U.S. equity markets have experienced volatility in recent days, bouncing back on Tuesday after three consecutive sessions of declines.
The S&P 500 and the Nasdaq advanced 0.4% and 1.3% on the day, respectively, while AI darling Nvidia (NASDAQ:NVDA) jumped 6.8% following a nearly 15% drop from its peak last week.
“Renewed volatility is not surprising, in our view, with surging artificial intelligence (AI) revenues and capex a key driver behind the recent all-time highs in US equities,” analysts at UBS said.
“But we think NVIDIA’s volatility shouldn’t be mistaken as a warning signal on either the structural investment case for AI or the broader equity outlook,” they added.
Overall, analysts see a positive backdrop for the market, citing solid earnings, economic growth, and an anticipated pivot in the Federal Reserve’s monetary policy later this year. They forecast 11% earnings growth for the S&P 500 in 2024, supported by a broadening rally driven by companies with exposure to structural growth trends.
“So, without taking any single-name views, we maintain our positive view on the AI story, but believe rightsizing tech exposure is key to navigate volatility while maintaining strategic exposure to the technology that we think is set to drive growth in the coming years,” analysts at UBS wrote.