Wall Street is experiencing a notable shift as the Nasdaq Composite, following a robust two-year ascent driven largely by enthusiasm for artificial intelligence (AI), shows signs of instability. The tech-centric Nasdaq 100, which has increased approximately 30% over the past year, has recently faced a downturn that raises concerns among investors. The S&P 500 has dropped about 4% in the past week, while the QQQ has suffered a more significant decline of roughly 7%.
Portfolio manager Jonathan Wellum, in a recent episode of the Thoughtful Money podcast, expressed that the current situation appears more critical than just a typical market pullback. He pointed out that various indicators echo the environment leading up to the 2000 Nasdaq collapse. Wellum identified five troubling trends: explosive capital expenditure (CapEx) spending, elevated valuations across the market, concentration among a select number of players, speculative investment behaviors, and uncertainty regarding earnings performance. He stated, “We’re seeing the same 5 things,” highlighting a striking resemblance to the indicators observed before the dot-com bubble burst.
Wellum reminded listeners about the significant drawdown the Nasdaq experienced in 2001 and 2002, where it fell by 78%. During that period, the S&P 500 similarly declined by 39%. Following those tumultuous years, defensive sectors like insurance, energy, materials, utilities, and healthcare began to thrive. In light of this history, Wellum’s firm is now shifting investments toward these sectors, which typically outperform when speculative bubbles burst.
The broader economic landscape is also displaying concerning signs. The 10-year Treasury yield currently stands at 4.53%, placing it in the upper echelons of its 12-month range. Additionally, the VIX—a measure of market volatility—has surged by 26% over the past week. Consumer sentiment has sunk to a level of 49.8, indicating recessionary conditions. Furthermore, there has been a notable outflow of $12.7 billion from the QQQ in the first quarter of 2026, marking the most significant withdrawal in its nearly three-decade history. Presently, the QQQ trades at a price-to-earnings ratio of 32x, which raises questions about sustainability amid such pronounced market optimism contrasted with dwindling investor confidence.
As the market begins its rotation away from risky AI plays, Wellum has identified six specific stocks that have consistently outperformed expectations and are positioned in more stable sectors.
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Insurance – Chubb has shown solid performance with a reported Q1 2026 earnings per share (EPS) of $6.82, surpassing the $6.60 forecast. The company experienced a 74% year-over-year increase in net income largely due to the normalization of California wildfire losses. Trading at a trailing P/E of 11 and with a beta of 0.42, Chubb has gained around 17% over the past year.
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Energy – Exxon Mobil witnessed an impressive rally of approximately 45% over the past year, spurred by production exceeding 900,000 barrels per day and substantial cost savings realized since 2019. With a forward P/E of 13, Exxon presents a stark contrast to the extravagant multiples typical of AI-focused stocks.
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Materials and Transport – Union Pacific has experienced significant growth, evidenced by volume increases and operational efficiencies. The company reported an uptick in bulk volumes and is on the cusp of a merger with Norfolk Southern, predicted to enhance its operational capabilities. Its stock has risen about 21% over the past year.
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Staples – Procter & Gamble recently celebrated its 70th consecutive annual dividend increase, reflecting a stable financial posture. With a trailing P/E of 21, its shares have decreased by 6% over the last year, positioning it as an attractive opportunity amid the ongoing market fluctuations.
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Utilities – American Electric Power has positioned itself as a key player with substantial growth in commercial electricity delivery and a robust capital expansion plan projected to reach $78 billion. Its shares have appreciated roughly 30% over the past year.
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Healthcare – Johnson & Johnson raised its full-year guidance after surpassing revenue expectations in Q1, with shares soaring approximately 56% over the past year, highlighting a robust trajectory amidst broader market challenges.
Wellum cautioned that if the rampant CapEx in AI proves imprudent, it could lead to a significant market shock, potentially impacting the entire landscape. He acknowledged the possibility that productivity gains from AI could alleviate some demographic pressure. Historical parallels suggest the market’s trajectory may still rise over the long term, yet investors are urged to be cautious; if the pattern of concerning indicators continues, portfolio stability may come from investing in less speculative, more defensive sectors.
