S&P 500 is up nearly 10% this year despite war and AI concerns

The last few months have been turbulent for markets: disruption in the oil industry, rising inflation and apprehension regarding artificial intelligence. Despite all this, American stocks are still trading near all-time highs.

The S&P 500 and Nasdaq have risen about 15% and 21%, respectively, since the end of March, recovering from a war-related slump with Iran and posting their best quarter in six years.

The indices accumulated significant gains for the year, despite a slight correction in June. In total, the S&P 500 and Nasdaq are up 9.55% and 12.79%, respectively, this year.

The S&P 500 has reached 24 all-time highs this year and is about 1.5% away from reaching one more. The Nasdaq has hit 20 all-time highs and is about 3.3% away from reaching another.

The S&P 500 index snapped a two-month streak of gains in June, falling about 1% as investors worried about too much upside driven by artificial intelligence. The Nasdaq, with a strong presence of technology companies, fell 2.8% in June.

Investors are particularly interested in seeing how big tech companies will get a return on increased infrastructure spending for the AI boom. Microsoft fell 17% in June, recording its worst month since 2000 - the year the internet bubble burst. Oracle fell 35%, worst month since 1990.

Despite the sharp drop in June, the S&P 500 and Nasdaq still posted their best quarterly performances since 2020. A rally in stocks of semiconductor and memory chip companies buoyed the market, although volatility increased.

An index tracking stocks of semiconductor companies has risen nearly 88% since March, the best quarterly performance on record, according to FactSet data dating back to 1994. The index was launched in December 1993.

Meanwhile, the Dow Jones rose 2.5% in June as investors migrated from the technology sector to the financial, healthcare and industrial sectors, where the Dow Jones has greater exposure. The index has accumulated an increase of almost 13% since March, recording the best quarter since 2022.

In total, the Dow Jones is up 8.85% this year and is trading at record levels. The blue-chip stock index has hit 19 all-time highs this year; seven of them occurred in June.

What to expect for stocks?
In the same period last year, the S&P 500 index had risen just 5.5%, still recovering from the shock of customs tariffs in the period. The index, however, accumulated gains of 16% in the year.

In 2024 and 2023, the S&P index had gains of 23% and 24% over the year, respectively.

Wall Street analysts remain optimistic. In June, Barclays raised its year-end target for the S&P 500 to 7,800, implying a 4% gain over the next six months.

Still, analysts are alert to potential risks, especially regarding concerns about the AI bubble.

The upcoming quarterly earnings season will offer more insight into companies' spending plans.

Investors are also focused on the Federal Reserve's interest rate decisions as well as corporate earnings.

Some investors are cautious about a possible correction after such a strong quarter. David Laut, CEO of Kerux Financial, said he is preparing for a possible stock market decline of up to 10% to 20% and monitoring exposure to technology stocks.

"We believe that the market volatility observed so far in June is just the tip of the iceberg," Laut commented in a note.

José Rasco, investment director at HSBC Private Bank for the Americas, pointed out in a note that volatility may persist, but remains optimistic due to the favorable scenario for corporate results.

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Source: CNN