Can the ‘AI Whack-a-Mole’ Rally Sustain Itself with US GDP and PCE Data Releases?

Investors saw a decline in all major U.S. stock indexes this week due to concerns about the impact of artificial intelligence (AI). The S&P 500 fell by 1.4%, the Dow Jones Industrial Average dropped 1.2%, and the Nasdaq Composite declined by 2.1%. The upcoming week will continue to keep U.S. stock market participants on edge regarding potential market volatility stemming from AI-related worries. With a focus on assessing industry rotation within the market and keeping an eye on Walmart’s earnings report and economic data releases, investors will be vigilant.

Concerns about AI disrupting various industries have expanded beyond software to areas like insurance, wealth management, and transportation. Chief Market Strategist at B Riley Wealth, Art Hogan, likened the situation to a game of ‘Whac-A-Mole,’ with the uncertain speculation of which industry AI might target next. While some suggest that AI could have far-reaching impacts, Hogan noted that it’s unclear if AI will dominate the world. Nonetheless, these sentiments are influencing market trends.

The technology sector faced pressure as AI fears intensified, resulting in a more than 4% decline year-to-date, following its significant contribution to the market’s growth since October 2022. Consequently, investors have shifted focus to previously underperforming sectors like energy, consumer staples, materials, and industrials, which have all seen double-digit increases. This rotation in leadership is gradually becoming ingrained in investors’ minds, according to Nationwide’s Chief Market Strategist, Mark Hackett.

Next week’s U.S. economic data releases will include the initial Q4 GDP estimate and the Personal Consumption Expenditures (PCE) Price Index, crucial indicators that investors will closely monitor. Furthermore, with the Federal Reserve’s meeting minutes set for release, the market will assess the divergence between policymakers in favor of maintaining interest rates and those advocating for cuts.

HSBC analysts anticipate the possibility of a 25-basis-point interest rate cut by July, with projections of cumulative cuts amounting to around 60 basis points by 2026. Additionally, the U.S. Treasury’s issuance of 20-year bonds and 30-year Treasury Inflation-Protected Securities will be closely watched.

As the fourth-quarter earnings season winds down, the focus will shift to Walmart’s quarterly performance next week. With its earnings report set for release before the market opens on Thursday, Walmart’s performance will offer insights into consumer spending patterns following stagnated retail sales in December. The company’s stock has surged by 20% year-to-date, surpassing a market cap of $1 trillion, making it a significant player in the consumer staples sector.

The upcoming week’s key overseas economic events will include data releases from the Eurozone, the U.S., New Zealand, France, the UK, and Japan. These events will provide further insights into global economic trends, offering valuable information for investors navigating market uncertainties influenced by AI fears and economic indicators.