As the U.S. stock market continues to soar, some are predicting its peak. While experts believe the bullish market will continue into the second half of the year, they also advise paying close attention to the market’s signals rather than blindly investing.
Continuing on an Upward Trend
According to Investing.com on the 7th, the U.S. stock market has once again reached a record high. On the 5th (local time), the Nasdaq index rose 0.90% to 18,352.76, and the Standard & Poor’s (S&P) 500 index increased 0.54% to 5,567.19. These figures represent a rise of 24.29% and 17.38%, respectively, since the beginning of the year.
However, arguing that it has reached its peak, some warn that the New York Stock Exchange could crash. Craig Johnson, an analyst at investment bank Piper Sandler, warned that there are signs of a narrowing market and weakening momentum, Johnson predicted a 10% drop in the S&P 500 this summer.
Peter Berezin of financial information company BCA Research also warned that “the U.S. economy could fall into a recession this year or in early 2025,” leading to a potential 30% crash in the S&P 500.
Domestic experts somewhat agree with the sentiment of a relaxing atmosphere. Kim Seung Hyuk, an analyst at Kiwoom Securities, pointed out that “the rise of the U.S. stock market has slowed down recently and suggested the need to be aware of the potential for short-term volatility.” Korea Investment Securities also suggested that “there could be a slowdown in the third and fourth quarters.”
However, the consensus is that the upward trend will not break in the second half of the year. Hwang Soo Wook, an analyst at Meritz Securities, emphasized, “The U.S. stock market is in the midst of a rising trend.”
Seo Jung Hoon, Head of the Global Stock Team at Samsung Securities, said, “There is a growing consensus on investing in artificial intelligence (AI) globally. Also, demand to boost AI infrastructure is surging not only the IT companies but also among governments and individuals. It is unlikely for the AI boom to end early.”
Regarding the concerns about a second dot-com bubble, everyone drew a line. Among investors, there has been speculation about a crisis due to the similarity in the five-year stock price trends of Cisco Systems, which led the dot-com bubble, and Nvidia, which is leading the AI boom.
Kim Il Hyuk, Senior Research Analyst at KB Securities, explained, “During the IT bubble, the price multiples of stocks rose significantly due to the increased liquidity and expectations for the growth of the IT industry. However, the companies currently leading the New York Stock Exchange are not burdened by price multiples as their profits are growing rapidly.”
Kim Seung Hyuk also stated, “Although the price-earnings ratios (PER) of representative AI companies, including Nvidia, are high at 40-70 times, they are relatively low compared to the dot-com representative companies that recorded 200 times at their peak.”
Beware of Over-Supply and Over-Investment
However, experts emphasized that there are signals to be cautious about in the second half of the year. The signals for a correction market are over-investment and over-supply.
Seo Jung Hoon advised, “If profitability is delayed despite numerous investments in AI services, investors’ doubts may grow. It is necessary to check whether profitability is maintained.”
Hwang Soo Wook also said, “The start of concerns about over-investment and over-supply will be a turning point. The first signal of over-supply is discount sales by monopoly companies. News that Nvidia is lowering the price of AI semiconductors could be a signal for Nvidia to realize profits.”
Some argue that interest rate cuts may not be a major variable in the stock market in the second half of the year. Hwang Soo Wook explained, “Since 2023, the U.S. interest rate has been on an upward trend, so it is not a direct trend variable in this year’s stock market. Big tech companies with relatively abundant cash reserves are insensitive to interest rates.”
Rather, the issue of whether there will be a soft landing of the economy is noted as important. Seo Jung Hoon said, “While interest rate cuts themselves can be a helpful factor for the stock market, it could be a problem if they are based on a rapid slowdown in the economy. While the inflation stabilizing can be positive for the overall economy, a rapid decline in prices can be interpreted as a pre-signal that the economy could fall into a recession.”
The U.S. presidential election is also a factor of uncertainty. Kim Il Hyuk shared, “While the possibility of former President Donald Trump’s re-election is high, if a strong candidate emerges from the Democratic Party and election uncertainty grows again, then the possibility of a market correction will increase. If the growth expectations for AI weaken as the increase in investment by big tech slows down, there is also a possibility of a downturn.”
