NEW YORK – The stock market rally pressed ahead this past week, with the tech-heavy Nasdaq composite finally hitting a new record high on Friday for the first time since November 2021. The S&P 500 also reached an all-time peak, while the Dow Jones Industrial Average treaded water near its own zenith.
Several leading growth stocks like Taiwan Semiconductor (TSM), Microsoft (MSFT) and Palantir Technologies (PLTR) regained their momentum this week, offering new buying opportunities for investors after consolidating for a few weeks. The gains were driven by mounting optimism around semiconductors and artificial intelligence technology.
But with the major indexes looking extended again, risks are rising once more for the stock market. Investors may want to turn cautious after the latest bout of strength.
Nasdaq and S&P 500 Test New Highs
On Friday, the Nasdaq composite closed at a fresh record peak, gaining 1.7% for the week. The S&P 500 rose 0.9% on the week, also marking a new milestone high.
The small-cap Russell 2000 jumped 2.9%, nearing its December summit. The Dow slipped 0.1% but remains near its own all-time best levels.
The Nasdaq’s brief breather over the past couple weeks allowed a number of leading growth names to form new bases and setups. But with Friday’s strong finish, the index is now 5.8% above its 50-day moving average, looking extended in the short term.
Taiwan Semiconductor Powers Ahead
One standout gainer was Taiwan Semiconductor Manufacturing (TSM), the world’s largest chip foundry. Taiwan Semi produces advanced semiconductors for Nvidia (NVDA), Apple (AAPL) and many other major tech firms.
TSM stock popped 4.1% on Friday to 133.90, breaking out above a short consolidation after its strong earnings report in January. Shares are trading just above a short-term trendline, offering a new entry point for investors.
Bullishness around Taiwan Semi is being driven by expectations that its earnings will rebound nicely in 2024, led by booming demand for AI-focused chips. The pivotal chipmaker is scheduled to report February sales data on March 8.
Microsoft Reclaims Momentum
Software leader Microsoft (MSFT) has been consolidating since hitting a record peak of 420.82 on February 9. But shares found support last week and bounced from their 21-day moving average.
MSFT closed just above a short downward trendline on Friday at 413.69, providing another buying opportunity for investors. The stock has been riding powerful momentum in cloud computing and AI services.
Palantir Regains Its Footing
Palantir Technologies (PLTR) also regained its mojo last week after digesting gains from its strong earnings report in early February. The data analytics platform company popped 8.5% for the week, though it pulled back Friday from a two-year peak.
Palantir stock is consolidating modestly above its prior base. Clearing recent action could offer a new buy point for investors anticipating strong growth in 2022.
Cautious Optimism Around Chips, AI
The pivotal semiconductor sector powered ahead last week as demand outlook improves. The VanEck Vectors Semiconductor ETF (SMH) jumped 5.5% to an all-time high. SMH holds both Taiwan Semi and Nvidia.
The increasingly upbeat view on chips and artificial intelligence has boosted many tech leaders over the past year. Nvidia itself has nearly doubled from its lows.
But some analysts are growing concerned that the AI euphoria may be getting ahead of reality. While AI adoption is clearly accelerating, it may take longer than expected for benefits to fully materialize.
And after a huge run-up, semiconductor stocks could be vulnerable to short-term profit taking. SMH now trades at a lofty forward P/E of 23. Some caution may be warranted at current stretched levels.
Healthcare and Financials Take a Breather
It was a more muted week for the defensive healthcare and financial sectors. The Health Care Select Sector SPDR Fund (XLV) dipped 1% but found support at its 21-day line on Friday.
The Financial Select Sector SPDR Fund (XLF) finished largely flat on the week, holding just below two-year tops. Rate-sensitive bank stocks have done well in anticipation of further Federal Reserve tightening.
Speculative Assets See Renewed Interest
Some more-speculative ETFs also rebounded last week as investor risk appetite showed signs of improving. ARK Innovation (ARKK) advanced 5.6% and ARK Genomics (ARKG) 4.7% for the week.
But ARKK remains 65% below its February 2021 peak. Interest in higher-risk, rapid-growth stocks could easily fizzle out again if markets turn south once more.
What Investors Should Do Now
With indexes looking extended and speculative juices flowing again, investors should avoid complacency after the latest bout of strength.
The prudent move may be to turn a bit more defensive now and take some profits in stretched growth names. Have those sell strategies in place.
But in the bigger picture, the fundamental backdrop still appears supportive for stocks currently. Economic data and corporate earnings have been surprisingly durable so far.
For long-term investors, the recent pauses and rotations in the market have created new opportunities. Focus on leading stocks setting up in strong sectors, such as semiconductors and software.
Remain nimble and keep powder dry to capitalize on the next inevitable market volatility. The Nasdaq’s path to fresh record highs could remain choppy in the coming weeks.
