The S&P 500 (SPY) and Dow Jones (DJI) both recorded record closing highs last Friday. Netflix led the market’s advance, which also lifted Nasdaq (QQQ) and the technology stock sector.
The widely held indices closed higher for six straight weeks. This is a streak not seen since late 2023. Markets do not have any headwinds to consider. The Federal Reserve cut interest rates by 50 bps last month. The ECB cut rates by 25 bps, while markets expect Canada will cut rates by another 50 bps.
While the magnificent seven stocks continued to buoy markets, Microsoft (MSFT) is a notable underperforming stock. Risks are on the rise that Microsoft’s investment in ChatGPT may not lead to quick profitability growth. Corporations are currently willing to spend heavily on building AI systems. They are training models first. However, AIs may hallucinate, giving users the wrong answer. This threatens the value of AI-based tools.
Complacent Markets
Inflation continued to drop monthly, jobs were growing, and the spending economy was solid. These conditions allow markets to enjoy a period of complacency. Gold closed at all-time highs, which suggests that currencies may weaken.
Expect the energy sector to continue underperforming. Schlumberger (SLB) reported weak earnings. This hurt Baker Hughes (BKR) and Halliburton (HAL). China’s weak economy and insufficient stimulus, along with the Middle East conflict, hurt energy demand.
