The stock market is surging to record highs, and despite skeptics calling it a “bubble,” one clear catalyst has emerged that will likely send stocks even higher in the coming months: strong earnings.
As go earnings, so go stocks. Going back to 1990, the correlation is as clear as day …
When earnings are rising, stocks rise, too. When earnings are falling, stocks fall, too.
Earnings are rising and will likely continue to increase because of rate cuts and AI advancements.
The Next Big Catalyst for Tech Stocks
The Federal Reserve’s aggressive rate-hiking campaign, launched in 2022 to combat soaring inflation, has hindered the U.S. economy. However, with inflation now below 3%, the Fed has room to lower interest rates. Markets currently predict a 95% chance of a rate cut by September.
When the Fed lowers interest rates, that will “rejoice” the currently hobbled U.S. economy. You’ll see things like the automotive market, housing market, and other debt-related markets start to rebound.
You’ll see consumer spending pick up …
You’ll see consumer confidence rise …
And, with all that, you will see corporate earnings rise, too.
Meanwhile, companies continue to spend an arm and a leg on AI, which will keep creating tailwinds for earnings, too.
Wall Street firm Cantor Fitzgerald said in a research note recently that: “We continue to believe that AI-leveraged names are still the most attractive to own heading into earnings.”
Deutsche Bank also said recently that investors remain “generally optimistic on the current AI megatrend ‘winners’,” mostly because of sustained earnings strength. TD Cowen just said that there are no signs of generative AI demand abating in the near-term, specifically referencing the fact that Broadcom (AVGO) just hiked its AI target for the full year.
And Wedbush just said that: “In a nutshell, our tech field checks globally show cloud deployments and enterprise AI spending is tracking nicely ahead of Street expectations which bodes well for Big Tech names into this key earnings season.”
Broadly, the AI theme remains hot. It will soon couple with rate cuts to provide a big jolt to earnings, which should in turn provide a big jolt for the stock market.
The Final Word
So – we say ignore the critics and skeptics calling this a bubble and saying the market has run up too much, too fast.
It has run up quite a bit in a short amount of time. But there is still a lot of fuel left in the tank for stocks to keep pushing higher on continued earnings strength.
We remain staunchly bullish.
Which is why we’ve started to recommend some new tech stocks in the past few weeks. Click here to see what stocks we’re recommending right now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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