Appetite for risk vs. uncertainty, that is the question…
Between AI-fueled purchases and profit-taking sales, money is rotating from technology to sectors like consumer goods and airlines as the dollar rises and commodities decline.
The stock market currently presents two opposing extremes: many investors eager to buy to avoid missing out on the tech boom, and just as many preferring to sell due to the market’s perceived overvaluation . This is how markets that attract buyers are moving:
In a context where technology companies had been penalized amid fears of a slowing investment cycle, memory chip maker Micron Technology far exceeded Wall Street expectations in its fiscal third quarter and posted considerably better-than-expected guidance for the current quarter, initially triggering a rise in shares of around 16%, as investors celebrated continued demand for memory chips driven by artificial intelligence (AI) with purchases.
The dollar is rising, gold and oil are falling , and although money is flowing in, there is still little sign of recovery in global stock markets. The DXY dollar index has strengthened again and could break out to the upside; gold, meanwhile, has fallen below $4,100 an ounce (a bad year, at least so far, for the precious metal, which is down 8%). Brent crude has retreated below $74 a barrel, reaching levels similar to those at the start of the war between the US and Iran, a drop that has worsened as tanker traffic through the Strait of Hormuz has become more visible.
In the fixed income market , bond demand is showing a slight increase, despite Bank of America economists’ recent forecast of three interest rate hikes by the Fed this year. However, if the market anticipates lower future energy inflation, a decline in nominal yields and a subsequent rise in bond prices would be expected.
But at the same time, the selling trend is emerging : Hedge funds, ETFs and other large institutional investors, with large positions in technology in general and semiconductors in particular, are beginning to consider taking profits, which led the Nasdaq index to suffer one of the worst drops in its history measured in points last Tuesday.
Many large investors’ portfolios are being repositioned, seeking undervalued companies on the stock market. This explains the sharp sell-off in some sectors, such as energy, as the market shifts from anticipating energy scarcity to anticipating abundance. Similarly, defensive sectors like consumer staples are also experiencing declines. Conversely, other sectors, such as consumer discretionary (luxury will benefit from increased disposable income) and transportation and airlines (due to lower fuel costs), are seeing price increases that reflect the apparent end of the energy crisis.
Tech giants like Apple have recently experienced sharp stock market declines due to rising costs associated with a shortage of memory and storage chips, which is driving up prices. This is beginning to be passed on dangerously to consumers, as demonstrated by the announcement of price increases of between 15% and 25% for Macs and iPads. The contagion to other companies in the technology sector was immediate.
AI always in the background
The costs of AI will take center stage, and a slight shift in the narrative surrounding inflation could occur . «Oil is no longer the big villain,» a US analyst remarked a few days ago. I believe that, instead, attention could focus on AI-related cost pressures, impacting the margins and bottom line of many companies and, inevitably, their stock prices. Productivity gains driven by innovation are the positive side that adds the most value to this technological currency, which is still up in the air. We’ll see, with the appropriate long-term perspective and portfolio diversification. For now, though, the tech boom on the stock market is set to continue.