Following a dip induced by inflation fears, investor sentiment has rebounded at the onset of this week, particularly in the technology sector. Wall Street is still abuzz over artificial intelligence (AI).

Fear of Missing Out (FOMC) is alive and well among tech investors, which in turn is lifting the broader market. Investor caution is warranted over the short term, although bullish conditions should remain in place as the year unfolds.

The renewed momentum of equities coincides with mounting speculation surrounding a potential collaboration between Apple (NSDQ: AAPL) and Alphabet (NSDQ: GOOGL) subsidiary Google. The two tech giants are working on a so-called “Gemini” platform, aimed at integrating an AI engine into the iPhone.

Also fueling animal spirits on Wall Street is Nvidia’s (NSDQ: NVDA) annual GPU Technology (GTC) Conference, held this year from March 17-21. This week’s GTC confab is articulating Nvidia’s strategic vision and role in AI advancement.

At GTC on Monday, Nvidia unveiled its next-gen AI chip, which doubles the capacity of its previous AI chip. Named “The Blackwell,” after statistician and mathematician David Blackwell, the new chip is at least two times faster than its Nvidia-made predecessor, the H100. Nvidia’s research and development budget for The Blackwell chip was $10 billion.

Enthusiasm over AI is running high. Reportedly, the atmosphere this week at GTC is akin to a rock concert. Nvidia is on top of the world, with a market value that surpasses $2.2 trillion.

Meanwhile, Treasury yields have continued their upward trajectory, with the 10-year U.S. Treasury yield (TNX) now surpassing 4.2%, a notable rise from its earlier lows of around 3.9% (see chart).

This uptick in yields reflects a recalibration of market expectations regarding Federal Reserve policy, with projections now suggesting a more conservative approach, potentially limited to two or three rate cuts this year, a departure from initial forecasts anticipating six cuts.

The focal point shifts to the Fed midweek. The policy-making Federal Open Market Committee (FOMC) is slated to convene on Wednesday, with consensus projecting a hold on rates within the range of 5.25% to 5.50%.

Alongside this decision, the Fed will unveil updated economic projections and a fresh dot plot, offering insights into the anticipated trajectory of the fed funds rate over the next three years. Of particular interest is whether the FOMC will maintain its previous guidance of three rate cuts for 2024, or possibly revise it downwards to just two cuts.

Additionally, market participants will scrutinize inflation forecasts, especially in light of recent inflationary trends surpassing expectations, potentially necessitating an upward adjustment to the inflation outlook for 2024. Despite potential tweaks to specific figures, the overarching trajectory continues to point towards a cycle of rate cuts and a gradual moderation in inflation.

Looking to the east…

Japan’s economy over the past year has narrowly avoided falling into a recession. The Bank of Japan (BoJ) is gearing up for a pivotal policy meeting scheduled for Tuesday, with forecasts hinting at the possibility of the central bank implementing its first rate hike since 2007. Such a move would elevate the policy rate from -0.1% to the 0% – 0.1% range.

Notably, the BoJ stands as the solitary global central bank employing negative rates, a measure aimed at bolstering the economy through monetary easing.

However, with recent wage increases negotiated by Japan’s major labor organizations, the BoJ finds itself more confident in the economic conditions conducive to maintaining 2.0% inflation.

Should the BoJ transition from negative to positive rates, it could exert a gravitational pull on global rates, potentially nudging U.S. government bond rates upwards. The anticipation surrounding the BoJ’s decision could also be contributing to the recent ascent of U.S. Treasury yields, edging closer to the peaks witnessed earlier in the year.

Typically, tech stocks and rising yields don’t play well together, but excitement over AI is superseding such concerns. On Tuesday, the main U.S. stock market indices closed higher as follows:

• DJIA: +0.83%
• S&P 500: +0.56%
• NASDAQ: +0.39%
• Russell 2000: +0.54%

The S&P 500 notched a new record close. Nvidia, a Wall Street darling that’s been getting fulsome coverage on CNBC this week, jumped 1.07%.

Ordinarily, I would view the media’s obsession with Nvidia and AI to be a contrarian indicator, but in this case, the enthusiasm is warranted. With AI, we’re witnessing a “singularity” that’s rare in human events. That said, tech stocks have gotten frothy and I wouldn’t be surprised to see a brief pullback before the sector resumes its long-term climb.

I also expect the cryptocurrency market to continue its winning ways in 2024, as the bull market in Bitcoin (BTC) and other crypto assets forges ahead.

Consider this fact: the “blue chip” of crypto, Bitcoin, gained 156% in 2023. This year, BTC and the broader crypto realm are building on those gains, driven by the introduction of Bitcoin exchange-traded funds (ETFs) and the “halving” event expected in April.

Read This Story: Understanding The Bitcoin Halving: Impact on Supply, Miners, and Market Dynamics

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John Persinos is the editorial director of Investing Daily.

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