(NEW YORK) — The stock market defied expectations with a strong performance over the first half of 2024. But the success poses a key question for investors: Is there room for stocks to go even higher?
The S&P 500 climbed nearly 15% over the first six months of the year. The Dow Jones Industrial Average climbed about 4% over that period, while the tech-heavy Nasdaq soared roughly 18%.
Analysts who spoke to ABC News attributed the strong gains to enthusiasm about artificial intelligence as well as resilient economic growth and expectations that interest rates would ease.
But, experts predicted, the stock market will likely struggle to sustain its breakneck growth over the remainder of the year as investors turn away from increasingly high prices and weather uncertainty centered on the economic outlook and the November election.
“It has been a very impressive start to the year,” Adam Turnquist, chief technical strategist at LPL Financial, told ABC news. “But as we look toward the second half, on a short term basis, we think the market is overbought.”
Despite straining under the weight of the highest interest rates in two decades, the U.S. economy has sustained solid growth. Meanwhile, U.S job gains have remained robust, exceeding expectations and driving significant wage increases.
Progress, however, in the fight against inflation has largely stalled. Even so, the Fed has indicated that an additional rate increase is unlikely, instead forecasting one rate cut by the end of 2024.
“The markets have welcomed the fact that we’re likely to see rate cuts,” Turnquist said.
Those wider economic trends have coincided with a burst of investor appetite for tech firms leading the adoption of AI. Major stock indexes drew a bump from investors optimistic about the potential benefits of products like ChatGPT.
Those gains were concentrated primarily in a handful of tech giants, known as the magnificent seven: Alphabet, Amazon, Apple, Meta, Microsoft, Tesla and Nvidia. Even within that group, the gains were enjoyed primarily by a select few.
The stock price of Nvidia — the maker of many computer chips driving AI advances — has climbed nearly 150% since the outset of 2024. Microsoft, which owns a major stake in ChatGPT-maker OpenAI, has seen its shares soar more than 20% this year.
“The AI effect has helped market sentiment and deservedly so,” Mike Loukas, CEO of TrueMark Investments, told ABC News. “But a handful of concentrated stocks seem to carry the market at any given time.”
In light of the gangbusters performance at the outset of this year, experts warned that the stock market would likely struggle to sustain the returns. At a basic level, the rise in stock prices that stretches back to last year will eventually reach a point where traders become reluctant to pour in funds at an elevated price tag, the analysts said.
“There needs to be a reset button from these overbought conditions,” Turnquist said.
Even more, the positive trends in the economy face a number of threats. Most notably, the ongoing combination of high interest rates and stubborn inflation could weigh on corporate profits and wear investor patience thin.
“The whole dance — rate cuts or no rate cuts; inflation or no inflation — I think that continues,” Loukas said. “We’re still pretty sensitive as a whole to macroeconomic factors.”
Such economic uncertainty is compounded by a wide range of possible outcomes in the November election, Loukas added.
“The election is going to be a wild variable,” Loukas said. “There’s a lot of uncertainty in what’s happening and the market is still trying to price that in.”
Loukas forecasted growth in the stock market over the remainder of 2024, but he said the pace would fall short of the surge experienced over the first half.
Turnquist, of LPL Financial, echoed that view. The stock market could rise slightly by the end of the year, he said, but companies will weather a more challenging environment.
“There’s still a risk that the battle isn’t over with the Fed,” he added.
Still, Turquist noted, the outlook for the market beyond this year remains favorable. “We’re still in a long-term uptrend,” he said.
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