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No one wanted to touch software stocks earlier in the year. The narrative was that AI would squeeze their margins as much cheaper competitors would be vibecoded. Fast-forward to today. Software is one of the strongest groups in the market. Many software stocks had two back-to-back bullish reactions to their earnings. Last week brought more of the same. CRM, OKTA, and CRWD sparked another rally in the group, lifting MSFT, NOW, FROG, among many others.
In the meantime, the bounces in AI stocks keep getting faded. Even a solid earnings report from NVDA, which this time rallied on it, was not enough to stop the selling. It seems the whole world is overleveraged on AI-related stocks, and every bounce is viewed as an opportunity to lighten up. The semiconductors ETF, SMH, is already 17% below its all-time highs. It made an attempt to retake its 50-day moving average two weeks ago, which failed spectacularly. SMH is looking vulnerable to lower prices.
Gold and crypto pulled back on Friday on the Fed Chair’s inflation comments. The belief is that now the odds for a September hike are higher. We all know that they are not likely to hike ahead of the Mid-term elections, but algos are programmed to react quickly to any short-term comment.
Either way, September is seasonally weak during mid-term election years, so it pays to remain cautious.
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