At the beginning of 2024, the US stock market once again staged an epic short squeeze. The Pro UltrPro Shrt S&amp;Pro 500 closed above 5026 points, reaching a historical high. In the past 15 weeks, it has closed positive for 14 weeks, setting the best consecutive increase record since 1972.
The acceleration of corporate earnings during the earnings season, the continued AI boom, and the optimistic fundamentals of the US economy have all contributed to the strong rise of the US stock market. From October last year to now, the US stock market has added a total of $9 trillion in market value.
However, since the global financial crisis in 2009, the Pro UltrPro Shrt S&amp;Pro 500 has multiplied by five. Investors who missed out on this bull market believe that the valuation of the US stock market is already too high and a correction is inevitable. Nomura analysts predict that if NVIDIA's earnings disappoint or US inflation reignites, it could end this round of the US stock market rally.
<h2>The S&amp;P 500 P/E ratio is approaching the peak of the previous bull market</h2>
After three months of rapid gains, can the US stock market continue to surge?
Currently, the P/E ratio of the Pro UltrPro Shrt S&amp;Pro 500 is 24 times, surpassing the pre-pandemic high and approaching the peak of the previous bull market. The P/E ratio of the seven giants is twice that of the overall market.
It is worth noting that this time the Pro UltrPro Shrt S&amp;Pro 500 reached 5000 points faster than any other 1000-point milestone.
Media reports point out that it took only 719 trading days for the market to rise from 4000 points on April Fool's Day in 2021 to the current 5000 points. This is much shorter than the 1227 trading days it took to go from 2000 points to 3000 points. Even earlier, it took 4168 trading days for the Pro UltrPro Shrt S&amp;Pro 500 to go from 1000 points in 1998 to 2000 points in 2014.
However, historical data shows that after the US stock market breaks through a key round number, it often takes some time to stabilize.
In 2014, when the market broke through 2000 points, it hovered around 2000 points for the next three weeks and then experienced a decline in the following five weeks.
A similar trend occurred in 2019 when the market reached 3000 points. It briefly continued to rise but then fell below 3000 points, taking several weeks to return to that level.
<h2>Investors who missed out are waiting for a market correction</h2>
Previously, due to the continuous inversion of the US Treasury yield curve, many believed that the US economy was heading for a recession and reduced their positions. As a result, many investors who missed out on the market rally are now hoping for a market correction. However, the Pro UltrPro Shrt S&amp;Pro 500 has not experienced a daily decline of more than 2% for nearly a year, making it the longest period of resilience since the &#34;volatility doomsday&#34; in February 2018.
Despite the current prosperous situation, investors' continued favor for tech giants and other high-quality stocks can also be seen as a cautious signal, as small and medium-sized stocks most affected by the Fed's tightening policies have fallen into oblivion.
Historically, the performance of small-cap stocks is often closely linked to the US economy. Since the beginning of this year, the Russell 2000 index, representing small-cap stocks, has fallen by about 1%, 20% lower than its peak in 2021. Since January, the performance of the Russell 2000 index has lagged behind the Nasdaq by 8 percentage points, the largest difference in return between the two indexes since the outbreak of the pandemic in 2020.
At the same time, with Federal Reserve Chairman Powell and other officials repeatedly dampening market expectations of a rate cut in March, credit concerns have resurfaced.
Michael Bailey, research director at asset management firm FBB, told the media:
<blockquote>
On the one hand, the frenzy of the seven giants continues, while on the other hand, small-cap companies are struggling. Powell's delay in rate cuts may be the final nail in the coffin for the micro-cap market.
</blockquote>
These signs have led some investors who missed out to believe that a pullback in the expensive US stock market is imminent.
A fund manager who missed out on tech stocks and adheres to a value investment philosophy, buying energy stocks with good cash flow and low valuations, told the media that it is too early to assert that the US economy is experiencing a soft landing, as economic recessions usually occur long after the Fed starts cutting rates.
He emphasized in the interview that the stock market game is a combination of luck and skill:
<blockquote>
You can do everything right, but just look like a fool because of bad luck; you can also do everything wrong, but have good luck and make your performance look outstanding. Everyone who invested in the tech industry in 1998 and 1999 was a hero until the dot-com bubble burst and they were no longer.
</blockquote>
<h2>Who will end this &#34;tech stock frenzy&#34;?</h2>
Currently, the US stock market is experiencing a rare &#34;tech-only bull market&#34;. Driven by strong earnings reports, the six major tech giants, excluding Tesla, have boosted the stock index, causing the market-cap-weighted S&amp;P index to outperform the equal-weighted S&amp;P index by a wide margin. The degree of internal differentiation in the S&amp;P index is rarely seen in the past hundred years.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/3099344b-c81f-4840-b4ee-b3199b3502e0.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/3099344b-c81f-4840-b4ee-b3199b3502e0.png"/>
Nomura analyst McElligott believes that two factors could lead to a significant pullback in the US stock market:
<blockquote>
1) NVIDIA's disappointing earnings report, ending the AI frenzy;
2) Overheating of the US economy leading to &#34;inflation resurgence&#34; and completely ending market expectations of rate cuts.
</blockquote>
Currently, out of the 64 research institutions in the market, 58 have given NVIDIA a &#34;buy&#34; rating. Apart from Morningstar, no other institution has issued a sell report on the stock for 9 months. After a sharp overnight rise, NVIDIA's market value has reached $1.78 trillion, approaching Amazon, the fourth largest among the seven giants.
In addition, data released on Friday also showed that the annualized growth rate of core CPI in the fourth quarter of the United States remained unchanged at 3.3% after revision; the MoM growth rate of CPI in December was revised down from 0.3% to 0.2%, indicating a slower pace of price increase than initially reported. Inflation in the United States is still steadily declining.

The S&P 500 index has set a new record for the fastest breakthrough of the thousand-point mark, and has achieved the best consecutive gains since 1972. The price-to-earnings ratio is approaching the peak level of the previous bull market. Some investors who have missed out believe that a pullback is inevitable.

The strongest continuous rise since 1972! The market has surpassed 5000 points! Who will end the US stock market?