The S&P 500 and Nasdaq surged on Friday, driven by a rally in megacap tech stocks, including Nvidia, Microsoft, Amazon, and Alphabet.  

Inflation And Market Resilience 

The S&P held above the 5,000 level, extending its record high, following a lower-than-expected revised inflation reading for December.  

The U.S. Bureau of Labor Statistics’ annual revisions to the consumer price index (CPI) showed that core consumer prices rose at a steady 3.3% annualized rate in the fourth quarter of 2023, providing further reassurance on inflation. These revisions eased concerns about inflation progress, giving the Federal Reserve more flexibility in its monetary policy.  

Market Momentum And Federal Reserve Dynamics 

The ongoing market rally, now in its fifth consecutive week, has been fueled by easing inflation data, a robust economy, and strong earnings reports.  

Over the past week, the S&P added 1.4%, the Nasdaq Composite jumped 2.3%, while the Dow Jones remained relatively flat.  

Notably, the S&P 500 topped 5,000 for the first time, driven by optimism surrounding corporate profits and expectations of a rate cut by the Federal Reserve.  

Despite differing views among Fed officials on rate cuts, the market remained bullish, with technology stocks leading the charge and the Nasdaq 100 climbing 1%.  

The two-year yield returned to levels seen before the Fed’s December pivot, reflecting investor confidence in the economy’s trajectory.  

Fed officials, including Atlanta President Raphael Bostic and Dallas counterpart Lorie Logan, emphasized the importance of returning inflation to target but differed on the urgency of rate cuts. 

Here are the closing levels on Friday, February 9^th, 2024:  

Corporate Performance And Market Positioning 

Nvidia Corp.’s remarkable stock performance in recent months has positioned it on the brink of surpassing Amazon.com Inc. to claim the title of the fourth most valuable company in the United States.  

With a market capitalization of $1.74 trillion, Nvidia is only slightly behind Amazon’s $1.77 trillion valuation, while Alphabet, the parent company of Google, holds the third position with a market capitalization of $1.83 trillion, trailing only Microsoft Corp. and Apple Inc. 

The surge in Nvidia’s stock, which has surged by over 40% since the beginning of 2024, is attributed to the continued strong demand for its chips used in artificial intelligence computing.  

However, concerns about the sustainability of these gains have arisen, particularly with Nvidia’s earnings report scheduled later this month. Nonetheless, Nvidia’s stock experienced a 1.2% increase on Friday, indicative of ongoing investor optimism regarding the company’s prospects. 

Market Sentiment And Investment Behaviour  

Optimism is not confined solely to Nvidia and the megatech sector; it is pervasive across the entire market index. With the S&P surpassing 5,000, FOMO (Fear of Missing Out) is at its peak. 

Nevertheless, investors must remain cautious, as the market can stay irrational longer than individuals can stay solvent, highlighting the importance of prudent investment strategies amidst heightened market volatility. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.