In recent months, the U.Sstock market has exhibited remarkable resilience, seemingly immune to fluctuations in interest ratesThis phenomenon can largely be attributed to the robust earnings outlook of leading technology companies and the relentless momentum of artificial intelligence (AI). Despite expectations for interest rate cuts waning, the market remains buoyed by its tech giants, showcasing a unique characteristic where rate sensitivity appears diminished

As of early July, the Nasdaq 100 Index surged past the significant 20,000 mark, closing at 20,675.38 points on July 11, reflecting an impressive year-to-date increase of nearly 25%. Simultaneously, the S&P 500 Index advanced beyond 5,600 points, registering a 1.02% rise to end the same day at 5,633.91 points, signifying nearly a 19% gain this year

Notable stocks such as Amazon, Alphabet, Nvidia, and Tesla have demonstrated promising upward trajectories, reflecting a sustained bullish sentiment within the technology sector.

Focusing on Nvidia, a pivotal player in the tech landscape, its influence on the Nasdaq 100 Index cannot be overstatedThe index has consistently reached new historical highs, surpassing the 20,000 threshold with little clear resistance aheadCurrent technical metrics indicate that the index recently touched the 200% extension level at 19,962 points stemming from a downward phase earlier this year, with further extension targets suggesting bullish potential as high as 20,887 points based on Fibonacci retracement analysis.

The technology giants are propelling the U.S

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The ascent of these tech behemoths isn't without justification—strong earnings growth stands out as the primary catalystIn the first quarter, the combined earnings growth for the 'magnificent seven' tech companies contrasted sharply with the broader S&P 500's growth of 7.9%, emphasizing the pivotal role of these major players in overall market performance.

Critics have voiced concerns over potential bubbles within the tech sector or AI landscape; however, it is essential to note that we are likely still in the early stages of the AI boomCompanies may receive elevated valuations based on future profit expectationsComparing the peak of the internet bubble in 2000, where the top five tech companies had an average forward price-to-earnings ratio of 59 times, the current top tech stocks projected for 2024 carry a comparatively modest average of 34 times

This disparity suggests that the market is not currently exhibiting the same speculative attributes characteristic of previous bubbles.

Typically, bubbles are identified by stock prices soaring beyond reasonable valuations amidst rampant speculationA situation may arise where investors come to realize that anticipated growth cannot be immediately realized, prompting a rush to sell and a subsequent price crash, effectively bursting the bubbleThus, maintaining a focus on sound valuation standards is crucial.

Currently, leading tech companies' earnings per share (EPS) growth rates outperform those seen during the internet bubble era (42% compared to 30%). Consequently, there is little justification for comparing the two periods, especially as we navigate the foundational stages of the AI era, which holds promise for enhancing profit margins

Additionally, firms such as Microsoft, Meta, Alphabet, IBM, and Tesla have executed significant workforce reductions—nearly 50,000 positions cut within a year—which should buoy EPS growth in the near term.

It is plausible that companies like Amazon, Alphabet, Nvidia, and Tesla will continue to drive overall tech stock upward momentum.

Recently, Alphabet has continually achieved new record highsIndeed, the stock has been on a relentless upward trajectory, crossing the $180 resistance level by the end of June and approaching $190. In June, Amazon surged past $190 after strong consolidation, closing at a historic high of $197.2 on July 2, making it the fifth member of the 'magnificent seven' to breach the $2 trillion market cap threshold

This development has bullish implications, especially as other leaders like Nvidia experience a brief pause in their meteoric rise, likely assisting in maintaining tech stock positivity.

Nvidia has undeniably become the centerpiece of market attentionOn June 24, Nvidia's stock witnessed a 6.7% decline, marking its largest drop in two months, compounded by a cumulative drop of 12.88% over three consecutive daysNevertheless, increased demand for AI chips has kept Nvidia's stock performance strong, with a year-to-date increase of approximately 138.5% prior to the decline, ranking it as the second-best performer in the S&P 500, just behind AMD's 190.92% surge.

Currently, Nvidia appears to be stabilizing, with a potential trajectory towards its previous highs

Its major customers, primarily members of the 'magnificent seven,' are expressing positive outlooks on capital expenditures related to generative AINvidia's GPUs are reportedly in high demand, underscoring this trendFor instance, Alphabet has indicated substantial progress in generative AI services and anticipates capital expenditures to exceed first-quarter levels (around $12 billion) throughout the remaining quarters of 2024 due to these investments in technological infrastructure.

However, some cautionary sentiments regarding Nvidia persistThe competitive landscape for general-purpose GPUs is deteriorating, with AMD and Intel increasingly entering the fray, which may restrict Nvidia’s ability to sustain high prices and profit marginsFurthermore, each cloud service provider (CSP), such as Amazon's AWS, possesses substantial incentive and capability to develop their own dedicated AI acceleration chips

While it remains challenging to provide general computing services in the foreseeable future, internal replacements could diminish Nvidia’s market share.

Tesla experiences an impressive ten-day rise

Particularly noteworthy is Tesla, previously regarded as the laggard among the 'magnificent seven,' exhibiting extraordinary performance with a ten-day consecutive rise, accumulating over 50% growth in the past month, with a 27% surge in just the last week, catapulting its stock price to its highest level since September of last year.

Tesla's Q2 delivery numbers reached 443,000 vehicles, surpassing market expectations and previous output of 410,000, easing concerns regarding inventory buildup and weak demand

Anticipation is building for Tesla's Q2 earnings report scheduled to be released on July 23, focusing on profit margins and full self-driving (FSD) developments which have captured investor attention.

On the whole, Tesla has seen a decline in sales for two consecutive quartersIn the Q2 delivery numbers, models 3/Y constituted 95%, while other models contributed a mere 5%. This marks a 4.8% year-on-year drop but reflects a 14.8% rise compared to Q1 this yearDespite Tesla not disclosing the number of Cybertrucks delivered, insights from two recent vehicle recalls indicate that at least 11,000 units have already been delivered.

In this quarter, Tesla's production totaled 410,800 units with models 3/Y accounting for 94% and other models making up the remaining 6%. Production decreased 14% compared to last year, while marking a 5.2% reduction from the previous quarter.

The company's energy segment has been performing well, exceeding Q1 levels by over 130%. The energy storage metrics for the first half of 2024 likely eclipse total storage figures for all of 2023.

There is an element of speculation surrounding Tesla, as amid the overall fervor in the market, it stands out as one of the more affordable AI-related stocks within the S&P 500.

Tesla is slated to host a Robotaxi launch event on August 8, unveiling the long-promised autonomous ride-hailing service where owners can add their vehicles to Tesla's ride-sharing fleet through a mobile app

This initiative enables Tesla owners to monetize their cars while working or vacationing, similar to the Airbnb and Uber modelThe surge in market interest presently may be partly fueled by pre-event anticipation, with speculation also surrounding advancements in the potential Model 2.

Overall, Tesla's Autopilot and FSD technologies exhibit considerable success but have yet to achieve fully autonomous functionality, meaning cars cannot safely operate without human oversightNevertheless, Tesla possesses some of the most advanced AI driving technologies globally, which factors into investor optimism regarding the company's long-term growth potential, transcending mere vehicular sales metrics, as Elon Musk aspires to shape the company into a leading "software company".

The realization of these mid- to long-term goals will require time for substantial profit realization

Specifically, revenue from FSD is anticipated to stem from multiple avenues: sales of FSD systems to Tesla vehicles; fees from Tesla owners or other vehicles utilizing the Cybercab fleet; and licensing FSD technologies to non-Tesla manufacturersHowever, this hinges on clearing regulatory and technical hurdles across various jurisdictions, making notable profit increases before 2024 unlikely, though the long-term outlook remains promising.

Likelihood of interest rate cuts diminishing before September

On a macroeconomic level, changes are poised to play a pivotal role in the capital markets, largely hinging on the Federal Reserve's timing regarding interest rate cuts.

On July 10, Federal Reserve Chair Jerome Powell, during a Senate hearing, acknowledged progress in inflation but indicated that it is not the sole risk currently facing the economy

He asserted that maintaining high interest rates for extended periods could hinder economic growth but refrained from offering direct clues on prospective rate cuts, stressing that future decisions would rest on forthcoming economic data.

Overall, Powell's remarks struck a cautiously optimistic toneThe U.Sdollar index has been resuming its climb, staying above 105. Presently, the probability of a rate cut in September stands at around 70%, a noticeable increase from the past fortnight.

However, the likelihood of cuts prior to September has considerably diminishedThe June 5 non-farm payroll report presented a mixed picture; overall employment figures were slightly better than anticipated, though the revisions to previous reports were more substantial resulting in a slight uptick in the unemployment rate, suggesting that the Fed may be hesitant to cut rates this summer

Indeed, FedWatchTool indicates the probability of cuts before September has now dropped to a mere 5%. In this context, the U.SCPI reports in the next two months are unlikely to directly influence monetary policy but will play a longer-term role in shaping the Fed's dual mandate progress.

The annual year-on-year figure for U.SCPI remains around 3.3%, while one of the best leading indicators for future CPI readings, the ISM PMI price component, ceased its decline and has stabilized around 55 in recent months.

In recent weeks, global stock indices have maintained upward trends, buoyed by optimism surrounding impending monetary policy easing, particularly regarding the transformative potential of AI in the U.SThe S&P 500 index appears destined to achieve record-setting closing highs for the third consecutive day since breaking through the 5,500-point resistance barrier last week.

For contrarian traders, or perhaps merely patient bulls awaiting more favorable entry points, it is worth noting that the 14-day RSI currently exceeds 78, marking the highest reading year-to-date