“Well, I think it will do. I mean, what was interesting about today is you saw the Dow doing so well and the Nasdaq falling as you said and that suggests to me there was quite a bit of rotation out of technology into other sectors in the market which are probably more heavily featured in the Dow,” Dennis said. He added that concerns over investment plans of major tech companies, particularly the Mag-7, are influencing investor behavior. “But in general the US market looks fine and seemingly… the US government shutdown is beginning to come to an end now and if that is the case, that is going to support the economy because the money will go out again for things like food… and that will support the consumer and it is really what is going on as to why the market has been recovering this week.”
With the shutdown nearing resolution, market watchers are also turning their attention back to interest rates and the Federal Reserve’s rate cut cycle. Dennis cautioned that a December rate cut is far from certain. “There is still a lot of uncertainty A) about when the shutdown will end and B) when some of this blizzard of data that we are missing will actually come out. I am of the opinion that a rate cut in December is not a guarantee at all… the inflation numbers are stuck at 3%. We are in a bit of a data fog. Certainly, the labour market looks a little bit weaker… a rate cut is far from guaranteed at this stage.”
Profit booking among technology and AI-led stocks, particularly the Mag-7, is also under scrutiny. Dennis explained, “Valuations alone do not cause markets to go down, do not cause stocks to go down. You need a trigger and it seems the trigger at the moment is number one, a bit of uncertainty about when the Fed will move again. Number two, concern about… whether the labour market is telling us that we could be heading towards recession. And number three, particularly on the back of Meta’s announcement a few days ago, are we now entering a period where these technology companies, especially these AI companies, are just investing too much and this concern about the pressure on resources and… the debt that is going on onto some of these balance sheets of these Mag-7 companies.”
Despite these challenges, Dennis remains cautiously optimistic. “For the market as a whole, I see a recovery here because the Fed will eventually cut rate and that the economy is okay and basically some rotation now out of some of the particularly highly valued tech stocks into the rest of the market seems to me to make a lot of sense.”
As the US government shutdown comes to an end and data continues to flow, investors will be watching closely how rate decisions, tech valuations, and consumer activity influence market trends in the coming weeks.
