism that the ECB could stop its program of interest rate hikes sooner than anticipated. .

However, core inflation – which excludes volatile energy and food prices – has risen, which BNY Mellon’s Colton Grant said was a concern.

“We are constructive on US equities, we like inflation moderation (…) and we are increasingly confident that the probability of recession is decreasing (…) [mas] we are much more cautious about Europe, particularly [a zona do euro]. This view is driven by persistent inflation and the fact that the ECB will need to raise more.”

Translated by Luiz Roberto M. Gonçalves.