Why the Stock Market Has Risen Even With No Fed Rate Cuts

The Federal Reserve has disappointed investors this year, but no matter. The markets have adjusted.

Even without any interest rate cuts so far in 2024 — and with the likelihood of just one meager rate reduction by the end of the year — the stock market has been purring along. That’s quite an achievement, given the expectation in January that the Fed would trim rates six or seven times in 2024 — and that interest rates throughout the economy would be much lower by now.

Buoyant as the stock market may seem, when you look closely, it’s apparent that the S&P 500’s recent returns rest on a precarious base.

A.I. fever — based on the belief that artificial intelligence is ushering in a new technological age — has been spreading among investors, and that has been enough so far to keep the overall stock market averages rising. But the rest of the market has been rather ho-hum. In fact, strip away the biggest companies, especially the tech companies, and overall market performance is unimpressive.

Concentrated Returns

One stock in particular has led the market upward: Nvidia, which makes the chips and other associated infrastructure behind the talking, image-generating, software-writing A.I. apps that have captured the popular imagination. Over the last 12 months, Nvidia’s shares have soared more than 200 percent, vaulting its total market value above $3 trillion, which places it in elite territory shared only with Microsoft and Apple in the U.S. market.

Other giant companies with a convincing A.I. flavor, like Meta (the holding company for Facebook and Instagram) and Alphabet (which owns Google), along with chip and hardware companies like Super Micro Computer and Micron Technology, have turned in superlative performances lately, too.