Unwavering Strength of the Current S&P 500 Bull Run
- The S&P 500 has been showing remarkable upward momentum recently.
- Despite recent pauses, bullish investors are confident in the resumption of the rally.
- In this article, we delve into three compelling reasons supporting the continuation of the bullish trend.
The S&P 500 has been on an impressive surge, achieving over a 14% year-to-date growth and consistently setting new records, teetering just beneath the 5,500-point mark.
The driving force behind this surge lies in the flourishing AI revolution, propelling profits and stock valuations of tech behemoths such as Nvidia (NASDAQ:), which has recently claimed the title of the world’s most valuable company by market capitalization.
But with each new record high, a lingering doubt arises: how sustainable is this ongoing bull run? Are we witnessing the inflation of yet another market bubble?
Today, we explore three compelling rationales as to why the bullish sentiment might persist throughout the latter part of 2024.
Rationale to Continue: Averting a Recessionary Plunge
While the economy might be exhibiting signs of deceleration, there is no imminent indication of a severe recession on the horizon. Historically, a vital economic metric – GDP growth – has often foreshadowed major stock market downturns.
For instance, in the 2022 correction, the market downturn commenced in April, aligning perfectly with the first negative year-over-year GDP reading of that cycle. Nevertheless, it proved to be a correction rather than a catastrophic collapse, followed by a noticeable rebound.
Despite recent concerns, the data does not imply an impending collapse of the U.S. economy.
Promising indicators from the labor market further fortify the prospects of a soft economic landing, with unemployment rates remaining low and the influx of new non-farm jobs showing a steady increase.
This robust labor market stands as a crucial indicator to monitor as any deterioration in its performance could precede stock market declines if the situation turns unfavorable.
Basis for Optimism: M2 Growth Propelling the S&P 500 Upward
When evaluating the potential trajectory of the S&P 500, it is essential to take into account the money supply measure known as M2.
M2 encompasses all constituents of the M1 aggregate—currency, demand deposits, and checks—along with savings deposits, time deposits, and balances in retail money market funds.
An intriguing analysis comparing the S&P 500’s performance against M2 growth reveals ample room for further expansion.
The current index level appears quite appealing from this perspective when compared to historical data.
This comparative analysis indicates substantial upside potential, suggesting that the S&P 500 could potentially surpass its preceding historic peaks.
Justification for Sustained Growth: Strong Fundamentals of Tech Giants
The upcoming Q2 2024 earnings season is poised to be a pivotal point for the S&P 500. The spotlight will be on tech titans like NVIDIA, Apple (NASDAQ:), and Microsoft (NASDAQ:).
If these tech giants maintain their current momentum in terms of both profits and revenues, surpassing analyst projections for forthcoming quarters, the momentum of the bullish run is likely to persist.
Their robust financial health, underscored by high rankings from InvestingPro, further amplifies this positive outlook.
While certain fair value models hint at a probable pullback – a customary occurrence in any trend – it could serve as a buying opportunity to join the prevailing trend at a more appealing price point.