While millions of families in the United States feel the blow of expensive gasoline, more expensive food and high interest rates, something is happening on Wall Street that seems contradictory to many: the stock market continues to rise. This impulse must be taken with moderation, especially if you do not know about investment issues, so we are going to explain to you the reasons behind this rally and the precautions you should take if you want to invest in stocks.

One of the main drivers of optimism is the profits that American companies reported. During the first quarter of the year, many companies reported much better than expected results. The technology sector benefited the most.

“I've been doing this for 25 years and I've never seen anything like it, it's really amazing how high these earnings numbers are,” Jeff Buchbinder, chief equity strategist at LPL Financial, told CBS News.

According to Buchbinder, technology companies increased their profits by around 50% during the first months of the year. Normally, this growth is usually around 10%. Even outside the technology sector, many American companies posted significant increases in profits.

Part of that growth is related to recently approved tax cuts and stimuli. That has caused something unusual: although the market is at all-time highs, stocks do not look as expensive as many believe.

Artificial Intelligence: Realistic Momentum or Wall Street Bubble?

Another important factor behind the rally on Wall Street is artificial intelligence (AI). Many companies and investment funds are convinced that this technology could transform the global economy and increase productivity in multiple industries.

“Investors are betting that AI will transform the global economy,” said Nigel Green, CEO of deVere Group, in an email.

For many people, this is reminiscent of the dot-com bubble of the late 1990s. But some analysts believe there is an important difference: Today's leading AI companies already generate huge revenues and have solid businesses. Companies like Microsoft and Google dominate much of today's technological development.

Still, not everyone is convinced the enthusiasm is sustainable. If AI-related companies fail to meet huge earnings expectations, stocks could fall sharply.

Why is Wall Street rising despite the war with Iran and inflation?

In addition, investors also remain very attentive to the international situation. Although the war with Iran remains a major concern, many markets are betting that there will eventually be some sort of deal that will reduce tensions.

The reason is simple: if the conflict decreases, oil could fall in price and that would help alleviate inflation. Currently, any problem in the Strait of Hormuz affects global oil transportation and puts pressure on energy prices.

“It is clear that if the United States and Iran manage to reach a preliminary agreement in the coming days, the price of oil will fall further, bond yields will decline and stocks will rise,” said Tom Holland of Gavekal Research.

However, Holland also issued an important warning: “The idea that a deal is imminent could be dangerously optimistic.”

And that is precisely the point that many small investors must understand: although Wall Street remains enthusiastic, the risks remain. Inflation is not completely gone yet, and the Federal Reserve could keep interest rates elevated for longer.

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