Tech Stocks Surge, Drive Nasdaq and S&P 500 to Record Highs Amid AI Optimism

U.S. stocks closed higher on Monday, driven by gains in the Consumer Goods, Consumer Services, and Technology sectors. The S&P 500 and Nasdaq reached record highs as tech stocks surged, fueled by optimism over artificial intelligence ahead of significant economic data and Federal Reserve commentary.

Key tech companies like Amazon, Microsoft, and Apple led the market rally, with Apple's stock rising by 2%, bolstered by new AI features aimed at boosting iPhone demand. The market value of Apple hit $3.33 trillion, while Microsoft's reached $3.35 trillion, supported by plans to integrate AI across various business applications, leveraging its enterprise user base. Analysts anticipate a race among Microsoft, Apple, and Nvidia to achieve a $4 trillion market cap due to AI enthusiasm.

Broadcom and Taiwan Semiconductor shares rose significantly, and the Philadelphia SE Semiconductor index reached an all-time high, despite Nvidia's slight dip. Consumer discretionary and technology sectors led gains among the S&P 500 indexes, while utilities and real estate declined.

However, analysts see Nvidia's AI-focused chips as highly valuable, potentially driving a new industrial revolution. Despite potential short-term disruptions, they believe the long-term investments in AI will sustain a broader market rally into 2025.

On the other hand, Autodesk's stock jumped 6% following news of Starboard Value's $500 million stake and push for changes in the company. On the downside, GameStop's stock fell 12% due to cost-cutting measures and a lack of strategic direction. AMC Networks and Virgin Galactic Holdings also saw significant stock declines due to financial restructuring and a reverse stock split, respectively.

The Nasdaq and S&P 500 had multiple record highs in the previous week, while analysts at Bank of America Securities (BofA) predict significant increases in AI-related spending for mega-cap tech companies in 2024.

Alphabet, Meta, and Amazon are expected to boost their annual capital expenditures on servers and equipment by 43% to $91 billion, with overall spending rising 35% to $145 billion. Meta is projected to have the highest spending relative to revenue, aiming to enhance its AI capabilities. Analysts also anticipate a slowdown in workforce growth to 3% annually, down from 26% between 2016 and 2022, to balance these expenditures.

Despite the spending surge, analysts remain positive about the AI sector's impact on tech. They foresee stable free cash flow margins for Alphabet, Meta, and Amazon in 2024, expanding in 2025.

Goldman Sachs raised its year-end target for the S&P 500 index to 5600, up from 5200, citing strong earnings growth from major tech stocks and increased investor enthusiasm for AI. Five key tech companies—Microsoft, Nvidia, Alphabet, Amazon, and Meta—have driven 60% of the S&P 500’s 15% gain this year, collectively rising 45% and making up 25% of the index's market cap.

These firms posted an 84% EPS growth in Q1 compared to 5% for the average S&P 500 stock, leading to a 38% increase in 2024 EPS forecasts for these companies. The bank projects the S&P 500 P/E ratio to be 20.4x by year-end, slightly below the current 21.1x, driven by strong earnings growth and stable real yields.

In a note to clients on Monday, analysts at BofA stated that the "best-case scenario" for the U.S. economy has materialized, with consumer price growth being softer than expected and the latest jobs report showing strong labor demand. They described the economy as experiencing a situation with stable activity and decreasing inflation. Consequently, the market's focus has shifted from interest rates to growth, and a solid retail sales report should ease concerns about broader economic activity. The analysts emphasized that positive news will remain beneficial as long as inflation stays under control.

On Tuesday, the dollar weakened further against the euro and sterling despite a rise in Treasury yields overnight, with investors looking ahead to key retail sales data and Federal Reserve comments for insights on interest rate cuts. This week's economic agenda includes May retail sales data on Tuesday, followed by reports on industrial production, housing starts, and the S&P flash Purchasing Managers' Index.

Data for Technical Analysis (1H) CFD US 500 [S&P 500]

Resistance : 5474.4, 5475.7, 5477.7

Support : 5470.4, 5469.1, 5467.1                         

1H Outlook

Source: TradingView                                                       

Buy/Long 1 If the support at the price range 5465.4 - 5470.4 is touched, but the support at 5470.4 cannot be broken, the TP may be set around 5474.5 and the SL around 5463.0, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 5474.4 - 5479.4, TP may be set around 5485.0 and SL around 5468.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 5474.4 - 5479.4 is touched, but the resistance at 5474.4 cannot be broken, the TP may be set around 5469.2 and the SL around 5482.0, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 5465.4 - 5470.4, TP may be set around 5460.0 and SL around 5477.0, or up to the risk appetite.       

Pivot Points Jun 18, 2024 02:30AM GMT

Sources: Investing 1, Investing 2