Nasdaq Hits 20,000 Points for the First Time

Advertisements

80

Market analysts have issued a warning regarding the recent exuberant gains of the Nasdaq index, suggesting that its remarkable year-end rally may merely represent an advance on the anticipated profits for early 2025.

On a recent Wednesday, tech stocks surged dramatically, propelling the Nasdaq index to achieve a historic milestone by closing above the significant 20,000-point threshold for the first timeBehind this intriguing market spectacle, it is the colossal tech giants that have become the primary engines of this resurgence, injecting remarkable momentum into the stock market with their resounding reboundCorporate titans such as Google's parent company Alphabet (GOOGL) and Meta Platforms (META) have emerged as shining stars in this scenario, with their share prices reaching unprecedented closing highs, fundamentally supporting the Nasdaq's journey towards this crucial numeric landmark.
Richard Steinberg, the Chief Market Strategist at Colony Group, encapsulated the current market dynamic with a vivid metaphor: “Before Christmas, the bright things seem to get even brighter,” referring to the robust performance of the Nasdaq

However, he shifted his tone to express a deeper concern: “I fear we are robbing Peter to pay Paul.” This poignant analogy highlights the potential risks and hidden dangers lurking behind the Nasdaq's skyrocketing gains.

Historically, the U.Sstock market has demonstrated cyclical trends, with December often showcasing strong performances, particularly in the latter half of the month, a period known to investors as the "Santa Rally." Traditionally, this year's Santa Rally is set to commence on December 24 and will continue until the second trading day of 2025. Historical data indicates that, according to statistics from FactSet, since 1969, during these seven trading days, the S&P 500 index has yielded an average gain of 1.3%, while the Nasdaq has already recorded a remarkable 4.3% increase this December.

However, Steinberg contends that the Nasdaq's year-end surge has resulted in returns that merely prepay the expected earnings for early 2025.

Despite the elevated valuations of the U.S

stock market, with a considerable likelihood of recording returns exceeding 20% for two consecutive years, investor sentiment remains optimistic ahead of 2025.

Part of this optimism is based on potential “growth-promoting” policies that might be implemented during the second term of the government, such as additional corporate tax cuts, although these measures are not guaranteedAccording to Steinberg, this could lead to a weakening of growth stocks in the first quarter.

At the same time, the market also faces numerous other potential pressure factorsFor instance, the yields on the 10-year U.STreasury bonds remain at elevated levels, which diminishes the relative attractiveness of the stock marketAs bond yields rise, some of the capital that would have typically flowed into the stock market diverts toward bonds, thus creating downward pressure on stock prices

Additionally, the concerns raised by the new year’s “bond vigilantes” regarding the increase in U.Sdeficit spending could exert serious pressure on growth stocks.

The “bond vigilantes” are individuals or groups that attempt to influence government policy by selling bonds or merely threatening to do soTheir concerns stem from the increasing U.Sdeficit spending, which could trigger inflation, rising interest rates, and other potential issues that could impact bond values and market stabilityWhen they take action or issue warnings, the market often experiences volatility and panic, with growth stocks being particularly vulnerable due to their sensitivity to market conditions.

Lastly, Steinberg pointed out that with the progression of the “America First” agenda, a strengthening dollar may also affect the earnings of multinational corporations in the coming year

alefox

Add a Review

Your email address will not be published. Required fields are marked