What’s going on here? The Nasdaq has put investors in a good mood, striking new highs and opening above 20,000 for the first time ever on Thursday. What does this mean? Sometimes, things just point in an index’s favor. The tech-heavy Nasdaq is up a stellar 33% this year, boosted by the AI boom, economic optimism, and – most recently – expectations of another stimulative US interest rate cut next week. That’s always welcome news for investors. Lower borrowing costs tend to encourage consumer and business spending, which is good for companies’ profits and shares. And it’s just this kind of stuff that puts folks in the holiday spirit: higher stock markets increase the “wealth effect”, making people feel richer and more inclined to splash out on gifts and nice-to-haves. Why should I care? Zooming in: Chip, chip, hooray. Everyone loves a good exchange-traded fund (ETF) – and the ones that track the Nasdaq and the S&P 500 are particularly adored, with more than $2 trillion under their belts. And since they tend to be heavily weighted toward the Magnificent Seven, that’s given a boost to those firms too. But not everyone’s putting their money in broad ETFs: everyday investors and pro money managers alike are always on the lookout for stocks that can outperform indexes. This week, that had plenty of them buying up shares in Alphabet after the launch of its latest quantum computing chip. Google’s parent jumped 5% on Wednesday, far outpacing the Nasdaq’s 1.8% rally. The bigger picture: Sweet things. Like a decadent holiday dessert, US stock valuations are almost too rich. Still, that hasn’t stopped the country’s stocks from moving higher and gaining faster than those in other wealthy nations. When stocks do well and keep it up, they’re said to have strong price momentum – and that can signal that it’s a good time to buy. But if ETF selling picks up, that momentum could shift and turn winners into losers. |