The Stock Market is Recovering From 2022’s Woes. So Far.

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And now, the starting lineup for yooouuuur stock market bulls: tech, tech, tech, tech, and more tech — so long as it’s tangentially related to artificial intelligence.

With inflation winding down and investors juicing on the AI-driven hype-cycle, the stock market is starting to look more like 2021’s rollicking run than 2022’s depressing downturn. And now the S&P 500 may even sniff an all-time high.

What’s up, MAAAN?

After peaking at nearly 9% last summer, inflation is now in a comparative freefall. The consumer price index rose just 3% year-over-year in June, according to government data released earlier this week. That’s good for the lowest inflation rate since March 2021, back when rising prices were hardly a pressing issue and stocks were roaring after a brief pandemic panic. So far this year, the Nasdaq composite is up 33%, while the S&P 500 is up nearly 17% — and sits just 7% away from a new all-time high, an achievement that some onlookers would consider as the official marking point of a new bull market (others would say we’re already in a bull market, given the more-than-20% rally from an October 2022 low point).

What’s responsible for the upswing? A sort of new-fangled FAANG group at the top of the S&P 500 that we’ll dub MAAAN — that’s Microsoft, Apple, Amazon, Google-parent Alphabet, and hot-rising chipmaker NVIDIA. (Sorry, Zuckerberg, Meta-née-Facebook, with its sub-trillion dollar market cap, is no longer in the big boy’s club). The group, and the AI mania they’re stoking, are almost exclusively responsible for the broader market’s rise:

  • Profits across the MAAAN companies are projected to rise 16% in the quarter that ended in June, before accelerating in the following two quarters to cap off the year, according to a recent Bloomberg Intelligence analysis. Meanwhile, profits for all other companies in the index are projected to fall by about 9% on average, Bloomberg found.
  • The rise of artificial intelligence is also fueling the feeding frenzy. “Q1 earnings growth was flat to slightly negative, Refinitiv and Factset data show,” analysts at Blackrock wrote in a recent note. “That masks significant divergence: We see a common denominator between what’s driving market performance this year and earnings – the artificial intelligence (AI) buzz.”

Bubble Babble: Recent history tells us hot bull market runs can quickly be followed by a protracted bear market hibernation. The tech industry’s 2021 success quickly crashed and burned in 2022 in the face of the Fed’s interest rate-hiking campaign — causing Wall Street to rethink its growth-vs-profit mindset, and triggering many investors’ PTSD from the late 1990s dot-com bubble. But this year may be different. “These companies are not trading at 150 times peak earnings,” Nancy Tengler, chief investment officer of Laffer Tengler Investments, told Bloomberg. “I was managing money through [the dot-com bubble], and it was ugly, and it deflated very quickly. This is not that.”