In the final week of February, Wall Street will strive to maintain its AI-fueled rally even as economic concerns persist and the Federal Reserve’s preferred inflation measure is in place. Stocks are headed for a winning week, helped by Nvidia’s blockbuster results. The S&P 500 Index jumped to a new all-time high, while the Dow Jones Industrial Average surpassed the 39,000 mark for the first time ever. The Nasdaq Composite is on the verge of its all-time high. Each of the major averages posts weekly gains of more than 1%. Nvidia, which Goldman Sachs called “the most valuable stock on planet Earth,” added 8% to its sizable advance this week, jumping 16% on Thursday alone after beating earnings. The chip company is now more than 60% higher this year. .SPX ALL mountain S&P 500 For investors, this week confirms that the tech momentum that has driven markets for much of the last year is justified, and many expect it to continue for a while longer. But many fear that things are long gone for these market leaders as economic and inflation risks persist. “It would be awfully hard to bet against this kind of AI craze in the near term,” said Patrick McDonough, portfolio manager at PGIM Quantitative Solutions. “The flip side, or maybe the only cloud in our perfect sunny day, would be the viscosity of inflation, and what that impact would be.” “The party won’t end anytime soon” US stocks weren’t the only ones to bounce back in the wake of Nvidia this week. Indeed, markets around the world hit record highs, with Japan’s Nikkei 225 hitting an all-time high on Thursday for the first time since 1989. Europe’s Stoxx 600 also hit record highs. Furthermore, the rally has spread to more parts of the market beyond mega-caps and semiconductors. All 11 sectors of the S&P 500 are set to have a strong week, including real estate and utilities, which have underperformed this year. But many investors believe the all-time highs suggest now is the time to diversify holdings, such as quality stocks elsewhere in the market or bonds. “The band is still going strong, so this party isn’t going to end anytime soon,” McDonough said of PGIM. “But I don’t think we’re looking at another year or two years or three years or five years of U.S. large-caps cleaning up the market. There’s going to have to be some diversification just from an economic standpoint.” McDonough, who still sees upside of around 5% for US large caps, says investors can find opportunities in relatively cheap emerging market stocks, or in small caps where some companies have seen “sneakily good” outperformance in recent years. Charlie Ashley, portfolio manager at Catalyst Funds, similarly said stocks could likely rise another 5% from here, but said he would add positions in short-term fixed income securities. Specifically, he prefers investment grade companies with strong balance sheets that don’t need to refinance their debt. At Nvidia in particular, he said he “would be more of a profit taker here,” even as it continues to rise. But he said he prefers national leaders in the technology, healthcare and financial sectors. Elsewhere, Dhaval Joshi, Counterpoint chief strategist at BCA Research, is wary of AI momentum outside of Nvidia. “AI is in a bit of a gold rush and… Nvidia is selling picks and shovels,” Joshi said. “So what we know is we’re in a gold rush, the guys selling picks and shovels always do very, very well. But the guys panning for gold don’t necessarily do very well.” The “lonely cloud” of inflation The Fed’s preferred inflation indicator will also be released next week. The report, due Thursday, will likely take on greater importance after reports on consumer prices and producer prices earlier this month were warmer than expected. If the January personal consumption expenditures report turns out to be weaker than expected, it likely won’t be a market-moving event. However, a stronger-than-expected reading that suggests the CPI and CPI were not anomalies will likely hurt stocks and push bond yields higher. Investors worry that sticky inflation means the Fed will maintain its policy of higher interest rates for longer. CME’s FedWatch tool shows markets are pricing in just a 55% chance that the central bank will cut rates by a quarter of a percentage point in June, after holding rates in March and May. Next week will also be the last week of February, with stocks set for another month of strong gains. Year to date, the Dow is up about 4%, while the S&P 500 and Nasdaq are both up more than 6%, a stellar start to the year that has left many investors wary. “If you make it annual, it’s a huge year, almost as big as last year,” said Ashley of Catalyst Funds. “But I think what will happen is we’ve been through the earnings season so far, and I think we can get some drift, and then the next earnings cycle, I think, will be quite important among other things. So, the earnings cycle will be fundamental.” “I think we’re in a very delicate situation where there are many factors that can have a huge influence on the market, or on the second quarter,” Ashley continued. On the economic front, a series of economic releases are arriving in the next week. January durable orders data will be released on Tuesday, while January wholesale inventories will be released on Wednesday. Elsewhere, corporate earnings season concludes with releases from Salesforce, TJX, Best Buy and Domino’s Pizza scheduled. Next week’s calendar All times ET. Monday, February 26, 2024 8:00 am Building Permits Final (January) 10:00 am New Home Sales (January) 10:30 am Dallas Fed Index (February) Earnings: Fidelity National Information Services, Domino’s Pizza Tuesday, February 27, 2024 8:00 am: 30 Durable Orders (January) 9:00 AM FHFA Home Price Index (December) 9:00 AM S&P/Case-Shiller comp.20 HPI (December) 10:00 AM Consumer Confidence (February) 10:00 AM Fed Index Richmond (February) Earnings: eBay, First Solar, Extra Space Storage, Axon Enterprise, Norwegian Cruise Line Holdings, JM Smucker, AutoZone, Lowe’s Wednesday 28 February 2024 8.30am GDP Chain Price Second Preliminary (Q4) 8.30am Wholesale Inventories SA preliminary (January) 1:45 Federal Reserve Bank of New York President and CEO John Williams speaks at an event LIA Regional Economic Briefing, New York Earnings: HP, Monster Beverage, Salesforce, TJX Cos., Paramount Global Thursday 29 February 2024 8.30am Jobless claims continue (02/17) 8.30am Initial claims (02/24) 8.30am PCE deflator (January) 8.30am Personal consumption expenditure (January) 8: 30 Personal Income (January) 9:45 AM Chicago PMI (February) 10:00 AM Pending Home Sales Index (January) 11:00 AM Kansas City Fed Manufacturing Index (February) 8:10 PM Federal Reserve Bank President and CEO of New York John Williams moderated the discussion at an event Citizens Budget Commission 92nd Annual Gala, New York Earnings: Hewlett Packard Enterprise, Autodesk, Best Buy, Bath & Body Works, Hormel Foods Friday, March 1, 2024 9:45 Final Markit PMI Manufacturing (February) 10:00 Construction Spending (January) 10:00 ISM Manufacturing (February) 10:00 Michigan Sentiment Finale (February)