S&P 500 index has slowly and steadily crawled its way back into the bull market. The S&P 500 index is up by 11.5% year-to-date and has gained nearly 20% from its October low to nearly 20%. From the levels of around 3577 last seen in October 2022, the S&P 500 index is currently flirting with levels of around 4282, a jump of almost 19.77 per cent. Incidentally, Nasdaq 100, the tech heavy index, had already entered the bull market zone in April 2023.
US Stocks are on the cusp of a bull market as a result of the unrelenting run in major tech and betting on a Federal Reserve pause following a mixed employment report.
The dominance of tech stocks has led to such recovery in index levels. 2023 is looking to be another year in which tech megacaps shine above all else due to the AI frenzy, supercharging a recovery in growth. The index of mega cap equities, which includes Tesla Inc. and Apple Inc., has gained for the sixth week in a row, the longest winning streak since July 2021.
The risk-taking mode is in full flow as Wall Street’s fear gauge has fallen to pre-pandemic levels. The Cboe Volatility Index (VIX) fell below 15 from an average of 23 in the previous year.
Investors have spent much of the past three years obsessed by the Fed rate hikes, stubborn inflation, and jobs data. The risks are, however, not over yet.
The suspension of the US debt ceiling may pose some immediate risks for the market. Roughly $1 trillion of Treasury notes are to be auctioned as the US Treasury replenishes its general account following a debt-limit agreement, which could spark a significant drain of liquidity from financial markets.
US Fed rate action also requires attention by investors. The key risks that the Fed must consider are the risks of overheating the economy. The pause and pivot should not be expected to be soon. Despite an uptick in hiring, signs of labor-market slack in May could bolster Fed Chair Jerome Powell’s and other officials’ argument that they should take more time to evaluate incoming data and the shifting outlook before raising rates again. Wall Street’s reaction to the latest jobs report revealed expectations that another Fed hike is coming — but not necessarily in June.
After the year-to-date advance, stocks may have limited room to rise, but the near-term downside doesn’t appear to be as dire as alarmists had us believe.