Market Rotation Away From AI?

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Mag 7 gives up ground while the rest of the market inches forward.  While the Mag 7 was up more than 78% from the market bottom in late 2023 to early July of this year, it would appear momentum is running out. Over the last several trading sessions, other asset classes have moved to the front in terms of returns, while Mag7 is under-performing.  Hedge funds are now cutting exposure to AI-related industries, such as Semiconductors and Semiconductor equipment. Nvidia reported Q2 earnings last week that beat market expectations yet, the stock was down last week. The expectations for AI-related names is so high that the companies can no longer match said enthusiasm with results that are outsized or large enough.

Money managers are already beginning to position their portfolios ahead of the shift in momentum. Relative to historical positioning, money managers have allocated more to Bonds, Utilities, and Healthcare in August in an effort to get more defensive ahead of an economic slowdown.   While the rate on a 30-year mortgage has dropped more than 85 basis points over the last 3 months, mortgage applications haven't picked up. The Fed has possible waited too long to begin cutting rates, as the consumer is stretched.  There are no Fed speakers until after Friday’s jobs report, so data will reign this week.

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