2024-02-09 16:56:00
The trees would therefore climb to the sky, despite the stock market adage. The S&P500, the main index of the American stock market, reached 5,007 points this Friday around 5:30 p.m. (Paris time). The index, which has been flying from record to record since mid-January, is therefore moving above the symbolic 5,000 points for the first time in its history.
Note, cThe threshold, more psychological than technical for traders, had been crossed briefly the day before, one minute before the close. But ultimately the S&P 500 closed less than three points from the peak, at 4,997.91 points (+0.06%). The index, created in 1957, will have taken almost three years, since April 2021, to go from 4,000 points to 5,000.
The latter has benefited from a strong buying wind in recent months. After gaining 24.3% over the year 2023, the S&P soared by another 4.5%since the beginning of the year. For its part, another flagship index, the Dow Jones, has climbed 2.5% since January 1, to 38,657 points, when the Nasdaq technology index shows an insolent increase of almost 8% over the same period.
Tech giants are boosting American finance
The very good health of the American stock market is explained above all by the announcement of the colossal profits made in 2023 by its companies, led by the major technological stocks. The “Magnificent 7” (for Apple, Amazon, Alphabet, Microsoft, Meta, Nvidia and Tesla) averaged double-digit profit increases last year. Above all, these seven technological giants contributed to more than 90% of the performance (excluding dividend) of the S&P 500 index last year, while they represented barely 30% of the index (more than a third today).
Cumulating the results, Gafam (the “magnificent 7”, without Nvidia and Tesla) generated stratospheric profits of more than $100 billion in three months. And this, while they are engaged in profound transformations to support the generative artificial intelligence (AI) revolution. The appetite for AI allows technological behemoths to escape, as it stands, fears linked to a slowdown in the American and global economies.
The emergence of generative AI increases the needs of companies in remote computing (“cloud computing”), which very rarely have the data processing and storage capacity offered by large providers. Investors have therefore particularly looked at the trajectory of the cloud for Microsoft, Amazon and Alphabet, which together represent around two-thirds of the market.
The hope of lowering key rates
Another factor explaining the new records on Wall Street: investors’ optimism about a future reduction in key rates. During its last meeting at the end of December, the Federal Reserve maintained its key rates in the range of 5.25-5.50%, after having raised them 11 times in the face of high inflation, following the post-pandemic recovery. of Covid, and to the war in Ukraine. An increase which harmed listed values, by increasing the cost of credit and weighing down company valuations.
But now, investors have their eyes on a rate cut which should occur in 2024. At the end of January, a governor of the institution nevertheless judged that it was still too early to consider such a turnaround.
« If the data continues to indicate that inflation is moving sustainably towards our 2% target, then it will become appropriate to gradually lower our policy rate to prevent monetary policy from becoming too restrictive. In my opinion, we are not there yet », insisted Michelle Bowman, in a speech.
The fact remains that investors are still anticipating better days by having massively bought the hope of a decline for several months.
A very expensively valued American stock market
The smile on the faces of shareholders must, however, be viewed with perspective. Because the rise in prices went very quickly. “ Note that at 4,997 points, the S&P 500 index is already 2.8% higher than the average price target at the end of 2024 set by Wall Street strategists (4,861) », recalls in particular the specialist in financial markets and directors at the Mirabaud bank, John Plassard, in a note.
A meteoric rise which is now causing American indices to reach new heights, which must now justify their high valuation. According to LSEG, the S&P 500 trades for nearly 20 times expected earnings over the next twelve months, compared to a historical average of 15.6 times. The European indices, which have reached new records, almost pale in comparison, with for example an increase of 16.5% in the CAC 40 in 2023.
The Parisian index boosted by luxury
American investors are not the only ones celebrating the stock market’s performance. The CAC 40 is also flying from record to record, posting 7,648 points this Friday around 5:30 p.m., a stone’s throw from its historic record of January 30 at 7,677 points. At the origin of this new rebound, following a slight cold snap at the beginning of January: the return to favor of the luxury sector.
LVMH, Hermès, L’Oréal and Kering have, on average, posted record profits and convinced investors to continue buying shares. “The expected impact of this potential catalyst was significant, because French luxury represents 32% of the total capitalization of the CAC 40, and it has weighed negatively on the French index for months”explains in a note, Antoine Andreani, analyst at the broker XTB.
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