AI, Tax Cuts, and Rate Cuts; A Perfect Storm for Stocks

The bull case as we head towards summer time … datacenter demand continues rising … why the oil market has been sliding … all eyes on the Fed tomorrow

As I write close to lunch, the market seems to be holding its breath, ready for tomorrow’s Federal Reserve coverage announcement and subsequent remarks from Chairman Jerome Powell.

What Powell says, or doesn’t say, will probably decide near-term market course.

We’ll report on the end result in tomorrow’s Digest; however within the meantime, a few of our analysts are already making their bull case as we glance towards the summer time.

Let’s leap to our hypergrowth knowledgeable Luke Lango and his current Each day Notes in Early Stage Investor:

We expect [the recent rally] is simply getting began.

Our forecast requires a sequence of bullish catalysts to unfold over the subsequent few months:

• In Could: Count on commerce offers with allies like India, Japan, South Korea, and Vietnam.
• In June: Search for a dovish pivot from the Fed because of these commerce offers easing reinflation fears, culminating in a price lower at their June assembly.
• Late June to Early July: A framework for a U.S.-China commerce settlement.
• Early July: Passage of a serious tax lower package deal in D.C.
• July to August: A blowout earnings season, as Q2 outcomes profit from rebounding macro readability (commerce offers, price cuts, tax cuts, and so forth).

That’s a packed pipeline of optimistic information.

If these dominos fall into place — and we consider they may — we’ll have all of the substances for a multi-month inventory market melt-up.

However what concerning the tariff struggle and better shopper costs which may ultimately weigh on earnings and company hirings? Is there any credible recession danger?

Luke believes these dangers are overstated. He factors to final week’s payroll report by which the U.S. financial system added 177,000 jobs in April, handily beating expectations for 138,000. However what he discovered much more encouraging was wage progress.

Again to Luke:

Wages rose 3.8% in April, whereas inflation (as measured by the Cleveland Fed) ran at simply 2.3% for the month.

That places actual wage progress at +1.5% — and traditionally, when wages outpace inflation, recessions simply don’t occur.

Turning to the Fed, whereas Luke doesn’t count on a lower at tomorrow’s FOMC assembly, he believes the set-up for a June lower stays on the desk. If we get that set-up, a market rally is within the playing cards.

Luke can be bullish on a coming tax lower package deal that features extensions and expansions of the 2017 Tax Cuts and Jobs Act, probably, as early as July.

Again to Luke:

[Such a tax package could include] full expensing, decrease company charges, and extra incentives for home progress.

Identical to in 2017, that might ignite a robust rally.

Put it altogether and Luke is unequivocally bullish.

As to what he’s shopping for at the moment in preparation for a summer time rally, no surprises right here: top-tier AI-stocks – particularly, “bodily AI” leaders.

Final week, Luke held a stay occasion that detailed at the moment’s shopping for alternative in robotics and bleeding-edge AI. For those who missed it, you may catch a free replay here.

Right here’s Luke’s bottom-line:

The market’s current win streak was greater than a bounce. It was the early section of what we consider might be a historic summer time rally… and the clock is ticking.

That’s precisely why I not too long ago hosted an urgent market briefing, breaking down the whole lot you want to learn about what’s to return over the subsequent few months, together with the names and ticker symbols of seven AI stocks that might be the most important winners of this shopping for panic.

For those who haven’t watched it but, here’s your chance.

AI continues to show it’s a market juggernaut

How will we energy AI?

As we’ve highlighted repeatedly within the Digest, AI consumes monumental volumes of vitality. This demand will solely improve as AI continues to combine seamlessly with our day-to-day lives. We’ve urged traders to get publicity to the broad AI datacenter ecosystem that powers this demand.

Now, in current months, some analysts instructed that datacenter demand was waning. Expectations had been too excessive. We’d gotten forward of ourselves.

Not a lot. Right here’s CNBC from final week:

Information heart demand shouldn’t be slowing down on the earth’s largest market centered in northern Virginia, executives at Dominion Vitality mentioned Thursday.

Dominion gives electrical energy in Loudoun County, nicknamed “Information Middle Alley” as a result of it hosts the most important cluster of knowledge facilities on the earth. The utility works intently with the Large Tech corporations which might be investing tens of billions of {dollars} in information facilities as they practice synthetic intelligence fashions.

“We have now not noticed any proof of slowing demand from information heart clients throughout our service space,” Dominion’s chief monetary officer, Steven Ridge, advised analysts on the corporate’s first-quarter earnings name…

Information heart clients haven’t paused spending on new tasks in Dominion’s service space they usually haven’t proven any considerations about financial uncertainty, Dominion CEO Robert Blue mentioned.

And right here’s analysis store Bespoke final week on X:

Information heart funding added a full proportion level to GDP in Q1; a file.

Supply: Bespoke

Next up, there’s Jonathan Gray, CEO of private equity giant Blackstone. Yesterday, he said that he sees huge demand coming for AI datacenters.

For this, let’s go to the May issue of AI Revolution. That is our AI-themed analysis venture from InvestorPlace’s three main analysts: Eric Fry, Louis Navellier, and Luke Lango. Collectively they created an AI mannequin portfolio that signify the “finest in school” shares for the AI Revolution.

From their newest challenge:

Microsoft has continued its heavy investments in AI infrastructure this quarter. Through the earnings name, [Microsoft CEO] Nadella mentioned that the corporate opened information facilities in 10 international locations on 4 continents.

And earlier this 12 months, the CEO mentioned that Microsoft plans to spend $80 billion in fiscal 2025 on development of knowledge facilities designated for AI workloads.

AI isn’t going away…which implies datacenter demand isn’t going away. Make investments accordingly.

The oil market continues to crash

Yesterday, the worth of West Texas Intermediate Crude (the U.S. benchmark) fell under $56.00. Brent crude (the European benchmark) additionally cracked into the $50s. General, oil costs have fallen roughly 20% this 12 months.

Why?

1. Fears of a world financial slowdown decreasing demand
2. OPEC+ waging struggle on oil-producing international locations which were dishonest on manufacturing

On that second level, let’s leap to Bloomberg:

Saturday’s choice [from Saudi Arabia] to push extra output into an already-cratering oil market suggests Riyadh is doubling down on a radical technique shift: after spending a lot of the previous decade curbing output to shore up the market, it’s now keen to drive down costs because it seeks to punish members who’ve cheated on their quotas…

[The supply increase] threatens to stoke fears of a worth struggle throughout the cartel and squeeze the state budgets of producers together with the Saudis themselves.

The targets of Saudi Arabia’s provide acceleration are primarily Kazakhstan and Iraq. Kazakhstan particularly has been publicly defiant of OPEC+’s tried restrictions, stating that its oil revenues are wanted to assist its inhabitants.

However this morning, Bloomberg reported that Kazakhstan is contemplating choices to adjust to OPEC+ manufacturing cuts. Costs will slide additional in the event that they don’t.

Again to Bloomberg:

Russia, which collectively leads OPEC+, cautioned attendees that it — alongside the Saudis and the United Arab Emirates — has appreciable unused manufacturing capability to deploy, and urged fellow members to respect their quotas.

So, what’s the motion step?

For those who’re already holding oil stocks, brace your self. Decrease costs aren’t off the desk, regardless of at the moment’s aid rally (oil is up practically 4% as I write).

For this reason legendary investor Louis Navellier not too long ago really useful his Growth Investor subscribers promote their place in Exxon (XOM).

As an alternative, Louis has been zeroing in on rising alternatives in AI. I received’t get into these particulars at the moment, however his newest analysis tackles how AI is not rising at a gentle tempo. It’s rising at a pace we people can barely wrap our heads round – a pace scientists name “double exponential.” This has vital investing implications. You can check Louis’ free research video on the subject here.

For those who’re not holding oil shares however have been watching from the sidelines, get your dry powder prepared and take into account a “scaling in” course of.

Nobody is aware of when or the place oil will backside, however costs simply hit four-year lows – which implies inventory costs are probably in for extra stress. However that’s nice information for longer-term traders.

Tying this again to AI, don’t neglect why the long run is vibrant for fossil fuels – on this case, pure gasoline.

Let’s return to Blackstone’s CEO Jonathan Grey. From CNBC:

[Gray] believes the electrical energy wants of this information heart progress might be met, although contemplating all sources of energy resembling renewables and pure gasoline is crucial.

“It’s a world challenge. I imply, in every single place there are constraints,” he mentioned about electrical energy demand.

“Large corporations are recognizing this, and I believe the investments will come, and importantly, the federal government acknowledges it, and so it’s the gating issue on this form of technological revolution we’re on.”

Keep in mind, with our lack of ability to completely time the underside, the wiser query is normally: “Is at the moment’s worth one which’s more likely to make me a strong return sooner or later?”

For affected person traders, we consider the reply is a convincing “sure.”

Lastly, all eyes are on tomorrow…

As famous earlier, tomorrow, the Federal Reserve concludes its Could FOMC assembly.

Whereas merchants aren’t anticipating the Fed to chop charges, everybody might be watching Federal Reserve Chairman Jerome Powell in his stay press convention for clues about June.

If Powell sounds dovish, hinting at a June lower, we might be in for fireworks available in the market.

We’ll report again.

Have an excellent night,

Jeff Remsburg