The S&P 500 has officially crossed 5,000 points, setting a record all-time high. What is the signal? What is the underlying logic behind this?
The U.S. stock S&P 500 index rose more than 28 points to 5,026.61 on Friday, officially breaking through 5,000 points, creating the highest point since the index was established. This is undoubtedly a moment of excitement for American investors, and of course it is also a moment for Chinese investors who speculate in US stocks. Looking back at our A-shares, it is really a heaven and an underground. I can only sigh inwardly. What signal does the S&P 500 index send when it breaks through 5,000 points to a record high? What is the underlying logic and reasons behind this?
First, a solid corporate financial report. This should be a direct stimulus. The S&P 500 was compiled by Standard & Poor's in 1957. Today, the S&P 500 index basically covers the 500 largest companies listed on U.S. stock exchanges, accounting for 80% of the U.S. stock market's market capitalization. Including Amazon, Nvidia and other well-known large technology companies are in it. Most of the companies reported by the U.S. stock market recently are showing steady growth.
For example, Nvidia should be very clear. Due to the sharp increase in demand for AI chips, artificial intelligence chips have been selling well recently, and the stock price is also rising. Amazon's recently released financial report for the fourth quarter of 2023 showed that net sales in the fourth quarter were $170 billion, a year-on-year increase of 14%. Net profit reached US$10.6 billion, an increase of about 3,433% from US$300 million in the same period last year, an increase of more than 34 times. Therefore, the earnings reports of solid constituent companies must form a direct stimulus for the S&P 500 index.
Second, the cooling of inflation. According to the adjusted CPI data released by the U.S. Bureau of Labor Statistics on Friday, the content showed that although the core CPI in the United States in the fourth quarter of 2023 was 3.3% y/y, the same as the previous data, the CPI was revised down by 0.1 percentage points to 0.2% in December. This means that the inflationary pressure in the United States is steadily declining, and the anti-inflation effect is obvious. The cooling of inflation, which forms an expectation of a rate cut by the Federal Reserve. And the interest rate cut is bound to be a big positive for the stock market. Therefore, the cooling of inflation is also a contributing point for the S&P 500 index to break through new highs.
Third, the strong growth of the U.S. economy. This should be the essence of the S&P 500 index, but also the other Dow Jones and Nasdaq indexes that are steadily reaching new highs. The stock market is a barometer of the economy, the economy is good, the profitability of enterprises is strong, and the greater the growth expectation, of course, it is reflected in the stock market that the stock price and market value of listed companies continue to hit new highs.
According to the 2023 economic data recently released by the United States, under the background of the Federal Reserve raising interest rates 11 times in a row and the risk-free rate reaching an astonishing 5.25%, the GDP growth rate of the United States in 2023 has reached 2.5%, and the total economic volume has reached 27.37 trillion US dollars. Therefore, such a strong economic situation will inevitably cause the US stock market to continue to rise.
To be honest, it is really not a taste to see the S&P 500 and other U.S. stock indices continue to hit new highs, mainly because our big A can accelerate the plunge at 3000 points, which is too disappointing. Fortunately, the village changed to a big player on the occasion of the New Year's change. I sincerely hope that the Chinese stock market in 2024 will have a wave of dividends like the US stocks, and it will not be in vain as the stock market of the world's second largest economy.