Happy Beginnings. Stocks moved higher on geopolitics Monday, as Iran fears eased and investors looked toward President Donald Trump's meeting with his Chinese counterpart Xi Jinping at the White House later this week. The artificial intelligence trade helped too.
The Dow Jones Industrial Average added 0.7% while the S&P 500 rose 1.5% and the Nasdaq Composite gained 2.3%.
Although the conflict in the Middle East is anything but settled, bulls were back in charge as oil prices fell. The U.S. said the volume of oil and cargo going through the Strait of Hormuz was at its highest level in six months and Trump signaled he would be open to further talks with Iran this week amid the U.N. General Assembly.
"Signs of diplomacy could ease oil prices and inflation fears, while further escalation or disruptions to regional exports could send crude higher, pressure consumers and complicate the Fed's next move," notes Freedom Capital Markets Chief Market Strategist Jay Woods.
Elsewhere, AI names were back in favor, with the Roundhill Magnificent Seven exchange-traded fund closing at a new high for the first time since May. Investors may still have lingering concerns about a slowdown from last week, but those are giving way once again to optimism about the technology's continued rollout and development. Semiconductors and software have been at odds for much of the year, with one industry gaining when the other loses, but both were higher today, speaking to the broad-based momentum in tech.
"Pacing AI doesn't necessarily mean slowing the investment cycle," notes Jonathan Curtis, portfolio manager at Franklin Equity. "Frontier AI development is likely to continue, but more resources could be directed toward alignment, evaluation, cybersecurity, monitoring and other safety infrastructure.
Finally, investors are understandably looking ahead to the summit between the U.S. and China slated for later this week, but the bar is low for progress and it's the biggest news of the week "almost by default," writes Nationwide Chief Market Strategist Mark Hackett. "There simply isn't much else on the calendar, with earnings virtually nonexistent and the economic data unlikely to move the needle... My hunch is that there ultimately isn't a catalyst this week, and the market continues this healthy sideways churn."
The market could do worse.
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The Real AI Pacemaker
When President Donald Trump hosts his Chinese counterpart Xi Jinping at the White House on Thursday, AI will undoubtedly take center stage.
AI has been the main driver of the years-long bull market rally, but that's been called into question of late, with recent calls from companies like Anthropic and OpenAI to slow the pace of development. Industry leaders say it's for safety reasons, but speculation abounds that other factors are at play, like cheaper Chinese products that make pricey American models less desirable as costs soar.
Yet China has little incentive to slow its own AI "pacing," along the lines of what Western companies are calling for. "A mutually agreed U.S.-China slowdown in the development of AI models is just not in the cards, given the role of AI in the two countries' geopolitical competition," writes 22V Research's Michael Hirson.
Trump himself has also called AI safety fears a hoax, meaning there probably won't be much regulatory red tape to hold development back. Bipartisan opposition to data centers is growing, but with billions of dollars at stake-AI-related infrastructure spending will account for some 20% of U.S. economic growth this year, according to Oxford Economics-it's hard to see average Americans slowing down the AI industry, given the White House's stance. And for all their talk, it's unlikely U.S. companies are really going to be willing to let their competition overseas get a leg up.
"AI is being rapidly deployed by companies across sectors," writes Laffer Tengler Investments CEO and CIO Nancy Tengler. "The AI genie is not going to be put back in the bottle."
Still, there's one thing that really could slow down AI: Higher interest rates.
"The biggest threat to the AI infrastructure boom is instead the rising cost of capital," writes Gavekal Research's Will Denyer. "Monetary tightening by the Federal Reserve is now adding to other upward pressures on the real cost of capital, and a further rise would significantly heighten the probability of a generalized investment slowdown."
The Calendar
AutoZone and KB Home report quarterly results tomorrow.
-Dan Lam
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