After Rallying Three Straight Quarters, the S&P 500 Clinches a Double-digit Gain in the First Half of 2024

The U.S. stock market experienced a robust rally in the first half of 2024, with the S&P 500 achieving a significant double-digit gain and concluding June near its all-time high. The S&P 500 index closed at 5,460.48 on the last Friday of June, which is only 0.5% shy of its record closing on June 18, as per Dow Jones Market Data. This year, the index has surged by 14.5%, primarily driven by the booming Big Tech stocks, marking an exceptionally strong start as the U.S. economy continues to grow, albeit at a slower pace.

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"People have been predicting a recession for the past two-and-a-half to three years," remarked Mike Skordeles, head of U.S. economics at Truist, in a phone interview. He noted that U.S. economic growth in 2024 is "cooling but not weak," with inflation showing signs of easing based on recent data.

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The Federal Reserve has been trying to temper the economy to sustainably reduce inflation towards its 2% target without causing a recession. The inflation data for May, released on Friday, aligned with Wall Street’s expectations. The personal-consumption expenditures price index, the Fed’s preferred inflation gauge, remained unchanged in May, and the year-over-year rate dropped to 2.6%, according to the Bureau of Economic Analysis. Core inflation, excluding food and energy prices, increased by 0.1% in May but also eased to 2.6% over the past year.

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Kevin Gordon, a senior investment strategist at Charles Schwab, commented that the latest data dispels the notion that the inflation resurgence in the first quarter had lasting effects. He pointed out that inflation appears to be on a path towards the Fed’s 2% target. Additionally, a downward revision in consumer spending in the first quarter's U.S. GDP report, released on June 27, supports the expectation of reduced inflationary pressure. While inflation remains a challenge for lower-income consumers, overall, U.S. consumers have been resilient, bolstered by a strong labor market and low unemployment rates.

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Skordeles predicts that the U.S. economy will grow by around 2% in 2024. The impressive rise in the S&P 500 this year has been largely driven by a handful of Big Tech stocks. Nvidia Corp., an artificial-intelligence chip maker, has seen its shares skyrocket by 149.5% so far this year. Other tech giants in the S&P 500, such as Meta Platforms Inc., Alphabet Inc., Amazon.com Inc., and Microsoft Corp., have also recorded substantial gains.

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The S&P 500 has increased for three consecutive quarters, soaring 32.6% from its 52-week low in late October, as reported by Dow Jones Market Data. Despite this impressive performance, the market has shown mixed signals. Gordon highlighted that the S&P 500's overall gains have masked underlying volatility, with significant pullbacks and weaknesses among many of its constituents. However, about two-thirds of the index's members have consistently traded above their 200-day moving average in 2024.

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Gordon also noted that the S&P 500 has experienced "rolling corrections" throughout the year. These corrections, while significant, have not been enough to drag down the broader index, thanks to the substantial gains from the megacap tech stocks. The market's performance in the first half of 2024 has been characterized by this dichotomy, with strong headline gains masking more turbulent movements beneath the surface.

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In summary, the U.S. stock market has enjoyed a strong first half of 2024, with the S&P 500 posting significant gains driven by Big Tech. The economy is showing resilience despite cooling growth, and inflation appears to be moderating. While the headline figures are impressive, underlying market dynamics reveal a more complex picture, with substantial volatility among individual stocks and sectors. Looking ahead, the continued performance of these key tech stocks and broader economic conditions will be crucial in determining whether the market can sustain its upward trajectory in the second half of the year.

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