Santoli: rise in artificial intelligence depends on recovery in technology stocks

Analyst Santoli, from CNBC, says that the rise of the market linked to artificial intelligence almost certainly depends on technology stocks rising again. According to CNBC Markets, he had said a week earlier that the issue was close to a decisive moment. Since then, the sector has reacted neither to the moderate oversold nor to the strong balance sheets of the hyperscalers, the large cloud operators.

The background is one of weakness. According to CNBC Markets, the Nasdaq-100 closed Monday at the 200-day moving average, about 11% below the all-time high. The Philadelphia Semiconductor Index fell 3.8% on the same day and closed below the late-July low marked in the sell-off of hedge fund Situational Awareness. Semiconductors and companies that spend heavily on building AI infrastructure are in strong sale.

The S&P 500 remains stuck at May levels, even after two earnings seasons with profits of around 30% per year. According to Morgan Stanley, AI-linked stocks account for around 45% of the index's weight, and are still below their highs. Santoli remembers that a prolonged period in which the equal weight index exceeds the capitalization index usually signals a bear market.

When technology loses ground, money seeks shelter in other names. Walmart, Berkshire Hathaway and Eli Lilly are the only companies outside of the big technology companies with a market value above US$1 trillion, and together they generated around US$550 billion in one month. The three almost completely compensated for Alphabet's decline in the period. Also helping was the decline in oil, which favored consumer cyclicals, and the 10-year Treasury yield fell below 5%.

For Jason Hunter, technical strategist at JPMorgan, the appropriate stance is still defensive until the charts show signs of bottoming or capitulation appears. He notes, according to CNBC Markets, that bearish seasonality usually subsides in mid-October, but the market faced one of the worst selling pressures at the end of the month.

What is at stake is whether AI leadership can pull the index back up or whether the American stock market will continue without a clear driver.

What changes for the investor

For those who follow the S&P 500 and the Nasdaq, the message is that the weight of AI in the index makes the recovery of technology decisive for the stock market's overall performance. If semiconductors and AI infrastructure companies continue without reaction, the rise will tend to be restricted to a part of the market, as shown by the performance of consumer companies and Eli Lilly. The drop in the 10-year yield below 5% is a point to watch for growth assets, but the data presented does not allow us to predict the outcome. JPMorgan's defensive guidance, until clear technical signals emerge, is one of the readings available to traders, without representing a buy or sell recommendation.

Automatically translated from Portuguese.