S&P 500 Breaks Above 5,000 Mark Fueled By The 'Magnificent Seven', Meta Up 400% In 15 Months

The S&P 500 Index soared past the 5,000-point on Friday, marking an unparalleled feat for the equity benchmark. As investors continue to place their bets on the robustness of the US economy and the Federal Reserve's imminent interest rate cuts, the index closed at 5,026.61, clinching five consecutive weeks of gains.

It took the index 719 trading sessions to ascend from its previous 1,000-point mark, reflecting a gain of 25%. To put this into perspective, the index needed 1,227 trading days from 2014 to 2019 to witness a 50% advance from 2,000 to 3,000. Going further back, the climb from 1,000 in 1998 to 2,000 in 2014 spanned 4,168 sessions.

Experts attribute this record-breaking rally to the unwavering strength of the US economy, with Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management, emphasizing, "The big driver for the rally is the realization that the US economy is unlikely to falter in the way that the average prognosticator had expected. A better economy, healthy profits, and lower inflation are providing the fuel."

Fueling this ascent is the stock market's phenomenal performance since November, witnessing the S&P 500 rising in 14 of the last 15 weeks - a feat not seen since 1972. The driving force behind this surge has been the "Magnificent Seven" technology companies, namely Alphabet Inc, Amazon.com Inc, Apple Inc, Meta Platforms Inc, Microsoft Corp, Nvidia Corp, and Tesla Inc.

Meta Platforms Inc stands out, with an extraordinary rally of more than 400% since November 2022, fueled by a cost-cutting-driven profit boom and a feverish embrace of artificial intelligence. However, Tesla Inc has been the sole weight in this impressive lineup, experiencing a 15% decline over the same timeframe, erasing nearly $200 billion in market value in January alone after warning of a "notably lower" rate of expansion this year.

Despite the euphoria surrounding the 5,000-point milestone, there is a cautious undertone in the market. The Federal Reserve, in its latest meeting, kept its main interest rate at a 22-year high for the fourth consecutive time. While officials signalled openness to eventual rate cuts, it is not expected to happen immediately, raising concerns about a potential roadblock for the S&P 500's 20% rally since early November.

Nevertheless, Mary Ann Bartels, Chief Investment Strategist at Sanctuary Wealth, remains optimistic, highlighting that Big Tech is poised to drive a fresh wave of earnings growth. The Magnificent Seven is projected to post a staggering 55% combined profit growth in the fourth quarter, overshadowing the S&P 500's anticipated expansion of 1.2%, according to data compiled by Bloomberg Intelligence. Looking ahead, earnings for these top seven growth companies in the S&P 500 are on track to surge by more than 20% in 2024, doubling the combined gain of S&P 500 companies.

This robust performance in the tech sector explains why the S&P 500's tech sector is trading at a 33% premium to the index on a forward price-to-earnings basis, as revealed by data compiled by Bloomberg Intelligence.

Mary Ann Bartels encapsulates the prevailing sentiment, declaring, "This is the year of the bucking bull. Markets may get choppy, but we still see strength continuing into year-end even with rich growth valuations. Leadership remains in tech since AI will contribute to productivity and earnings growth for companies."

As the S&P 500 breaks through the 5,000-point barrier, investors brace for what lies ahead, balancing optimism for economic resilience and tech-driven earnings growth with concerns about potential headwinds from the Federal Reserve's cautious stance on interest rates.

*Inputs from Bloomberg*