The ‘real world set in’ last week as the Nasdaq Composite led the indexes back tracking downward. Many prime movers in the tech and AI sectors gave up stellar gains. The actuality of the AI “boom” became a reality. It was the biggest ‘hiccup’ since President Trump imposed dramatic tariffs in April. The realization of the run-ups of Tech and AI stocks played hard on investors and traders as a possible correction loomed. The week opened on a high note, only to see the market turn sour early, continuing every day with the Nasdaq finishing the week off 3%. Both the S&P 500 and the Dow Jones Industrial Average finished the week down 1.6% and 1.2% respectively. “Valuations are stretched,” said Jack Ablin, chief investment strategist at Cresset Capital. “Just the slightest bit of bad news gets exaggerated…. And good news is just not enough to move the needle because expectations are already pretty high.” Even after a couple of major earnings releases Monday, Amazon and Alphabet, good news was overtaken by negative news as the markets tumbled. Friday’s University of Michigan’s latest consumer sentiment index “reading dropped to 50.3 for November from 53.6 last month, the lowest readings since mid-2022.”
Optimism sparked Monday’s market as signs of resolution to the U.S. Shutdown emerged. Both Democrats and Republicans sparred Sunday with progress evident. Techs, AI, and many depressed sectors awakened Monday as stocks across the board finished higher. The Dow Jones was up 381 points, or 0.8%, while the Nasdaq soared 2.3% leading the indexes, and the S&P 500 added 1.5%. According to the Wall Street Journal, “the information-technology and communication-services sectors drove the S&P 500 upward. It’s a tech and AI recovery day,” said Louis Navellier, founder of investment firm Navellier& Associates. “The apparent overvaluation concerns of AI names have been reversed in a big way.” As the U.S. Government reopens, much economic and jobs data and inflation stats will become available, important for the Federal Reserve now nearing its December “interest rate decision.”
With the Shut Down blues nearly over investors have a heavy burden lifted. The indexes sparked again Tuesday, with the Dow Jones jumping 559 points–”its 16th record this year,” according to the Wall Street Journal. The heavy-tech Nasdaq Composite stumbled back a bit, off 0.3%. With the Senate process complete, the bill heads to the House and then to President Trump. “It makes sense just to have some digestion of a really strong day yesterday,” said Matt Stucky, chief portfolio manager of equities at Northwestern Mutual Wealth Management “You have more of a defensive profile in terms of leadership.” Wednesday’s Dow Jones Industrial Average broke through the 48000 barrier, closing at 48254.82, up 327 points. According to the Wall Street Journal, “it is the 17th record high this year.” The index has come alive this past month beating both the S&P 500 and the active tech-heavy Nasdaq indexes.
The tech-AI “sell-off” beginning last month was prompted by concern of major developmental spending to launch the AI sector. According to Marta Norton, chief investment strategist for Empower Investments, “There’s still an overhang from all the questions on artificial intelligence–and rightfully so.”
RUMBLINGS ON THE STREET
Justin Bergner, a portfolio manager at Gabelli Funds, WSJ – “I’m skeptical that there’s going to be some great rotation away from tech that sustains the bull market. However, on days that tech stocks are a little mixed, the bull market will find other sectors that contribute.”
James Knightly, Chief international economist at ING (in a note to clients after release of IT data)…. WSJ – “Tariff related inflation will remain a concern in the near term, but it is the job market that is becoming the more pressing issue for the Fed with a clear chance that the ‘low hire, low fire’ economy becomes ‘no fire, lets fire’ story.”
Rachel Kargas, a recruiter in the Denver area, WSJ – “This is a discouraging thing for me to say, but with the job market the way it is, employers can be very picky. There are so many applicants for every opening that they can find exactly what they want, and that may be a young person.”
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