There are 2 things needed to sustain this year's blistering rally in tech stocks

• The Nasdaq Composite hit a year-to-date closing high on Wednesday.
• Tech stocks collectively gained nearly 11% in January and that return could be exceeded in Q4, said DataTrek.

Meta and Apple are among the powerhouse tech names that have propelled the Nasdaq Composite to its highest point in 2023, but the benchmark index needs two sources of fuel to keep the rally going through the rest of the year, according to DataTrek.

One source — rate cuts by the Federal Reserve — will require a recession.

The Nasdaq Composite on Wednesday closed at a year-to-date high, at 12,500.57, and it's up more than 19% since the start of the year. Meta has participated in the advance, with its stock more than doubling. Apple and Microsoft shares have each gained at least 30%.

DataTrek, in a Thursday note, outlined history illustrating that the Nasdaq is carrying early-year momentum after surging 10.7% in January, which was above the average January return since 1980.

Its 2.3% gain so far in the second quarter appeared on pace to reach or exceed the 5.6% average logged in second quarters during years when January was strong.

"Although the third quarter could prove choppy, returns in Q4 could potentially even exceed Q1," DataTrek co-founder Jessica Rabe wrote.

So what's required to push the Nasdaq Composite even higher? Continued corporate profitability and lower interest rates, according to Rabe.

"[A] further rally in US tech stocks hinges on their corporate profitability continuing to hold up and the Fed cutting rates in 2H 2023, the latter of which likely requires recession," she said.

While Federal Reserve anticipates a "mild recession" starting later this year, policymakers have indicated they won't begin cutting interest rates until 2024. High interest rates can hurt the potential value of future profit at growth companies.

The central bank delivered its 10th consecutive rate hike in March, raising its benchmark rate to a target range of 5%-5.25%. Inflation, however, remains well above its 2% target. DataTrek said the Fed battling hot inflation "was not a factor during the winning years," it had outlined for the Nasdaq Composite.

Dallas Federal Reserve President Lorie Logan on Thursday indicated the Fed might not pause rate hikes at its June meeting.

"We haven't yet made the progress we need to make. And it's a long way from here to 2 percent inflation," she said in prepared remarks for a speech.

From the profitability front, 87% of the S&P 50 0's Information Technology sector handed in first-quarter earnings that surpassed analyst expectations.