What’s Fueling Stocks After the AI Trade

Mike Wilson sees the market broadening trade playing out as the economy enters a new expansion, favoring consumer discretionary, transports, and biotech. He warns that crowded semiconductors face a near-term correction due to peaking earnings revision momentum. Oil volatility and recent interest rate pressure pose risks, but soft inflation data may help stabilize rates. - Broadening trade is now working as the economy shifts into a new expansion after a rolling recession. - Preferred expressions for broadening are consumer discretionary goods, transports, and biotech, which have subdued positioning and sentiment. - Semiconductors are extremely crowded with earnings revision breadth at highs, signaling a likely near-term correction/reset. - Hyperscaler underperformance and Meta's excess capacity sale are early signals of tougher questions on AI CapEx pace. - Key short-term risks are oil price volatility tied to strait reopening uncertainty and higher interest rate volatility. - Softer-than-expected inflation data should ease some upward rate pressure, but the new Fed chair remains focused on the inflation mandate. - The strategy is to avoid chasing momentum, and add to risk on down days in broadening beneficiaries.