AI stock decline may signal year-end market rebound
Wall Street analysts are anticipating a potential market recovery following a significant downturn last week, primarily driven by concerns surrounding artificial intelligence investments. The S&P 500 experienced a 2.7% decrease, marking its fourth consecutive weekly decline. The Nasdaq Composite saw a more substantial drop of 3.4%, officially entering a correction as it fell over 10% from a record achieved just last month.
Michael Wilson, chief U.S. equity strategist at Morgan Stanley, believes this correction is nearing its conclusion, stating in a recent note that it sets the stage for a year-end rally. Wilson maintains a 12-month S&P 500 target of 8,000, representing an 8.4% increase from Friday’s closing value.
Recent anxieties regarding AI funding have tempered the market’s earlier bullish momentum. The VanEck Semiconductor ETF (SMH) has declined by 22% over the past month, while the Roundhill Memory ETF (DRAM) has plunged approximately 30% during the same period. Some analysts suggest this selling pressure may have been excessive.
“We do not think AI is a continued sell here,” noted JPMorgan strategist Mislav Matejka. He highlighted that the tech sector’s decline presents potential investment opportunities, citing sharp selling and significant price-to-earnings ratio compression.
Tech stocks showed signs of recovery in early Monday trading, with the S&P 500 tech sector rising by 2%, boosted by gains in Lumentum and Ciena. However, Nvidia’s shares fell by 5% after CEO Jensen Huang acknowledged a connection with an individual accused of being a Chinese spy.
Parag Thatte, a strategist at Deutsche Bank, observed that investor positioning now reflects expectations of stagnant or negative earnings growth for the S&P 500. He believes the recent market plunge has improved the risk-reward ratio.
Source
“The AI sell-off rocked Wall Street last week. Why it sets up the market for a big year-end rally”
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