4 investing pros say there's only one thing on the radar that could pop the AI bubble

Core Viewpoint - The Federal Reserve's potential rate cuts may sustain elevated stock valuations, despite concerns about a stock market bubble driven by AI enthusiasm [1][6]. Group 1: Federal Reserve's Impact on Markets - Lower interest rates encourage investors to shift from short-term assets to stocks, historically justifying higher stock valuations [2]. - The Fed's easing cycle typically does not burst bubbles; rather, bubbles tend to burst during tightening cycles [4]. - The Fed's current focus is on mitigating downside risks to the labor market and the broader economy rather than solely on asset prices [3]. Group 2: Market Reactions and Investor Sentiment - Investor skepticism is growing regarding AI spending, which could affect stock valuations despite lower interest rates [6]. - Any signs of rising inflation could negatively impact market sentiment, leading to adjustments in expectations about future rate cuts [7][8]. - Historical data indicates that 51% of significant corrections in the S&P 500 since 1965 were triggered by higher interest rates, with rising unemployment and external shocks also contributing factors [4].