Investing.com – The rally in U.S. stock markets is driven by fundamentals that could push stocks even higher, according to UBS analysts.
Both index and technology companies posted new record-high closing prices on Tuesday, helped by gains in Nvidia (NASDAQ:) shares that pushed the artificial intelligence chip maker’s market capitalization past software group Microsoft (NASDAQ:) to become the largest in world. valuable company.
Also supporting sentiment were softer-than-expected US retail sales data for May, which pointed to a slowdown in consumer spending. Traders subsequently bolstered bets that the Federal Reserve will make two interest rate cuts this year, even though the central bank recently signaled it expected only one cut.
In a note to clients on Wednesday, analysts said the retail sales figures are the latest sign that the U.S. economy is on track for a so-called “soft landing,” a scenario in which elevated inflation subsides without triggering a broader contraction in economic activity. .
“These figures are consistent with a gradual slowdown in domestic demand and should contribute to the disinflation process,” they write. “In our view, although the US economy is slowing, we do not see signs pointing to a hard landing. This means the stock’s outlook is positive, supported by robust growth and solid earnings.”
Meanwhile, market prices for two rate cuts in 2024 point to a potential Fed easing cycle in the coming months, which could “provide tailwinds for both growth and small-cap stocks,” UBS analysts said.
They added that the surge in enthusiasm for artificial intelligence that has fueled Nvidia’s growth should continue to fuel broader gains in the stock. A massive rally in Nvidia shares, including a roughly 170% gain this year, has already lifted stock markets, accounting for about a third of the S&P 500’s 14% jump in 2024.
“We expect the semiconductor-based AI rally to expand in the second half of this year and beyond, and we continue to like large technology and key AI segments such as [graphics processing units]custom chips and foundries, and semi-finished equipment,” they said.