The surge in tech megacaps gained further traction, with the Nasdaq 100 poised to notch a historic first-half of a year and Apple Inc. hitting the US$3 trillion milestone.

Stock traders decided to look at the glass half full on Friday after data signaled inflation is moderating at the expense of economic growth. Equities extended this year’s gains, with tech consolidating its leadership amid the ascent of artificial intelligence. Traders also continued to adjust their positions at the end of a quarter marked by fear of missing out.

Nearly US$5 trillion has been added to the value of companies in the Nasdaq 100 since the start of the year, with the tech-heavy gauge defying bubble warnings and jumping almost 40 per cent. The advance in the most-influential group in the S&P 500 helped push the index up 16 per cent in 2023. Gains have been even more pronounced when narrowed down to the megacap space — which has soared 75 per cent.

“I still do like big tech,” Larry Adam, chief investment officer at Raymond James, told Bloomberg Television. “I do believe in technology continuing to reinvent itself — obviously with the latest addition being AI. That’ll continue to drive earnings.”

The “Big Seven” — including Apple, Microsoft Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Nvidia Corp. and Tesla Inc. — boosted profits by 14 per cent a year during the decade through 2022. While their combined earnings slumped more than 20 per cent last year, they’re expected to recover swiftly.

The Nasdaq 100 rose about 1.5 per cent Friday, while the S&P 500 headed toward its highest since April 2022. Nvidia, which has roughly tripled this year amid the AI frenzy, was up nearly 4 per cent. Wall Street’s favorite volatility gauge, the so-called VIX, extended this year’s plunge to hover near 13.

If history is any guide, the Nasdaq 100’s strength this year augurs well for the rest of 2023.

Years that start with rallies in the index of at least 10 per cent average returns of about 14 per cent over the second half of the year, though that shrinks to an 8.3 per cent gain when the first-half gain tops 20 per cent, according to an analysis of data compiled by Bloomberg.

The market’s fascination with the power of generative AI has trumped every major issue that could potentially drag down sentiment this year: recession fears, elevated levels of inflation, prospects for more Federal Reserve hikes, geopolitical risks, the debt-ceiling debate and the collapse of a few regional banks.

While the rally in AI has drawn comparisons with the dot-com bubble of 2000, when the market was driven by a similarly narrow breadth of tech stocks before a crash, BlackRock’s Tony DeSpirito said earnings growth is coming.

“Demand is really real,” said DeSpirito, the firm’s chief investment officer of U.S. fundamental equities. “That contrasts what’s going on in AI versus the metaverse a year ago, or virtual reality. The orders are there.”

Still, after such a strong rally, there’s growing concern about valuations, and that has recently spurred a surge in bearish bets against the largest tech companies. Short interest as a percentage of shares available to trade is near 12-month highs for Microsoft, Tesla and Amazon, according to data compiled by S3 Partners.

‘BE SELECTIVE’

“We don’t believe the AI trend is a bubble, but advise investors to be selective on AI-related stocks after the strong year-to-date rally,” said Sundeep Gantori, equity strategist at UBS Global Wealth Management. “From a positioning point of view, we recently closed our self-help theme as we see better risk-reward in mid-cycle industries (software, internet) and tech laggards.”

Barring evidence of any technical deterioration, it’s likely that markets will push even higher into mid-to-late July ahead of a possible minor correction into August, according to Mark Newton at Fundstrat Global Advisors.

“Until evidence of more rampant overbought conditions joins forces with more bullish sentiment and some evidence of defensive strength and/or waning technical breadth, it’s arguably wrong to consider abandoning this rally based on overbought conditions alone when technical trends remain very much intact,” Newton noted.

Also helping tech on Friday was the fact that action in the bond market was subdued. Treasury 10-year yields fell to around 3.8 per cent. The dollar dropped, extending this year’s losses.

Key measures of U.S. inflation cooled in May and consumer spending stagnated, suggesting the economy’s main engine is starting to lose some momentum. The personal consumption expenditures price index, one of the Fed’s preferred inflation gauges, rose 0.1 per cent. From a year ago, the measure stepped down to 3.8 per cent, the smallest annual advance in more than two years.

“The May PCE report released today is relatively benign from a Fed perspective and leans in the direction of the Fed ultimately delivering only one more rather than two more rate increases,” said Krishna Guha, vice chairman of Evercore ISI. “This should curb a bit the recent back-up in yields and favor big tech.”

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.3 per cent as of 2:13 p.m. New York time
• The Nasdaq 100 rose 1.6 per cent
• The Dow Jones Industrial Average rose 0.9 per cent
• The MSCI World index rose 1.1 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.5 per cent to US$1.0915
• The British pound rose 0.7 per cent to US$1.2705
• The Japanese yen rose 0.3 per cent to 144.31 per dollar

Cryptocurrencies

• Bitcoin was little changed at US$30,402.84
• Ether rose 4.3 per cent to US$1,928.04

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.81 per cent
• Germany’s 10-year yield declined two basis points to 2.39 per cent
• Britain’s 10-year yield was little changed at 4.39 per cent

Commodities

• West Texas Intermediate crude rose 0.9 per cent to US$70.52 a barrel
• Gold futures rose 0.5 per cent to US$1,927 an ounce