Fundamentals expected to continue to drive U.S. stocks higher

Investing.com — The rise in U.S. stocks has been supported by fundamental drivers that could push stocks higher, according to analysts at UBS.

Both benchmarks and technology-focused companies hit new record highs on Tuesday, helped by a surge in Nvidia (NASDAQ:) shares that pushed the artificial intelligence chipmaker’s market capitalization past software group Microsoft (NASDAQ:) to become the world’s largest. no see. Worthy company.

Another positive factor was that US retail sales data for May, which suggests a slowdown in consumer spending momentum, was softer than expected. Traders have since stepped up bets that the Fed will announce two interest rate cuts this year, despite the central bank recently saying it expects only one.

The retail sales figures are the latest sign that the U.S. economy is heading toward a so-called “soft landing,” analysts argued in a note to clients Wednesday. .

“These figures are consistent with the gradual slowdown occurring in domestic demand and should contribute to the inflation elimination process,” they wrote. “In our view, although the U.S. economy is slowing, we see no evidence to suggest a hard landing. This means the outlook for stocks is positive, supported by resilient growth and solid earnings.”

Meanwhile, market pricing for two rate cuts in 2024 points to an easing cycle from the Fed in the coming months that “could provide a tailwind for both growth and small-cap stocks,” UBS analysts said.

They added that the surge in enthusiasm for AI that has fueled Nvidia’s rise will likely continue to drive broader gains in the stock. Nvidia’s massive share gains, including a roughly 170% surge so far this year, have already lifted the stock market, accounting for about a third of the S&P 500’s 14% rise in 2024.

“We expect the semiconductor-led AI rally to expand further after the second half of this year and continue to favor big tech and core AI sectors, including (graphics processing units), custom chips and foundries, and semi-cap equipment.” “They said.