Finally, the US stock market has taken a tumble. This drop was led by the previously rallying AI stocks. In fact, $NVIDIA Corp(NVDA)$ was stalling a bit when it hit the $1000 mark, and $Advanced Micro Devices(AMD)$ took a big tumble, falling over 8%.
Meanwhile, gold has hit a record high. Logically speaking, with the Fed's expectation of a rate cut slipping, gold's rise seems a bit odd. Maybe it's a sign of market fear, with investors seeking safe havens.
1.Look for the bad news after the crash
On the news side, the March ISM non-manufacturing PMI in the US was lower than expected, while the previously released manufacturing PMI exceeded expectations and entered the expansion zone for the first time. Theoretically, a strong manufacturing sector and a weakening services sector are good for cooling core CPI, which is a positive for rate cuts.
The reason for the sudden plunge in the market after lunch was straightforward: a Fed official said that if inflation stalls, especially when the economy remains robust, there might be no rate cut this year. That scared the market!
In fact, market expectations for rate cuts have been on a downward trajectory. Now, the expected time for the first rate cut has been pushed back from July to September, and the full-year rate cut is expected to be 67 basis points, down from 71 basis points earlier, with fewer than three cuts expected.
But the market didn't panic too much about it. However, with the news of "no rate cut this year," the market finally couldn't hold on.
Besides the falling expectations for Fed rate cuts, another reason for the big fall is the strong technical adjustment demand. Many people were even expecting a big correction.
After a big rally in 2023, the US stock market continued to surge in the first quarter of 2024, led by AI concept stocks. The index hit new highs, and the whole market was in a "fear of heights" state. Any little disturbance could easily trigger a selling frenzy.
So, the expected "one-day big correction" has arrived. What's next for the stock market?
As we all know, there are two important themes that can affect the stock market: the Fed's rate cut schedule and the development of the AI industry.
The enthusiastic pursuit of AI-related companies by the market has even offset the negative impact of falling rate cut expectations.
However, this situation has also made it more difficult for the Fed to make decisions. Whether to cut rates or not will have some negative impact on the market.
2.Is the AI sector still worth expecting?
The macroeconomic growth in the US is still strong and vibrant. And after two years, it has been proven that listed companies have withstood the challenge of high interest rates and gradually adapted to this environment. Even if there is no rate cut in the short term, there will be no risk of a sharp fall in the stock market.
The question now is what the next trading theme will be, and is the AI sector still worth expecting?
The recent rally in the US stock market revolved around the generative AI industrial revolution, led by Nvidia, which created a myth of a six-fold increase in market capitalization in 15 months, becoming the third-largest company in the world by market capitalization.
The "Big Seven" tech companies have also differentiated due to AI. Besides Apple and $Tesla Motors(TSLA)$ , the stock prices of other major tech companies have been boosted by AI. $Microsoft(MSFT)$ 's market capitalization has surpassed $Apple(AAPL)$ , and the gap between them is further widening.
There has been a discussion in the market about whether there is a bubble in the AI sector, and there are significant differences. Some people compare it to the internet bubble in 2000, while many supporters believe that the current valuation is still reasonable.
Although it's hard to determine whether the valuation is high or low, one thing is certain: the current AI industry is definitely not as unreasonable as the internet industry bubble in 2000.
The next trend will depend on the expansion of upstream and downstream industries. Growth driven solely by arms races among a few big companies is not enough. More application scenarios need to be developed and reflected in financial reports.
For Nvidia, as long as there are no issues with sales, you can hold on to it.
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