Kerry Craig

Macroscope | Why latest US stock market bull run is less strong than it seems

The heavy lifting is being done by a handful of tech companies, amid enthusiasm for generative AI

However, this enthusiasm could be challenged in the short term, given the sharp rise in valuations, even as AI is likely to remain a long-term influence

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The Nasdaq MarketSite in New York on June 9. The narrowness of the US equity market has been well documented. Photo: Bloomberg

Kerry Craig

Published: 10:30pm, 16 Jun 2023Updated: 2:13am, 17 Jun 2023

US equities have moved back into bull market territory, surprising investors who are now asking whether the rally will last.

The S&P 500 stands at 20 per cent higher than its most recent low in the middle of October 2022, suggesting that animal spirits are back and the rally will continue. Given that the US equity market is almost 9 per cent away from its high in January 2022, this is not an unreasonable assumption.

However, not all equity sectors have benefited from the rally and rising investor interest. While the broader index rose 20 per cent, the energy sector only managed to squeeze out a 1.3 per cent return; in fact, five sectors returned less than half of the 20 per cent gain for the index as a whole.

The narrowness of the US equity market has been well documented, and the heavy lifting was done by a handful of companies in the technology and communication service sectors. This is largely attributed to the enthusiasm for, and endless possibilities of, generative AI, as well as a fall in bond yields earlier in the year.

However, the bull market run has come amid aggressive monetary policy tightening by the US Federal Reserve, which has raised interest rates by 500 basis points in a little over a year – with possibly more to come. The market has also had to contend with three regional bank failures and a rising recession risk on the horizon.

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None of which makes a strong case for equities. Even so, the market has rallied for a number of reasons. Here are two of the more notable ones.

Macroscope | Why latest US stock market bull run is less strong than it seems

The heavy lifting is being done by a handful of tech companies, amid enthusiasm for generative AI However, this enthusiasm could be challenged in the short term, given the sharp rise in valuations, even as AI is likely to remain a long-term influence

The heavy lifting is being done by a handful of tech companies, amid enthusiasm for generative AI

However, this enthusiasm could be challenged in the short term, given the sharp rise in valuations, even as AI is likely to remain a long-term influence