By Jules Rimmer
AI is the tide floating all boats and the Fed’s Treasury bill purchases also are helping
22V Research strategist Dennis DeBusschere fancies the S&P 500 to reach 7,800 this year – but this may come at the expense of interest-rate cuts.
The U.S. stock market is defying logic.
War, an oil (BRN00) crisis, a partial government shutdown and paralyzing uncertainty at the Federal Reserve are headwinds that have failed to deter the S&P 500 from hitting record highs. Instead, the AI boom, fiscal stimulus and monetary support are propelling it higher.
Strategist Dennis DeBusschere cannot remember a “point in history where we’re getting this lucky” and as a consequence, he reckons the odds are in favor of the S&P 500 index hitting 7,800 or higher this year.
The S&P 500 SPX closed Wednesday at 7,137.90, up 4% on the year.
Founder and cheif market strategist at 22V Research, Dennis DeBusschere
DeBusschere, founder and chief market strategist at 22V Research, was expressing his opinions on Danny Moses’ “On The Tape” podcast in an episode aired Wednesday. He and the host were trying to explain how, despite the “self-inflicted wounds” of the tariff fiasco and the Iran war, benchmark U.S. indices keep notching up one all-time high after another.
The locomotive hauling the market higher is the surprising resilience of both the economy and the consumer presently on show. DeBusschere cited bank earnings last week with positive commentary across the board on consumer spending and decent retail sales data this week.
So what’s causing this paradox between the macro outlook and the market performance? DeBusschere attributes it to the monetary stimulus of the “non-QE” program that began in December that involves the Federal Reserve buying $40 billion of T-bills monthly. This is supercharging liquidity at a time of fiscal stimulus which means “financial conditions have eased aggressively over the last three to four weeks.”
Simultaneously, “long term inflation expectations are anchored, for whatever reason” and this is creating a healthy backdrop for stock markets.
However, it’s AI , according to DeBusschere that is really providing the market with its impetus. It is creating productivity gains and efficiency benefits and it translates directly to earnings growth, regardless of its impact on labor markets that probably won’t be fully understood until further down the road. “It’s deflationary AI,” DeBusschere adds.
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In fact, DeBusschere doesn’t want to focus on the derivatives of the AI boom right now. He’s purely interested in the profitability expansion taking place now and he thinks this is a positive driver for stocks. Earnings expectations are moving higher, despite the oil price shock, and analysts’ guidance is actually lagging that of corporates, suggesting further upside to estimates. DeBusschere advocates buying stocks that are direct beneficiaries of AI capex, not necessarily those benefiting from AI adoption.
Moses asked his guest what concerned him most about markets and it’s clear that inflation is the primary cause of concern. Inflation was already way in excess of the Fed’s target before the recent energy shock and the strength of the economy shows no let up is expected any time soon. Consumers are spending through the shock.
If this economic momentum persists then either the Fed hikes or U.S. 10-year BX:TMUBMUSD10Y yields surge higher. Having surveyed his own clients, DeBusschere warns that more than 40% of them are convinced the Fed can’t cut and must, in fact, hike.
Ironically, DeBusschere observes, if the economic strength required to push the S&P 500 to 7,800 does materialize, then investors definitely won’t get the rate cuts they currently expect. The lucky streak ends when financial conditions tighten.
-Jules Rimmer
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04-23-26 0823ET
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