Chief equity strategist Mike Wilson noted that The stock market needs a new catalyst if it wants to resume its rally. Investors who bet on equities because of their short-term potential did so prematurely, a phenomenon that is being seen with chip stocks and not just because of Nvidia’s swings.
“The dream of artificial intelligence has lost a bit of its luster,” he said. That doesn’t mean it’s over.”
Investors have been reducing their exposure to Big Tech after holding onto it for much of the year. With the Federal Reserve expected to start cutting interest rates next week, Investors are shifting their positions to other sectors of the market as they assess the health of the U.S. economy.
Wilson reiterated his preference for quality defensive stocks and recommended areas such as utilities, consumer staples and health careas the fervor around chipmakers fades, at least temporarily. Investors are likely to take refuge in those sectors until “the next thing comes along: either a negative or positive outcome,” he said.
The bad US inflation data
US stocks fell after a key measure of inflation rose more than expected in August, increasing Concerns that the Fed will not cut rates as much as traders expectThe core consumer price index, which excludes food and energy costs, rose 0.3 percent in August from July and 3.2 percent from a year earlier.
The strategist warned that bringing forward interest rate cuts with a 50 basis point reduction at this meeting “materially” reduces the chances of a soft landing. Some traders had speculated that policymakers would implement a large-scale cut from the start, but after the CPI surge they have backed off and have largely consolidated the chances of a quarter-point cut.
Greater volatility is expected in the markets
In Wilson’s view, the biggest uncertainty going into next week’s policy meeting is whether Fed bankers will talk more forcefully about ending quantitative easing soon or offer other provisions to provide liquidity. That could surprise markets and serve as a “bullish argument” for stockshe said.
In early July, Wilson rightly warned that the market was in for a major pullback due to heightened uncertainty surrounding Fed policy, corporate earnings and the US election. Less than a month later, The S&P 500 fell 8.5% from its peak to its August low.However, the strategist also predicted a stock market crash last year that failed to materialize.
Looking ahead to the election, Wilson believes that in a soft landing scenario, former President Donald Trump’s growth policies would likely be good for stocks and bad for bonds.
Source: Ambito
