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Stocks will end 2023 higher, but 'Fed has gone too far' - David Nelson

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(Kitco News) - The stock market rally, which has seen the S&P 500 up 11.8 percent year-to-date, will continue until the end of the year. That is according to David Nelson, Chief Strategist at Belpointe Asset Management and Host of The Money Runner podcast, who suggested that the S&P could finish the year 6 percent higher.

"I think a lot of the heavy lifting has already been done, but I still think the market can push higher before year-end," he told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News.

Nelson, who has over three decades of experience in finance, including senior roles in Lehman Brothers and Morgan Stanley, suggested that investors still have cash to deploy in stocks, and are simply "sitting out there, looking for opportunities to get in."

He also singled out artificial intelligence as a new trend which has driven optimism in markets.

"So much capital is going into AI and other large language models out there," he observed. "I would say a lot of those [AI] companies will ultimately fail, but there'll be a handful of really special companies, and I suspect one or two trillion-dollar stock market caps that come out of that."

To find out how Nelson is positioning himself in this market, watch the video above

Fed policy

Concerns about a possible recession have been a constant refrain for investors in 2023, but Nelson claimed that whether a recession happens is very much in the Federal Reserve's hands.

"If we end up in a recession it's going to be the Federal Reserve that puts us there," he said. "I think if the Fed stands pat, we can skate through with a soft landing."

However, Nelson suggested that the "Fed has [already] gone too far" with its rate hikes, which saw the Fed Funds Rate increase by 500 bps over the course of a year.

The Fed's tight monetary policy is largely responsible for the ongoing banking crisis, which saw the collapse of four banks in 2023, including the second and third-largest bank failures in U.S. history.

Nelson highlighted the banking crisis, saying that if the Federal Reserve is not closely examining the banking sector when considering rate hikes, then "it's criminal."

"They have to be looking at that," he said. "And that's why we may have to live with maybe a little bit higher inflation than what we'd normally like to."

To find out whether Nelson foresees a rate hike at the next Fed meeting, watch the video above.

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