Then the middle section of the year was overtaken by the red-hot AI trade, which pushed the S&P 500 more than 20% higher from May through October.
Since late October, however, there's been one indisputable driver of stock returns in the US: the Federal Reserve. With the central bank set to start its two-day policy meeting today — and with its next interest-rate decision due tomorrow — it's rightfully commanding the majority of investor attention.
Since the Oct. 29 FOMC meeting, the equity-market playbook has been simple: signals of future rate cuts have been stocks-positive, while any hawkishness has been greeted with selling.
The chart below shows the dynamic in action, with a hawkish Fed decision marking the recent market top and sparking a prolonged sell-off, only for dovish comments to right the ship and push the index back near record highs.
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With all of this activity around the Fed, the AI trade remains formidable. The stock prices of mega-cap tech titans have, however, been increasingly dictated by the shifting sands of monetary policy. These companies have a lot riding on their ability to borrow at favorable rates, so they can keep spending tens of billions on AI. This informs the V shape in the chart
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