As many expected, the Federal Reserve cut rates by 50 basis points on Wednesday. It is the central bank’s first rate reduction in four years.
Predictably, that move sparked a rally in stocks, one led in large part by the Nasdaq-100 Index (NDX). The index is chock full of technology and artificial intelligence (AI) equities. Monetary easing could be just what the doctor ordered to spark new leg up for AI stocks, including those residing in the WisdomTree Artificial Intelligence and innovation Fund (WTAI).
Lowering rates by 50 basis points is helpful. However, the the Fed may prove aggressive and fulfill predictions of rates falling by as much as 150 basis points by the second quarter of 2025. That could benefit AI stocks, including WTAI holdings. Lower cost of capital could compel AI adopters to speed that process along, which would benefit AI enablers. WTAI is home to both AI adopters and enablers.
WTAI Reenters the Spotlight After Fed Cuts Rates
Against the backdrop of what could be a new easing regime by the Fed, WTAI could rediscover tailwinds. This potentially paves the way for upside as 2024 enters its later innings. Some market observers see runway for AI stocks to generate new momentum.
“The AI sector is expected to benefit from the Fed’s shift to monetary easing, opening the door to renewed growth, increased investment, and a surge in innovation,” noted Nigel Green of deVere Group. “Firms developing AI technologies, from machine learning to robotics, rely heavily on capital-intensive research and development (R&D) efforts.”
Historically, lower interest rate environments have been conducive to owning growth stocks. As it pertains to WTAI, that history could prove meaningful because lower borrowing costs could reduce financial hurdles faced by both AI enablers and adopters. Said another way, lower rates could stoke more AI innovation.
“This could drive the next wave of breakthroughs in artificial intelligence, positioning the sector for sustainable long-term growth,” adds Green.
Perhaps adding to the allure of WTAI and related assets is the point that many marquee AI stocks have climbed all the way back from their late July sell-offs, indicating investors can gain attractive entry points into an emerging technology that’s widely viewed as the foundation of a new industrial revolution.
“The Fed’s rate cut gives the sector the breathing room it needs to expand at an even faster pace,” concluded Green. “With the Fed’s support, the AI revolution is poised to accelerate, delivering long-term value and reshaping industries worldwide.”
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