The Nasdaq (^IXIC 2.02%) already scored a win last year, with top chipmakers, cloud companies, and other tech giants leading it to a 43% gain. And the index continued that momentum this year, ending February at a record high. Investors have favored growth stocks in recent times, as the overall economic picture stabilizes and certain technology sectors -- such as artificial intelligence (AI) -- show promise of tremendous growth now and into the future.
The Nasdaq has advanced more than 8% so far this year as investors embrace the new bull market; the S&P 500 also reached a record high recently, confirming the market's shift into bull territory as it began its recovery from bear market lows in late 2022.
Now, the question is, can technology and other growth stocks, the most heavily weighted players in the Nasdaq, continue to soar -- and lead the index to a new record high in March? Let's take a closer look.
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Optimism about potential interest rate cuts
First, it's important to consider the economic environment. The economy has been far from rosy in recent times, with the Federal Reserve lifting interest rates 11 times from 2022 through the summer of last year to try to calm rising inflation. Since that time, investors have been anticipating potential rate cuts, which could come as early as this spring -- the Fed aims to lower rates three times by the end of this year.
The idea of possible rate cuts on the horizon could serve as a catalyst for further stock market gains in the coming weeks. That's because rate cuts not only lower borrowing costs -- making it easier for growth companies to borrow money and expand -- but they indicate the Fed's moves to set the economy on the right track are working. And a stronger economy should support the consumer's buying power as well as corporate earnings.
So, optimism about an improving economy could continue to fuel investor appetite for growth stocks and lead to more gains for the Nasdaq.
On top of this, many Nasdaq stocks clearly have reason to keep up the momentum. For example, Nvidia (NVDA 6.18%), one of the most heavily weighted stocks in the index, recently reported record earnings thanks to its leadership in the AI chip market. The company holds more than an 80% share of this market, and today, its increases in research and development spending and expansion into a variety of AI products could ensure that dominance over time.
Nvidia shares soared more than 260% over the past year, but they still trade for only 33 times forward earnings estimates -- and that sounds like a very reasonable price considering the company's long-term AI prospects.
A Nasdaq success story
Amazon (AMZN 3.43%) represents another Nasdaq success story that could continue its gains in the coming weeks. The e-commerce and cloud computing leader revamped its cost structure over the past year or so and has started reaping the rewards of those efforts. After a difficult 2022, that ended with a net loss, Amazon quickly turned things around and finished last year with profitability, double-digit gains in revenue, and more than $36 billion in free cash flow.
It's easy to imagine Amazon's improved cost structure and the company's AI offerings through cloud business Amazon Web Services boosting earnings and the share price both in the near term, and most importantly, over the long term.
And many of the Nasdaq's other heavily weighted companies also offer promising prospects -- that could attract investors, and therefore, help the index advance.
What will the Nasdaq do in March?
So, let's get back to our question: Could the Nasdaq reach a new record high in March? Of course, it's impossible to guarantee which direction stocks and an index will take -- but, if investors continue to remain optimistic about the economy and the future of some of the biggest tech companies, the Nasdaq could extend its gains this month.
That would be fantastic, but no matter what happens, it's crucial to keep your eye on what's most important, and that's long-term performance. Time is on the investor's side, as you can see when looking at the Nasdaq's path over a number of years -- after tough times, it's always gone on to recover and increase. And that's why, whether the Nasdaq rises or falls this month, if you hold quality companies with solid long-term prospects, you could significantly grow the value of your investment over time.
