Analysts predict that big tech firms will spearhead the year-end surge in U.S. stocks, buoyed by their consistently strong earnings visibility.
The New York Stock Exchange experienced its steepest decline between July and August this year, as unexpected unemployment figures sparked fears of an economic downturn. This turbulence, compounded by the unwinding of the “yen carry trade,” drove the S&P 500 down by 9% from its July peak to its August low.
However, subsequent economic indicators dispelled recession concerns, paving the way for a steady climb to record highs as the year draws close.
“This episode underscores how economic cycles dictate market trends,” said analyst Seo Jeong Hoon. “The U.S. economy currently exhibits robust health, maintaining a neutral to positive trajectory with few discernible weaknesses.”
The economic outlook has further improved due to the rollout of previously deferred investments, coinciding with the new administration’s tenure and the Federal Reserve’s shift toward rate cuts. With multiple positive factors converging, investor appetite for risk appears unlikely to wane soon.
Paradoxically, the biggest threat to this optimistic scenario may be the economy’s strength. Market watchers increasingly favor a “no landing” scenario over a soft landing, suggesting that high interest rates may persist to cool the overheated economy.
While the Fed is expected to implement another rate cut at this week’s FOMC meeting, it may be more cautious about future reductions. This shift could explain the recent uptick in rates.
“Equities must now outperform interest rates,” Seo emphasized. “With downward pressure on rates easing, tech behemoths with clear earnings prospects are well-positioned to lead the year-end rally.”
After underperforming broader indices since July, the “Magnificent Seven” tech stocks have recently regained momentum.
Their sustained earnings growth, which has outpaced other sectors even in the latter half of the year, justifies their current revaluation, especially given their relatively modest valuations.
“As we approach year-end, noteworthy topics like AI services, quantum computing, and humanoid robotics are dominating discussions,”
Seo noted. “Investors should keep a close eye on big tech firms, whose technological edge and commercialization capabilities position them to capitalize on these emerging trends.”
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