Tech Surge and Economic Optimism: The Bull Market Returns to S&P 500 Amid Global Uncertainty

June 09, 2023

The S&P 500 surged 20% since its previous low in October 2022, terminating the bear market that had begun in January 2022 and marking the beginning of a new bull market. The shift was primarily propelled by significant gains in major tech stocks.

On Thursday, the index concluded at 4,293.93, demonstrating a clear transition from bear to bull market characterized by increasing stock prices and investor optimism. CNN’s Fear and Greed Index depicted an atmosphere of "Extreme Greed."

After a challenging year, optimism for Big Tech has been renewed by the AI revolution, led by ChatGPT. Investors are making substantial investments in firms like Google, Meta, Apple, Amazon, and Nvidia, in anticipation of them spearheading a new tech era.

The market's momentum over the past week can be attributed to the resolution of the debt ceiling crisis, optimism over the Federal Reserve potentially pausing rate hikes at its June meeting, and a series of robust economic indicators.

However, concerns persist that this rally may be ephemeral, potentially leaving investors at risk. Inflation continues to be high, job creation is slowing down, and while consumers continue to spend, they're shifting focus from discretionary purchases to essential goods and leisure activities, not typically indicators of long-term market success.

The future direction of the bull market largely hinges on the Federal Reserve's decision on interest rate policy. Historical trends suggest a favorable outcome if the Fed either skips or ceases rate hikes. Yet, unexpected interest rate increases, such as the one recently implemented by the Bank of Canada, can dampen market enthusiasm.

Despite overall market volatility, some stocks continued to perform well. Marathon Oil and Tesla experienced significant growth, while small-cap stocks demonstrated resilience despite broader market weakness.

Central bank policies worldwide are contributing to market uncertainty. The Reserve Bank of Australia's unexpected rate increase, for instance, has led to predictions of market volatility. Meanwhile, bond markets are reflecting concerns about potential additional rate increases from the Federal Reserve and the U.S.'s rising debt issuance.

Despite this uncertainty, the labor market's robustness, consistent demand, and persistent inflation have increased the likelihood of the Fed pausing rate hikes in its upcoming meeting. Nonetheless, the course of the year remains highly dependent on central bank policy decisions and their impact on investor sentiment.