Nvidia’s market value hit the mind-boggling $5 trillion milestone this week, making it easier for the broader stock market to defy all odds and keep surging.
The broad-based S&P 500 gained 0.7% and hit fresh records this week, finishing October up 2.3%. The tech-focused Nasdaq Composite jumped 2.2% this week. This month, it has advanced 4.7%.
For some investors, it was impressive to see major indexes hold onto their weekly and monthly gains despite the Federal Reserve Chair Jerome Powell saying Wednesday that further easing in monetary policy at the December meeting is “not a foregone conclusion.”
While the Fed did announce a quarter-percentage point cut at its meeting this week, that cut was largely priced in, so signals about the future ones held more sway over the market’s fortunes. A lack of guarantee there was the reason why the S&P 500 finished flat on Wednesday.
However, Fundstrat Head of Research Tom Lee isn’t worried.
“To me, this is also noise. If the job market continues to stall, the Fed will be dovish,” he wrote after the meeting.
Besides, optimism about artificial intelligence has overshadowed any concerns about rate cuts once again.
After market close Wednesday, earnings from Alphabet were celebrated by investors, though the same enthusiasm didn’t extend to Microsoft and Meta despite both of them beating revenue and earnings expectations.
Investors appeared disappointed that Microsoft’s seeing more demand for AI than it can keep up with, requiring additional capex spending. Meta, on the other hand, fell after analysts suggested that the company had spent a lot on building out artificial intelligence without having a clear path to monetizing it.
But on Thursday, earnings from Apple and Amazon — laggards in the AI race — helped the market rebound. Apple beat earnings expectations, and Chief Executive Tim Cook said he expects revenue in the fourth quarter will increase by at least 10%. Meanwhile, revenue expectations for Amazon’s AWS segment came in better than expected, sending shares up 9.6% on Friday.
“AI spending visibility remains strong, and Amazon’s strong third quarter report is the latest evidence of that,” Lee said.
Head of Technical Strategy Mark Newton is worried that tech stocks’ strong gains are camouflaging weakness everywhere else in the market.
“It’s not all that problematic if trends are intact but when that starts to change, then that’s certainly going to be something we all want to pay attention to as a reason why markets are falling,” he said during our weekly huddle.
He expects that the market’s going to be choppy mid-November. Lee has a different view there.
“For November, while there may be some understandable chop, to digest the strong gains of October, we expect November to be an up month,” Lee said. His base case remains that the S&P 500 finishes the year at 7,000 points.
Chart of the Week
The overall earnings season has been going well, too. About half of the companies in the S&P 500 have reported earnings. More than 83% of them are beating expectations, implying a quarterly profit growth rate of 12% from a year ago, as our Chart of the Week shows. “There are many sectors posting double digit growth, so this is not only an AI story but rather demonstrates U.S. corporates and multinationals are able to generate strong earnings gains despite some of the largest tariff increases in U.S. history,” Fundstrat Head of Research Tom Lee said.
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