U.S. stocks continue rising to fresh record highs, with the S&P 500 above 5700 and the Dow Jones above 42,000 for the first time in history. Meanwhile, the tech-heavy NASDAQ has rallied over 7% in the past two weeks, although it remains 3% off its all-time high of 20,750.
Why have stocks rallied to record highs?
The US stock market has recovered from its September lows and soared to all-time highs after the Federal Reserve cut interest rates by 50 basis points, signalling the start of its first rate-cutting cycle in four years.
The prospect of a lower interest rate environment is good news for the stock market. Lower borrowing costs free up cash for companies, which they can use to reinvest in the firm or return to shareholders. It also means households can borrow money more easily while increasing disposable income.
Finally, a low interest rate environment is considered beneficial for riskier assets such as stocks because it prompts investors to withdraw from the bond market and invest in stocks. The influx of new capital also helps share prices higher.
Which sectors have been leading the market?
Tech stocks have outperformed since October 2022, helping the Nasdaq 100 reach its all-time high in late July. Conventional wisdom tells us that growth stocks, i.e., tech stocks, benefit from a low-interest rate environment, while the AI boom added to the euphoria. Stocks like Nvidia, Apple, and Microsoft posted impressive gains, helping the tech sector to new highs.
However, across August and September, there have been signs of a rotation into value stocks from growth stocks as the rally broadens. Concerns over a hard landing for the US economy have seen sectors such as healthcare and consumer staples, as well as other more defensive stocks, rally. This explains the fresh all-time highs in the S&P 500 and the Dow Jones, while the Nasdaq 100 has lagged behind.
Where next for tech stocks?
The start of a rate-cutting cycle from the Federal Reserve is expected to be a positive signal for the market. Paired with a boom in tech spending thanks to artificial intelligence, this would create ideal conditions for tech stocks to rise further.
A soft landing for the US economy and a once-in-a-generation spending cycle on artificial intelligence could create an ideal growth environment for a broad range of tech firms. According to analysts at Wedbush, for every $1.00 spent on an NVIDIA GPU chip, there is an $8—to $10 multiplier effect across the sector. This means that the tech sector could be gearing up for unprecedented growth driven by vast AI spending over the coming years.
While Nvidia and Microsoft have been the key drivers of the AI trade so far, we could now see other tech giants joining the AI party. AI spending is expected to support different tech sector areas, from semiconductors and software to infrastructure and smartphones. However, this will take some time; AI will not be an overnight game changer.
How to trade tech stocks with PXBT?
One of the ways to trade tech stocks is through the Nasdaq 100 index. This stock market index tracks the 100 most traded and largest stocks on the Nasdaq Exchange. The Nasdaq 100 comprises non-financial stocks focused on innovation, with around 55% of the index made up of technology stocks. It can be traded through an online brokerage such as PXBT.
PXBT is a leading, regulated CFD broker that offers a wide range of markets to trade on its MT5 platform. These include commodities, FX, and indices such as the S&P 500, Dow Jones and the tech-heavy Nasdaq100.
Whether you are new to trading or an expert, the PXBT platform’s intuitive interface, advanced charting tools, and a comprehensive suite of features will help you to navigate the markets with confidence.
Furthermore, PXBT offers low fees and ultra-fast execution while remaining committed to delivering the latest brokerage infrastructure and deep expertise for traders worldwide.
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