The S&P 500 rebounded ahead of the long weekend, rising 0.7% on Friday, while the Nasdaq Composite closed at a new record, driven by a rally in AI stocks.
In contrast, the blue-chip Dow remained subdued, following a more than 600-point drop in the previous day.
Among stocks, Nvidia hit all-time high of $1064, rising 2.4% following a 9.3% jump in the previous session, adding over $218 billion to its market value.
The AI darling blew out with upbeat quarterly results on Wednesday that reinforced investor faith in Big Tech's bet on artificial intelligence.
Megacap stocks such as Apple, Alphabet and Meta gained between 0.9% and 2.6%.
Over time, stock valuations follow earnings.
Right now, Artificial Intelligence (AI) and Nvidia (NVDA) are an earnings piledriver. Nivida reported better earnings, revenues and guidance than expected last week, plus they announced a 10-for-1 stock split and a 150% increase in its dividend.
The AI boom is having the largest positive earnings impact on the largest market capitalisation stocks in the S&P 500. NVDA is a $2.3 trillion market cap company. Google, Amazon and Microsoft (all AI impacted) have market caps in the range of $2 - $3 trillion.
The five largest stocks in the S&P 500 (MSFT, AAPL, NVDA, AMZN and GOOG(L)) represent nearly 27% of the entire index.
S&P 500 earnings are rising. Morgan Stanley’s Leading Earnings Indicator is in an established uptrend - when earnings are rising, the stock market usually performs well.
Investors have been hesitant to chase the market higher partly because of its historically high valuation (20x P/E on forward earnings rather than about 16.5x) and partly because of some amount of amazement (suspended belief) that the AI trend is as powerful as it seems to be and will continue at the same breakneck pace.
After two years without a new high, the S&P 500 has reached a new all-time high 24 times year-to-date.
Whenever a year has at least twenty all-time highs, the full-year average return exceeds 20%.
The SPX is +11.2% YTD, another 8.8% implies 5,770.
Whenever the SPX has been up at least 10% in Q1, it averages another 10% move higher the balance of the year.
SPX was +10.1% in Q1 and another 10% from there implies 5,780.
Past performance offers a guide to potential future performance but is certainly not a guarantee of performance. Historical correlations work until they don’t work.
I am pleased to let you know that Gryning will be launching three, guided, equity portfolio’s to accompany our AI analysis offering. More information will follow in a stand alone post in 15 mins - please read through it and become a member, with annual membership discounted (36% cheaper than subscribing monthly)
If you find it valuable and know someone who may benefit from the research, please share with them.