Wall Street’s S&P 500 reached its first record close in more than two years on Friday, closing at 4,839.81 and surpassing the prior record close of 4,796.56 on January 3, 2022.
Yet, the CEO of a leading independent financial advisory and fintech issued an “urgent alert” to investors on Monday, warning them of restraint.
Although the large-cap benchmark index rallied over 24% last year, the SPX grew a mere 0.23% so far this year, indicating it is indecisive about direction.
“With the S&P 500 topping 4,800 for the first time in its 66-year history, it’s all-too-easy for investors to become overly confident and complacent,” said deVere Group’s Nigel Green.
“I would suggest they exercise caution and avoid unnecessary mistakes due to said complacency which could, unfortunately, prove to be extremely costly.”
The deVere founder and CEO said he saw two key takeaways from Friday’s record S&P 500 highs.
“First, markets are getting ahead of themselves. Much of the frenzy is being driven by hype that the Federal Reserve is about to start cutting rates after the most aggressive tightening agenda in generations.
“While this may be the case, it cannot be stressed enough that although inflation is certainly down from the multi-decade highs, it remains sticky. Is there really enough evidence for the Fed to pivot? The jury’s out.”
Green added that the central bank officials are likely to be watching this surge with a degree of angst.
“What will happen to markets, they will be asking, when they do eventually cut rates?”
The deVere boss continued to his second argument, saying that early year gains were being driven by tech stocks.
AI imperative
“For me, this is further proof that investing in technology stocks, particularly those related to artificial intelligence (AI), has become imperative for investors aspiring to build long-term wealth.
“The rapid evolution of the tech industry has transformed it into a driving force behind global economic growth,” he said.
Green explained that companies leveraging AI technologies exhibit a competitive edge, leading to increased profitability and sustained growth. By investing in AI, investors will be aligning themselves with the forefront of innovation, capitalising on the transformative power of intelligent automation, machine learning and data analytics.
“The scalability of tech companies allows for exponential growth and, in addition, tech stocks can often provide a hedge against economic downturns,” he said.
The deVere CEO recently said in his comments to the media that with the ongoing lack of clarity from major central banks, including the Fed, he would not be surprised to see markets falling into correction territory this quarter and as such, “investors should buckle up for turbulence.”
A correction is typically defined as a decrease of at least 10%, but less than 20% from the most recent high. Corrections are a common occurrence in financial markets and are considered a natural part of market cycles.
Green noted that a potential correction could provide investors with “even more opportunities” to build wealth, with the right advice.
“Corrections help markets maintain a balance by preventing excessive speculation and unsustainable price increases. They provide an opportunity for overvalued assets to readjust to more reasonable levels.”
“Investors must be cautious regarding the hype surrounding S&P 500’s record highs,” he concluded.
