Wall Street broke its historic record on Friday, January 19. The S&P 500 index, which represents large American companies, ended up 1.23% at 4,839 points. It took more than two years to beat the last record, established on January 4, 2022. Thus ends the period of deflation of the post-Covid-19 bubble, with the arrival of inflation and the end of free money.
After raising its rates from zero in March 2022 to more than 5.25% this summer, the Federal Reserve (Fed), the American central bank, has achieved its goals. Inflation, which had reached a record 9.1% in June 2022, fell to 3.4% year-on-year in December 2023 and Fed Chairman Jerome Powell announced the end of the rate hike. The news was followed by fireworks on the stock market at the end of the year.
However, since the start of 2024, Wall Street has failed to beat its records, due to an economy still white-hot, which suggested that the Fed, which has planned three rate cuts in 2024, would not reduce them from March. And then good news piled up, with the explosion of the artificial intelligence sector and the surge in household morale measured by the University of Michigan index. This has jumped 29% since November, the largest increase recorded since 1991. It concerns all segments of the population and all regions.
This morale is boosted by the prospect of falling inflation, the decline in the price of a gallon of gasoline (3.08 dollars compared to more than 5 dollars in spring 2022), the good performance of employment, and stock market portfolios Americans flying away.
In addition to the S&P 500, the Nasdaq, up 1.7% on Friday, is still 4.3% from its record from November 2021. But this index rich in technology stocks has jumped 40% in one year. Even real estate morale is improving with the hope of lower mortgage rates, although 2023 ended with a level of home sales at the lowest level in thirty years, down 20% last year, to a little more than 4 million.
End of inflation without going into recession
The stock market surge is driven mainly by the seven leading technology stocks (Apple, Microsoft, Meta, Nvidia, Alphabet, Amazon, Tesla), the first four of which broke their records. According to Wall Street Journal, the 8,800 billion dollars invested in short-term monetary investments are just waiting to flow into stocks. Meanwhile, companies which had been strangled by the level of long-term rates, more than 5% in the fall, a record since 2007, managed to refinance on better conditions, with ten-year rates falling to 4, 15%.
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