The S&P 500 and Nasdaq Composite hit new highs on Wednesday, driven by a surge in Big Tech stocks. Optimism about potential interest rate cuts, fueled by signs of a slowing labor market and a softening economy, spurred the market rally.
Recent data shows a cooling labor market, with job openings in April dropping to a three-year low. The ADP private payrolls report for May also revealed that private-sector growth fell below expectations. The S&P 500 rose by around 1.2%, closing at a record 5,354, while the Nasdaq Composite, known for its tech-heavy makeup, surged nearly 2% to reach a new closing high of 17,187.
Tech stocks, particularly Nvidia and Apple, were the main drivers of the rally. Nvidia saw its market capitalization surpass $3 trillion for the first time, while Apple also reclaimed a market cap exceeding $3 trillion. Nvidia’s market cap even surpassed Apple’s.
Analysts at Bank of America raised their price target for Nvidia to a Street-wide high of $1,500, citing the company’s strong growth outlook. With Nvidia taking a significant portion of SPDR S&P 500 ETF and Nasdaq ETF Invesco QQQ, its performance has a notable impact on these indices.
Market expectations for a Federal Reserve rate cut are growing, with around 65% of traders anticipating a reduction in the benchmark interest rate at the September meeting. This marks a significant increase from less than 50% just a week prior.
Corporate earnings growth has been a key driver of the market rally, with a 6% increase in the first quarter, the highest in nearly two years. Tech earnings have been a major contributor to this growth, but strategists believe that earnings growth is now expanding to other sectors like Utilities and Energy.
Several equity strategists have raised their year-end targets for the S&P 500, with the median target at 5,250. BMO Capital Markets’ chief investment strategist even raised his year-end target to 5,600, the highest on Wall Street. Historically, years with an S&P 500 rally of over 8% in the first five months tend to see further gains.
Investors looking to capitalize on the market rally can consider leveraged S&P 500 and Nasdaq ETFs like ProShares Ultra S&P 500, ProShares UltraPro QQQ, Direxion Daily S&P 500 Bull 3X Shares, ProShares Ultra QQQ, and ProShares UltraPro S&P500.