Wall Street experienced a significant resurgence on Monday night, with investors shedding recent caution surrounding oil prices, bond yields, and interest rate hikes. A slight dip in Brent crude towards US$100 a barrel helped cultivate a risk-on sentiment, which was further bolstered by excitement over Meta Platforms’ new artificial intelligence-powered personal assistant, Muse.
Meta Platforms, a prominent social media and technology company, develops various products including virtual reality platforms and artificial intelligence tools. Its new AI assistant, Muse, has rapidly become one of the world’s fastest-growing applications, prompting a remarkable 11.4 per cent surge in Meta shares. This single-day gain added US$192 billion to its market value, sparking a broad rally in chip stocks as investors anticipated heightened demand for computing power crucial for AI proliferation. The Nasdaq 100 climbed 2.8 per cent to a new record, while the S&P 500 rose 1.4 per cent, nearing its own all-time high.
Despite the apparent bullishness, a disquieting signal emerged beneath the surface regarding the market’s health. The S&P 500 saw more stocks fall to new 52-week lows (30) than rise to new 52-week highs (seven) on Monday. Market commentator Jason Goepfert noted this specific imbalance last occurred in December 1999, prior to the dotcom bubble’s peak, and in July 1929. Goepfert has consistently warned about Wall Street’s increasing concentration and market breadth at its weakest in a century, suggesting that while large tech firms drive AI investments, an over-reliance on their success presents inherent risks.
Veteran investor Howard Marks, co-founder of Oaktree Capital, shared a cautious perspective. While he doesn’t observe signs of irrational exuberance, he notes a distinct lack of pessimism, with optimists largely ruling markets since October 2022. Marks highlighted that the current market strength, underpinned by pure-play AI businesses, involves an unusual degree of uncertainty in quantifying earnings potential and intrinsic value. He advised investors to recognise that when optimists prevail, prices tend to be high relative to intrinsic value, warranting a degree of caution.
