The S&P 500 index, the main benchmark index of the US stock market, climbed almost 15% in the first half of 2024. This is among the strongest performances for the first six months of a year despite interest rates remaining elevated as a series of inflation readings during the first part of the year dampened expectations that the Federal Reserve will quickly embark on monetary policy easing measures.
In the first six months of 2024, the index hit new highs 31 times, with 179 stocks hitting new all-time highs. All sectors within the index ended the first half with positive performances, with the exception of real estate.
The best-performing sector was technology, with a 28% gain in the year’s first half, followed by communication services with a 26% surge. Since the low in October 2023 following a brief move into correction territory last summer, the S&P 500 is up 33%.
The Dow Jones Industrial Average index lagged behind the indices that have higher exposures to technology companies. The Dow Jones registered an overall gain of only 4% during the past six months while the Nasdaq Composite climbed 19%.
The stellar recent returns in the S&P 500 and NASDAQ indices have largely come from just five “megacap” companies, namely Nvidia, Microsoft, Amazon, Meta and Apple. The main driving force was the frenzy over the potential of generative AI, as Nvidia’s financial performance and updated near-term projections continued to easily surpass expectations. Moreover, the continued resilience of the US economy resulted in ongoing strength in corporate earnings across various economic sectors.
Nvidia’s share price jumped 150% during the first six months of 2024 (adding an additional USD1.8 trillion in market value) following the extraordinary rally of almost 240% in 2023. This resulted in Nvidia briefly becoming the largest company in the S&P 500 index as its market capitalisation surpassed USD3 trillion.
While many commentators say this is reminiscent of the 1990s dotcom bubble, others believe Nvidia’s upcoming computer chips (Microsoft, Meta Platforms and Amazon feature among Nvidia’s customers) will propel it to further success as it continues to dominate this rapidly emerging technology space.
One analyst said Nvidia’s market cap could surpass USD5 trillion in 2025. Following such a meteoric rise (the share price soared nearly 700% in just two years), Nvidia’s share price is undoubtedly prone to significant volatility. Between June 20 and 24, Nvidia’s market cap fell by USD600 billion, a drop of 13% over three days, just shortly after surpassing a market cap of USD3 trillion. The share price subsequently recovered a good part of the recent sell-off, pushing the company’s market capitalisation back above USD3 trillion.
In the technology sector, Nvidia was not the top-performing stock. Super Micro Computer, is the best-performing company in the technology sector as its share price jumped by over 180%. Other notable performers were Micron Technology (+55%) and CrowdStrike (+51%).
Microsoft’s share price surged 19% in 2024’s first half as its financial performance beat expectations, with AI boosting demand for its software and cloud services. Microsoft also recently launched its Copilots – digital assistants fuelled by generative AI that help boost productivity.
Amazon became the fifth US company to ever reach a USD2 trillion valuation as its share price climbed 27% after the company increased its focus on AI innovations. It continues to register robust growth in its Amazon Web Services (AWS) division, which dominates the cloud computing market.
Meta Platforms rallied by 42.5%, driven by robust advertising revenue, stemming from its dominant social media platforms, namely Facebook, Instagram and WhatsApp, buoyed by advancements in AI-powered target advertising and e-commerce integration. The company’s cost-cutting and improved efficiency also positively impacted profitability and investor sentiment.
Apple was a late beneficiary of the AI rally with its share price only rising in recent weeks (+9% this year) after it announced a partnership with OpenAI on June 10 to support a new feature (“Apple Intelligence”) on iPhones and other devices. AI is likely to drive a new cycle of smartphone and device upgrades, which resulted in many analysts projecting a jump in Apple’s financial performances in the years ahead.
Following the strong rally in recent months, several investment banks have hiked their 2024 year-end targets for the S&P 500 index. The strong momentum in the first half augurs well for the next six months. During the years when the S&P 500 climbed over 10% in the first six months, the index jumped 7.9% in the year’s second half.
One major investment bank recently upgraded its S&P 500 target to 5,600 points for the end of the year (representing upside of 2.6% from current levels) but also articulated an alternative scenario with the benchmark index jumping up to 6,300 points by December 2024. The rationale for this possible 15% rally from current levels would arise from “further mega-cap exceptionalism” as these technology companies continue to surpass expectations. Many other stock market analysts have bullish scenarios for the US equity market on the back of the AI revolution still being in the very early stages.
But a renowned US investment bank recently released its mid-year outlook indicating a challenging environment, with their target for the S&P 500 remaining at 4,200 points (a 23% downside from current levels). This bank is concerned about the ability of the mega cap stocks to sustain their earnings growth rates into the second half of the year.
An important event that could impinge on the performance of the S&P 500 index, and result in wide bouts of volatility, is the US election in November, with President Joe Biden up against former president Donald Trump.
With respect to the near-term outlook, investors will initially focus on the second-quarter earnings season which is about to start, as this will provide important evidence on company profitability levels. Moreover, signs of easing inflation have bolstered hopes that the Federal Reserve will cut rates as from September. The most recent reading published late last week continued to indicate that price pressures are easing.
With the Federal Reserve expected to start cutting interest rates later in the year, bond yields are likely to move lower, which could continue to provide added momentum for the equity market over and above the ongoing AI revolution.
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