By Alex Financials

The stock market is experiencing a robust performance as we close out the second quarter of 2024. Both the S&P 500 and Nasdaq Composite are trading at or near record highs. The bullish momentum has been driven by strong earnings reports, particularly from tech giants and a steady decline in inflation​​.

Inflation and the Federal Reserve

One of the most closely watched economic indicators, the core personal consumption expenditures (PCE) price index, showed an increase of 2.6% year-over-year in May. This figure, in line with economists’ expectations, suggests a modest easing of inflation compared to the previous month. The Federal Reserve’s cautious stance on interest rates remains, with no immediate plans for further rate hikes, although the possibility of a rate cut later in the year remains on the table if inflation continues to cool​​.

Tech Giants Leading the Rally

Tech stocks have been the primary drivers of the market’s recent gains. Nvidia (NVDA) has been a standout performer, with its stock price soaring by 45% since March. Other tech behemoths like Apple (AAPL), Microsoft (MSFT), and Alphabet (GOOGL) have also seen significant appreciation, contributing to the overall market rally. Investors remain optimistic about the long-term potential of artificial intelligence and its impact on these companies’ earnings​​.

Sector Performance: Defensive vs. Cyclical

While tech stocks have thrived, other sectors show mixed performance. Defensive sectors such as utilities and consumer staples have outperformed, reflecting investor caution amidst economic uncertainties. On the other hand, cyclical sectors like energy, industrials, and materials have lagged, indicating concerns about the broader economic slowdown and the impact of high interest rates​​.

U.S. Recession Concerns

Despite the market’s strong performance, concerns about a potential recession persist. The U.S. Treasury yield curve has been inverted since mid-2022, traditionally a strong recession indicator. The New York Federal Reserve’s model estimates a 50% chance of a U.S. recession within the next 12 months. Economic data, including lower-than-expected job additions in April and a historically low unemployment rate, further underscores these concerns​​.

Global Market Movements

International markets have also shown significant activity. In Asia, strong economic data from Japan, particularly a rise in industrial production, has bolstered investor confidence. European markets have been buoyed by better-than-expected GDP figures from the UK and regional inflation data, creating a positive outlook as investors await further economic indicators from the U.S.​.

As we head into the second half of 2024, the stock market’s direction will largely depend on upcoming inflation data and Federal Reserve actions. Investors will continue to monitor the performance of tech giants and defensive sectors, balancing optimism about AI and tech growth with caution about broader economic conditions and potential recession risks.