To The Moon

From Monday to Thursday, the $S&P 500(.SPX)$ and $NASDAQ 100(NDX)$ fell 1.2% and 2.38%, respectively, as investors feared a hawkish Powell speech at Friday’s Jackson Hole meeting. However, Powell’s dovish remarks on Friday sent the S&P 500 and Nasdaq 100 higher by 1.52% and 1.55%.

Market participants now see a 75% chance of a 25bp rate cut at the September FOMC meeting, according to CME FedWatch, after Jerome Powell hinted that a long-awaited cut could help support the weakening labor market. Investors welcomed his greater emphasis on labor conditions, which was timely given the recent downward revisions to jobs data. While Powell acknowledged the risk of prolonged inflation pressures from tariffs, he also suggested that the tariff impact on prices could prove temporary. Markets will now look for further rate-cut clues in this Friday’s PCE data and in next week’s nonfarm payrolls report.

All the Jackson Hole's since 2000

All the Jackson Hole's since 2000

Still Focus on AI

If the Fed proceeds with a rate cut in September, sentiment could shift further toward risk-on assets, with U.S. technology equities — particularly those tied to AI — likely to benefit. Lower rates generally reduce discount rates, making higher valuations more justifiable and driving multiple expansion in growth stocks. Given their high-beta nature, tech shares tend to outperform in such an environment.

The Magnificent 7, widely seen as key AI beneficiaries, may lift index performance toward the end of the year. In 2023 and 2024, they accounted for 60% and 54% of the S&P 500’s gains, respectively. This year, however, their contribution has slipped to 34%, with only $NVIDIA(NVDA)$ and $Microsoft(MSFT)$ outperforming the $S&P 500(.SPX)$ ’s 10.8% year-to-date return. The other members of the group — also positioned as major AI beneficiaries — may catch up by year-end, potentially further lifting index performance.

Stretched Valuations?

OpenAI’s Sam Altman recently suggested that AI stocks may be in a bubble. While valuations are undeniably elevated, they remain far below dot-com bubble levels.

• For context, the $NASDAQ 100(NDX)$ traded at a staggering 175x P/E during the dot-com era, compared with a much lower 36.9x P/E today.

• At its peak in 2000, $Cisco(CSCO)$ — then the world’s most valuable company — traded at around 80x P/E.

• By contrast, today’s AI leader $NVIDIA(NVDA)$ trades at 57x P/E, suggesting valuations are rich but not at extreme bubble levels.

In bull markets, investors often prioritize total addressable market (TAM) and earnings growth over near-term valuations. With AI adoption broadening, TAM continues to expand, and revenue, EPS growth, and profit margins have consistently exceeded expectations — helping investors justify higher multiples.

Beyond TAM and earnings, factors such as widening market breadth, improving investor sentiment, tariff de-escalation, favorable Q4 seasonality, and continued analyst upgrades all suggest that the AI-driven rally still likely has room to run.

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