Their thoughts reflected a division in policymakers regarding the pace of interest rate cuts. The four officials are Kansas City Fed President Jeffrey Schmid, Dallas Fed President Lorie Logan, San Francisco Fed President Mary Daly, and Minneapolis Fed President Neel Kashkari. Logan cautioned that while she was willing to reduce rates, two takeaways from the current financial and economic picture were on her mind.
She shared that first "the economy is strong and stable. But second, meaningful uncertainties remain in the outlook. Downside risks to the labor market have increased, balanced against diminished but still real upside risks to inflation. And many of these risks are complex to assess and measure." The Dallas Fed President added that "any number of shocks could influence what that path to normal will look like, how fast policy should move and where rates should settle."
Fed's Schmid followed a similar tune. He commented that any rate cuts should be carefully measured to ensure that the Fed did not misinterpret the economy's reaction. Speaking in Kansas City, the Fed President commented "Outsized policy moves can provoke outsized financial market reactions to data surprises. The data are messy and subject to large revisions as we have seen in recent months. Our policy must be linked to the flow of data, but we should avoid putting too much weight on any single data point. As policymakers we should be flexible, but being nimble can come with a price. Reacting quickly builds expectations of further quick reactions." Daly shared in a webcast that the current environment "is a very tight interest rate for an economy that already is on the path to 2% inflation, and I don't want to see the labor market slow further," while Kashkari stressed the data-dependent decision making at the Fed, with the central bank wanting "to keep the labor market strong and we want to get inflation back down to our 2% target."
Naturally, investors were worried that the path to 50 basis point cuts for the rest of 2024 might not be so clear. However, even though rates might be high, the US economy continues to be the star performer globally. As per the IMF, the global economy is expected to grow by 3.2% in 2024 and 2025. This is the latest estimate in October, and the fact that it's unchanged over the July estimate is solely due to the US. In its October report, the IMF revised US economic growth forecasts for 2024 and 2025 to 2.6% and 2.2%, while economies in the Middle East, Africa, and Central Asia saw downward revisions. Consequently, robust American economic growth made sure that the global estimates remained unchanged.
One major reason behind the bullishness surrounding America is artificial intelligence. Data from Carta shows that it's not only Wall Street that's bullish on AI. For the first three quarters of 2024, hardware and software as a service (SaaS) industries raised $7.62 billion and $18.43 billion in primary round startup investment, respectively. This marked 85% and 67% annual growth, and it signifies investors' push towards technologies that facilitate artificial intelligence.
The data comes on the heels of the third quarter earnings season which is also seeing a paradigm shift for the AI industry. So far, investors have been focused on one AI company, the Santa Clara, California-based AI GPU designer whose shares are up 193% year to date. Yet, now, Wall Street is also interested in Phase 2 AI companies. These companies, according to investment bank Goldman Sachs, are those that provide AI infrastructure such as servers, semiconductor companies apart from the GPU designer, and utilities that will power up the gigawatt AI data centers that Silicon Valley has in mind for its AI models. For a detailed view of the latest in the AI industry, you can read Goldman Sachs' Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks.
All these factors, from the economy to AI are also on the mind of investment bank UBS. In its latest Equity Compass note, the bank remained bullish on US stocks due to its perception of the current stock market and economic climate. "From a single stock perspective, we think many of the large U.S. tech companies offer appealing long-term upside, especially those that have leading positions in the AI value chain," shared UBS. Shifting the focus to macroeconomics, it outlined "the combination of slowing but durable economic growth, healthy earnings growth, and continued Fed rate cuts are all supportive," adding that while "economic growth is cooling, the labor market remains healthy. Initial claims for unemployment insurance are fairly low, there are more open jobs than unemployed people, and real wages are rising."
The bank also identified AI as a 'most attractive' thematic investing opportunity. It shares that "The shift in computing infrastructure, from central processing units to accelerated computing units (GPUs), and in applications, from retrieval-based to generative-based architectures, has far-reaching implications for AI in terms of its generalizability (the ability to make predictions based on past observations) and effectiveness." As for the potential catalysts, UBS adds that "The next catalysts we see include potential export controls imposed by the US on China in October and 3Q24 results, where we expect further positive revisions to AI infrastructure capex and more data points on AI adoption across industries."
Our Methodology
To make our list of the top US stocks in the AI and growth environment, we first ranked the stock sectors in UBS' Equity Compass report by the bank's Neutral, Attractive, and Most Attractive rankings. Then, the stocks within these categories were ranked by the number of hedge funds that had bought the shares in Q2 2024. The list starts from Neutral and ends at Most Attractive, and the sectors themselves were ranked by the total number of hedge fund investors in the component stocks.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A portfolio manager holding a laptop and looking over a stock market ticker.
Abbott Laboratories (NYSE:ABT) is a diversified healthcare company that sells medicines, medical devices, diagnostic products, and others. Established in 1888, it is one of the largest firms of its kind as evidenced by total assets of $73 billion and cash and equivalents of $7.2 billion. While its diversified product portfolio enables Abbott Laboratories (NYSE:ABT) to fire on multiple fronts, it also means that turmoil in one or multiple markets also creates headwinds. For instance, the firm's third-quarter results saw its nutritional products business lose market share internationally while a tight spending environment led to slower diagnostic equipment sales. Consequently, Abbott Laboratories' (NYSE:ABT) Q2 results saw a modest 4% revenue growth to $10.4 billion. Q3 revenue was $10.3 billion. Its devices business is more important to the firm than other segments as it accounted for 44.8% of Abbott Laboratories' (NYSE:ABT) revenue during H1 2024. On this front, its Structural Heart and Electrophysiology products have been growing in double-digit percentages.
Abbott Laboratories' (NYSE:ABT) management shared details about these segments during its Q3 2024 earnings call:
"In Electrophysiology, growth of 14% was driven by double-digit growth in both the U.S. and international markets and similar to previous quarters, the growth was broad-based across the portfolio, including double-digit growth in catheters and cardiac mapping related products. We also achieved several important milestones as it relates to our electrophysiology new product pipeline, and this includes completing enrollment ahead of schedule in our VOLT-AF U.S. IDE trial and after we complete the required patient follow-up phase, we expect to file for FDA approval next year. Earlier this month, we announced that we began enrolling patients in our focal FLEX clinical trial designed to assess our new TactiFlex DUO catheter, which offers physicians the option of using PFA and radio frequency energy to treat atrial fibrillation."
Overall, ABT ranks 21st on our list of UBS' top stocks in the AI and growth era. While we acknowledge the potential of ABT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ABT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.