The head of macro strategy at Citi believes that the equity bull market has more room to run, and one sector is likely to capture most of the gains.
The News
In a new NYSE interview, Dirk Willer says he sees no reason for the equity bull market to abruptly reverse course.
According to Willer, the Fed had hiked rates by 175 basis points in the 2000s before the bull market back then topped out.
“In the very big picture, rising rates are often a problem for the market and an important element that causes an eventual top. I don’t think that we are close yet because it’s quite unlikely that interest rates will kill this bull market before the Fed has even hiked once. That would be extremely early.
Secondly, the Fed is still adding liquidity. We’re still buying T-bills, and so a big liquidity contraction is what contributed to the top in the market in 2000. So at this stage, liquidity is still there and the Fed hasn’t even started to hike yet… We don’t think that interest rates are going to kill this bull market, certainly in the short term.”
With the belief that the S&P 500 will continue to print new all-time highs, Willer says investors should keep a close watch on one sector, which he believes will be the main engine in driving equities higher.
“We still think it’s about the AI trade. The reason why the S&P 500 is there is the AI trade. The reason why we can shrug off geopolitics so quickly is the AI trade, and we think it still has to give. So, yes, investors are long tech at this stage. They had disinvested from tech late last year, early this year, and back into it… There are some bubbly pockets in the DRAM space and so forth. But big picture, we still think tech is really the way to go for the rest of this year.”
What It Means for Investors
Citi now joins Goldman Sachs and Morgan Stanley in believing that the S&P 500 will surge to new record levels in the next 12 months. Earlier this week, Goldman Sachs lifted its year-end target for the index to 8,000, while Morgan Stanley believes that the S&P 500 will surge to 8,300 over the next year.
While Willer also notes that he’s particularly bullish on the AI trade, he specifically highlights that the DRAM space looks bubbly. It is easy to miss that line with all of Willer’s bullish statements, but that’s where the opportunity lies.
For instance, Micron Technology (MU) has been grabbing headlines after surging about 200% since its April lows. Other stocks in the AI chip space are also exploding, such as ARM Holdings (ARM), up 138%, and Marvell Technology (MRVL), surging about 150%, over the same time frame.
Willer’s message is that he sees a sustained bull market with tech leading, and the DRAM and AI chip names having strong momentum. In a bull run, investors always pick the fastest horses, but timing the market is also key. Taking advantage of dips in high-flying names has often rewarded patient investors during an extended bull market.
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