Stocks are showing signs of vulnerability, with the S&P 500 experiencing a decline for three consecutive days, largely influenced by a significant drop in Oracle’s stock. This downturn raises concerns regarding the future of the artificial intelligence sector, which has previously driven stocks to record highs. The decline in Oracle’s shares has been exacerbated by a bearish rating from Rothschild & Co. Redburn, which predicted a potential sell-off of up to 40%.
Katie Stockton, founder and managing partner at Fairlead Strategies, noted on CNBC’s “Squawk Box” that the markets have so far avoided a seasonal pullback. She emphasized that a reset might benefit the markets, particularly as AI stocks appear to be overextended.
Despite the recent lackluster performance this week, the broader market averages have shown gains this month, with the tech-heavy Nasdaq Composite leading the way with a more than 4% increase, driven by a dovish stance from the central bank that has revitalized trader confidence. Tech stocks and cyclical assets like small-cap stocks are particularly responsive to lower interest rates. Notably, Nvidia has gained an additional 3% this month; Alphabet has seen a remarkable rise of over 15%, while Apple’s stock surged more than 8%.
However, with market breadth deteriorating, Stockton suggests it may be prudent for investors to consider taking profits. Historically, from now until mid-October, stocks can be vulnerable to declines, and major tech players have started to reflect this trend. This week, Nvidia has decreased by 1.6%, Amazon has seen a drop of approximately 5%, Alphabet’s stock has fallen more than 3%, Meta has decreased nearly 3%, and Microsoft has lost nearly 2%.
Contrarily, certain tech companies still hold strong potential for further gains. Stockton highlighted Intel, which experienced a 7% rally on Thursday after reports emerged of the chipmaker seeking investment from Apple. Intel’s stock has already surged over 66% year-to-date, indicating its robust position in the current market landscape.
