It was an interesting first quarter for investors, as stocks broke through the wall of fear and hit new all-time highs along the way. surely, Dow Jones Industrial Average, S&P500 and Nasdaq Composite 5% to 10% increase in 3 months.
This impressive price action was again at the hands of some big-cap tech companies. communication service stocks.Artificial intelligence (AI) chip makers made the biggest gains. Nvidia (NVDA) and Facebook's parent company meta platform (META) – two of them. 7 great stocks – so far this year, they have surged by about 80% and 40%, respectively.
New S&P 500 Stocks super microcomputer (SMCI) has also generated some decent tailwinds, with the AI infrastructure company's stock price having quadrupled since the beginning of the year, adding $41 billion in market value in the process. (However, it is a small amount compared to $1 trillion, Market capitalization Nvidia was added in Q1. )
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Are we in a bubble?
The rapid and ferocious rise in these stocks has led to soaring valuations across the stock market, leading some to wonder if we're seeing something similar to the dot-com bubble of the early 2000s.there are many how to find bubblesand experts noticed a clear difference between the two periods.
“As was the case with the bull market leading up to the S&P 500's peak in March 2000, the recent market rally has been characterized by a relatively small number of technology stocks pushing the S&P 500 higher,” he said. scott wrenSenior Global Market Strategist at Wells Fargo Investment Institute.
Wren points out important differences between then and now. That is, the quality of market-leading companies is higher.
“The companies that are driving stock price gains today are showing strong sales and profit growth, along with strong balance sheets and acceptable debt levels,” the strategist said. “Back in 2000, many companies drove SPX to record levels based on high expectations that it would one day generate strong revenues and profits.”
While this is good news for bullish investors looking to ride the wave further, there is a lot at stake over the next three months that could change sentiment quickly.
With this in mind, let's take a look at the investment outlook for the second quarter and how the key themes that experts are watching could impact portfolio returns.
revenue
First quarter earnings season begins in two weeks. JP Morgan Chase (JPM) and american bank (BAC) Report. The first quarter saw turmoil in the local banking industry. new york community bank (NYCB) crashed on concerns about commercial real estate.
Rodrigo Sermeño, deputy editor of the Kiplinger Letter, believes the decline in office building values will continue. put pressure on some banks. However, large banks “should avoid selling shares because they are more diversified than smaller banks and have higher reserves to cover potential loan losses.”
As a group, analysts are becoming less pessimistic about the upcoming earnings season, according to FactSet senior earnings analysts. John Butters. However, until now, companies more Pessimistic. As a result, current earnings expectations are lower than expectations at the beginning of the year, he added.
Still, S&P 500 earnings are expected to rise 3.4% year over year in the first quarter, marking the third consecutive quarter of growth.
For investors, the fact that stock prices and valuations are high heading into earnings season leaves “little room for disappointment if the company fails to deliver strong earnings,” he said. Clark BelinPresident and Chief Investment Officer of Bellwether Wealth.
However, a negative reaction to earnings could create an opportunity for tactical investors.
“During a pullback, we'll buy into high-quality income stocks, as we did in October 2022 and November 2023,” he said. nancy tenglerCEO and Chief Investment Officer of Laffer Tengler Investments.
inflation and interest rate cuts
The first quarter reminded Wall Street that the final step in bringing inflation down to the Fed's 2% target will be the most difficult. Consumer price index (consumer price index) Both January and February reports exceeded economists' expectations, largely because shelter-in-place inflation remained high.
Ross Mayfield, investment strategy analyst at Baird Private Wealth Management, said: “The Consumer Price Index (CPI) has been below 2% since June, with supply shortages meeting structural demand and prices is rising further,” he said. However, according to recent data such as Redfin's report, the number of new listings reached a two-year high of 3.8% in February, and the number of listings increased for the fourth consecutive month. Did. home builder confidenceAccording to the National Association of Home Builders (NAHB), that's encouraging, Mayfield said.
“Regardless of the root cause, multiple forces are working in favor of expanding inventories, which is good for buyers and good for the Fed alike,” Mayfield added.
Still, the persistence of inflation has dampened expectations that the Fed will start cutting rates. federal funds rate From the current 23-year high.
“Our current expectation is that the Fed's first rate cut will occur at its June 12th meeting,” said Kiplinger economist David Payne. Interest rate outlook. An initial rate cut is typically followed by additional rate cuts at every second meeting. However, to avoid becoming a “lightning rod during the presidential election period,” the Fed may cut rates again on June 20, July 31, and immediately after the election on November 7.
If the Fed cuts interest rates in June, stocks could receive a short-term tailwind.according to charles schwab, since 1929, the S&P 500 has risen an average of 9.9% in the six months following the first rate cut. This improves to his 13.4% after 12 months.
Lower interest rates could also have a positive impact on the bond market. “We have shown you how to do this many times, bond Going back to 1970, he says, there was always a rebound in the three months before the first rate cut. Joseph KalishChief Global Macro Strategist at Ned Davis Research.
IPO
In the first quarter, the previously icy initial public offering thaw (IPO) market in recent years.according to Renaissance CapitalAs of March 28, there were 30 public capital increases, an increase of 20% compared to the same period last year. And the $7.8 billion raised by these offerings is triple the amount raised in the first quarter of 2023.
Enthusiasm for generative artificial intelligence has led to an exciting debut. Astera Research Institute (ALAB) is a company that makes data center connectivity chips for cloud and AI companies. Following this, Reddit IPOboth events raised expectations that more products would hit the market soon.
list of Upcoming IPO Some exciting names rumored to be going public soon include Kim Kardashian's shapewear brand Skis and online sports retailer Fanatics.
One possible suggestion from Sophie Rand Yates, lead equity analyst at hargreaves lansdowneA bright spot is Databricks, a cloud-based storage and software company.
“The AI boom should undoubtedly provide tailwinds and structural growth opportunities,” Lund Yates wrote in a note. “Databricks itself isn't ignoring the hype, having acquired generative AI company MosaicML for $1.3 billion in June. The company hopes to be able to integrate this technology into its products.”
The recovery in the IPO market “demonstrates growing enthusiasm among both IPO issuers and investors, and signals changing market dynamics and a more welcoming environment for listings,” it said. George Chan writesEY's Global IPO Leader.
However, investors should be careful before buying IPO stocks. Some companies may have strong first-day results, but the following year's profits tend to be lower, the analyst team said. trivariate study, a market research firm based in New York. And since 2020, “the average IPO has lagged the industry average by 30% for three years after the initial closing price.”
Bitcoin
Bitcoin saw an incredible rally in the first quarter, soaring nearly 70%. Contributing to the widespread adoption of cryptocurrencies was the first regulatory approval in late January. Spot Bitcoin ETF Mason Mendez, an investment strategy analyst at Exchange Traded Fund, said this would allow “investors to directly access the price of Bitcoin without having to go through the complex process of directly managing Bitcoin ownership.” can be done.” Wells Fargo Investment Institute.
According to Mendez, assets under management (AUM) of the 11 Spot Bitcoin ETFs that hit the market between January 11 and March 28 reached an astonishing $58 billion.
Considering the Bitcoin halving event expected to take place in mid-April, further upside could be in store for the digital currency.
“Historically, Bitcoin halvings have been associated with significant price increases for the cryptocurrency,” Kiplinger contributor Randi Ginsberg wrote in a feature article. Bitcoin halving. “The theory behind this is simple: as the supply of new Bitcoins entering the market decreases, the demand for them can outstrip the supply.
However, before you buy in the hopes that Bitcoin will continue to rise, remember that the crypto market is still highly speculative and should be approached with extreme caution. For anyone looking to step into the world of cryptocurrencies, it's important to do your research and only use funds you can afford to lose.
