Episode 289
AI Stocks Decline: Implications for Broader Market Trends
The market continues to rotate away from AI and semiconductor stocks—but that doesn't necessarily mean a broader market decline is underway.
In today's Exit Rich…Retire Free Daily Read, Jeff Kikel explains why money is flowing out of the crowded AI trade and into other sectors of the economy. While technology struggles, companies like Coca-Cola, Caterpillar, financials, industrials, and consumer businesses continue to post strong earnings, suggesting this is a rotation rather than a market retreat.
Today's discussion includes:
- Why AI and chip stocks continue to weaken
- What Korea's bear market means for investors
- Why the Dow and equal-weight S&P 500 are telling a different story
- What to watch with this week's Federal Reserve meeting
- Why Microsoft, Amazon, Meta, and Apple earnings could move the entire market
- How to evaluate your own portfolio during a market rotation
Today's Bottom Line:
Rotation isn't the same as retreat. Understanding what you own matters more than reacting to headlines.
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Takeaways:
- The ongoing rotation from AI and semiconductor stocks does not signify a broader market decline.
- Strong earnings from consumer-focused companies indicate the resilience of other sectors in the economy.
- The divergence between the tech-heavy NASDAQ and the stable performance of the Dow is notable and telling.
- Investors should remain vigilant about their portfolios as market dynamics shift during this rotation.
Companies mentioned in this episode:
- Coca Cola
- Microsoft
- Amazon
- Meta
- Apple
- Caterpillar
- JP Morgan
- Nvidia
- AMD
Check out more on my Substack https://exitrichretirefree.substack.com/
Transcript
Welcome to the Daily Read with Jeff Kickel.
Speaker A:Overnight, the AI trade continues to go downhill.
Speaker A:Quite frankly, we are still seeing this continued rotation out of AI stocks.
Speaker A:Overnight the AI trade really came unglued around the world.
Speaker A:Korea's stock market fell into an official bear market and chip stock sold off from Seoul to Silicon Valley.
Speaker A:Yet this morning the Dow is up and Coca Cola just raised its forecast.
Speaker A:That split, that's the entire story right now.
Speaker A:One quick reminder what this is Regime Lab is my daily every, every number source read of the market that I developed with AI.
Speaker A:It reads the direction, breadth, credit, volatility and which sectors lead.
Speaker A:And there it's a scoreboard that we work and that scoreboard keeps saying the same thing louder each day.
Speaker A:This is a rotation and not a market breakdown.
Speaker A:Money's leaving the crowded AI and chip names and that unwind went global overnight while it flows into the rest of the economy.
Speaker A:Now the tell is the divergence.
Speaker A:The tech heavy NASDAQ keeps making new lows, but the Dow, the small caps and the average stock are holding up just fine.
Speaker A:Same market, two completely different stories.
Speaker A:So here's the evidence.
Speaker A:Direction wise, the market got handed a gift.
Speaker A:Oil crashed on Monday, war fears eased and stocks gapped up big.
Speaker A:By the close, tech had given it all back and the NASDAQ finished red anyway.
Speaker A:When good news isn't going to lift a group, that group is weak.
Speaker A:Now the breadth, the equal weight S&P 500 which is what we would consider the average stock actually rose to a new high two days running and the fundamentals back it up while chip makers cratered.
Speaker A:Look who beat this morning.
Speaker A:Coca Cola raised guidance and industrials, financial, shipping and consumer names posted beat after beat.
Speaker A:The real economy is delivering and the AI trade is derating.
Speaker A:Even though they're turning in amazing numbers, the market is just not buying it.
Speaker A:In fact they're selling it now.
Speaker A:Credit and fear.
Speaker A:The bond market stayed calm and volatility has eased.
Speaker A:That's the signature of an reallocation and not a panic.
Speaker A:This week we're waiting on earnings from the hyperscalers market.
Speaker A:Microsoft, Amazon, Meta and to some lesser extent Apple.
Speaker A:These will probably be volatile but can have some down chain effect on semiconductors, data center builders and the rest of the chain downhill.
Speaker A:That's part of the AI infrastructure build.
Speaker A:So if the capex shows that it is increasing and continuing to increase, it's very likely that you'll see all those downhill names or down chain names really pop.
Speaker A:And then we see reporting on many of those over the next week to week and a half.
Speaker A:So the evidence is Coca Cola was up.
Speaker A:Caterpillar beat estimates, JP Morgan beat estimates, Shipping's beating estimates.
Speaker A:Consumers are strong.
Speaker A:The equal weight S&P 500 is hitting new highs.
Speaker A:But that AI trade, the Nvidias, the Amds of the world is unwinding.
Speaker A:So what does that mean for us?
Speaker A:Or what do we need to be concerned about this week?
Speaker A:Be honest about what you own.
Speaker A:For the last two years, the market quietly became a bet on a dozen or so AI and chip names.
Speaker A:And the bet's now unwinding a bit if your index fund has quietly turned into a concentrated tech position.
Speaker A:Because remember, up till just recently, almost 35 to 40% of the S&P 500 was dominated by about seven to 10 names.
Speaker A:So this is the week to look at.
Speaker A:It's not time to bail.
Speaker A:The broad market's holding just to know what you're actually holding and whether you want to own it.
Speaker A:So here's the test this week.
Speaker A:Tomorrow the Federal Reserve decides on rates.
Speaker A:A hold is expected, but it's not guaranteed at this point.
Speaker A:And tomorrow and Thursday, the four biggest tech names report earnings.
Speaker A:So far this unwind has stayed contained, credit calm, broad market steady.
Speaker A:What I'm watching is whether that stays contained or starts to spread.
Speaker A:If credit begins to crack, that story changes, then that route it becomes not a rotation, but it could be a retreat at that point.
Speaker A:So quick summary for the day.
Speaker A:Today's market thesis, continued rotation confidence is still high.
Speaker A:Risk level is moderate at this point.
Speaker A:What we're watching this week is Fed and mega cap earnings.
Speaker A:And the bottom line is this is a rotation and not a retreat.
Speaker A:This is the Daily Read.
Speaker A:I'm Jeff Kickel with Exit Rich Retire Free.
Speaker A:Remember, this is education and not investment advice.
Speaker A:But if you'd like to talk, if you know where to find me, see you tomorrow.
