It isn’t just AI: Economic hype Is also infecting stocks

livemint.com:

Just as investors shouldn’t get carried away with artificial intelligence, enthusiasm about a booming economy can also become excessive. So far, economic activity remains strong, especially in the U.S., where consumers keep spending on extravagances and official figures for job openings and factory goods published this week came in better than expected. Yes, there are some fears that this will lead central banks to keep interest rates high, which is why the stock market sold off on Tuesday.

But, overall, investors aren’t buying that “good news is bad news": Despite reduced expectations for monetary easing, the S&P 500 has had its best first quarter of the year since 2019. This isn’t just about a few, cash-rich technology giants. While the market has been focusing on the “Magnificent Seven"—now downgraded to a “Fab Four"—another less conspicuous group of stocks has been soaring: Those that are in “cyclical" sectors, and thus benefit from a booming economy.

Banks are an obvious example because they benefit from both high rates and strong economic growth. This is why their stocks have outpaced even tech this year. Industrial companies are another clear case.

To be fair, real estate is still in the doldrums. And performance within the “consumer discretionary" sector has diverged: Shares in specialty stores such as Home Depot and hotel chains such as Hilton have had a good 2024, whereas footwear maker Nike has struggled. Among automakers, General Motors has staged a powerful rebound from its 2023 trough, but Tesla has lost a third of its market-capitalization value.