The red-hot rally in stocks is mostly being driven by FOMO, and the excitement for AI won't be enough to stop most artificial intelligence stocks from bottoming, according to Main Street Research chief investment officer James Demmert.
"The recent market strength is being driven by FOMO by both retail and institutional investors," he said."We do not think the daily grind upward in the stock indexes is sustainable, largely amid the possibility of mixed earnings reports over the next few weeks and the possibility of yet another Fed rate hike. Rather than chase stocks at these levels, investors would be wise to be patient at this point and use any corrections as a buying opportunity.
The Fed is also likely to issue hawkish guidance at the end of its policy meeting, Demmert added, which could also be a negative for stocks. That's because central bankers are looking to contain investor excitement over the market, which works against the Fed's goal of tightening financial conditions.
"We tell investors who have a case of FOMO that only a small part of the train has left the station, as most stocks are still bottoming. The AI-related stocks that have left the station are likely to back up allowing for a better entry level," he warned.
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