The seven tech giants dominate the 2023 US stock market feast; can they continue the legend in 2024?

Why Did the U.S. Stock Market Reverse Expectations in 2023

Looking back, 2023 was a year full of dramatic tension. At the beginning of the year, Wall Street was overwhelmingly bearish—Goldman Sachs, Citibank, JPMorgan Chase, and other investment banks all lowered their full-year forecasts, generally expecting a decline in U.S. stocks. But what was the result? The market responded with actions that sharply contradicted these institutional pessimisms.

By mid-December, the three major U.S. stock indices surged across the board. The Nasdaq Composite rose a total of 40.77%, the S&P 500 increased by 22.60%, and the Dow Jones Industrial Average climbed 11.90%, reaching a historic high of over 37,000 points. Globally, the Nikkei gained over 26%, Taiwan’s stock market soared more than 23%, and despite challenges in the German auto industry, the DAX hit new all-time highs.

This “face-slapping” was driven by multiple positive factors converging: the near-two-year-long rate hike cycle is approaching its peak, inflation is clearly slowing, the U.S. labor market remains resilient, and the AI wave is exploding—everything points to the possibility of a “soft landing” for the economy.

Wall Street’s Forecasting Feast

To understand how thorough this reversal was, just look at the forecast comparison table. By the end of 2023, major Wall Street investment banks had differing target prices for the S&P 500: Deutsche Bank predicted 4500 points, Wells Fargo forecasted 4300-4500, JPMorgan Chase predicted 4200, and Royal Bank of Canada forecasted 4100. The pessimistic camp included Goldman Sachs, Bank of America, and HSBC, all setting targets around 4000. The most conservative were Societe Generale and Barclays, with forecasts of 3800 and 3675 points respectively.

In reality, the market’s actual performance far exceeded most expectations. This was not merely a forecasting error but reflected a profound change in market perception of the economic outlook.

Five Turning Points for U.S. Stocks in 2023

Q1: AI Savior Shines Bright

OpenAI’s ChatGPT ignited a global frenzy, sparking an unprecedented AI revolution. Tech giants like Microsoft, Meta, and Amazon joined the race for large language models. By the end of Q1, the Nasdaq posted its strongest quarterly performance since 2020, with the tech sector’s seven giants each gaining over 20% in a single quarter, signaling the arrival of a technical bull market. Market optimism about AI commercialization prospects soared.

February to March: Crisis and Doubt Intertwined

A banking crisis suddenly erupted. Silicon Valley Bank, Signature Bank, Credit Suisse, and other financial institutions faced crises one after another, with liquidity risks spreading from regional banks to the entire financial system, causing intense volatility in U.S. stocks.

Meanwhile, concerns about AI risks also surfaced. Some analysts warned that the tech sector’s gains in Q1 were exaggerated and diverged from fundamental logic. Morgan Stanley’s chief strategist Michael Wilson publicly stated that the crazy rise of tech stocks was unlikely to continue, with high valuations and poor earnings acting as downward pressures. By the end of March, the Future of Life Institute launched a petition calling for a pause on training AI systems more powerful than GPT-4, with signatories including Turing Award winners Yoshua Bengio, Elon Musk, and other tech leaders.

Q2: AI Resurgence and Economic Outlook Reversal

Expectations of peaking inflation gradually solidified, the Federal Reserve’s rate hike cycle was nearing its end, and the AI boom reignited. Major tech companies released new large language models and AI applications, corporate earnings data began to improve, and market confidence surged. Goldman Sachs’ chief equity strategist Peter Oppenheimer stated that the market was starting to believe that a recession could be avoided and that inflation had peaked. The sectors leading the S&P 500 rally were technology, communications, and consumer discretionary.

Q3 to October: High Interest Rates Bring Volatility

U.S. Treasury yields soared to historic highs, with high interest rates suppressing the stock market. The outbreak of the Middle East war and rising geopolitical risks added to market uncertainty. The continued rally of heavyweight tech stocks raised questions about its sustainability, and market breadth narrowed. Goldman Sachs economists warned that the high-interest environment was sowing the seeds of financial risks, with increased difficulty in financing potentially leading to a wave of corporate bankruptcies.

Q4: Soft Landing Expectations Confirmed, Index Rebounds

U.S. Treasury Secretary Janet Yellen publicly stated in December that returning inflation to the Federal Reserve’s 2% target would not be particularly difficult, and the U.S. economy was heading toward “inflation moderation without a severe recession.” The December FOMC meeting indicated that the Fed had paused rate hikes, and the dot plot suggested three rate cuts in 2024. This shift rekindled market confidence in a soft landing for the economy.

The Truth Behind the Numbers

Throughout 2023, the performance divergence among the three major U.S. stock indices reflected profound changes in market structure. In the rise of the S&P 500, the contribution of the seven tech giants accounted for three-quarters of the annual gain. This means that the real drivers of the stock market’s rise were a handful of super-large companies, not broad market prosperity.

This concentration phenomenon not only demonstrates the reality of the AI revolution but also exposes market risk concentration—over-reliance on a few heavyweight stocks.

Five Key Points for 2024

Wall Street’s outlook for the S&P 500 in 2024 shows significant divergence. JPMorgan Chase remains conservative, predicting 4200 points, citing economic slowdown and credit tightening. Morgan Stanley forecasts 4500, hoping for a recovery in corporate earnings growth. Wells Fargo predicts 4625 but emphasizes volatility and valuation pressures.

The more optimistic camp is larger. Goldman Sachs predicts 4700, assuming the U.S. economy experiences moderate expansion rather than recession. Barclays boldly forecasts 5000, believing the market has passed the period of greatest macro uncertainty. Deutsche Bank is also bullish, targeting 5100, believing current valuations are not excessive and that corporate profit recovery still has room.

From an AI perspective, analysts generally agree that 2024 will be the year of a true explosion in generative AI. Goldman Sachs states that generative AI will profoundly impact economic growth, productivity, competitive landscape, and even national security and human civilization itself.

However, uncertainties are accumulating. Black swan factors such as the 2024 U.S. presidential election, recession risks, and geopolitical uncertainties remain, requiring investors to stay vigilant. The U.S. stock market in 2024 is full of opportunities but also hidden risks.