By Clint Gharib, AIF®, CFEd®
September 18 marked one year since the Federal Reserve began lowering interest rates. The S&P 500 Index is up roughly 17% over that period. I’m repeatedly being asked by folks, “Now what?”. Unfortunately, my crystal ball is in the shop (sarcasm). There are so many data points coming at us daily: geopolitical, interest rates, spending, debt, corporate earnings, etc. It can be very noisy and confusing. Yet the latest spending announcements by many of the largest technology companies, especially the blockbuster announcement by OpenAI to deploy 10 gigawatts of AI data centers, provide a clear signal to me. This is such a big number, it’s almost unfathomable. One gigawatt is like powering the city of Denver or Seattle for a year. Now, one project is 10 of those, and there have been many other projects announced. I don’t even see how we could possibly have this much energy to run all of these projects at present. But even at a third of this, the extent of expanding power generation, the grid, chips, infrastructure, etc, has me humming “I can see for miles and miles and miles and miles” from the famous song by The Who ‘I Can See for Miles’. This is an undertaking akin to reconstruction after World War II; it’s mind-boggling. Again, I’m not here to state with any conviction the feasibility of it in totality, but simply to say the potential from this overall buildout is massive and gives the appearance that it is for many years ahead. That is one data point that has umbrella-like impact.
That said, I have yet to experience or read about a market that just goes straight up. The rally in AI-related stocks over the past year has left even me astonished, grateful, but astonished. I would urge investors to be cautious with chasing performance, especially at these levels. It’s like when you’re cleaning out your gutters and you are already at the top of the ladder, but want to stretch just a little further to clean more before climbing back down to move the ladder. Profit-taking selloffs will come around. I continue to believe we are in a new bull market. Though history has shown that within long-term bull markets, there can be big selloffs. (Just think back to mid-February to April this year). So, if you already have comfortable exposure to stocks for your risk tolerance, especially growth stocks, remember my gutter cleaning example above.
And don’t sweat the rhetoric around a possible US Government shutdown. Historically, there have been 21 US Government Shutdowns, actual shutdowns, since 1978, according to the Congressional Budget Office. In a Dec. 2024 article by Morningstar, ‘A government shutdown looms. Here’s how U.S. stocks performed during past closures’: “There have been six government shutdowns since 1978 that lasted five days or more, and the S&P 500 Index SPX gained in the four most recent shutdowns, …, which comes from a Friday note by Brian Gardner, chief Washington policy strategist at Stifel (Nicholas).”
It’s been my experience that when big sell-offs happen, what I call a sale in the markets, many who claimed to desire the sale end up scared when it comes and don’t take advantage of the opportunity. So when the next big sell-off comes (a sale), remember this idea of so many proposed data-center projects to shop during the sale. I don’t know the future, but I can see “miles and miles and miles” of proposed spending ahead.
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