As equities continue their rally at full speed, with the S&P 500 breaking above the 5,100 mark for the first time, investors are starting to question if this marks the rise of another technology, media, and telecom (TMT) bubble akin to the one seen in the late 1990s and early 2000s.
Responding to these concerns, Wolfe Research analysts said in a Monday note they do not believe the market is in this state, yet.
“In our view, major U.S. stock indices are not in a bubble,” analysts said.
“However, we see several signs that we could be entering such an environment, including rising Fed liquidity over the past 12 months, consensus increasingly looking for a “no landing” scenario while the Fed cuts, high expectations for AI, Cloud & Tech spending in general, and a strong private equity and deal environment for Tech companies,” they added.
Wolfe believes the U.S. stock market will continue to rise until there are clear signs of economic deceleration or persistent inflation that could hinder swift Federal Reserve rate cuts.
As such, they expect AI-driven companies, the "Magnificent 7," and momentum stocks to lead gains. A wider rally should also favor small caps and overlooked cyclical sectors like short-cycle industrials and energy services, they said.