By Bertel Roslev Rasmussen

2024 has largely picked up where 2023 left off. Stock markets continue to break records - at the time of writing, the US S&P 500 index has just passed the 5000 index for the first time ever. Just like in 2023, it is once again the US tech giants that are driving share price increases. A continued strong belief in the AI narrative, strong financial statements from the giants and a sense of fear among investors of not being on the tech train when it takes off, as it did this year and last year, has led investors to flock to the manufacturers of chips for the AI industry in particular. In January and February, AI chip maker Nvidia has already risen by almost 50%, which comes on top of a 2023 where the stock rose by over 200%. Nvidia is now the fifth largest company in the S&P index with a market capitalization of USD 1,800 billion, which corresponds to a price tag of almost 100 times earnings.

As was the case well into 2023, the broad stock market is still left on the platform, looking enviously at the high returns of the tech giants in 2024. Stocks in banking, healthcare (excluding obesity stocks Novo Nordisk and Eli Lilly) and commodities have not yet emerged from the starting blocks in 2024, and Chinese stocks have even fallen in value.

The consequence of this development is that the valuation gap between, for example, US stocks (driven by the tech giants) and European/Chinese stocks has never been wider, with Chinese tech stocks, for example, currently trading at around 1/3 of the price of comparable US tech stocks.

Recent positive developments in the stock market have been supported by investors' expectations of an economic "soft landing" and, in the case of China, turmoil in the ailing real estate market. Continued strong growth, jobs and inflation figures, especially from the US, maintain the belief in the "Goldilocks scenario", where strong economic growth can be combined with low/falling inflation, which is supportive for growth stocks such as the US tech giants. However, the strong US economic data in January and the first part of February is challenging the US Federal Reserve, where investors towards the end of the year had been anticipating imminent US interest rate cuts. This will probably take a little longer than initially expected, which has also resulted in slightly rising interest rates during January.

For Europe, economic indicators have been more negative than in the US for some time, driven by low economic growth in Germany and France in particular. Inflation is also low and falling, with the latest inflation figures indicating inflation below 2%, which is the ECB's target. This leaves room for interest rate cuts by the ECB during the spring.