The US stock market continues to rally, with the tech-heavy Nasdaq 100 experiencing its best quarter since June 2020. This optimism in the markets comes as a key measure of inflation cools down, suggesting that the Federal Reserve may be nearing the end of its rate-hiking campaign.
The personal consumption expenditures (PCE) price index, excluding food and energy, rose by 0.3% in February, slightly below the median estimate. This has fueled the belief that peak inflation has been reached, but there is still work to be done to re-establish price stability.
Tech Stocks Lead the Rally
Technology shares have risen to their highest since August 2022, pushing gains in the broader market. However, analysts like Michael Gibbs, director of equity portfolio and technical strategy at Raymond James, have noted the uneven nature of the rally beneath the surface, indicating confusion within the current market backdrop.
Narrow Rallies Raise Concerns
Extremely narrow rallies, like the one currently observed, are not considered healthy, and Matt Maley, chief market strategist at Miller Tabak + Co., warns that more groups need to participate in the rally to prevent a potential market correction.
US Stocks More Attractive Amid Recession Risks
As focus shifts from high interest rates to recession risks, US stocks appear more attractive than their European counterparts. A Citi team led by Beata Manthey upgraded US stocks to overweight from underweight on Friday, as they expect global earnings-per-share to contract by 5% in 2023.
Market Highlights
Notable market highlights include a 9% weekly gain in New York-traded oil due to disruptions in Iraqi exports, and Bitcoin’s best quarter since March 2021 with a 70% gain. Additionally, Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, saw a rally after he became the first former president to be indicted.
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Conclusion
In conclusion, the US stock market, particularly the tech-heavy Nasdaq 100, has shown promising signs of growth, experiencing its best quarter since June 2020. While peak inflation seems to have been reached, analysts remain cautious about the uneven nature of the current rally and the potential risks of a recession.
The market has demonstrated resilience in the face of multiple challenges, with various sectors witnessing gains in recent weeks. As the focus shifts from high interest rates to recession risks, US stocks continue to appear more attractive than those in Europe. Nevertheless, it will be crucial for more market groups to participate in the rally to ensure its long-term sustainability and prevent potential corrections.
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Frequently Asked Questions
FAQs:
1. What has been driving the recent US stock rally?
The US stock rally has been driven by optimism regarding the cooling of inflation and the belief that the Federal Reserve may be nearing the end of its rate-hiking campaign. Technology shares have also played a significant role in pushing gains in the broader market.
2. Why are analysts cautious about the breadth of the rally?
Analysts are cautious because the rally has been uneven beneath the surface, with only a small number of shares accounting for the gains. Extremely narrow rallies can be unstable, and more groups need to participate in the rally to ensure its long-term sustainability.
3. How has the tech-heavy Nasdaq 100 performed recently?
The tech-heavy Nasdaq 100 has experienced its best quarter since June 2020, with technology shares reaching their highest level since August 2022.
4. What are the concerns regarding recession risks and their impact on stocks?
As the focus shifts from high interest rates to recession risks, US stocks look more attractive than those in Europe, as they tend to perform more defensively during earnings recessions. However, it's important to monitor market movements closely and consider potential risks before making investment decisions.
5. What have been some notable market highlights in recent weeks?
Some notable market highlights include a 9% weekly gain in New York-traded oil due to disruptions in Iraqi exports, Bitcoin's best quarter since March 2021 with a 70% gain, and a rally in Digital World Acquisition Corp., the blank-check firm taking Donald Trump's media company public, after he became the first former president to be indicted.
