The rise of AI has left many investors – or perhaps we should call them – deserted speculators— desperately looking for tech stocks that will allow them to participate in today’s Wall Street Gold rush. It is the fear of missing out on a dynamic that typically coincides with the market Blowalthough the debate over whether we are currently in a bubble still exists in progress. Now Nvidia’s huge AI conference, GTC 2024, could provide further impetus FOMO The fire is drawing even more money into AI-linked stocks this week, according to Ed Yardeni of Yardeni Research.
“We could imagine a scenario where FOMO buyers pile into Nvidia and other technology stocks during Nvidia CEO Jensen Huang’s talk on Monday from 4 to 6 p.m. EST,” the veteran economist and Wall Street strategist wrote in one Sunday note to customers and called the conference “Nvidia’s three-day AI lovefest for developers.”
But investors are hoping for another AI-induced stock market rally should be reserved. The Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday to discuss monetary policy – and Chairman Jerome Powell could deter the stock rally in his subsequent press conference.
“Bearish traders could drive the market lower on Tuesday afternoon,” Yardeni warned, adding that fear could spread if the Fed chair hints at a “looser” outlook.
For about two years, Fed officials have tried to curb inflation by using interest rate hikes as their main weapon. The tactic has increased borrowing costs for businesses and consumers across the country, but has also been quite effective, reducing the annual inflation rate from its peak of 9.1% in June 2022 to just 3.2% in February. Powell said in his semi-annual monetary policy report to Congress earlier this month that the decline in inflation had given him confidence that he would “probably“We will be in a position to cut rates at some point this year.”
But Yardeni noted that Powell and Co. won’t like what they saw in February consumer or reports on producer price inflation. Both reports surprised Economists said it came in hotter than expected and signaled a slow decline in inflation that has now largely subsided.
Yardeni said he believes this new evidence will prompt Powell to take a more aggressive stance this week. He even argued that the Fed’s Summary of Economic Projects (SEP), a baseline estimate of Fed officials’ economic forecasts, will likely show that Fed members now expect inflation to moderate at a “slower pace” and only two instead three predict. interest rate cuts this year.
With higher-than-expected interest rates likely to weigh on corporate profits, Yardeni warned that markets could face some short-term problems – despite AI FOMO that will be buoyed by Nvidia’s event. “[Investors and traders] could continue to sell if Powell walks back his speech about rolling back restrictions,” he warned.
Yardeni noted that markets had already been bracing for the prospect of fewer interest rate cuts in recent weeks. According to him, both 10-year and 2-year Treasury yields have risen about 6% since March 8 to 4.34% and 4.74%, respectively. And the iShares 20+ Year Treasury Bond ETF, which tracks government bonds with a maturity of more than 20 years, has now fallen for eight days in a row, a record, a sign that investors are pricing in fewer interest rate cuts – and thus rising Treasury yields.
Despite investors’ new prospect of fewer rate cuts, Yardeni says major market indices are still in “overbought” territory, making them vulnerable to a correction. “If the Fed stays in pause mode for longer than expected, the stock market rally may also be due for a pause,” he argued.
To support his view that investors should be cautious, Yardeni cited comments from Michael Brush, a MarketWatch columnist and editor of the newsletter Brush Up on Stocks, who noted that insider selling trends don’t look good.
“Insider buying relative to selling remains remarkably low, suggesting that company executives and directors have a cautious view of the stock market,” Brush said. “Even the buying we had seen in biotech and regional banks has dried up.”