Wall Street Recap: S&P 500 and Nasdaq Continue Winning Streak, Companies Discuss AI, and Predictions for a Recession

The world’s leading index, the S&P 500, has put behind its fourth consecutive week of gains. The Nasdaq index has risen for seven consecutive weeks. This is how the three key indices fared on Wall Street on Friday:

• The broad S&P 500 index rose 0.11 percent.
• The technology index Nasdaq Composite rose 0.16 percent.
• The industry-heavy index Dow Jones rose 0.13 percent.

Everyone is talking about AI

It was the technology stocks that led the rise on Friday, with the electric car manufacturer Tesla in the lead. The stock rose four percent on news that General Motors will use Tesla’s charging network.

Netflix rose more than two percent on an update on an increase in the number of subscribers in the United States after the streaming service cracked down on password sharing.

For large parts of the trading day, the S&P 500 index had risen so much that it had entered a “bull market”. That is to say, it had risen at least 20 percent from its previous bottom point, which was in October. But at the very end, the rise lost a little air and bull market status did not materialize. The Nasdaq index, on the other hand, is well past a bull market after rising nearly 30 percent since a bottom in December.

Robin Øvrebø manages close to five billion kroner in Odin’s USA fund. On Friday, he landed at Gardermoen after a week-long stay in New York, which was packed with company meetings. There he learned what American companies are concentrating on now.

– All companies talk about AI and that all companies must have a strategy and approach to AI. Everything from consulting companies, to software companies and even restaurant companies talked about how AI could make their operations more efficient, he says, and adds:

– It is still too early to say how this will turn out. Selected companies and industries have been doing this for some time, but in the last two to three quarters it has received increased attention because we as consumers have received an introduction via Chat GPT, says Øvrebø.

On Friday, software company Adobe rose more than three percent after announcing plans for a new AI subscription service.

Want to pay off debt

Technology shares are particularly sensitive to higher interest rates as many have the large earnings going forward. The sector has risen a lot, even while the central banks have driven interest rates up at full speed. An important point, however, is that the large technology giants, who make enormous amounts of money here and now, are behind much of the upswing. In addition, the markets price in interest rate cuts if you look further than half a year into the future.

The markets are now waiting for next week’s interest rate decisions from the US central bank and the European central bank. There, they will keep a close eye on both the interest rate setting and what kind of signals the governors of the central bank are sending.

At the moment, the market is almost pricing in a new rate hike of 0.25 percentage points in the US,

– Increased interest costs are now affecting a number of companies and many companies have a good deal of debt. It gives an increased focus on debt repayment and the desire for a stronger balance sheet, says Øvrebø.

Otherwise, the companies report some inflation, but not to the same extent as before, according to the manager. The question both investors and the companies ask themselves is whether the price changes will be permanent or not. The labor market is still tight in large parts of the economy, according to the companies. Demand is still good, but with some exceptions. They are starting to see cases where consumers are increasingly choosing cheaper products over more expensive brands. In addition, consumption is geared towards services rather than goods.

– There is still stronger demand for services such as restaurants, hotels, plane tickets and experiences, says Øvrebø.

Wall Street Summit: Memories of 2008

In Europe, it was a quiet day on the stock exchanges. That was also the case at home in Norway. Incidentally, this has been the case in recent weeks.

In a longer interview with the American business newspaper CNBC says JPMorgan Chase’s head of credit and bonds Bob Michele that today’s market reminds him an awful lot of the period from March to June in 2008.

In March 2008, JPMorgan bought the troubled investment bank Bear Stearns with help from the US Federal Reserve. The previous year, Bear Stearns had closed two hedge funds that had invested in complex mortgage instruments and incurred heavy losses.

– The market saw it this way: there was a crisis, there was a response from the authorities and the crisis was resolved. Then you had a steady three-month rally in the stock markets, says Michele.

Because after the acquisition, the willingness to take risks returned a little. Stock markets rose.

But in the autumn of 2008 it came crashing down. The state banks Fannie Mae and Freddie Mac were placed under public administration. Lehman Brothers went bankrupt. Stock markets collapsed.

We fast forward to the present.

Last month, JPMorgan Chase bought the collapsed First Republic bank after a long period of turmoil and uncertainty surrounding several regional banks in the US.

Michele leads JPMorgan Chase’s fixed income management unit and oversees more than $700 billion in client assets. He describes the next few months as the calm before the storm. Looking at previous rate hike cycles since 1980, recessions have started on average 13 months after the US central bank made its last rate hike.