<\/p>\n
The more the merrier is especially true during the holiday season. That applies to stocks, too.<\/p>\n<\/p><\/div>\n
After years of artificial intelligence leading then market\u2019s rally, it appears that investors are finally looking beyond that area of tech and its beneficiaries for opportunities, which means an increasing number of stocks are joining the party. As a bonus, they\u2019re often cheaper, as well.<\/p>\n
Multiple concerns, among them increasing debt, fierce competition, and execution risks, led to a selloff of AI stocks in mid-November. Although AI plays have since bounced off their lows, the real action has been elsewhere in the market\u2014including riskier areas that show investors aren\u2019t just hunkering down.<\/p>\n
Even with AI\u2019s revolutionary potential, growing concern is understandable.<\/p>\n
\u201cSome lenders and investors are cautioning against the risks, with Oaktree Capital Management LP co-founder Howard Marks warning that some data centers may be rendered uneconomic and some owners may go bankrupt,” wrote Mizuho Securities Managing Director, Equity Trading Daniel J. O\u2019Regan in a Friday note.<\/p>\n
Even if worst-case scenarios don\u2019t play out, increased AI skepticism could just be a reaction to how bid up\u2013and expensive\u2013these stocks are.<\/p>\n
Broadcom\u2019s beat-and raise fourth-quarter earnings, posted after Thursday\u2019s market close, nonetheless may have market participants thinking twice. \u201cInvestors\u2019 early reaction to Broadcom suggests the AI crowd is getting tough to please,” wrote Joe Mazzola, Head Trading & Derivatives Strategist at Charles Schwab on Friday. \u201cArguably, the chip maker\u2019s earnings exceeded most expectations, but shares fell nearly 6% ahead of the open.”<\/p>\n
Given that Broadcom is already up some 200% from its spring lows which occurred in the wake of President Donald Trump\u2019s April 2 tariff announcement, it might just be a case of all the good news already being priced in. Despite the impressive numbers, analysts are getting skeptical about Broadcom\u2019s forecasted growth as investors look elsewhere.<\/p>\n
The fact that both the Dow Jones Industrial Average and the S&P 500 notched record closes on Thursday while the Nasdaq Composite \u201cwilted\u2026reinforces ideas that rotation continues out of AI names and into sectors like small caps and financials,” Schwab notes.<\/p>\n
That bodes well for the rally\u2019s health. Extreme concentration is still a worry, given the fact that stocks in the Magnificent Seven still account for some 35% of the S&P 500\u2019s market capitalization. But if a greater number of sectors in the index start performing well, it means overall gains can continue\u2014even if AI lags.<\/p>\n
\u201cEven if [we\u2019re] in a classic price bubble in the U.S., the S&P 500 is showing tremendous resilience and breadth of late,” wrote Rosenberg Research founder and president David Rosenberg. \u201cThe technical picture is solid with breadth measures improving and no divergences taking place today (unlike in 2000, 2007, and 2022)\u2026The weakness in many of the large AI plays has only been met with a rotation trade into value, with the Dow, S&P 500, S&P 400, S&P 600, the Invesco S&P 500 Equal Weight ETF, and Russell 2000 indexes all making new highs.”<\/p>\n
Renaissance Macro Research Chief Market Technician Jeffrey deGraaf wrote on Friday that the equal-weighted S&P 500\u2019s record close on Thursday underscores \u201cthe more bullish rotation taking place\u2026It suggests buying weakness, not aggressively chasing strength while keeping a more bullish disposition toward equities.”<\/p>\n
A market finally interested in something other than AI? Sounds like a Christmas miracle.<\/p>\n
Write to Teresa Rivas at teresa.rivas@barrons.com<\/i><\/p>\n
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