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Nikkei, S&P 500 & Nasdaq at Record Highs: Can It Last?

Carolane de Palmas | Tuesday 05 March 2024

The NASDAQ (US-TECH 100), the S&P 500 (S&P 500), and the Nikkei 225 (Japan 225) all reached new record highs on March 4th. 

Will the gains continue, or are they as high as they’ll go? That is the question. Wondering what’s next? Here’s what to consider:

an illustration of stock charts

Indices Technical Snapshot: March 4th, 2024

Nasdaq 

On Monday, March 4th, the tech-heavy index Nasdaq reached its highest level at 18,377.75 points but has slightly retreated since then. At the time of writing before the US opening, it is hovering at around 18,152 points.

S&P 500

On March 4th, another American index reached a record-high before finishing in the red: the S&P 500 at 5,157.75 points. For the second day in a row, the S&P 500 is now trading downwards, which will be the first since Feb 12 if the index loses ground when the US trading sessions close later today. At the time of writing, the S&P 500 is trading around the 5,124 level. 

Nikkei 225 

During the Asian trading session of March 4th, the Japanese index surpassed the 40,000 mark and reached an all-time high of 40,314.64, but it is now trading lower around the 40,097 level. 

Factors Behind the Record Highs of the Nikkei, the S&P 500 & the Nasdaq

The Nikkei was potentially supported by a robust earnings season and some local stock market reforms. The American markets have also profited from relatively stronger-than-expected earnings, despite high interest rates and the popularity of the Artificial Intelligence (AI) sector, as well as the anticipation of the Fed’s rate cuts in 2024. (Source: Bloomberg)

The strength of the US economy has also supported investment in Japan and overall optimism, especially when it comes to AI-related stocks. Increasing interest from foreign investors looking to shift their investments from China is likely to have been a positive factor for Japanese stocks.

Can the Uptrend Continue?

American indices could continue to rise, given the overall optimistic market sentiment, the diminishing concerns about inflation, robust corporate earnings despite higher interest rates in 2023, and the resilient performance of the US economy throughout last year, which has supported the idea of a soft landing. Moreover, if the excitement surrounding AI continues to translate into concrete advancements and real-world applications, it could further fuel the rise of the indices.

In the case of the Japanese index, a weaker yen could continue to help exporter companies improve their business, which tends to support the Nikkei. Another contributing factor to the increase in the Japanese index in 2024 could be an increasingly large number of foreign investors seeking alternatives to China's sluggish markets and a potential change in Japanese monetary policy.

Conversely, traders should recognize that a significant portion of the US market's strength in 2023 was concentrated in a select group of stocks, predominantly within the technology sector, such as the “Magnificent Seven” (Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)). Therefore, the US indices appear to be concentrated markets and heavily rely on the performance of a few stocks.

When it comes to the Japanese economy, the outlook is rather bearish, as the country entered a technical recession in the last quarter of 2023 and lost its position as the third-largest economy in the world to Germany. Moreover, the domestic economy is quite low, and the aging population is an issue for the country’s productivity and growth. 

Additionally, a global recession is still a possibility, as significant uncertainties linger, such as the ability of consumers to keep spending to sustain the economy and the timing of the first rate cut by the Fed and in other parts of the world. Unforeseen developments and geopolitical tensions could also pose risks and weigh on the financial markets for the rest of 2024, especially with the numerous important elections that take place in 2024, including the US election.

Conclusion

Traders may want to be careful when the markets they engage in are hovering near their all-time highs, especially following a notable winning streak, and should keep tabs on any changes to come.


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