U.S. stock markets have been volatile in recent days, rebounding on Tuesday after three consecutive trading days of declines.
The S&P 500 and Nasdaq rose 0.4% and 1.3%, respectively, for the day, while AI darling Nvidia (NASDAQ:) rose 6.8% after falling nearly 15% from its peak last week.
“We believe the renewed volatility is not surprising given that surging artificial intelligence (AI) revenues and capital spending are the main drivers of U.S. stocks’ recent surge to all-time highs,” UBS analysts said.
“However, we believe that Nvidia’s volatility should not be misconstrued as a warning signal for the company’s structural AI investment case or the stock’s overall outlook,” they added.
Analysts see an overall positive backdrop for the market, citing strong earnings, economic growth and an expected shift in Federal Reserve monetary policy later this year. They forecast S&P 500 earnings to grow 11% in 2024, buoyed by a broad-based rally by companies with exposure to structural growth trends.
“Hence, without bias towards any particular stock, we maintain our constructive view on AI, but believe that right-sizing tech exposure will be key to navigating volatility while maintaining strategic exposure to the technologies we believe will drive growth over the coming years,” the UBS analysts wrote.
