What’s Fueling Stocks After the AI Trade

Summary

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.