The US stock market has been on a relentless upward trajectory since November 2023, exhibiting remarkable resilience and setting new records along the way. The S&P 500, a key barometer of the market’s health, achieved another milestone by reaching a fresh record closing high on Thursday, underscoring the bullish sentiment prevailing among investors.
The first quarter of 2024 witnessed a remarkable surge in the benchmark index, with the S&P 500 soaring approximately 10.2%. This robust performance represented the index’s strongest gain in the first quarter since 2019, reflecting the underlying strength and optimism driving the market higher.
Notably, other major stock indexes also posted impressive gains during the three-month period. The Dow Jones Industrial Average, comprising 30 blue-chip stocks, recorded a solid increase of 5.6%, buoyed by favorable market conditions and positive economic indicators. Similarly, the NASDAQ Composite, which is heavily weighted towards technology stocks, surged by 9.1%, highlighting the broad-based nature of the market rally.
Stock market rally in 2024
growth and heightened investor interest. Bitcoin, the leading cryptocurrency, has experienced significant price appreciation, fueled by growing institutional adoption and investor demand for alternative assets. Ethereum, another major cryptocurrency, has also seen a surge in value, propelled by its widespread adoption in decentralized finance (DeFi) applications and the broader crypto ecosystem.
Furthermore, the anticipation of interest rate cuts by the Federal Reserve has contributed to the bullish sentiment in the stock market and other risk assets. The prospect of lower borrowing costs has encouraged investors to seek higher returns in riskier assets, including equities and cryptocurrencies, as they anticipate a supportive monetary policy environment.
Stay long stocks in near term – HSBC
In light of the recent outperformance of risk assets, HSBC strategists expressed their continued optimism, particularly towards the US and Japan stock markets. Despite the potential challenges posed by global growth and inflation, the bank maintains an overweight stance on oil and other risk assets.
HSBC strategists highlighted several factors contributing to their positive outlook on oil, including positioning close to multi-year lows, attractive carry due to the steep backwardation in the futures curve, signs of improvement in global manufacturing activity, and favorable supply-demand dynamics. They anticipate near-term outperformance in oil as a result of these factors.
While acknowledging the potential upward risk to inflation amid improving global growth, HSBC strategists believe it is premature to be overly concerned about this aspect. Instead, they view the potential for rate cuts by central banks, particularly the Federal Reserve, as a more crucial consideration for equities and risk assets.
The prospect of rate cuts by central banks, including the Federal Reserve, is seen as a potential catalyst for a sizable relief rally in risk assets, as real money investors remain largely neutral across various asset classes. However, HSBC cautioned that the second stage of this process could pose challenges, questioning whether the Fed will manage to reduce rates to 2.5%. They also pondered the possibility of a pause in rate cuts or a scenario akin to the mid-1990s, where policymakers halted rate cuts after initiating only a few.
While these risks have the potential to weigh on risk assets, HSBC believes that any impact would likely be felt in the second half of the year, rather than in the near term.
Overall, the bank’s strategists remain cautiously optimistic about the outlook for equities and risk assets, but emphasize the importance of monitoring central bank policies and potential developments in global economic conditions.