Most major global indexes hit new highs in 2024 due to easing financial conditions and growing enthusiasm for artificial intelligence (AI). In the United States, this rally pushed the S&P 500 index to a new all-time high. And the leap was fueled by unwavering investor optimism and the prospect of stocks joining the $1 trillion club.
Historically, markets like to challenge investor complacency. This lesson seems especially important today. Initially, expectations of multiple interest rate cuts by the Federal Reserve (Fed) boosted market sentiment, with up to seven rate cuts expected by January 2025.
However, contrary to these expectations, recent data suggests stronger-than-expected economic growth and higher inflation. Nevertheless, investors are undaunted. They are switching to a narrative of economic acceleration that strengthens markets.
Despite this optimism, there are also warning signs. Analysts have lowered their profit forecasts for this year and next as the stock market’s strength is concentrated in a few mega-cap stocks.
So if interest rate cuts are unlikely and earnings fundamentals are deteriorating, what’s driving the stock market higher? Two factors, according to Morgan Stanley (NYSE:MS) stands out.
First, liquidity is abnormally high. Heavy inflows from banks, money markets and government stimulus have outpaced the Fed’s tightening efforts. However, this inflow of liquidity may reach a limit as the buffer of excess savings is depleted.
Second, there is a lot of excitement about AI’s ability to boost output. According to Morgan Stanley Research, AI could boost S&P 500 companies’ net profit margins by 30 basis points in the upcoming year, especially helping industries like software, financial services, and consumer services.
As Wall Street analysts raise their targets for the S&P 500, here are three stocks that could join the $1 trillion club as early as this year.
Eli Lilly (LLY)
Pharmaceutical giant Eli Lilly (NYSE:LLY) has a market capitalization of over $700 billion. The company has made significant strategic investments in GLP-1 receptor agonists. In particular, the company’s flagship drug, Munjaro (tirzepatide), targets obesity and his type 2 diabetes. Given the size of this untapped market, this led to a massive rally in his LLY stock.
In this way, Eli Lilly is capitalizing on the growing demand for effective weight loss treatments, an area with significant market potential. Munjaro has shown promising results in clinical trials, demonstrating significant weight loss. It has also been shown to improve blood sugar control, making Eli Lilly a major player in this lucrative field.
The company’s involvement in the GLP-1 market expands our portfolio and potential revenue streams. Recently, the U.S. Food and Drug Administration (FDA) reported that nearly all doses of Lilly’s tirzepatide-based products are currently in short supply.
Additionally, LLY said it does not expect to be able to meet demand for weight loss drugs this year. Therefore, the biotech giant remains uniquely positioned for revenue growth in the coming years.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is strategically positioning itself in the emerging AI chip market. AVGO recognizes the growing demand for high-performance semiconductors in AI applications.
Additionally, Broadcom’s portfolio includes advanced networking and connectivity chips essential to AI data centers and infrastructure. The company’s investments in the development of AI-specific technology reflect a clear focus on further expanding its AI capabilities across a variety of sectors.
This move not only diversifies Broadcom’s services, but also increases its exposure to the high-growth AI sector. In March, the company’s stock soared after a better-than-expected AI-focused analyst event.
Finally, Broadcom reported a strong fiscal first quarter in March, with adjusted earnings per share of $10.99, beating Wall Street consensus by 6%. This performance was driven by strong performance in the AI semiconductor space and effective realization of synergies immediately following the VMware acquisition.
The company’s market capitalization is almost $580 billion.
Exxon Mobil (XOM)
Exxon Mobil Corporation (NYSE:XOM) is benefiting greatly from rising oil prices, supported by large upstream projects. Our strategic investments in key regions such as the Permian Basin, offshore Guyana and Brazil are aimed at increasing production capacity and operational efficiency.
As a major player, XOM’s focus on expanding its upstream activities will not only strengthen its market position. But it also adapts to global energy demands and ensures sustainable growth as oil prices rise.
ExxonMobil stock could soar if rising tensions in the Middle East lead to direct conflict between Israel and Iran. Rising tensions have raised concerns that supplies could be disrupted.
Rising oil prices, which have risen nearly 20% since January, risk further fuel price increases in the U.S. and around the world. As a result, companies such as Exxon Mobil Corporation and Chevron stand to benefit from the rapidly evolving landscape. So these are the stocks that will join the trillion dollar club.
In addition, Ukrainian attacks on Russian oil facilities and Houthi attacks on Red Sea shipping lanes are also contributing to the rise in oil prices. Complicating matters, analysts say the recovery in U.S. oil production is slower than expected. The cold snap in January further tightened supplies.
Exxon Mobil’s market capitalization is just under $500 billion.
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