Has a new bull market started? (AAPL, AMZN, TSLA, META)

OWith a 3.3% gain over the past five trading sessions, the tech-heavy Nasdaq Composite Index recorded its fifth consecutive week of gains. It’s the index’s longest weekly winning streak since November 2021, driven by fourth-quarter results from major tech heavyweights like Apple (AAPL), Amazon (AMZN) and Meta Platform (META) . For the week, the Dow Jones Industrial Average gained 1.8%, while the S&P 500 Index gained 2.5%.

Since the beginning of the year, the gains are even more pronounced. The Nasdaq rose 15.5%, from a 34% decline in 2022. The S&P 500 is up 8.16%, while the Dow Jones added a modest 2.38% gain. The reasons for the increases since the beginning of the year can be attributed to several factors. The market has largely applauded the earnings results reported by companies so far, having come in “less bad” than expected, while forecasts have been encouraging, suggesting that CEOs feel a certain level of confidence in their ability to make in the face of inflationary headwinds.

Although it is still early in the fourth quarter reporting cycle, it is now worth considering whether we have entered a new bull market. Granted, the sharp rise in January’s jobs report was unexpected, which may prevent the Federal Reserve from fully shifting from its rate-hike mode to more moderate monetary policy. But even then, the Fed’s decision last week to raise rates by 25 basis points was an indication that the “pivot” may have already begun.

With inflation at multi-decade highs, the Fed has done what it can to meet its mandates, raising interest rates seven times in 2022, including raising rates by 75 basis points four times in a row. “Reducing inflation will likely require an extended period of below-trend growth,” Powell said. “While higher interest rates, slower growth and looser labor market conditions will reduce inflation, they will also hurt households and businesses.” This is precisely what happened in 2022.

However, in the last three rate hikes, the increases have gone from 75 basis points to 50, and now to 25 basis points on February 1. While not an immediate 180 degree turn, I would consider this trend a pivot, if not the start of one. Rising interest rates are what triggered the bear market in 2022. In the case of the Nasdaq, which is made up of high-growth companies, rising interest rates put pressure on their business, forcing high-growth names to borrow money at higher rates to fund their operations.

In the process, stocks were penalized due to lack of liquidity, especially high-growth tech stocks. Meanwhile, inflation has forced consumers to cut back on spending, and that’s what high-growth companies are counting on. This had negative effects on, for example, Tesla (TSLA) which suffered a 70% drop in 2022. The luxury electric vehicle company, which missed the Street delivery target in the fourth quarter, had to reduce its prices several times in order to stimulate sales. However, in 2023, Tesla’s price cuts are now seen as giving it a possible market share advantage.

In other words, nothing has changed, but the perception has gone from “bad” to “good”. It’s the same with last week’s tech gains. With first quarter revenue down 5% year over year, Apple missed Street’s estimates for the first time in seven years. Amazon recorded its weakest year in terms of growth since its IPO 25 years ago, the core advertising business of Google parent Alphabet (GOOG, GOOGL) declined. But here’s the thing: All three companies ended the week with strong stock gains.

All told, while it looks like the market is waiting for the Fed’s pivot, the market itself has already shifted from a bearish to a bullish mindset ignoring what has typically been a “bad news”. And that’s often a good sign that a new bull market is underway.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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