A.I Boom Has Boosted The S&P 500, But Parts Of The Index Are Signaling A Recession

The US stock market finds itself at a critical juncture, with experts on Wall Street divided over the sustainability of this year's rally in light of recession concerns. Several prominent analysts have issued warnings of a potential selloff in the coming months, highlighting that the year-to-date gains in the S&P 500 index have been narrow and primarily driven by substantial increases in select Big Tech stocks, fueled by the hype surrounding artificial intelligence.

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Experienced economist David Rosenberg has sounded the alarm, suggesting that the benchmark US share index is already exhibiting signs of a recession as stocks in crucial sectors tied to the real economy, such as consumer discretionary, transportation, and banking, have experienced significant declines.

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Here are the latest statements from seven influential voices regarding the S&P 500:

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Mohamed El-Erian, esteemed economist and advisor at Allianz, remarked, "Today's US price action is another reminder that this year's favorable equity market performance is still driven by a handful of tech stocks. Not only is the Nasdaq outperforming once again, but the S&P 500 would be in negative territory if it weren't for the significant contribution of Nvidia."

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David Rosenberg, seasoned economist and founder of Rosenberg Research, addressed the question of why the S&P 500 does not appear to signal a recession, stating, "The question always arises - why isn't the S&P 500 indicating a recession? The answer: it is. The most economically sensitive sectors, such as transports, consumer discretionary, and banks, have declined by 33%. They are behaving similarly to their performance prior to the downturns of 1990-91, 2001, and 2007-09."

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Liz Ann Sonders, chief investment strategist at Charles Schwab, observed, "As the S&P 500 has risen over the past few months, there hasn't been a commensurate increase in the ratio of the Consumer Discretionary to Consumer Staples sectors." Sonders echoed Rosenberg's point, referring to a chart depicting blue and orange lines that illustrate the underperformance of key stocks tied to the economy despite the overall rise of the index this year.

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Larry McDonald, the founder of 'The Bear Traps Report,' issued a cautionary note, warning that the S&P 500 could plummet by nearly 30% by December due to declining corporate profits, reduced government spending, and banking turmoil, all of which pose risks to stocks.

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