My Five Predictions for the Final Half of 2024 Dear Leah, Happy Fourth of July, folks! I hope you had a safe and wonderful holiday with your family and friends yesterday. On Tuesday, I shared my market outlook for July and explained why I expect it to be a particularly strong month for the S&P 500. But in today's Market 360, I want to talk about what I expect to happen over the next six months. I'll share my five predictions for the remainder of this year – including one about artificial intelligence and what could stunt the industry's growth. Prediction #1: A More Accommodative Central Bank The Federal Reserve continues to promote uncertainty on future rate cuts. Its latest "dot plot" showed eight Fed officials forecast two rate cuts, seven anticipate one rate cut and four don't expect any rate cuts this year. So, when you place a "median" on these wide-ranging forecasts, the latest "dot plot" only shows one key interest rate cut in 2024 – and four rate cuts in 2025. To put this into perspective, the previous "dot plot" showed three key interest rate cuts in 2024 and three interest rate cuts in 2025. I still think the Fed needs to follow its counterparts in Canada and Europe and slash key interest rates multiple times this year. But given the increasing disagreement between Fed officials – and Fed Chair Jerome Powell's inability to maintain a consensus – the first rate cut isn't likely until September. The massive shift in monetary policy has yet to materialize… but it's coming. Prediction #2: A Soft Economic Landing Inflation has finally moderated (and the Fed has acknowledged progress on the inflation front) based on the most recent Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) index. Energy prices declined in May and pushed these inflation indices lower.
Last Friday's PCE report showed headline inflation was flat in May and up 2.6% in the past 12 months. More importantly, though, core PCE, which excludes food and energy, only rose 0.1% in May and was up 2.6% on an annual basis. That compares to a monthly rate of 0.3% and a yearly rate of 2.8% in April. It's important to note that second-quarter GDP estimates have been lowered recently. So, if the Fed wants to continue to maintain its "soft landing," it will need to cut rates sooner rather than later. Any rate cut will essentially serve as a "turbo boost" to the U.S. economy. Prediction #3: Falling Treasury Yields The great news is that Treasury yields have continued to fall this year, and that will certainly further pressure the Fed to cut key interest rates in the upcoming months.
The fact is the bond vigilantes are now in charge and controlling Treasury yields. As an example, the 10-year Treasury dipped as low as 4.23% last week, before rebounding this week. That’s down from a recent high of 4.62% on May 29 and down from the 4.71% high for the year back in April.
As I have repeatedly said, the Fed does not fight market rates. So, if the bond vigilantes continue to drive Treasury yields lower, the Fed will then be forced to cut key rates. Prediction #4: Presidential Election Year = Bullish Markets There’s been an interesting political shift happening around the world.
The recent European parliamentary elections revealed a shift to right-wing parties that oppose many “green” agricultural reforms and excessive immigration, as well as increasingly question aid to Ukraine. The upcoming French elections will also be important because if there is a conservative movement in France, it’s essentially an anti-European Union movement.
Given the shift to more conservative parties around the world, the November presidential election will be crucial. The June 27 presidential debate already signaled that change may be forthcoming in November, as Donald Trump won the debate and concerns mounted about President Joe Biden’s age and ability to serve. In the meantime, though, both Trump and President Biden will continue to promise everything and anything to boost their support. Due to all the promises, investor confidence typically increases and boosts the stock market in presidential election years.
So, if history repeats, the stock market should continue to meander higher, especially if the Fed cuts key interest rates and stimulates economic growth. Prediction #5: A Second Wave of the AI Boom The rapid rise of artificial intelligence has created several foreseen problems. The biggest one is data. AI means training a computer to simulate human intelligence and problem-solving. This is accomplished through what's called "machine learning." In other words, you have to teach the machine to "think," which requires two things: highly advanced microchips known as GPUs and (a whole lot of) data. You see, the only way to train chips is to feed them reams and reams of data to train the specific AI task. But the big issue here is that all the data has to go somewhere. It must be processed and stored on a server in a physical location. This is done in giant data centers. However, the data center industry is facing a shortage of power. And without enough electricity, data center building will screech to a halt and the growth of the AI industry could be severely stunted. But I predict that if Donald Trump wins the election, he will fix it by signing an emergency executive order on energy. This, in turn, would usher in a Second Wave of the AI Boom. Plus, there's a new set of AI stocks that could take off on or before November 5. As the election draws near, you'll want to be prepared. Because these AI stocks are on the verge of massive gains. Click here to learn more about what the Second Wave of the AI Boom is and how you can profit from it. (Already a Growth Investor subscriber? Click here to log in to the members-only website.) Sincerely, | 
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