As expected, risk markets surged, with Nvidias explosive earnings results driving the stock market to new highs. The AI ​​giants market capitalization surged by $247 billion yesterday, setting a record for the largest single-day increase in market capitalization, surpassing Meta earlier this month. The $197 billion reached earlier; in addition, mainstream analysts and media have begun to defend the stocks historic run, claiming that EPS growth has led to a compression of the multiple (forward P/E is only 35x).

In addition, a statistical study shows that the current AI bubble is still in its early stages and there is more room for growth; the study analyzed more than 1,000 large-cap stocks that have risen by more than 35% in 3 months in the past 30 years. The findings show that returns remain slightly positive over the next quarter without any significant pullback, which bodes well for the current risk rally if history repeats itself in the near term.

The SPX index rose 2% yesterday. The gains were quite broad and strong. Except for utilities, all sectors rose, with technology stocks rising as much as 4.4%. Unsurprisingly, downside hedging costs have fallen to multi-year lows as investors have little reason to worry in the short term.

This strong rally is not limited to the US, with the Nikkei also hitting all-time highs and actually outperforming the SPX (in local currency terms) over the past 10 years. Nearly 90% of Japans CPI component categories posted increases, Japans inflation is starting to become more entrenched, and capital continues to pour into its stock market and real estate.

The U.S. economy is still in good shape (the initial jobless claims and PMI announced yesterday are still strong), the financial situation has relaxed significantly, large U.S. listed companies are still making money, and generative AI has brought significant wealth effects and future productivity improvements expectations, will the Fed be forced to adopt a more hawkish stance next? Or have we entered a period of “irrational exuberance” (Greenspan 1996) in which the stock market “stands on the eternal high ground” (Fisher 1929)? In either case, the higher rates for longer narrative should return, with stock-bond correlations likely to remain decoupled in the short term.

Unfortunately, a rising tide lifts all boats, and as financing costs rise and capital allocations are concentrated in AI, investors are less interested in reinvesting and the less liquid venture capital and private equity sectors are taking a hit; today’s investors Paying more attention to cash flow and liquidity, the private equity investment field may continue to turn to structured secondary markets and continuation fund structures. Markets and cycles evolve, and so must we.

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