The year 2023 has seen Nasdaq Composite, the tech-laden market index, surge with unprecedented momentum. The first half of the year witnessed a robust gain of 32%, the most substantial six-month growth since the zenith of the dotcom bubble in 1999.
Such stellar performance brings back memories of 1983, the year Nasdaq recorded its best inaugural half. But what sets the stage for this phenomenal leap and, more importantly, what lies ahead?
The tech giants lead the charge
Underpinning the success of Nasdaq are some of the biggest names in technology: Apple, Amazon, Microsoft, Nvidia, Alphabet, Meta, and Tesla.
Their collective might has propelled the index to outperform broader markets, as evidenced by the stark contrast between the Nasdaq’s rise and the S&P 500’s modest 5% increase.
For example, Apple’s value skyrocketed to over $3tn, marking a new record high for the tech titan. Nvidia, the chipmaker, has seen its price nearly triple since the dawn of 2023.
The incredible rise of these tech juggernauts has fueled Nasdaq’s exceptional performance, further stressing the growing influence of large tech groups in the market landscape.
The journey wasn’t free of obstacles. The US stock markets grappled with issues ranging from regional bank instability, political wrangling over the government debt ceiling, to increased interest rates driven by the Federal Reserve and other fiscal policy architects.
Yet, these challenges were not formidable enough to stall Nasdaq’s climb.
The “Magnificent Seven,” as these leading tech companies are fondly called, leveraged artificial intelligence’s promising potential to garner investor interest. This enthusiasm is based on real demand and not just ephemeral hype surrounding new technology.
Skepticism amid success
Notwithstanding the current euphoria, the exclusivity of the rally, driven mostly by these seven tech giants, is stirring skepticism.
Some analysts and investors question whether the momentum can sustain, given the Federal Reserve’s efforts to curb inflation, which some fear may nudge the economy into recession.
In addition, with asset manager BlackRock characterizing the recent performance of US equities as “unusual,” the question of sustainability takes center stage.
Despite these concerns, Nasdaq’s success story does not seem ready to fold any time soon. AI is proving to be more than just a buzzword, and its tangible applications are driving real earnings growth, thereby contributing to sustained investor interest.
However, the idea that the Federal Reserve will succeed in slowing the economy raises questions about the future standing of the equity market.
On the international front, European blue-chip indices have also made gains. Predictions that inflation will slow down and the European Central Bank’s tightening campaign will peak have seen France’s Cac 40 and Germany’s Dax gaining 14 and 16 per cent respectively in the first half.
However, the UK’s FTSE 100 has lagged behind, due to the country’s stubbornly high inflation and exposure to falling oil prices.
In summary, the phenomenal start to the year for Nasdaq has indeed surpassed all expectations. It is a testament to the prowess and appeal of the tech giants leading the charge, as well as the potential of artificial intelligence in reshaping the business landscape.
While there may be headwinds ahead, there’s no denying that Nasdaq’s performance serves as a beacon of resilience and innovation in the world of equities.
