Wall Street Hits Record Highs as AI Boom Fuels Historic Market Rally

While the US stock market is on a historic run.

The S&P 500 hit a record high last week to cap its sixth straight week of gains, while the Nasdaq Composite just posted its best streak since 2009.

While a massive chip rally as well as a better than expected US jobs report and explosive AI spending are powering the surge.

Well joining us to break down this bull market run during a time of geopolitical uncertainty, we are joined by Brian Jacobsen, chief economist for annex Wealth Management.

Good morning, Brian.

You so much for joining us.

Well, we are looking at record gains for the Nasdaq and S&P 500, but this morning we are still facing some geopolitical uncertainty here.

But with the equity markets here with tech leading the charge once again, do you think we're entering a permanent AI super cycle, or would you say this market is just getting dangerously overheated right now?

Yes, thanks for having me.

It might be a little of both, right, in terms of, I do believe that there is an AI super cycle.

But it's just a question of, has the market already priced in the vast majority of that, and now it's really up to the economy to experience the fruits of that, right?

Because the market is forward-looking, it's anticipating what are all those returns to shareholders over the indefinite future.

Well, now we actually have to make good on a lot of those expectations, and that's where the bar is fairly high to see continued gains in the equity markets in those areas.

I would not be surprised if it migrates a little bit more down capital. ization into some of the other areas that are maybe a little bit more nascent technologies supportive of the AI applications, how it can actually be used by businesses.

And so that's one of the reasons why I think that from an investing perspective, we're really focused not so much on like the semiconductors and the megacap tech, it's more about what are the applications and the companies that are going to be able to sort of bring the fruits of all of this innovation to Main Street as well.

And here on Wall Street we do say that the economy as well as what we're seeing on the stock market are two separate entities.

But when it comes to global markets this week, Brian, geopolitics are front and center, and it's not just the Middle East focus is also on China.

So what are you watching out for as we head into this trading week?

I'm really interested to see what happens with that meeting between President Trump and President Xi.

Now, my guess is that it's going to just be filled at the end with a bunch of platitudes about how they get along really well and that there's some sort of long-term agreement, but the devil is going to be in the details and the execution of it, because right now, you know, we almost have this status quo, this.

Stalemate in the Strait of Hormuz.

Let's see if we can get a trickle at least of oil out of the Strait of Hormuz, and that could lower the temperature of some of the fears as it relates to energy costs and the oil markets, especially for Europe, not so much for the United States, but much more for Europe and the emerging markets.

So then the attention can really focus.

On what's going to happen between the US and China in that relationship.

And that's where I think that there's the great opportunity for some more cooperation, but I don't want to be, you know, I guess too Pollyanna-ish in my expectations of what we might see on Friday or whenever it is that we get some sort of statement from both sides.

Yes, and Brian, this week we get key economic data here in the US on inflation, and we will be monitoring those data points closely.

This does come on the heels of the latest jobs report that blew past expectations, but I think it's so important to keep our eyes on all the data points when it comes to the labor market.

We know that the unemployment data has slowly crept up to 4.3%, which would historically signal a looming recession.

But with weekly jobless claims, as well as overall layoffs still sitting at historic lows, how do we make sense of these completely contradictory warning signs when it comes to the labor market?

Yeah, the way that I look at it is that some of the more reliable information in real time is probably coming from the initial jobless claims and continuing claims, and we get that every Thursday.

That's been in a downward trend, and so that's looking good.

And then also from ADP, from their weekly update that they provide us, so I believe that's coming out tomorrow, as far as what was over the last 4 weeks, the average weekly gain in payrolls, because they tend to do a better job of capturing in real time.

The small business creation and destruction, right?

So if small businesses are formed, ADP might capture that before the Bureau of Labor Statistics does.

So in a weird way, even though the BLS, their information like the ones that we got on Friday tends to be the gold standard.

Um, it maybe isn't shining as brightly as it used to just because they aren't doing a great job of catching that dynamism underneath the surface in terms of businesses being created and also businesses going bankrupt.

So, I would say that this week, I would put more emphasis on that ADP number than I would on Friday's payrolls numbers that we had.

And finally it's hard to believe that we are counting down to Jay Powell's last day at the Federal Reserve as chair.

But given the fact that Americans are looking at a national average for a gallon of gasoline standing at $4.52 a gallon, what does the latest economic data, including the figures, we'll be getting this week on inflation.

What does that mean for the Federal Reserve outlook as we head into the rest of this year?

I, I think a good summary of it is, is that, you know, they are sitting on their hands for now because they don't really know how to act.

They know that traditionally, when you get an oil price increase, you should just look through that because any sort of short-term inflation effect is temporary, whereas it could cause longer-term economic damage in terms of their goal of full employment.

But yet they also know you have this wildcard about people's inflation expectations, that plays into it.

So they really want.

To talk tough about being vigilant against inflation, but they're ultimately probably not going to do anything about it.

So, I think that really what they're hoping and praying for is to see that there is that opening in the Strait of Hormuz because right now they are in a catch-22.

They don't know, they, they know they shouldn't react to inflation from oil prices, but they also know that people's inflation expectations are tightly tied to gasoline prices.

So it is a bit of a quandary for them.

And so I think that Chair Warsh, when he does come in, so May 15th is Chair Powell's last day, and when that baton is passed, uh, we'll have to see if the markets have as difficult of a honeymoon period with him as they did with Powell, because so far every time you've gotten a new Fed chair in, the market tends to really test the chair and try to figure out what their communication style is.

Well, Brian, we will have to wait and see, and I appreciate your time this morning.

As always, thank you so much for joining us and thank you so much for sharing all of your insights.

My pleasure.

Thank you.