The Nasdaq Composite and the S&P 500 hit an all-time high Friday. The Nasdaq topped its 2021 record due to an artificial intelligence boom and chances of likely Fed rate cuts in late 2024. The S&P 500 too attained its first close above the 5,100-mark on Mar 1, 2024. The Nasdaq is up 8.2% this year after a mammoth rally last year while the S&P 500 is up 7.7% so far this year. Both indexes have gained 39.2% and 27% in the past one year (as of Mar 1, 2024).

Below we highlight a few factors that could drive Wall Street further from here. The bullish potential makes ETFs like Invesco Dorsey Wright Healthcare Momentum ETF (PTH Quick QuotePTH - Free Report) , VanEck Semiconductor ETF (SMH Quick QuoteSMH - Free Report) , Invesco Nasdaq Biotechnology ETF (IBBQ Quick QuoteIBBQ - Free Report) , Invesco S&P 500 Equal Weight Technology ETF (RSPT Quick QuoteRSPT - Free Report) and Consumer Discretionary Select Sector SPDR ETF (XLY Quick QuoteXLY - Free Report) strong buys.

Fed Rate Cuts Likely in Late 2024

We believe that one of the key reasons behind the Nasdaq’s recent surge was speculation about Fed rate cuts. Cleveland Fed president Loretta Mester said on Thursdaythat the latest reading on inflation (i.e., a month-over-month jump in the Fed’s preferred inflation gauge) doesn’t change her calculation for three rate cuts later in 2024. She is still predicting three cuts in 2024, an estimate she first made in December.

AI Euphoria

The Nasdaq’s climb to a record arrives with the huge enthusiasm over artificial intelligence. The “Magnificent 7,” which includes Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla, have led the Nasdaq’s recovery from a tumultuous 2022 that was marred by rising interest rates and recession fears. Notably, Microsoft has emerged as a leader in the AI landscape. And the likes of Alphabet, Meta and Amazon have joined the spree. Nvidia is another company that is a key beneficiary of AI enthusiasm.

Optimistic Earnings Outlook

Ned Davis Research estimates the S&P 500 index to be more than 5% overvalued based on historical P/E trends since 1964, but notes that it remains far from bubble levels. In mid-February, Goldman Sachs Group Inc. strategists have boosted their forecast for the S&P 500 Index, now targeting 5,200 by year-end, citing increased profit estimates as the driving factor, per Bloomberg, as quoted on Yahoo Finance.(read: Should You Play S&P 500 ETFs on Bullish Analyst Bets?). 

Meanwhile, some analysts, like those at Bank of America Corp., suggest that current targets may underestimate market potential. An optimistic earnings outlook could alleviate high valuation concerns of the S&P 500 and the Nasdaq. S&P 500 companies are projected to increase earnings by 9.7% this year, according to LSEG data. Bloomberg Intelligence data suggested an 8.8% profit increase in 2024 compared to the previous year.

Beyond AI: PC Market Regaining Its Mojo

Even though Artificial Intelligence (AI) grabs most of the headlines, Microsoft has more tricks up its sleeve. The company faced a rough patch when the demand for personal computers (PCs) went down, affecting a big chunk of its income. However, things are looking up now. The PC market is getting back on its feet, with Microsoft's related sales jumping 19% from last year. This is the biggest growth spurt in almost three years. As the PC market continues to recover, it's expected to keep boosting Microsoft's financial health. This factor is beneficial for the Nasdaq investing.

Resilient Consumers

Moreover, a resilient consumer base has boosted the consumer stocks too in 2023, helping to send the index to a great height. We expect the index to log gains even in 2024, although the quantum of gains will likely be less than this year.

Biotech Stocks to Rebound in 2024?

The Nasdaq has solid exposure to the biotech space. Biotech stocks have staged a rebound lately and are being lifted by M&A activities. Novel drug launches, likely low rates and easy access to funds should buoy the zone in 2024.

ETFs to Buy

Against this backdrop, below we highlight a few top-ranked ETFs that could be bought to tap the ongoing winning momentum. These ETFs have a Zacks Rank #1 (Strong Buy)

Invesco Dorsey Wright Healthcare Momentum ETF (PTH Quick QuotePTH - Free Report) – Up 36.4% in the past three months

The underlying Dorsey Wright Healthcare Technical Leaders Index identifies companies that are showing relative strength and are composed of at least 30 common stocks from a universe of approximately 3,000 common stocks traded on US exchanges. The fund charges 60 bps in fees.

VanEck Semiconductor ETF (SMH Quick QuoteSMH - Free Report) – Up 32.7% in the past three months

The underlying MVIS US Listed Semiconductor 25 Index tracks the overall performance of companies involved in semiconductor production and equipment. The fund charges 35 bps in fees.

Invesco Nasdaq Biotechnology ETF (IBBQ Quick QuoteIBBQ - Free Report) – Up 14.7% in the past three months

The underlying Nasdaq Biotechnology Index measures the performance of either biotechnology or pharmaceutical companies. The fund charges 19 bps in fees.

Invesco S&P 500 Equal Weight Technology ETF (RSPT Quick QuoteRSPT - Free Report) – Up 13.9% in the past three months

The underlying S&P 500 Equal Weight Information Technology Index equally weights stocks in the information technology sector of the S&P 500 Index. The fund charges 40 bps in fees.

Consumer Discretionary Select Sector SPDR ETF (XLY Quick QuoteXLY - Free Report) – Up 9.5% in the past three months

The underlying Consumer Discretionary Select Sector Index seeks to provide an effective representation of the consumer discretionary sector of the S&P 500 Index. The fund charges 9 bps in fees.