Nasdaq 100, Dow Jones, S&P 500 News: Will AI Stocks Continue to Feed the Bull?

James Hyerczyk
Published: May 27, 2024, 14:44 GMT+00:00

Key Points:

  • Investors need to watch if inflation trends lower, prompting potential Fed rate cuts in September and December.
  • Despite some softening in retail sales and job growth, earnings growth remains strong, supporting the bull market.
  • The long-term growth potential of AI promises gains in financial services, healthcare, automotive, and manufacturing sectors.
Nasdaq Composite, S&P 500, Dow Jones

The market has been closely watching inflation and the Fed’s rate decisions. With inflation higher than expected in the first quarter, the Fed is hesitant to cut rates unless inflation cools. Investors need to monitor if inflation trends lower, as this would give the Fed confidence to cut rates. We anticipate inflation will ease due to lower rent costs and a softer labor market reducing wage pressures. If this happens, one or two Fed rate cuts this year, likely in September and December, could boost market sentiment.

Can Earnings Growth Continue to Support the Bull Market?

Earnings growth is crucial for stock prices. This year, S&P 500 earnings are expected to grow by 10%-11%, a significant improvement from last year’s 1%. Most of the first-quarter earnings reports are in, and about 80% have beaten expectations. Despite some softening in retail sales and job growth, the U.S. economy started the year strong with a 3.4% annualized GDP growth. While growth might slow down, earnings should stay solid, supporting stock performance and the bull market.

Will AI and Tech Stocks Sustain the Bull Market?

The bull market relies heavily on mega-cap tech stocks and growth sectors, especially those involved in AI. The S&P 500 is heavily weighted toward tech, communication services, and consumer discretionary sectors, which include the “Magnificent 7” stocks. Even if tech stocks face volatility, the long-term growth potential of AI is promising. Over time, sectors outside tech, like financial services, healthcare, automotive, and manufacturing, should also benefit from AI-driven productivity gains, making diversification more important.

What is the Market Outlook?

The bull market that started in October 2022 looks set to continue. Historically, bull markets last longer and gain more than bear markets. We’re about 1.5 years into this bull run, with the S&P 500 up around 48%. There’s likely more room for growth. Staying overweight in large-cap and mid-cap U.S. equities, with a mix of growth and value sectors, seems wise. As the bull market progresses, diversification will be key.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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