US Stocks Heading for New Highs? AI Not Gone, But Capital is Shifting Tracks

Keywords: US Stock Rebound, S&P 500, Artificial Intelligence, Earnings Expectations, Capital Rotation, Institutional Views, Cyclical Sectors

Monday's US stock market finally gave the market a bit of "recovery." The three major indices rebounded across the board. Compared to last week's chip stock drag on the market and divergence in index trends, sentiment clearly improved. However, what is really worth noting is not just "how much it rose" but two signals released behind this rebound: on one hand, investors are becoming more cautious about AI themes; on the other hand, capital is quietly rotating, moving from single-mindedly chasing tech leaders to more cyclical sectors.

What does this mean? Simply put, the US stock story continues, but the gameplay has started to change. Previously, "anything related to AI was bought"; now, "AI is still fragrant, but don't blindly charge"; previously, the market rose relatively concentratedly; now it's somewhat like a relay race, with more industries starting to take the baton.

AI Not Out, But Trading Cooling

Over the past period, AI has almost been the strongest main line in US stocks. Chips, cloud computing, computing power, data centers - as long as related to AI, valuations could be lifted a notch. But any hot sector goes through a process: from "tell a story" to "see realization," then from "grab chips" to "calculate risk."

The chip stock weakness last week was already a warning signal to the market. Although the long-term logic of the AI industry chain hasn't changed, the short-term rise was too fast and too full, naturally causing capital to worry about profit-taking. Especially for some second- and third-tier AI concept stocks, which had significant gains but whose performance may not keep up, such stocks are most prone to fluctuations when sentiment reverses.

In other words, AI is not fading; rather, the market is becoming more discerning. Previously it was "AI is enough"; now it's "who can actually make money is more valuable."

Institutions Collectively Raise Target Levels, Reason Still Earnings

Despite short-term market fluctuations, institutions' attitude towards the S&P 500 is generally optimistic. RBC raised its 12-month S&P 500 target from 7,900 to 8,150; JPMorgan raised from 7,600 to 7,800; Citi, Oppenheimer, Goldman Sachs also gave higher forecasts.

The core logic behind these upgrades is consistent: earnings expectations are improving.

The most important pricing anchor for US stocks is never sentiment but earnings. Institutions generally believe that corporate earnings improvement is key to supporting further stock market gains. Especially the capex and productivity improvements brought by AI are pushing up earnings expectations across the market. JPMorgan even mentioned that average US stock earnings growth could be close to 20% over the next two years, a phenomenon of continuously raising expectations that is not common.

If US stocks relied on valuation expansion in the past few years, now the main line increasingly seems to be: earnings growth taking over from valuation, becoming the confidence for continued stock market rise.

But Don't Get Too Excited, There Are Still Potholes on the Road

Optimism doesn't mean smooth sailing. Although institutions are bullish, they all remind of one word: volatility.

RBC worries that earnings season expectations are too high, easily causing short-term fluctuations; JPMorgan is more direct, warning about momentum trade overcrowding, especially in some low-quality "pseudo-growth" AI concept stocks that can flash crash if capital flows reverse.

This sounds a bit scary but is easy to understand. Many stocks are now driven by sentiment, not fundamentals. Once sentiment reverses, declines can be very fast. Additionally, future factors like geopolitical conflicts, Fed policy changes, increased stock supply could also cause the market, even if trending up, to be far from a straight line climb.

So a more realistic judgment is: US stocks remain relatively strong medium- to long-term, but short-term will experience repeated pulls and tugs.

Capital Rotates, Market Widening

Another notable change is that capital is no longer just focusing on tech stocks. Recently, developed overseas markets, value style stocks, financials, defense, some industrial sectors have started to perform. The Russell 2000 small-cap index even frequently hits new all-time highs, indicating risk appetite hasn't declined, but capital is switching places.

This is actually a good sign. Because a healthy bull market should not be sustained by just a few giants but should allow more industries to rise in rotation. The more the market spreads out, the more stable the trend usually is.

RBC also mentioned that after valuations digest for a while, US large-cap growth stocks could regain dominance. JPMorgan suggests a "barbell strategy": allocate to quality growth stocks on one side, plus low-volatility defensive assets on the other. This is a practical idea, meaning don't put all eggs in the hottest basket; both offense and defense are needed.

Outlook: Can Rise, But Don't Chase

From the current consensus of institutions, the backdrop for US stocks in the second half is still bullish. The logic is clear: the economy has not significantly stalled, earnings expectations are improving, AI remains the strongest structural story, and companies still have room for surprises.

But at the same time, investors must accept a reality: future US stocks are likely to be not a "broad-based rally carnival" but a "main line rotation with phased volatility."

For average investors, instead of guessing every day whether the index can rise another 500 points, focus on two more critical directions:

First, whether companies truly benefiting from AI industry chain upgrades can continue to deliver performance; Second, besides tech, which cyclical and value sectors start to catch up, forming new relay.

After all, the market fears not volatility, but everyone chasing the same trend. US stocks have entered a more mature and complex stage: AI hasn't exited, but it's no longer the only answer; indices still have room for new highs, but the upward path will be more tortuous.

Overall, institutions collectively raising S&P 500 targets shows they have medium- to long-term confidence in US stocks; while capital rotating from single-threaded AI to multi-sector rotation indicates the market is moving from a "euphoria phase" to a "selection phase." Going forward, US stocks will likely follow that saying: optimistic on direction, cautious on pace.