Can The Global Equities Sustain The Bull Run In The Second Half Of 2024?

After four weeks of gains, the markets paused in the past fortnight, despite outstanding earnings from the AI leader NVIDIA. For the year, the S&P 500 remains up by about 10 per cent, and we view some consolidation after the recent strong performance. 
 

Most of the frontline U.S equity indices showed mixed performance over the past fortnight. The Dow Jones Industrial Average suffered its largest weekly loss (-2.33 per cent) since early April, on the other hand, the tech-heavy Nasdaq Composite continued to set new records. The broad S&P 500 Index was mostly flat, while Small-Cap stocks declined.  

A key driver for the market's divergence was the rise in NVIDIA's shares. The AI chipmaker, now the third-largest company in the S&P 500 by market capitalisation (behind only Apple and Microsoft), saw its shares surge 9.3 per cent on Thursday after exceeding consensus estimates, adding approximately USD 220 billion to its market capitalisation. 

"Over the past 1.5 years, U.S. markets have greatly benefited from technology companies. Enthusiasm around artificial intelligence and its growth potential has propelled stock markets higher. For instance, in 2023, the S&P 500 rose about 24 per cent, but the three growth sectors increased by an impressive 40-55 per cent. Companies like NVIDIA continue to report strong earnings and guidance, driven by significant growth in the AI data centre business."

 
  

In local currency terms, the pan-European STOXX Europe 600 Index ended 0.45 per cent lower in the past fortnight, as concerns emerged about the pace of potential interest rate cuts this year. Major stock indexes were mixed: Italy’s FTSE MIB fell 2.57 per cent, France’s CAC 40 Index dropped 0.89 per cent, Germany’s DAX remained mostly unchanged, and the UK’s FTSE 100 Index declined 1.22 per cent. 

Over the past 1.5 years, U.S. markets have greatly benefited from technology companies. Enthusiasm around artificial intelligence and its growth potential has propelled stock markets higher. Companies like NVIDIA continue to report strong earnings and guidance, driven by significant growth in the AI data centre business. 

In the UK, annual consumer price growth slowed to 2.3 per cent in April—the lowest level in nearly three years—from 3.2 per cent in March, dampening hopes for a midyear rate cut by the Bank of England (BoE). Consensus and BoE projections had forecast headline inflation at 2.1 per cent. Core inflation, excluding volatile energy and food prices, also came in higher than expected at 3.9 per cent. 

Japanese equities finished lower, with the Nikkei 225 Index falling 0.36 per cent and the broader TOPIX Index seeing a slight decline. While upbeat economic data and strong earnings from NVIDIA initially supported Japanese tech stocks, all gains were lost as Japanese indexes followed Wall Street lower after U.S. data pushed the prospect of a U.S. interest rate cut further into the future. 

Chinese stocks declined as concerns about sustained high rates in the U.S. outweighed optimism about Beijing's latest measures to support the struggling property sector. The Shanghai Composite Index fell 2.07 per cent, and the blue-chip CSI 300 lost 2.08 per cent. In Hong Kong, the Hang Seng Index dropped 4.83 per cent. 

Overall, we believe the bull market that began in October 2022 will continue, potentially for the next couple of years. It is mainly driven by three key factors: improving inflation trends and the Fed likely to begin cutting rates, double-digit earnings growth for the year, and a long-term AI-driven bull market supporting multiple sectors.