The new bull market is here, and it will be with us for a while. The market’s massive rally over the past two months has been driven largely by the “Magnificent Seven” stocks, consisting of Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT ), Nvidia (NVDA) and Tesla (TSLA).
However, the fervor surrounding the Magnificent Seven stocks, setting record highs in all three major averages, continues to raise questions about whether there is any room left for more gains. Now the concern is whether market valuations are overstretched, meaning stocks are overpriced. In addition to worrying that the Magnificent Seven are hoarding all the gains, experts are also fueling dissatisfaction with the current administration, the Fed’s monetary policies, federal debt and various other factors.
Adding all these factors, these experts are basically predicting that the market has reached a peak or is aiming to burst what they see as an artificial intelligence bubble. In doing so, we overlook the bullish aspects that would suggest more gains are on the horizon. For example, while some experts continue to call for a recession this year, economic indicators still point strongly to continued expansion. In fact, evidenced by earnings estimates for the S&P 500, which have risen since late January, there is growth momentum to be realized.
Furthermore, since the year began, we have received consistent economic data that suggests a soft landing is in fact possible. And this optimism, when combined with economic data and strengthening corporate profits, justifies the gains so far that we have witnessed in the three major averages. As for the Fed and where we stand on inflation, the core Personal Consumption Expenditure (PCE) price index, which is the Fed’s preferred inflation gauge, is declining and has been trending lower on an annual basis.
Of course, there are components in the PCE report that suppressed or show that inflation has crept back, which means it hasn’t been smooth sailing. But what matters for the Fed and its policy moving forward is the fact that the overall core rate continues to decline. And that downward trend continues to point to reaching the Fed’s 2% inflation target as some point this year. Therefore, this would constitute a soft landing, which we are constantly debating whether it is possible.
In that vein, I believe the number of rate hikes the Fed should implement is four, and I think the Fed needs to act sooner rather than later. And for those who are constantly shouting that we’ve reached peak artificial intelligence, Nvidia’s recent earnings results and guidance, which once again left investors in awe, suggest that the AI boom has only just begun.
“Generative AI is enabling a new way of creating software. It’s a new way of computing. This is enabling a whole new industry. This is driving our growth,” said Jensen Huang, founder and CEO of Nvidia. There is still unrelenting demand. for AI, especially in the data center, where the company’s income. “The world has reached a tipping point,” said Colette Kress, Nvidia’s chief financial officer. “The fourth quarter data center revenue was driven by generative AI and training. The company is diversifying into new industries with various use cases, or as Huang put it: ‘A collection of multibillion dollar industries encompasses our generative AI.’
As for guidance from the first quarter of 2024, Nvidia expects to generate $24 billion in revenue, plus or minus 2%, $2 billion higher than what analysts had forecast. So it’s hard to argue that AI interest has peaked.
Given these factors driving Nvidia’s growth, combined with the economic indicators still pointing strongly to continued expansion and the likely soft landing by the Fed, the bull market is sustainable and I expect the market to be higher than current levels until the end of the year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.