Will the Fed spoil the AI party next week?

With the next Fed review on monetary policy round the corner next week, volatility has returned to the stock market which gave up earlier gains in the week to end the week lower yesterday.

Despite some encouraging signs emerging of cooling prices, inflation has remained sticky amidst a robust labor market and is not helped by recent rebound of crude oil prices as the OPEC+ slashes production, citing global demand slowdown.

With inflation rate still well above the Fed’s long-term target of 2%, though a hard-landing of the economy appears unlikely with still strong job data, the risk of stagflation is becoming more real, and the Fed is between a rock and a hard place on its next monetary policy.

I expect the Fed to stay put on interest rate, while watching for more economic data and the inflation trend. Reducing rate any time soon is out of question.

Meanwhile, I expect growth stocks that are highly risk-sensitive to trade on the side of caution and their stock prices to be subdued, while investors await conclusions and latest rate outlook from the Fed meeting.

AI stocks like $C3.ai, Inc.(AI)$ , $Palantir Technologies Inc.(PLTR)$ , $NVIDIA Corp(NVDA)$ , $Taiwan Semiconductor Manufacturing(TSM)$ and the semiconductor industry represented by the bullish ETF $Semiconductor Bull 3X Shares(SOXL)$ that have recently benefited from their heightened stock prices buoyed by the AI hype, but still in their early days of churning out meaningful earnings from their AI initiatives may bear the blunt from bearish bets. 

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