Experts Predict Market Rally From AI Stocks Is Temporary 

'Exuberance around artificial intelligence, along with a resurgent US dollar, has produced extreme divergence and concentration risk in the main stock indexes,' said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. 'Such narrowness is not what new bull markets are built on.'

The recent gains in the stock market were boosted by a rally from artificial intelligence stocks, but that performance is not likely to last, experts predict. The stock market slumped on Tuesday with the Dow falling by as much as 209 points while the Nasdaq fell back slightly by 35 points.

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A worried man looks at a computer screen, holding his head in his hands.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City. Photo by Spencer Platt/Getty Images

Investors should not expect a bull market-type scenario to continue, Bank of America (BAC) strategist Michael Hartnett predicts in a research report. The S&P 500 might continue to increase, but will gain only 100 to 150 points between now and Labor Day in September, he said. 

“We are not convinced we [are] at the start of brand new shiny bull market…still feels more like a combo of 2000 or 2008, big rally before the big collapse,” Hartnett said.

While the S&P 500 increased by 20 percent last week above its previous low in October, Wall Street is hesitant that the rally will continue. A 20 percent gain has been used in the past as a factor in deciding when a bull market begins. But expectations of further earnings growth and optimism that is dependent on a surge in AI use could be too bullish.

“Exuberance around artificial intelligence, along with a resurgent US dollar, has produced extreme divergence and concentration risk in the main stock indexes,” said Lisa Shalett, chief investment officer at Morgan Stanley (MS) Wealth Management. “Such narrowness is not what new bull markets are built on.”

Video game chipmaker Nvidia (NVDA)’s stock has risen by 39.7 percent during the past month due to a strong earnings report and the launch of a new AI-focused chip. But Intel’s stock has only risen by 15.77 percent as the rally has benefitted only some companies. 

Wells Fargo Investment Institute predicts an even more dire outlook and believes that stock prices will not rebound until 2024 because a moderate recession is likely to occur later this year.

The bank estimates that the S&P 500 will instead fall and reach 4,000 to 4,200 by the end of 2023. In 2024, the market will rebound to hit the 4,600 to 4,800 levels.

“Protecting capital during more challenging times is often as important, or more important, than growing capital,” said Darrell Cronk, chief investment officer for Wells Fargo Wealth & Investment Management. “There will come a time to turn more opportunistic in positioning portfolios for a recovery; however, we need to respect the signals and understand when the risk and reward dynamic changes.”

During the first quarter, the GDP rose at a 1.1 percent rate as inventory levels shrunk. The pace slowed down from the 2.6 percent rate during the fourth quarter. Wells Fargo believes that the economy is facing strains and a moderate recession will take place sometime during the remainder of the year and into next year. A recovery in the economy could occur later in 2024. Concerns about inflation should continue to decline as it should fall to below 3 percent this year. In 2023, inflation is likely to stay at 2.9 percent and fall to 2.8 percent in 2024.

Experts Predict Market Rally From AI Stocks Is Temporary