‘OMO’ Market Emerges Amid 3.6% S&P Growth, AI & Crypto Focus

Key Takeaway

• Investment strategist Julie Biel expresses caution towards the current stock market rally, citing concerns over earnings and high valuations.
• Mixed first-quarter earnings from big financials like Wells Fargo hint at a challenging profit landscape, with only a 3.6% growth expectation for S&P 500 companies.
• Despite inflation worries and potential interest rate hikes, strong earnings growth could still buoy the stock market if corporate America delivers.

Earnings Season Uncertainty

The stock market faces a pivotal moment as corporations begin to report first-quarter earnings, with expectations set at a modest 3.6% profit growth for S&P 500 companies. This growth is anticipated to be driven largely by the technology sector, including giants like Nvidia, and parts of the healthcare industry, such as weight-loss drug manufacturers Eli Lilly and Novo Nordisk. However, Julie Biel, chief market strategist at Kayne Anderson Rudnick, expresses concern over the market's high valuations and the narrowness of the rally, indicating potential volatility if earnings do not exceed expectations. Joe Amato from Neuberger Berman highlights a disparity in earnings, suggesting that cyclical sectors might see a decline in profits for the first quarter.

Retail Trading Evolution

The landscape of retail trading is undergoing a significant transformation, with a new wave of investors, dubbed "Retail Trader 2.0," demonstrating a more sophisticated and strategic approach to the market. This shift is exemplified by the surge in stocks related to Donald Trump’s social media company and a focused interest in artificial intelligence (AI) stocks, moving away from the broad-based meme stock frenzy of previous years. Institutional investment in cryptocurrencies and the strategic bets on AI technology, particularly Nvidia, indicate a broader acceptance of risk among investors, seeking opportunities beyond traditional yield.

Institutional Crypto and AI FOMO

Institutional investors are increasingly engaging with cryptocurrencies and AI, marking a shift from speculative retail trading to a more balanced market driven by supply and demand. The launch of ETFs and the anticipation of Bitcoin's "halving" events have attracted institutional attention, suggesting a maturation of the cryptocurrency market. Similarly, the excitement around AI technologies, especially those developed by companies like Nvidia, reflects a targeted investment approach, focusing on sectors expected to drive future growth.

Market Dynamics and Risks

Despite the optimism surrounding retail trading evolution and institutional interest in emerging technologies, the market remains vulnerable to corrections. JPMorgan Chase & Co. researchers warn of the potential for rapid unwinding of crowded trades, which could lead to market volatility. Additionally, external factors such as the trial of Donald Trump and the anticipated Bitcoin "halving" event add layers of unpredictability, challenging the stability of both the stock and cryptocurrency markets.

Street Views

• Julie Biel, Kayne Anderson Rudnick (Neutral on the stock market rally):

  "I wouldn’t be taking as big of a risk because of valuations... It’s terrifying how narrow the rally has been."

• Joe Amato, Neuberger Berman (Neutral on S&P 500 earnings growth):

  "We’re still seeing this dichotomy or dispersion in earnings... profits for companies in many other cyclical sectors might actually decline in the first quarter."

• Anthony Saglimbene, Ameriprise Financial (Cautiously Optimistic on consumer and corporate spending):

  "A lot of companies are finding it to be a harder time to raise prices."