““We’re going to need a new story to get people excited.” ”
While some investors had hoped that Nvidia Corp.’s
NVDA,
blowout earnings would light a fuse under Wall Street, as Thursday’s losses showed, that was not meant to be. Some of that was pegged to nervousness ahead of Chairman Jerome Powell’s Friday appearance at the Jackson Hole gathering. Stocks
SPX
COMP
were off to a stronger start on Friday.
Weighing in via a Bloomberg radio interview, Morgan Stanley’s chief investment strategist Mike Wilson, said that failure to follow up was no surprise.
Watch: MarketWatch’s live coverage of the Federal Reserve’s meeting in Jackson Hole
Wilson said when the rally around AI began in early May, he felt that it “brought out too much” — while they are bullish on AI long term, in the short term, investors need to understand it’s going to be a big, costly investment phase.
“And we think that people extrapolating what’s going on with a few stocks to the broader market just doesn’t make sense,” he said. “So yesterday’s action was perfect. Remember markets top on good news and they bottom on bad news.”
And the news from Nvidia, which reported an 88% climb in revenue from the previous quarter that beat its own expectations, was “spectacular,” said Wilson. “And we had a failed rally. That’s another negative technical signal that the rally is exhausted.”
Read: Can Nvidia keep growing so quickly? Here’s what Wall Street thinks
And now what will be needed is a “new story” to get investors excited in stocks again, he said.
The market got too negative earlier this year on the economy and expectations for a possible hard landing, and then got oversold in March, followed by a rally in which it swung the other way on the opposite view, said Wilson.
“I think we got way overbought in July on this idea that we’re going to have a soft landing. Does that mean that we are going to have a recession? No, but it means the odds of a recession are still higher than normal price action. And that’s where we are now…”
Read: Vanguard says value stocks haven’t been this cheap to growth since the COVID outbreak
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