Since October, the Dow Jones Industrial Average and the S&P 500 have not only reached historic highs but have also maintained this momentum, with the Nasdaq climbing close to its record set on July 11. This growth period aligns with the quarterly earnings reports from major tech companies, suggesting that the upward trend in U.S. stocks could persistInvestors are keenly watching how the quarter's performance will play out, particularly in the tech sector, which holds considerable sway in the overall market sentiment.

On a macroeconomic scale, the employment and consumption figures from September remain robust, while inflation continues to show signs of moderationThis combination reinforces expectations of a soft landing for the economyThe encouraging earnings from various technology powerhouses have only heightened market optimism, showcasing a significant number of earnings reports that exceeded analysts' expectationsLooking ahead to November, the Fed is anticipated to maintain its interest rate cuts at 25 basis points, with a similar outlook for the December meetingThe prevailing expectations of lower interest rates, coupled with a soft landing scenario, are expected to bolster U.S. stock valuations and keep them elevated.

Currently, the expectation for a soft landing in the U.S. economy continues to strengthenGiven the strong earnings growth reported by tech giants this quarter, the three major stock indices—the Dow, Nasdaq, and S&P 500—are hovering above their median valuation levelsThis suggests that the market may have already factored in the trends of potential interest rate cuts into stock pricesWith expectations for continued growth in earnings, valuations appear to be reasonably highTherefore, it's believed that U.S. stocks are likely to experience a sustained upward trend, with recommendations to closely monitor Nasdaq ETFs and S&P ETFs as investment options.

Firstly, the macro data has remained favorable

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High-frequency consumer data in the U.S. has rebounded, with initial claims for unemployment benefits droppingHowever, mortgage rates have ticked upward, reflecting a solid economic foundation as indicated by the rise in the ten-year Treasury yield.

Consumer activity appears robust, as the Nowcast of real personal consumption slightly increased to 3.6% from the previous weekRetail data has been strong, showing that retail sales grew by 1.7% year-on-year, surpassing the previous month’s growth of 2.2%. Month-over-month, retail sales increased by 0.4%, well above the consensus forecast of 0.35%, which was adjusted from a mere 0.06%. The control group for retail sales also saw a month-over-month increase of 0.71%, outperforming the expected 0.3%. In the labor market, initial claims for unemployment benefits for the latest week fell to 241,000 from the previous 258,000, indicating the diminishing impact of recent hurricanes on U.S. employmentMoreover, high-frequency data points towards a slight rebound in job vacanciesIn real estate, the 30-year fixed mortgage rates have risen to 6.44%. All of these metrics have collectively raised the likelihood of a soft landing for the U.S. economy, diminishing the recession fears that have plagued U.S. markets recently.

Secondly, the earnings reports from technology giants have largely surpassed market expectations this quarterIt is anticipated that around 20% of S&P 500 companies will release their earnings reports during this seasonCompanies such as TSMC and Netflix have already reported impressive earnings that beat market forecasts, leading to significant stock surgesNotably, Tesla's earnings announcement resulted in more than a 20% increase in its stock price after hours.

In recent weeks, several AI technology firms have set new all-time highs, resulting in an optimistic revaluation of their growth prospects in the upcoming years

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TSMC reported revenues of $23.5 billion for FY24Q3, exceeding the Bloomberg consensus estimate of $23.3 billionTheir gross margin also outperformed expectations, rising to 57.8% against the predicted 54.8%. In terms of production, the shipments of 3-nanometer chips accounted for 20% of their total wafer revenues, with 5-nanometer and 7-nanometer chips contributing 32% and 17% respectivelyTSMC noted robust demand for smartphones and AI-related products, driving higher utilization rates for both 3-nanometer and 5-nanometer technologiesThey project that revenues from AI server chips will triple this year, accounting for approximately 15% of total revenues by 2024. Despite projected capacity doubling for their COWOS business next year, TSMC still anticipates it will struggle to meet market demand, highlighting supply chain challenges that persist in the tech sector.

As it stands, 52 companies within the S&P 500 have disclosed their quarterly earnings, with around 60% surpassing expectations and collectively reporting a net profit surprise of 7.4%. The overall optimism surrounding earnings forecasts for S&P constituents remains notably high, further supporting the U.S. stock market’s persistent high valuations.

In terms of stock index valuation, the current EPS forecasts for U.S. indices continue to undergo upward revisions, albeit at a slower rateThe dynamic F12M EPS forecast for the S&P 500 has risen by 0.1% this weekOut of 16 industry sectors, earnings expectations have increased in 11 sectors, while 5 have seen declinesThe industries that saw upward adjustments include diversified financials (+0.8%), semiconductor products and equipment (+0.7%), media and entertainment (+0.6%), banks (+0.5%), and materials (+0.5%). Conversely, the sectors with reduced earnings expectations include capital goods (-1.2%), healthcare equipment and services (-1.1%), energy (-0.5%), autos and auto parts (-0.3%), and food and staples retailing (-0.1%). Looking at static valuations, the three major indices are currently sitting at above-median valuation levels.

Investment strategies and future outlooks suggest maintaining a positive, albeit cautious stance towards U.S. tech stocks, indicating a continued upward drift supported by investor optimism

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