5 charts show where stock market is headed after wild first half
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Synopsis
The Nasdaq 100 is heading for its best H1 ever, with a surge of 36% so far this year. But Wall Street is concerned that the rally may be derailed by the Federal Reserve tightening its policy. Despite recession fears and bank failures, investors have remained optimistic as the US economy shows resilience and the earnings outlook improves. However, analysts warn that the rally in tech stocks appears overblown due to rich valuations and only a few high-flying companies such as Apple, Microsoft and Nvidia. Historically, a strong first-half for the stock market has been a good omen for the rest of the year.
The resurgence has defied skeptics, coming in the face of bank failures, recession fears and the highest borrowing costs since 2007. But investors stuck with stocks amid signs that the US economy remains resilient and the earnings outlook appears to be improving.
Historically, a robust first-half in the stock market is a good omen for the rest of the year. But Wall Street strategists are leery, warning that the rally in tech stocks looks overblown, with rich valuations and just a handful of high-flyers like Apple Inc., Microsoft Corp. and Nvidia Corp. providing the strength. Stocks are coming off the boil a bit, with the S&P 500 Index just posting its worst week since March.
Nonetheless, global money managers are hoping 2023 will end on a high note after a tumultuous 2022 sent the Nasdaq 100 and S&P 500 to their biggest annual losses since 2008.
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Of course, stocks have far surpassed Wall Street’s expectations for 2023. At the start of the year, strategists forecast that the S&P 500 would be flat this year, and they enter the second half anticipating that it will finish the year about 6% below its Friday close.
Skeptics such as Morgan Stanley’s Mike Wilson and JPMorgan Chase & Co.’s Marko Kolanovic predict the latest leg up in stocks will be short-lived, in part because the Fed is signaling further tightening. But other strategists are starting to break from the pack, like Bank of America Corp.’s Savita Subramanian, who says worries over Big Tech driving the rally are overblown.
Clearly, investors have a lot to digest as they ponder what lies ahead. They do, however, have some encouraging history to fall back on: A strong first half for the S&P 500 has typically led to another solid run in the remaining six months, according to data compiled by Bloomberg.