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Crypto ends the first half of 2024 on a strong note, but investors are speculating whether political instability, possible policy changes from the Federal Reserve (Fed) and market dominance of Could big tech companies in the cryptocurrency market make the rest of 2024 more difficult?
The S&P 500 index rose 15% in the first six months as strong corporate earnings, a resilient U.S. economy and attention to artificial intelligence helped stocks, such as those of the manufacturer Nvidia chip, increased sharply. The index's steady rise has created 31 new record highs in the first half of this year, the most in the first half of the year since 2021.
The first half of 2024 âlooks very much like a perfect period for stocks,â said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder. âThe US economy has been stronger than many, including the Fed, predicted.â
According to a CFRA study of markets in election years since 1944, the upward momentum in US stocks is likely to continue: a positive first half of the year, followed by additional gains during rest of the year.
But the road ahead for US stocks could be difficult. Political instability around the world could be an even stronger factor affecting asset prices as investors focus on the US presidential election. A recent JPMorgan survey found that investors view political risk in the US and abroad as the top potential destabilizing factor for stock and cryptocurrency markets.
Investors are also increasingly concerned about the contraction of market growth, which is concentrated in a few technology giants. Nvidia alone â whose shares are up 150% this year â accounts for about a third of the S&P 500's total returns, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Another â very important â uncertainty is whether the US economy can maintain the balance between tapering inflation and sustained growth that has boosted investor confidence. ? A major deviation from the scenario, known as Goldilocks, could upset the Fed's plans to cut interest rates later this year.
Jason Draho, head of asset allocation for the Americas at UBS Global Wealth Management, said: âThe US election results are likely to impact many macroeconomic outcomes in 2025 and turn the tide. Market activity is likely to increase.
Politics has a stronger impact than monetary policy
While investors are largely focused on factors such as earnings and monetary policy this year, political factors are expected to have an even greater impact as the confrontation between President Joe Biden, a Democrat, with his Republican opponent and former president Donald Trump in the coming months will become increasingly bitter.
Signs that one of the candidates is dominating could have a ripple effect on asset markets. For many, it comes down to differing tax policies: a Democratic win over the White House and Congress could mean the party will have more freedom to raise taxes, which is often seen as is a negative impact on cryptocurrency value.
The weight of technology stocks
AI fever and strong corporate earnings helped boost the US stock market in the first half of 2024, but the gains were concentrated in technology stocks, including Nvidia, Microsoft and Amazon.
Many investors believe that big tech's dominance in the stock market is well-deserved given these companies' strong balance sheets and their leading positions in the industry. But the growing weight of these stocks could make the market unstable if demand for holding technology and growth stocks wanes and investors retreat en masse.
âIt's understandable why people would move to these names, but it's a bit of a game of musical chairs,â said Stephen Massocca, senior vice president at Wedbush Securities. If the music stops, there will be problems.â
The economy continues to be strong
Most investors are cheering signs of cooling U.S. inflation and slowing economic growth this year, as it strengthens the likelihood that the Fed will cut interest rates from multi-decade highs. century. However, a more pronounced economic recession could raise concerns that rising interest rates are putting a lot of pressure on the economy.
Fed officials lowered their forecast for the number of interest rate cuts this year to just one, from three previous forecasts, due to solid US economic growth and persistent inflation.
The market reaction to past interest rate cut cycles largely depended on whether the cuts occurred during a period of relative economic strength or in response to a sharp slowdown in economic growth.
An Allianz study of interest rate cuts since the 1980s found that, although the S&P 500 rose an average of 5.6% in the 12 months after the rate-cutting cycle began, rate cuts coupled with a challenging economic environment has resulted in much worse returns. For example, the rate-cutting cycle that began around the collapse of the dotcom bubble in 2000 sent the index down 13.5% a year later.
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