Is this the start of a bull run?

US stocks have bounced back in recent weeks, returning to what some are calling bull-market territory. This marks an about-turn from the bear market that began in early 2022, which then ended up as equities’ worst year since 2008.

The S&P 500 stock market index — representing major US equities — has roared ahead in 2023, posting consecutive weeks of gains. Year to date, the S&P 500 is up about 16.5%, as of 3 July.

Large-cap technology stocks are leading the share price rally amid optimism around artificial intelligence (AI) and the changing interest rate outlook. Also buoying the equity markets are strong financial results and raised outlooks for some companies. 

Will the Big Tech rally fizzle out soon? Fund managers give their take.

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Staying focused as markets shift

Dimensional, 29 June 2023

“Among the strongest performers so far in 2023 have been technology stocks, recovering after a poor showing in 2022. The tech-heavy Nasdaq has risen 30.8% through mid-June. Much of the stock market’s gain can be attributed to just a handful of companies, led by NVIDIA, which saw strong chip sales as interest in AI built.”

“The S&P 500 was up 15.8% through 16 June, bouncing back from a two-year low in October 2022 and shifting from bear-market to bull-market mode upon reaching a 20% gain from the prior trough. Historically, US equity returns following sharp downturns have, on average, been positive. A broad market index tracking data from 1926–2022 in the US shows that stocks tended to continue to deliver positive returns even after the initial recovery from a bear market, or a decline of 20%.”

“With six months to go, some questions appear likely to capture investors’ attention for the second half of 2023. What’s ahead for the economy in the US and elsewhere? Will the new bull market charge ahead or take a breath? How long will investor enthusiasm last for all things AI?”

“What investors do know is that markets will continue to quickly process information as it becomes available. A long-term plan, one focused on individual goals and built on confidence in market prices, can put investors in the best place for a good experience, whatever may be in store.”

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Long-term optimism amid short-term headwinds

Neuberger Berman, June 2023

“Like many, we have been surprised by the strength of US equities in the face of rising interest rates, sticky inflation, a regional banking crisis and persistent geopolitical tension. Mega-cap growth stocks (MEGAs) dominated during the first half of the year, helped along by excess liquidity (soon set to unwind), fortuitous positioning … and giddy exuberance over AI (and the productivity gains it promises).”

“With MEGA valuations still on the rise, we believe we are entering frothier territory, with recent gains being more driven by multiple expansion than by earnings growth. At the same time, experience reminds us that valuations have a way of defying gravity in the glow of transformative technologies and paradigm shifts — and predicting peaks in investor frenzy with precision is a tall order.”

“As the tailwinds that supported the overall economy, and FAANG stocks in particular, continue to fade, we believe the lagged impact of tighter monetary policy is set to intensify. Consequently, we expect US growth to downshift and reconnect with the recessionary track it was on and lead to increasing volatility in the equity market.”

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Time to engage more fully

Franklin Templeton, 29 June 2023

“Various observers have noted that the narrow leadership of global equity markets in recent months is unsustainable and warn of trouble ahead. We see things differently. Following consecutive quarters of falling US corporate profits, the outlook for earnings is beginning to brighten. … By early 2024, which is well within the forward-looking timeframe of markets, we expect US corporate profits growth to accelerate to a double-digit clip.”

“The bottom line is that if a US recession occurs — which remains the overwhelming consensus view and hence is to some extent already accounted for in market prices — we believe it is likely to come later and be shallower than its predecessors. Nor is it inconceivable to imagine that the ongoing profits recession may end before an economic recession arrives — if it ever does.”

“Although the S&P 500 Index has risen 12% so far in 2023, the five largest companies have delivered 72% of the index’s price return, while the remaining 495 contributed just 28%. … If this gap holds through year-end, it would be the greatest divergence between the two in a calendar year since 1998.”

“As we look into the second half of the year, we see the potential for widening market breadth as investors gain confidence that we are closer to the end of the rate-tightening cycle and that fundamental earnings risk may be less than feared if economic conditions show signs of stabilisation.”

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Engine running, shifting to neutral

Neuberger Berman, July 2023

“... our caution on equity markets has been met with unexpected resilience and a rally in U.S. mega cap tech stocks. We remain fundamentally cautious, but timing is everything: the potential for this resilience to persist leaves us with conflicting signals from a more benign shorter-term outlook and growth risks over the medium term.”

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New regime, new opportunities

BlackRock, 3 July 2023

“We are underweight the broad (US equity) market — still our largest portfolio allocation. We don’t think earnings expectations reflect the macro damage we expect. We recognise momentum is strong (in the) near term.”

“US stocks hit 14-month highs after Q1 US data on output and income was revised up. We think activity is holding up thanks to households spending pandemic savings — and persistent inflation as seen in PCE (Personal Consumption Expenditures price index) data may mean policy rates need to go even higher.”

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Big Tech turnaround: Can it continue?

Capital Group, 30 May 2023

“Can the tech rally continue? Although profitability may be improving at some tech-related companies, one area of concern is that there are few signs of robust top-line revenue growth, says portfolio manager Cheryl Frank. … That leaves Frank concerned about tech valuations, which are still high relative to history. It’s also possible the economic backdrop could deteriorate in the months ahead if the US falls into recession… ‘We need a soft landing for this rally to be sustainable,’ Frank says.”

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Mid-year review 2023

JPMorgan Asset Management

“In the US, the stock market rally was essentially driven by a small number of mega-cap stocks. Eight companies, mainly the mega-cap tech companies, were responsible for over 90% of the gains in the S&P 500 Index in the first five months of the year. Investors had piled into large tech companies with steady profitability amid the softer economic backdrop. The fall in government bond yields also helped justify a higher valuation for these companies. That said, unprofitable companies were still penalised.”

“In the US, current valuations seem consistent with a steady growth environment, which we believe is a little optimistic. We continue to prefer high-quality companies with more resilient earnings amid weakening growth and healthy balance sheets.”

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Building a resilient long-term investment portfolio through Endowus

It is impossible to predict how macroeconomic events and the artificial intelligence (AI) exuberance would play out, or to prepare for any consequent implications on your investments.

However, spreading your investments across asset classes and geographies will help with diversifying your risk. With market volatility comes opportunities. If you have a long-term investing horizon, as many of us do, these developments may offer an opportunity through steady, regular investing in diversified and risk-adjusted portfolios.

With digital wealth platform Endowus, you can plan and manage your money — by investing in best-in-class funds and globally diversified, intelligent, low-cost funds and portfolios seamlessly.

Gain exposure to the world’s most technologically innovative companies with the Endowus Technology Portfolio. If you prefer to build your own portfolio with single funds from leading global fund managers, explore our Fund Smart platform.

Click here to get started with your investing journey with Endowus today. 

Read more:

• Riding the wave of AI investing — here's what you need to know
• Webinar replay: Does ChatGPT herald a new era for AI and tech investing?
• Artificial intelligence and technology investing — Q&A with Franklin Templeton

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