The seven tech giants drove the US stock market rally in 2023. Can they continue to ride the waves in 2024?

Five Stages to Understand the Crazy Rally of US Stocks in 2023

The performance of US stocks in 2023 can be described as tumultuous, yet ultimately it marked the most impressive chapter since 2020. Over the course of the year, the market experienced a complete cycle: “Q1 AI wave takes off → March banking crisis shock → Q2 continued recovery → Q3 end high-interest environment adjustment → Q4 soft landing rebound.”

Q1: AI Boom Sparks Tech Stocks Surge

Driven by the excitement around ChatGPT from OpenAI, the AIGC concept swept across the globe. Tech giants like Microsoft, Meta, and Google joined the large language model race, creating the strongest Nasdaq quarterly performance since 2020. The seven major tech giants each gained over 20% in a single quarter, officially signaling the start of a technical bull market.

March Test: Banking Crisis and Sentiment Reversal

Sudden crises at Silicon Valley Bank, Signature Bank, and Credit Suisse led to liquidity risks spreading from regional banks to the entire financial system. Analysts warned that the Q1 rally in tech stocks was excessive, prompting the market to reassess the sustainability of the AI concept. Regulatory concerns over ChatGPT’s safety also surfaced gradually.

Q2: Fundamentals Begin to Recover

The market sentiment shifted as inflation peaked and expectations of the Federal Reserve ending its rate hike cycle took hold. The technology, communication services, and discretionary consumer sectors rallied in turn. With improved corporate earnings and expectations of AI commercialization acting as dual catalysts, all sectors of the S&P 500 advanced together.

Q3 and October: Pain of High-Interest Environment

US Treasury yields soared to historic highs, and tensions in the Middle East further increased market volatility. The limited influence of a few heavyweight tech stocks on the broader market began to show, with market breadth narrowing and downside expectations strengthening.

Q4: Soft Landing Expectations Ignite Rebound

Inflation data continued to decline, and the labor market remained resilient. The Federal Reserve hinted at three rate cuts in 2024 during December. Yellen’s statements reinforced market confidence in a soft landing, leading to a rebound in US stocks in Q4.

Wall Street’s “Prediction Failures”

By the end of 2023, the Nasdaq rose by 40.77%, the S&P 500 by 22.60%, and the Dow Jones by 11.90%, surpassing 37,000 points for the first time in history. This achievement delivered a resounding slap to Wall Street investment banks.

At the start of the year, major institutions like Goldman Sachs, JPMorgan Chase, and Société Générale were generally bearish on US stocks for 2023, predicting the S&P 500 would peak around 4700. But by December, the index approached 4700, far exceeding most forecasts. Here is a comparison of early predictions and actual performance from major banks:

Most forecasts for the year’s end targeted the S&P 500 between 3800 and 4500 points, but the actual trend proved that markets often reverse in the face of pessimistic expectations. Goldman Sachs chief strategist David Kostin believed 2023 would face earnings growth stagnation, but the explosive AI wave completely rewrote that script.

Other major global markets also performed well. Under ultra-loose monetary policy, Japan’s stock market rose over 26%; Taiwan’s market gained over 23% thanks to AI industry advantages; Germany’s DAX increased over 20% despite automotive industry pressures, reaching new all-time highs.

The Structural Truth Behind US Stock Gains in 2023

The rise in US stocks this year was not evenly distributed. The seven tech giants (Apple, Microsoft, Google, Amazon, Tesla, Meta, NVIDIA) contributed three-quarters of the full-year gain of the S&P 500. In other words, a few leading stocks supported the entire market rally. This phenomenon reflects both concentrated bets on the AI era and a weak market breadth.

During the Fed’s rate hike cycle, the US economy demonstrated unexpected resilience. While inflation did not fully return to the Fed’s 2% target, a moderate downward trend was established. The labor market remained strong, with low unemployment, supporting the narrative of a soft landing.

US Stock Outlook for 2024: Opportunities or Challenges

Entering 2024, Wall Street’s attitude toward the US stock outlook has shifted from widespread pessimism to relative optimism. JPMorgan Chase set a target of 4200 points, but as the January rally continued and companies like Apple hit new highs, some institutions adjusted their expectations. Deutsche Bank projected 5100 points, believing current valuations are not overly inflated; Barclays forecasted 5000 points, considering the macro uncertainties have been largely priced in.

Consensus among institutions for 2024 includes: a recovery in corporate earnings growth, achieving a soft landing for the economy, and the start of a rate cut cycle. Bob O’Donnell, President of TECHnaAnalysis, stated that 2024 will be the year of true explosive growth for generative AI. Goldman Sachs predicts AI technology will profoundly impact economic growth, productivity, and competitive dynamics.

However, the road for US stocks in 2024 remains fraught with obstacles. Political uncertainties in an election year, potential recession risks, evolving geopolitical tensions, and the overvaluation of a few tech stocks leading to concentration risks could all cause turbulence mid-year. Whether tech giants can continue to lead, whether emerging sectors will rise to fill the gaps, and whether market breadth can improve will ultimately determine the final trajectory of US stocks in 2024.

Lessons from last year’s prediction failures remind investors that Wall Street forecasts are fundamentally a probabilistic game, not absolute prophecies. Based on current monetary policy expectations, corporate earnings improvements, and AI commercialization prospects, US stocks still have upward potential in 2024, but risks are gradually accumulating at the margins.