Stay informed with free updates
Simply sign up to the US equities myFT Digest — delivered directly to your inbox.
The S&P 500 stock index has touched the milestone of 5,000 for the first time, setting a record high as a narrow group of companies continued to drive the benchmark upwards.
The basket of blue-chip US stocks rose as high as 5,000.4 on Thursday, seconds before closing the session up 0.1 per cent at a record 4.997.91. That brought its gains since the start of the year to nearly 5 per cent.
Chipmaker Nvidia and Facebook owner Meta have led the market higher, each advancing more than 30 per cent in the new year. Strong gains for the largest companies have more than offset the concerns of investors about how quickly the Federal Reserve plans to reduce US interest rates this year.
The 10-year Treasury yield has risen 0.29 percentage points this year, while the two-year yield has added 0.2 percentage points as central bank officials pushed back on investor hopes that they would cut rates in March.
Higher interest rates tend to weigh on stock prices by reducing the relative appeal of risky assets and driving up borrowing costs for companies. But the megacap companies with heavy index weightings had “really strong cash positions” and were relatively insulated from the moves in rates, according to Kevin Gordon, senior investment strategist at Charles Schwab.
Gordon said their outsized index weightings disguised the fact that macroeconomic concerns had driven “a stealthy correction under the surface” of the market.
While the S&P 500 has blasted through many analysts’ end-of-2024 target levels, the equal-weighted version of the index has barely moved and remains below the all-time high it set in early 2021. Only half of stocks in the S&P 500 have risen this year, and less than a third have outperformed the index.
The Russell 2000 index of smaller US companies has performed even worse, sitting about 20 per cent below its 2021 peak, with analysts at Morgan Stanley noting earlier this week that small caps were showing “greater interest rate sensitivity than large caps” due to their higher leverage and weaker profit margins.
The S&P 500 first crossed 4,000 in April 2021, continuing its rise for the duration of that year before falling back below the level in 2022. The index was last at 4,000 in March 2023.
Despite the narrow market gains, some remain bullish. BlackRock last week upgraded its short-term forecast for US stocks, arguing that falling inflation and lower interest rates would support the market and encourage broader gains over the next six to 12 months.
Futures markets suggest that investors are not expecting an imminent reversal. The Vix volatility index, a proxy for expectations of stock market swings over the next month, dropped below its long-term average of 20 in late October and has not come close to regaining that level.
This story has been amended to correct the percentage increase in the S&P 500 on Thursday
