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In this series, we break down the jargon and explain a popular investing term or topic. Here are the decisive moments.
A variety of greeting cards for special birthdays and anniversaries?
You are on the right track. This is a stock market term for key moments in the direction of indices, such as the FTSE 100, the Dow Jones and the S&P 500. When an index reaches a level like, say, 1,000 or 8,000, this generates a torrent of comments on what is to come. Investors should think long term, but it’s natural for them to be interested in the big moments; At the very least, they make you reconsider your goals.
About a year ago, the FTSE 100 briefly shot above 8,000. At the time, some thought the only way was up. Unfortunately, they were wrong thanks to geopolitical tensions and rising interest rates.
Why do we read about these moments now?
The US S&P 500 index hit a record high of 5,000 last week, a milestone that sparked much debate over its next moves.
At the end of last year, the median forecast for the S&P 500 in 2024 was 5,068, but this target is likely to be exceeded.
Tipping Point: When an index reaches a new level, it generates a torrent of talk about what’s to come.
Optimism increased in late 2023, when the S&P 500 recovered 20 percent from its October low, amid hopes that slowing inflation would trigger three interest rate cuts in 2024.
Why all the fuss about the S&P?
The Dow Jones may be the best-known US index, but it covers only the 30 most traded stocks. The S&P 500 is considered a better guide to sentiment, as its components account for about 80 percent of the total market value. This index was launched in 1923. At first, it contained only 233 stocks, but was expanded to 500 in 1957. It reached its first milestone of 1,000 on February 2, 1998.
U.S. stock markets really matter because U.S. stocks account for about 64 percent of the total value of all stock markets, up from 20 percent in 2010.
What is the focus of the debate?
If the 5,000 level is a signal to start buying or to be careful. At the center of these discussions is the outlook for Magnificent Seven stocks, which generated about 26 percent of the S&P 500’s total return in 2023, thanks to enthusiasm for Artificial Intelligence.
The Magnificent Seven are Alphabet (the Google group), Amazon, Apple, Meta (owner of Instagram and Facebook), Microsoft, chipmaker Nvidia and Tesla. According to forecasts, the shares of the top six could continue to rise. But there are concerns that Tesla may be overvalued. Its shares have fallen 23 percent since January 1.
Are there reasons to be happy?
Yes, the performance of the Magnificent Seven has eclipsed the other stocks in the S&P 500, which have largely moved sideways. Interest rate cuts – which could begin in May – may provide a boost.
The move lower in the VIX “fear” index – which measures volatility and is considered a guide to market sentiment – suggests traders are relatively optimistic about the outlook.
Could the FTSE 100 hit a milestone this year?
It is up just 3 percent in 2023. As a result, UK shares are considered cheap, in light of dividend payments and profit forecasts. But anyone backing Britain must recognize the global fixation on American markets.