MarketSurge powers the charts in this video.
The stock market price action might seem irrational at the extremes, but there’s a method behind the madness. Take the biggest force of the past three years – AI has changed many companies’ destinies. Software has been under pressure over the past few months because the market has realized that AI could depress software companies’ margins, and therefore, they should trade at lower multiples. The odds are that the days when SaaS stocks can trade at 20, 30, 50 times their sales are gone. Since AI is likely to improve the margins for most other industries (productivity rises, fewer employees are needed), they might deserve to trade at higher multiples. This can explain the rotation into industrials, energy, financials, and transportation stocks year-to-date.
In the meantime, the only stocks that are receiving favorable market treatment when they report earnings are AI infrastructure stocks. The vast majority of them gapped up this season. It is a different question that some have not been able to keep their gaps. When the general market is weakening, sooner or later, all stocks are impacted. Keep in mind that the employment growth is at levels typically only seen during recessions. Maybe this is why the major indexes have been piling up distribution days lately, and defensive sectors like consumer staples and utilities are showing relative strength.
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