As revenue growth starts to spread beyond Big Tech, so too will the stock market rally.
The stock market is currently up 15% year to date. In fact, it’s shaping up to be one of the best years in decades.
In reality, I don’t feel that way.
To be sure, some AI hardware stocks are having a strong year. Super Microcomputer (SMCIFor example, sales have increased nearly 200% year-to-date due to a surge in demand for AI-optimized server equipment. NVIDIA (NVDA) surged 150% on rising demand for Blackwell AI chips. arm (arm), Dell (Dell), Vertive (Cryptocurrency) and Pure storage (Prestige) are all up more than 80% this year.
These stocks are thriving as if it’s 1999 all over again.
And it seems that no one else received the invitation.
In fact, about half of the stock market S&P 500 In fact, it’s down this year, about 80% below the index’s 15% gain so far this year.
In other words, a select few super-powerful AI hardware stocks have been driving the stock market rally in a very narrow range.
But we believe that all that is about to change.
What will drive future changes in the stock market?
The simple fact is that AI hardware stocks were the only winners in the stock market rally of 2024. Why? Because AI hardware stocks were the only companies driving significant revenue growth.
And stock prices follow earnings: when earnings rise, stock prices rise.
Right now, AI hardware companies are seeing profits soar as companies spend billions of dollars building the infrastructure needed to develop new AI applications, products, and services.
Meanwhile, profits for most other companies are struggling as high interest rates hamper the economy. In fact, excluding Big Tech, profits for the rest of the S&P 500 companies fell 0.1% in the first quarter of 2024.
That’s why most stocks have struggled this year: earnings aren’t growing.
However, we believe the Fed will cut interest rates soon.
Inflation is moderating and the labor market is starting to cool rapidly, meaning central banks are getting closer to fulfilling their twin mandate of price stability. and Once full employment is achieved, cuts will begin.
Markets currently rate the first rate cut in September at a 65% probability, and expect two broad cuts by the end of the year.
Interest rate cuts are coming, folks…
The same is true for the “Great Expansion” in 2024.
The last word
As the Federal Reserve cuts interest rates, the economy will boom again because interest rates on mortgages, auto loans, loans, credit cards, and other debt will go down. And as the economy booms again, more businesses will benefit from positive earnings growth.
So excluding the big tech companies, revenue growth for the rest of the S&P 500 companies is expected to improve from -0.1% in the first quarter to 5.6% in the second quarter, 6.4% the next quarter, and 11.2% the quarter after that.
Revenue recovery is underway!
And as market-wide earnings growth starts to spread from the big tech companies, we believe a stock market rally will follow suit.
We’re calling this “The Great Expansion of 2024.”
This expansion should enable stocks that have languished in the first half of the year due to a lack of earnings growth to soar in a major “catch-up” rally over the next six months.
That’s why we’re now committed to finding and recommending stocks that are poised to soar in that “catch-up” rally.
Let’s take a look at some of the names we’re looking at today.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. Luke’s latest market analysis can be found in our Daily Notes. The latest issue is Innovation Investor or Early Stage Investors Subscriber site.
