The stock market defied expectations and performed well in the first half of 2024. But this success raises an important question for investors: Is there room for stocks to rise even further?
The S&P 500 has risen about 15% in the first half of the year. The Dow Jones Industrial Average has risen about 4% over the same period, while the tech-heavy Nasdaq has surged about 18%.
Analysts speaking to ABC News attributed the big gains in stock prices to enthusiasm about artificial intelligence, strong economic growth, and hopes that interest rates will ease.
But experts predict the stock market will likely struggle to maintain its rapid growth for the rest of the year as investors turn away from soaring stock prices and uncertainty grows over the economic outlook and the November election.
“We’ve had a really great start to the year,” Adam Turnquist, chief technical strategist at LPL Financial, told ABC News, “but as we look to the second half of the year, I think the market is overbought in the short term.”
The U.S. economy continues to grow robustly despite the pressures of the highest interest rates in two decades, while U.S. job growth remains strong and beats expectations, translating into strong wage gains.
But progress on fighting inflation has been largely stagnant, and the Fed has still signaled that further rate hikes are unlikely, instead projecting one rate cut by the end of 2024.
“The market is welcoming the fact that interest rate cuts are likely,” Turnquist said.
These broader economic trends coincide with a surge in investor demand for technology companies leading the adoption of AI, with major stock indexes rising as investors are optimistic about the potential benefits of products like ChatGPT.
These gains were largely concentrated among a handful of tech giants known as the “Grand Seven” — Alphabet, Amazon, Apple, Meta, Microsoft, Tesla, and Nvidia — and even within that group, the gains were mainly enjoyed by a select few.
Shares of Nvidia, maker of many of the computer chips driving AI advancements, have risen nearly 150% since the beginning of 2024. Shares of Microsoft, which owns a large stake in ChatGPT maker OpenAI, have soared more than 20% so far this year.
“The AI ​​effect has obviously helped market sentiment,” Mike Lucas, CEO of TrueMark Investments, told ABC News, “but it always seems to be a few concentrated stocks that are driving the market.”
Experts have warned that the stock market will probably struggle to sustain its returns after its phenomenal performance earlier this year. On a fundamental level, analysts noted, the rally in stock prices stretching back to last year will eventually reach a point where traders are hesitant to put money into them at higher prices.
“We need a reset button to get out of these overbought conditions,” Turnquist said.
Moreover, the economy’s positive trends face a number of threats, most notably a combination of high interest rates and persistent inflation that could squeeze corporate profits and erode investor patience.
“I think this continuum of cuts or no cuts, inflation or no inflation will continue,” Lucas said. “We remain very sensitive to macroeconomic factors.”
Lucas added that this economic uncertainty is compounded by a range of possible outcomes in the November election.
“The election is going to be a big swing factor,” Lucas said. “There’s a lot of uncertainty about what’s going on and the market is still trying to price that in.”
Lucas predicted stock markets would grow for the remainder of 2024, but said the pace would not match the surge experienced in the first half of the year.
LPL Financial’s Turnquist echoed that view, saying the stock market may see some gains by the end of the year, but companies will likely weather a tougher environment.
“There’s still a risk that the fight with the Fed isn’t over yet,” he added.
Still, Turquist said the market outlook for this year and beyond remains positive, saying it is “still in a secular uptrend.”
