The Words 'Artificial Intelligence' Have Lost Their Investment Magic
Earnings reports from hundreds of companies failed to rally the indices this week and investors want more from infrastructure investments.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Earnings reports from hundreds of companies and five of the Magnificent Seven MAGS names failed to rally the indices this week. While Alphabet GOOGL and Amazon AMZN saw positive responses, Apple AAPL, Microsoft MSFT and Meta META were sold. The words "artificial intelligence" are no longer magic as investors want to start to see some payoff from massive infrastructure investments.
Earnings season has not been terrible, but with the indices near highs and some aggressive valuations, it takes more than a minor beat to generate sustained momentum.
Two other significant issues have been making upside progress difficult. The first is that interest rates continue to rise even though the Fed is still expected to deliver quarter-point cuts in November and December. Bonds TLT were walloped again on Friday, even though the jobs news was weak. Typically, bonds will rally on weak economic news, but wage growth was a bit hot, and there are worries about a jump in inflation when a new president takes office. There are some mild signs of stagflation but nothing severe enough to derail equities. The 7-10 Year Bond ETF (IEF) dropped sharply again and is filling gaps in the chart from back in July but it isn’t causing any real panic so far.
On four of the five trading sessions this past week, the S&P 500 closed near its lows of the day. That is a shift in character and is a warning sign. Strong markets tend to finish strong, but this one isn’t doing it.
Next week is going to be particularly chaotic with the presidential election. The biggest danger is an unclear winner, but another issue will be whether we end up with a split government or if one party sweeps. A split government would be a market positive as it will make it harder for either party to push through spending.
Also, next week, we have hundreds of small-cap names reporting earnings. This makes for some very entertaining trading, but it also produces some land mines that can blow a hole into your portfolio if you aren’t careful.
It will be nice to put the election hostility behind us, but there is a high potential for some market ugliness if things go wrong.
Have a great weekend. I’ll see you on Monday
At the time of publication, DePorre had no positions in any securities mentioned.
