As the S&P 500 hits new highs, AI will create investment opportunities

The S&P 500 hit a new closing high on Tuesday.

The index — which tracks the performance of about 500 of the largest U.S. company stocks — has jumped 53% since inflation peaked in 2022, experts noted at CNBC’s Financial Advisors Summit on Wednesday.

While this may raise fears of a pullback on the horizon, stocks could have more room to maneuver.

“I absolutely feel better about stocks than I have since…the financial crisis,” said Savita Subramanian, head of U.S. equity strategy and U.S. quantitative strategy at Bank of America.

Today, businesses have adapted to a high inflation environment while workers are experiencing positive real wage growth, Subramanian said. Certainly, there are downsides, including the wealth divide, income gap, and protectionist ideas in the United States.

“But I don’t necessarily think it’s negative for the market,” Subramanian said. “I think it’s actually very positive for the S&P 500.”

The sharp rise could make even financial advisors hesitant to allocate new capital, said Tim Seymour, founder and chief investment officer at Seymour Asset Management.

Many investors are tempted to hold onto cash because “they just feel comfortable there,” according to Courtney Garcia, a certified financial planner and senior wealth advisor at Payne Capital Management.

But while a guaranteed return on cash of up to 5% may sound great, it doesn’t necessarily keep pace with inflation, Garcia said. It’s a caution she explains to customers, she said.

Investors may still find new opportunities to invest in stocks, experts told a summit session.

In 10 years or less, S&P 500 companies will likely become more efficient and less labor intensive, thanks to the effects of generative artificial intelligence, Subramanian said.

“Generative AI is a game changer,” Subramanian said. “And what that can do for industries is profound.”

Call centers have already been disrupted by AI, and other fields like financial services, legal services and Hollywood could still benefit, she said.

In the 1980s and 1990s, a similar story of productivity and efficiency occurred with the personal computer revolution, which led to more automation across all industries.

Some companies will be close to understanding how to properly use generative AI tools first, leading to higher margins and higher overall multiples, according to Subramanian.

“What you want to do is figure out which leadership teams are going to harness the strength and power of a lot of these new tools and do it first and do it well,” Subramanian said.

The Magnificent Seven companies – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta Platforms – will continue to dominate in terms of growth, Seymour said.

But opportunities in healthcare, manufacturing, energy and utilities are cheap. And international exposure should not be ignored, he said.

Each of the Magnificent Seven companies presents different drivers, advantages and threats, Subramanian noted. And that’s how investors should view the entire S&P 500, she said.

“We are in a real stock-picking market today,” Subramanian said.