A leading strategist at Wells Fargo says artificial intelligence has replaced Federal Reserve policy as the key driver of momentum in the AI trade.
In a new CNBC interview, Ohsung Kwon, the bank’s chief equity strategist, says rate cuts and macro shifts now take a back seat to the structural growth story unfolding in AI-linked sectors.
Kwon highlights that outside the AI trade, nothing in the stock market catches his attention.
“Yeah, I think AI matters more than the Fed. For broadening, I think the Fed matters. Outside of that, I think it’s really more about growth… Now that we are in an easing cycle, officially, we’re seeing selling the news and rotating back into AI. Outside of AI, I’m not really excited about anything.”
He notes that a durable broadening in equities will depend on a rebound in manufacturing activity.
“For broadening, for sustained broadening, I think the PMI (purchasing managers index), the manufacturing PMI, has to go above 50. And I don’t really see that happening unless rates fall more from here.”
Kwon also outlines Wells Fargo’s latest earnings forecast, built on a machine-learning model that ingests more than 350 macro variables to predict revenue trends.
“Yeah, so we’re forecasting about a 4% beat for the upcoming earnings season. We went through this machine learning process to figure out where the sales could be.”
The model, he says, still points to solid results led by AI and chipmakers.
“And it’s still pointing to a pretty decent beat. So we’re forecasting about a 4% beat, led by AI, semis.”
Last month, Kwon said AI spending does not justify bubble calls when compared with past cycles in technology.
“I think this is an AI-led bull market, and I think this is likely to continue. First of all, it’s not a bubble. The entire outperformance of the Nasdaq since the end of the tech bubble has been driven by better fundamentals in the Nasdaq versus the S&P 500, and I think that’s likely to continue.”
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