AI strength may trim magnitude & duration of August stock market correction
After August 1st correction sparks by weak Non-Farm Payroll report, US market recovers essentially all Aug-1st decline on solid gains of Apple & AI leader stocks such as Nvidia last week. While AI & tech stocks like Apple may remain strong to underpin the broader market in the next few weeks, consolidation or correction is still the most likely outcome in August after strong gains last few months.
Uneven macro reports such as weak job number, unfavourable inflation data, or lower-than-expected business sentiment in the last few days show that part of the US economy is slowing down. On the other hand, while overall earnings results of S&P500 companies come in better than market forecast, some slightly weaker results and sales guidance are punished hard. In fact, the market is especially unforgiven and any earnings misses suffered from drop bigger than long-term average. According to Bank of America’s study, firms report lower than forecast earnings suffer 100%-200% bigger post-earnings share-price plunge compared to average price drop on similar earnings misses last 25 years.
