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The rise of AI has left many investors\u2014or maybe we should call them speculators<\/a>\u2014desperately searching for tech stocks that will allow them to share in Wall Street\u2019s modern-day gold rush<\/a>. It\u2019s a fear of missing out dynamic that typically coincides with market bubbles<\/a>, although the debate over whether we\u2019re currently in a bubble is still underway<\/a>. Now, Nvidia\u2019s giant AI conference, GTC 2024, could add fuel to the FOMO<\/a> fire this week, drawing in even more money to AI-linked stocks, according to Ed Yardeni of Yardeni Research.<\/p>\n \u201cWe could see a scenario in which FOMO buyers jump into Nvidia and other tech stocks during Nvidia CEO Jensen Huang\u2019s talk from 4-6 pm EST on Monday,\u201d the veteran economist and Wall Street strategist wrote in a Sunday note<\/a> to clients, calling the conference \u201cNvidia\u2019s three-day AI lovefest for developers.\u201d<\/p>\n But investors hoping for another AI-induced stock market rally<\/a> should be cautious<\/a>. The Federal Reserve Open Market Committee (FOMC) meets Tuesday and Wednesday to discuss monetary policy\u2014and Chair Jerome Powell could throw cold water on stocks\u2019 rally in his follow up press conference.<\/p>\n \u201cBearish traders might take the market down Tuesday afternoon,\u201d Yardeni warned, adding that fear could spread if the Fed chair indicates a \u201cmore hawkish\u201d outlook.<\/p>\n For roughly two years now, Fed officials have been attempting to tame inflation using interest rate hikes as their main weapon. The tactic has increased borrowing costs for businesses and consumers nationwide, but it\u2019s also been pretty effective, reducing the annual rate of inflation from its June 2022 9.1% high to just 3.2% in February. Powell said earlier this month in his semiannual monetary policy report to Congress that the drop in inflation has given him confidence that he\u2019ll \u201clikely<\/a>\u201d be able to cut rates at some point this year.<\/p>\n But Yardeni noted that Powell and company won\u2019t like what they saw in February\u2019s consumer<\/a> or producer price inflation reports. Both reports surprised<\/a> economists, coming in hotter than expected and signaling the slow decline of inflation has now largely subsided.<\/p>\n Yardeni said that he believes this new evidence will lead Powell to be more hawkish this week. He even argued that the Fed\u2019s Summary of Economic Projects (SEP), a baseline estimate of Fed officials\u2019 economic forecasts, will likely show Fed members now expect inflation to moderate at a \u201cslower pace\u201d and are forecasting just two, rather than three, rate cuts this year.<\/p>\n With higher-than-forecast interest rates set to weigh on corporate earnings, Yardeni warned that markets could be in for some near-term pain\u2014despite the AI FOMO that will be boosted by Nvidia\u2019s event. \u201c[Investors and traders] might keep selling if Powell dials back his talk about dialing back restriction,\u201d he warned.<\/p>\n Yardeni noted that markets have already spent the past few weeks adjusting to the prospect of fewer interest rate cuts. To his point, both the 10-year and 2-year Treasury yields have surged roughly 6% since March 8, to 4.34% and 4.74%, respectively. And the iShares 20+ Year Treasury Bond ETF, which tracks Treasuries with a maturity of over 20 years, has now dropped for a record eight straight days, a sign that investors are pricing in fewer rate cuts\u2014and thus, rising Treasury yields.<\/p>\n Despite the new outlook from investors for fewer rate cuts, major market indices are still in \u201coverbought\u201d territory, according to Yardeni, leaving them vulnerable to a correction. \u201cIf the Fed remains in pause mode longer than expected, the stock market rally may be due for a pause as well,\u201d he argued.<\/p>\n To back up his view that investors should be cautious, Yardeni featured comments from Michael Brush, a MarketWatch columnist and the publisher of the newsletter Brush Up on Stocks, who noted that insider sales trends aren\u2019t looking great.<\/p>\n \u201cInsider buying continues to remain remarkably light relative to selling, indicating a cautious view of the stock market among corporate executives and directors,\u201d Brush said. \u201cEven the buying we had seen in biotech and regional banks has dried up.\u201d<\/p>\n<\/div>\n\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n