WHAT IS THE OUTLOOK FOR US EQUITIES?

09.04.2024 US equities had a good 2023 and have recorded a strong start to 2024. Below we look at the outlook for the rest of the year.

The US stock market, with its heavy weighting in technology, has been powered higher by an enthusiasm for the transformative potential of developments in Artificial Intelligence (AI).

The new large language models represent a step change in what is possible with computers. Our investment thesis remains that AI will gradually take over a lot of the ‘grunt work’ that humans currently carry out.

However, the question for investors is whether the process will be fast and linear or bumpy and drawn out. Experience with previous jumps in technology suggest that change is relatively slow. For example, Cloud services were first launched by Amazon in 2006, yet it has taken almost 20 years for the Cloud to reach fifty percent of its addressable market.

Investors also need to consider the extent to which AI will disrupt existing business models. For example, the quick and complete answers to questions provided by AI applications threaten the viability of traditional internet search engine’s lists of links and the paid for ads that appear alongside them.

So, the likelihood is that there will be a technology led correction of the US stock market in the coming months. Furthermore, as developed economies begin to expand again there will be a broader range of growth opportunities available to investors. This will be likely to lead to a rotation out of technology into more cyclical shares.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin