Tech favourites hitting headlines in record year for S&P 500
America’s leading index is making record highs for fun, driven by this bunch of technology stocks. Graeme Evans discusses whether the momentum will persist.
12th November 2024 15:35
by Graeme Evans from interactive investor
A stunning few days for Tesla Inc (NASDAQ:TSLA)shares and the other beneficiaries of the Trump trade means the S&P 500 index is on course for back-to-back years of 20%-plus growth.
The run of gains in cyclicals, financials and small-cap stocks continued on Monday after the prospect of a Republican red sweep in last week’s White House and Congress elections built on Wall Street’s best week of the year.
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The S&P 500 index closed above 6000 for the first time last night, while the Dow Jones Industrial Average has broken new ground at more than 44,000 and the small-cap Russell 2000 is a whisker away from all-time high of November 2021.
The anticipation of tax cuts and deregulation under a Trump administration has created a flurry of stock market winners, despite the prospect of interest rates staying higher for longer due to the inflationary impact of these policies.
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Up until last night, 14 stocks in the S&P 500 index had risen by at least 15% in the period since last Tuesday’s election. The most notable is the 40% advance for Tesla, with its valuation back above $1 trillion after Elon Musk’s strong support in Donald Trump’s election campaign.
The electric car maker’s shares started lower today but the S&P 500 index and other benchmarks consolidated their recent gains immediately after the opening bell.
A lower tax rate and Trump’s potential moves toward the de-regulation of financial services have propelled a number of banking stocks, with heavyweights The Goldman Sachs Group Inc (NYSE:GS), Wells Fargo & Co (NYSE:WFC) and Morgan Stanley (NYSE:MS) up by 13% or more.
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Retail electricity and power generation company Vistra Corp (NYSE:VST) was up 20% by last night, with the Taser and body cams manufacturer Axon Enterprise Inc (NASDAQ:AXON) almost 40% higher.
Software specialist Palantir Technologies Inc Ordinary Shares - Class A (NYSE:PLTR) has been among the other strong performers in the post-election period, aided by strong AI-related demand in its update last week.
Nasdaq-listed Coinbase Global Inc Ordinary Shares - Class A (NASDAQ:COIN) and MicroStrategy Inc Class A (NASDAQ:MSTR) have grown by a third or more in value as hopes of a more favourable crypto environment yesterday drove the Bitcoin price to near $90,000.
The stock market gains have come even though Wall Street has dialled back expectations to just three more quarter-point interest rate cuts by the end of 2025. Bets on where rates will finish next year have increased by a percentage point in just over six weeks.
At the same time the S&P 500 has posted its 51st record high of 2024 so far.
Deutsche Bank said the index is currently experiencing its strongest year-to-date performance since 1995, having risen by 25.8% since the start of the year.
It points out that this is the first time since 1997-98 that the benchmark is on course to post back-to-back annual gains above 20% and only the third time in 100 years.
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The market response echoes the post-2016 election rally, raising questions on whether this momentum will persist given various post-election risk factors.
UBS Global Wealth Management warned: “Key personnel choices for economic roles and the sequencing of policies - particularly around tax cuts and tariffs - could sway market sentiment.
“Fiscal constraints also present a challenge. Notably, the US deficit is now double what it was at the start of Trump’s first term, and extending personal tax cuts alone could add $4-5 trillion in the national debt, which could in turn limit room for fiscal measures.”
UBS does not expect the Federal Reserve to react to tariff inflation, allowing for further rate cuts if economic and labour market conditions permit. The bank forecasts another quarter-point cut in December, followed by a percentage point reduction across 2025.
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