– It was a great rally – E24

Artificial intelligence and weight-loss drugs sparked celebrations in the stock market last year. But expensive AI stocks and runaway expectations could cause a setback this year, Nordea's investment managers warn.

– There is no shortage of risk factors, says Investment Director Leif Rune Rehn at Nordea to E24.

Wednesday presented a positive outlook for stock exchanges in 2024, after a year in which US stocks in particular rose sharply.

The stock market year 2023 ended with a ten percent rise on the Oslo Stock Exchange, while the broad American Standard & Poor's 500 index rose 24 percent and the Nasdaq technology index jumped 43 percent.

A small group of big technology companies have chosen the latter option, helped by optimism about artificial intelligence.

The chatbot ChatGPT, which is used for everything from programming and report writing to homework and job applications, became popular at record speed after its launch. Robots have made artificial intelligence, or AI, more accessible.

Eyes on stock market risks

“We've had a great run at this.”Seven greatsSeven greatsA term played on the movie of the same name, which includes the seven stocks Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla that rose sharply last year and accounted for large parts of the US market rally.» As a result of renewed faith in artificial intelligence. Ren says this is not the first time this has happened.

– We have seen many similar cases before, where you saw that the breakthrough you thought you were going to get, never materialized.

He adds:

– Another thing is that even if you succeed in doing this, the prices of some companies may end up being too high. Yes, the performance of companies is fantastic, and profits are increasing, but you don't see that in the stock price because it has already been priced.

Ren takes the lines back to the IT bubble of the early 2000s.

– We saw that some companies that became winners after the IT bubble had a very low return in the next 10 years because they were already priced out.

Ren says the AI ​​boom “definitely” poses a risk to markets.

He points out that the group of seven dominant stock market winners — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — make up 25 percent of the index.

– If it decreases, for example, by ten percent, this will reduce the total return even if other companies perform well.

Artificial intelligence and weight loss drugs

Ren's colleague Robert Ness looked at what drove the market in 2023, a year in which global stocks rose more than 20 percent and followed a sharp decline in 2022.

According to Næss, 13 of the 1,400 companies in the global index generated just over half the returns.

He pointed out that 11 companies out of 13 were related to artificial intelligence and two companies were related to weight loss medications.

– Ness says it was the two trends that drove the market.

Næss points to chip manufacturer Nvidia as the biggest winner in the AI ​​space. Last year the share rose by more than 200 percent, and the company's market value is now approaching $1,200 billion.

– Nvidia has benefited from it. This is madness. I have never seen such large modifications as in Nvidia. Meta may also have benefited indirectly from it.

– But for others there is more to come. It's a little more dangerous. It's a bit like the Internet. Internet companies soared from 1996 to 1998, so in 1999 and 2000 they started making demands on profits. Then they didn't come and collapsed.

Næss explains the risks.

-The idea was that people like us should use it to become more efficient. And it takes time. They talk about 10 to 20 percent greater efficiency. It's likely to happen, but it takes time for companies.

– I think that when companies become more productive, I think that will be in 2025 and 2026.

Low interest rates

Weaker-than-expected economic growth, central banks having to enter new rounds of fighting against price growth and keeping interest rates high are also on the list of risk factors for stock exchanges in the new year.

The most important interest rate in stock markets, the US government's ten-year interest rate, has fallen from a high of five percent to below four percent.

The decline in interest rates that began last fall coincided with a strong rise in the stock market.

The US central bank, the Federal Reserve, has also signaled interest rate cuts after raising interest rates sharply in recent years to curb inflation.

– What is important for the market is to see that the interest rate is starting to fall, says Ren.