(Bloomberg) — An artificial intelligence boom fueled a blistering first half for the U.S. stock market, and traders expect the same — and more — in the rest of the year.
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The S&P 500 Index has risen 14% since the start of January, marking its second-best streak of records to start a year this century, thanks to a resilient economy, improving corporate profits and soaring demand for companies tied to AI. Even amid signs of economic cooling, the rally is getting help from a Federal Reserve weighing interest rates after its most disruptive tightening campaign in decades.
A strong first half for the stock market historically bodes well for the rest of the year. Whether that will be the case again is anyone’s guess, given the wildcards looming on the horizon. The US presidential election in November — which could rattle stocks — is one. Uncertainty about the path of rate cuts is another.
After a drought of more than 500 sessions without a record to start the year, the S&P 500 has posted 31 all-time high closes in the January-June period in 2024, according to data compiled by Bloomberg. Only one other year this century has surpassed it, 2021.
The S&P 500’s current bull run has added more than $16 trillion in market value since bottoming at 3,577.03 on Oct. 12, 2022. The price is now trading in a range around 5,500.
Information technology and communications services companies generated profits. Those sectors are home to a handful of tech giants, including Nvidia Corp., Microsoft Corp. and Meta Platforms Inc. Information technology stocks are up 28% in 2024 and communications services stocks are up 26%.
Utility stocks rose 7.6% as investors bet they will profit by powering data centers tied to the rise of AI. Real estate is the only sector with losses in 2024, posting its worst first half compared to the broader index since its inception in the late 1990s, according to data compiled by Bloomberg. High interest rates have hurt the sector.
AI chipmaker Nvidia has contributed the most to the S&P 500’s rally in 2024. Even with a recent pullback, the S&P 500 has risen about 150% on a total return basis. In second place is Constellation Energy Corp., up nearly 72%, followed by General Electric Co., Eli Lilly and Co., and Micron Technology Inc.
Walgreens Boots Alliance Inc. was the worst performer, losing 52% so far in 2024.
In terms of index point contributions, Nvidia also ranked first, with 218 points. Microsoft added 64 points, while Amazon.com Inc., Meta and Apple Inc. rounded out the top five. Tesla Inc. posted the biggest losses, down 17 points.
Some strategists say the rally in tech stocks appears overdone, with rich valuations and only a handful of high flyers pushing the market higher.
An equal-weight version of the S&P, which does not distinguish between company sizes, has trailed the market-value-weighted version by 10 percentage points since early January. That is the biggest underperformance in the first six months of this year
ear ever.
Companies outside the technology sector could be the next move higher for stocks, according to Jim Paulsen, a noted equity strategist who rightly called the S&P’s double-digit rise last year. Since 1990, four previous bull runs have seen the equal-weight index outperform the main benchmark by an average of 15 percentage points in the 20th month, Paulsen said. Currently, the equalweight measure underperforms the S&P by 16 percentage points over that period.
A strong first half for the S&P has typically led to another solid run in the remaining six months. Since the early 1950s, when the index rose more than 10% through June, it has risen by a median of about 10% in the second half, data compiled by Bloomberg show.
Although the market is historically weaker in the first half of US presidential election years, this is the second-best January-June run since 1928, according to Ned Davis Research. With stocks breaking seasonal patterns, it leaves room for the S&P to pull back between 5% and 8%, starting in the coming weeks, according to Jeffrey Hirsch, editor of the Stock Trader’s Almanac, which tracked the rally after the global financial crisis. 2008 correctly predicted.
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