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The Nasdaq Composite is on track for its best first half year since 1983, after investors flocked to companies in the tech-heavy index that they expect will benefit from the growth of artificial intelligence.
The index had risen 32 percent for the first six months of 2023 as of mid-afternoon on Friday, the last day of June. In any given half of the year, first or second, the Nasdaq was on the verge of posting its strongest performance since the height of the dot-com bubble in the second half of 1999.
US stock markets have weathered a series of challenges since January, including unrest among regional banks, brinkmanship over the government’s debt ceiling, and high interest rates engineered by the Federal Reserve.
The biggest contributors to the market rebound were a handful of big tech companies: Apple, Amazon, Microsoft, Nvidia, Alphabet, Meta, and Tesla. Apple on Friday set a new record, valuing the company at more than $3 trillion, while chip maker Nvidia has nearly tripled in price since the start of the year.
The Nasdaq is up about twice the 16 percent rise in the broader S&P 500 since the start of the year, highlighting the effects of big tech groups. If all stocks in the S&P 500 are weighted evenly, the index would be up a more modest 5 percent for 2023.
“We’ve had some moderation in terms of inflation which is obviously supportive of equities and clearer messaging from central banks. That increased certainty has helped tremendously… said Sinead Colton Grant, head of investor solutions at BNY Mellon Asset Management, referring to technology groups. The Big Seven, but in the United States in particular, it was the “Magnificent Seven” that drove the most winnings.
The lack of breadth in the rally has left some analysts and investors skeptical that the gains will continue, especially given concerns that the Fed’s continued efforts to lower inflation will push the economy into recession.
“If you think the Fed is going to succeed in slowing the economy, it’s hard to justify where the stock market is,” said Greg Davis, managing director and chief investment officer at Vanguard. “Right now, something is out of control.”
In this week’s first-half review, BlackRock Asset Management said that the recent performance of US stocks has been “extraordinary”, but that does not mean that a reversal is inevitable.
Tony Dispirito, chief investment officer of equity at BlackRock, contrasted the recent excitement around AI with the hype about the earlier new technology.
“The demand is really real. You can compare what’s going on in AI versus (enthusiasm) VR or a year or two ago. The orders are already there. Earnings growth is coming,” he said.
Markets were supported on Friday by a decline in the core personal consumption expenditures (PCE) price index, the US central bank’s preferred measure of inflation. The Standard & Poor’s and Nasdaq indexes rose 1.3 percent and 1.5 percent for the day, respectively.
European blue-chip indices also posted gains in the first half of the year, as investors bet that inflation will slow and that the European Central Bank’s historic tightening campaign will peak. The pan-European Stoxx 600 closed the half up nearly 9 percent, including a 1.2 percent rise on Friday.
France’s CAC 40 and Germany’s DAX rose 14 percent and 16 percent during the first half, respectively, although the UK’s FTSE 100 lagged behind with gains of 1 percent. The FTSE was affected by high inflation in the UK and the index was disproportionately exposed to lower oil prices.
Encouraging inflation data released on Friday helped euro-zone stocks end the quarter higher. The main rate of price appreciation across the currency bloc fell more than expected to 5.5 percent in June, fueling optimism that the European Central Bank may halt its program of rate hikes sooner than expected.
However, core inflation — which excludes volatile energy and food prices — rose, which BNY Mellon’s Colton Grant said was a concern.
“We are constructive about US stocks, we like moderating inflation… and they are increasingly confident that the probability of a recession is decreasing… (but) we are more cautious about Europe, particularly (the eurozone). This view is driven by flat inflation, And the fact that the ECB will need to raise more.”
