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It's the first trading day of the year. The stock market opens just off an all-time high. US stocks have risen by around 25 % over the past 12 months, with several tech giants leading the way. There's a big move in the share price of Apple, the world's most valuable company, which will kick off a move in the broader market. This sets the tone for the rest of the day.
Feeling déjà vu? Because these facts describe both January 3, 2022 and January 2, 2024. In 2022, the mood on the first trading day of the year was close to euphoria. The s&p 500 index of large US companies rose to 4,796 points, setting a new all-time high. Apple became the first company in the world to reach a value of three trillion dollars, although its market capitalisation has since fallen. After the 2021 boom, the stock market seemed to signal that it was ready to continue its ascent and climb to ever greater heights.
Meanwhile, 2024 looks somewhat different. When an analyst downgraded Apple to a "sell" recommendation on January 2, citing a slowdown in demand for the company's phones as a reason for the continued slowdown, the share price of the world's largest company fell by 4 %. The rest of the market followed suit. Instead of climbing above the high set for January 3, 2022, the stock fell 0.6 %. Despite the stormy bull market that heralded the end of 2023, the tone became unsettled. Television talking heads began delivering obituaries for the hot streak in US stocks. The mood did not improve the next day. Shares plunged another 0.8 % on January 3.
To understand whether these fears are justified, consider the lightning rally that preceded it. In the last two months of 2023, the stock jumped by 16 %, accounting for two-thirds of the growth for the entire year. The s&p 500 index has risen for nine straight weeks, the longest winning streak since 2004. After dipping into a true "bull market" (defined as stocks that have risen at least 20 % above their recent lows) during 2023, stocks now tower approximately 31 % above that level.
Many of the market movements in the last two years seem reasonable. After Nvidia, which makes semiconductors, the next best performing company, as measured by market capitalisation growth, is Eli Lilly, which is at the forefront of another technological advance (in its case, weight loss drugs). Manufacturing companies, meanwhile, have benefited from the return of generous industrial policy under the Biden administration's inflation-reduction law. Although companies that reflect the broader economy, such as banks and consumer goods retailers, have thrived recently, they remain well below their early 2022 levels. Vaccine makers such as Moderna and Pfizer have seen their prices fall, reflecting the declining importance of covid-19. The overall picture, then, does not paint a picture of a market gripped by irrational exuberance.
economist/JaV_07
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