The stock market has had an intense period. Investments in the AI ​​sector are slowing down

Even though we're only halfway through April, the stock market has had a very intense month. The main factors slowing growth include slowing investment in the AI ​​sector, fiscal constraints and enforcement of immigration laws.. The role of activities is also important DOGE. The introduction of tariffs is the last of the major threats. There is low confidence among investors. However, recently there has been a visible market positioning suggesting an expectation of “relief.”

Possible deepening of declines

For now, the declines on Wall Street have been halted, and some of the strong sell-off has been recovered. The strongest sell-off from April 3 and 4 has been erased. The cumulative sell-off on the SP500 index since December 2024 has reached dimensions very close to those of the 2022 bear market. However, this does not mean the end of the declines. There is a possibility that the lows from the previous week will be reached again or even broken. Such a scenario should be expected.

The key to the market will be the highly realistic earnings downgrades by Wall Street companies. The current correction by many cyclicals and small companies is well underway, both in terms of timing and the scale of the declines. If a recession materializes – or if fears of it are even more heavily discounted – a further deepening correction cannot be ruled out.

An additional risk factor is the Fed’s reluctance to cut interest rates and provide additional liquidity. The Federal Reserve could respond with support only in the event of disruptions in the credit or financial system.

Lack of trust in the market

The market is increasingly pricing in recession risks, and tariffs are a further blow to the economy. The US's strength to date has been driven by high government spending, service sector consumption and capital investment in artificial intelligence. Now, these three factors are losing steam.

The difficulty with assessing the impact of tariffs is that their impact is variable and difficult to predict. Market confidence has been severely damaged, and while markets have priced in a slowdown more quickly than the data indicated, the key question is whether negative sentiment can be reversed.

It is likely that as long as the Fed maintains its restrictive stance, a lasting improvement is unlikely.When the U.S. central bank began easing policy last fall, there was a brief but powerful rally in cyclical and low-quality stocks. But the holdout on further cuts has extinguished that movement.

The real weakness of the index SP500 shows the behavior of small companies relative to large-capitalization ones. The former have been doing much worse for a long time. This shows that investors tend to choose shares of stable and relatively resilient companies.

Source: Łukasz Zembik, OANDA TMS Brokers