To The Moon

As 2024 is halfway through, the expected Fed rate cut is not only nowhere in sight, but it's also being pushed back again and again. Under these high-interest rates, the heavily indebted US government is struggling to keep afloat.

At the current interest rate, the federal government will pay a whopping $870 billion in interest on its national debt in 2024, surpassing military spending for the first time, and that number is expected to break the trillion-dollar mark by 2025.

High prices, high interest rates, high debt, and soaring US stocks — this combination is turning all basic economic theories upside down.

So, which one will change first? And what domino effects will it bring? Where will the US stock market ultimately head?

Can the AI revolution solve the deficit crisis?

Initially, there were multiple factors supporting the upward trend of US stocks:

1. Global capital was flowing back to the US.

2. Locked-in low mortgage rates and excess savings from the pandemic kept American consumers spending.

3. Increased government investment and a series of industrial stimulus policies led to growth in US manufacturing investment and job creation.

But as time goes on, these market drivers are weakening, and consumer spending, which supports the US economy, is slowing down significantly. By 2024, the only major driver left for this rally is the imminent arrival of the AI technological singularity.

With this expectation, several tech giants are investing heavily in a futuristic arms race, propelling the "pick-and-shovel" stock $NVIDIA Corp(NVDA)$ to new heights.

Expectations of technological innovation leading to increased total factor productivity are sending big tech companies' colossal funds into creating one after another surprising financial report, lifting US stocks higher and higher, attracting global capital to flock to a few big tech stocks.

An epic rally driven by a few tech stocks

The popularity of index funds has further amplified this trend, creating an epic rally driven by a few tech stocks.

But the questions are,

• when will AI technology show its power to increase total factor productivity and promote economic growth?

• Can generative AI's industrialization really support such high interest rates?

• When will a more commercialized blockbuster application emerge?

• Even if NVIDIA maintains its competitive edge, will the market's demand for GPUs remain so robust?

While no one denies the potential and prospects of AI technology, even the most optimistic analysts believe that it will take some time after a surge in capital expenditure for AI technology to gradually land in real-world scenarios and comprehensively improve productivity levels.

The biggest risks for the US stock

Meanwhile, the US fiscal train is rapidly going off the rails, and the Fed's delay in cutting rates to curb inflation is accelerating this process.

The worsening budget deficit outlook and the uncertain timing of productivity revival are the biggest risks for the US stock market right now.

The paradox that has emerged between Wall Street and the Fed — Wall Street expects rate cuts to boost stock prices, which in turn makes it harder for the Fed to cut rates — will increase the volatility of the US stock market index in the coming years.