Yesterday, the market had a good positive day after seven consecutive trading sessions in the red. However, today presents a few challenges. The US is contemplating new AI chip restrictions on China, Fed Chairman Powell is scheduled to speak at 9:30 EST, and mortgage demand continues to rise. These news items carry the potential to signal a negative impact on the market.
Premarket activity reveals early sell-offs in the tech sector. Chipmakers like AMD and NVDA are particularly affected due to the speculation surrounding potential AI chip restrictions imposed by the US on China. Such restrictions could have adverse implications for export trade and pose a threat to one of the best-performing sectors in the US stock market.
Despite significantly higher interest rates, mortgage demand is persistently growing, driven by new home sales. Consumers’ confidence in the market and job security are motivating them to invest in homes. These inflationary factors provide the Fed and other central banks with further impetus to continue implementing rate hikes.
Taken together, these factors may negatively impact the short-term market outlook. The Nasdaq, buoyed by the AI sector, enjoyed its strongest half in the past 40 years. However, export restrictions could dampen enthusiasm as growth slows in both the US and China, with the latter focusing on internal development and production. The sustained demand for mortgages and the robust job market suggest that inflation remains a concern even after 10 rate hikes. Fed Chairman Powell’s upcoming speech is expected to maintain a hawkish tone.
The market exhibits skittishness as it strives to recover from the challenges of the past two years. Nonetheless, individual investors display a high level of optimism regarding the current state of the market, as indicated by the CNN Fear & Greed Index, which currently stands at 76.
As a long-term investor, the Fiscal Investor advises seeking value and robust stocks that can weather any market turbulence. While some analysts predict an impending recession, those with a contrarian outlook may view it as a buying opportunity. The Fiscal Investor suggests investing cautiously, emphasizing the importance of risk management alongside selecting potentially profitable stocks—perhaps even more critical than identifying the next significant stock move. Stay tuned for more insights tomorrow.