The surge in AI technology has driven many investors to eagerly seek out tech stocks, reminiscent of a modern-day gold rush on Wall Street. This enthusiasm, fueled by a fear of missing out (FOMO), often aligns with periods of market bubbles, although there’s ongoing debate about the current market situation. Ed Yardeni from Yardeni Research suggests that Nvidia’s GTC 2024 conference could intensify this FOMO, potentially drawing even more investment into AI-related stocks. Yardeni warns that during Nvidia CEO Jensen Huang’s speech at the conference, scheduled from 4-6 pm EST on Monday, FOMO-driven investors may rush into Nvidia and other tech stocks.
However, investors should approach with caution. The Federal Reserve Open Market Committee (FOMC) is meeting to discuss monetary policy on Tuesday and Wednesday. Yardeni cautions that if Fed Chair Jerome Powell adopts a more hawkish stance in his subsequent press conference, it could dampen market enthusiasm. This could lead bearish traders to take the market down on Tuesday afternoon, further escalating fear if investors interpret the Fed’s stance as less accommodative.
Over the past two years, the Fed has used interest rate hikes to combat inflation, which has proven effective in reducing inflation rates but has also increased borrowing costs for businesses and consumers. Powell’s recent statements indicate confidence in the decline of inflation, hinting at a potential rate cut later in the year, as mentioned in his semiannual monetary policy report to Congress.
Yardeni highlighted concerns regarding the recent inflation reports, indicating that February’s consumer and producer price inflation reports surpassed economists’ expectations. This suggests that the previous trend of inflation slowing down has now come to a halt. Yardeni believes that this data will prompt Powell to adopt a more hawkish stance during the Fed’s meeting this week. He predicts that the Fed’s Summary of Economic Projections (SEP) will likely show a moderation in inflation at a slower pace than previously anticipated, resulting in a reduction in the number of expected rate cuts this year, from three to two.
With higher-than-expected interest rates anticipated to impact corporate earnings, Yardeni cautioned that markets may experience near-term volatility despite the ongoing FOMO surrounding AI-related stocks, driven by Nvidia’s event. He suggested that if Powell shifts away from discussing easing restrictions, investors and traders might continue selling off. Yardeni observed that over the past few weeks, markets have been adjusting to the prospect of fewer rate cuts, with both 10-year and 2-year Treasury yields surging approximately 6% since March 8, reaching 4.34% and 4.74%, respectively. The iShares 20+ Year Treasury Bond ETF, tracking longer-term Treasuries, has also experienced a record eight consecutive days of decline, indicating investor anticipation of fewer rate cuts and consequently rising Treasury yields.
Despite the recalibration of expectations for fewer rate cuts, Yardeni cautioned that major market indices remain in “overbought” territory, making them susceptible to correction. He emphasized the need for caution by citing Michael Brush, a MarketWatch columnist, who noted the concerning trend of insider sales outweighing insider buying. Brush highlighted that even sectors like biotech and regional banks, which previously saw some insider buying, have now experienced a decline in such activity, signaling a cautious outlook among corporate executives and directors.