Analysts attribute the market’s continued gains to positive economic data suggesting the Federal Reserve has tamed inflation without breaking the economy, giving investors confidence that interest rate cuts could be on the horizon.

Speculative assets in the technology sector also look increasingly appealing, pushing companies like Microsoft and Nvidia to ever-higher valuations.

“This is another flex-the-muscles moment for the tech bull market with the historical 5k reached on S&P 500,” said Dan Ives, a prominent technology analyst with Wedbush Securities.

The booming S&P 500 is a boon to millions of Americans who invest in the index through their retirement accounts. Investors in 2022 had about $11.4 trillion in investments passively indexed to either the S&P 500 or in funds that use the index as a benchmark, according to S&P Global.

The market rally began in earnest in the final months of 2023, as a spate of positive economic news convinced investors that a recession wasn’t in the offing. Inflation has come down to 1.7 percent, according to the Federal Reserve’s preferred inflation gauge, while the economy has generated jobs at a healthy pace and consumers have kept up their spending.

Despite predictions to the contrary, the economy hasn’t fallen into a recession, with gross domestic product growing by an annual rate of 3.3 percent, according to the latest figures from the Bureau of Economic Analysis. Spending by everyday Americans accounted for most of the economy’s growth in the fourth quarter.

“Despite soaring credit card balances, Americans are continuing to spend, and the economy continues to grow,” said Michael Farr, an investor with D.C.-based Farr, Miller and Washington.

The continued positive economic news has led the central bank to consider cutting rates in 2024, with investors eager to capitalize.

The technology sector, which sold off in 2022 as the Fed dialed rates upward, is now seeing stock values climb to higher valuations, particularly for seven companies: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. The market has been pulled higher by the staggering gains of the “Magnificent 7,” with the tech-heavy Nasdaq composite index up 6.7 percent year to date.

Microsoft has gained more than 11 percent since Jan. 1, while Meta rocketed 35 percent after it said it would start paying dividends. Nvidia, thought to be the chipmaker of choice for the burgeoning artificial intelligence sector, gained another 45 percent in the initial weeks of the year as investors continued to speculate on an AI-driven boom.

The rally’s concentration with those firms, whose stock values are based on expectations for future AI-driven business, has drawn some analysts to question whether the rally can continue. The Magnificent 7 have already shown cracks, with Tesla’s stock price down 24 percent since the start of the year, as the company’s corporate earnings report showed signs of slowing growth and CEO Elon Musk presses for greater control.

Much of the recent buying activity has come from passive investors, who buy into the market through mutual funds without considering what the underlying assets are worth, said Ken Polcari, a longtime stock trader who is chief market strategist at Slatestone Wealth.

“At times like this when it gets frothy and people feel like they’re missing out, the FOMO trade feeds on itself, and people just pour money into the passive ETF because they want in,” Polcari said.

Trading volatility is at historic lows, he said, suggesting that investors may feel overly secure. “There’s a kind of complacency out there, where nobody thinks anything could go wrong,” Polcari said.

Tom Essaye, a stock trader who writes the Sevens Research Report, likened the current rally to a game of musical chairs in which everyone knows the music will stop at some point, but they keep running anyway out of fear that they might miss out on further gains.

Any news suggesting a broader slowing of economic growth could knock the S&P 500 down 5 percent or more, Essaye said. Traders have been closely watching the commercial real estate sector for signs of such a shock, he said.

“Is the market ripe for some sort of pullback? Absolutely it is,” Essaye said. “But there has to be a catalyst for that, and right now all the news and the data continue to be positive. So there’s nothing to contain the animal spirits, if you will.”