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By Jennifer Sor | Dec 20, 2023, 11:23 AM EST
Artificial intelligence could be fueling a bull market in stocks that will last for the next decade, according to Main Street Research chief investment officer James Demmert.
Demmert, an investing veteran of over 30 years, pointed to the monster rally in stocks, with the S&P 500 and Dow Jones Industrial Average soaring to new all-time-highs this year amid Wall Street' excitement for generative AI. That uptrend in stocks will likely be long-lasting, Demmert said, partly due to increased productivity stemming from AI.
"The market's recent strength is indicative of a new and very real AI-led bull market and business cycle that could last a decade thanks to the productivity growth and tailwinds from AI," Demmert said in a note on Wednesday. "Experienced investors know that this kind of broad based strength across all sectors and capitalizations is reminiscent of the first year of previous bull markets that has much further to run, with inevitable corrections along the way.
Some market commentators have warned the AI-investing craze could be a sign of a speculative bubble forming in stocks. Most of the S&P 500's gains this year, for instance, have been fueled by mega-cap tech stocks. But the market's breadth has improved in recent weeks, which could suggest continued strength.
Stocks are also looking at a number of catalysts that could vault them higher into 2024. Cooling inflation has led investors to anticipate hefty rate cuts from the Fed next year, which is likely to be bullish for stocks.
More importantly, the US economy is looking resilient overall, with GDP set to grow 2.7% this quarter, according to Atlanta Fed economists. Meanwhile, corporate profits growth remains strong, while stock valuations look "appealing," Demmert said.
"We urge investors not to allow the market's recent strength tos care you out of stocks or prevent you from participating. Adding stocks during any kind of market pullback is the correct strategy at this early stage of the bull market. The fundamentals here are very appealing and likely long lasting – years not months," he added.
Wall Street has grown increasingly bullish on the outlook for stocks, with the S&P 500 and Dow Jones Industrial Average recently claiming new all-time-highs. Stocks are likely on track to notch new records in 2024, Bank of America, Deutsche Bank, and Fundstrat predicted.
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