Hopes for a Year-End Rally Rise as Market Leadership Shifts
Who will be the new winners? The shifting AI sands favor astute stock pickers and flexibility.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The Russell 2000 (IWM) led the way on Wednesday and is the closest to all-time highs among the major indexes. The laggard is the Nasdaq 100 (QQQ) , which has been the best-performing for much of the year.
While the overall market has been improving since a bout of volatility driven by adverse reactions to earnings from Nvidia (NVDA) and Palantir (PLTR) , there is still a significant question about what will lead the market if the typical positive seasonality develops as hoped.
The biggest shift in the market is that the AI sector is no longer a unified juggernaut. Increased competition has hit the sector hard, and when competition heats up, that puts pressure on profitability and valuation.
Due to the development of a new chip, Alphabet (GOOGL) has suddenly emerged as the new king of AI, while Microsoft (MSFT) and Nvidia are suddenly faced with questions about their dominance. This story is still developing, and there will be plenty of shuffling in hyperscalers, chip, software, and other groups as it continues.
The shifting AI sands favor astute stock pickers and will also favor flexibility as it becomes clear who the new winners will be.
The other aspect of the change in AI is that there will be more rotation into other groups. Small-caps and biotechnology have been recent beneficiaries of the shift, but, for the most part, there isn’t much clarity about new leadership. It has been choppy, and momentum has been lacking.
I’ve been having a hard time in recent weeks finding charts that I believe I can buy aggressively. One new buy I mentioned Monday morning was Solaris Energy Infrastructure (SEI) , which worked well, but it is tough to find these setups right now.
While I’m optimistic about a strong December, I don’t think we can just ride the AI sector as it has worked for most of the year. We will have to watch carefully for new leadership and then be flexible and aggressive with the trading. I’m not expecting a steady market uptrend, but I do think we have a good shot at some new highs in some of the indexes.
We have a quiet start on Thursday morning, and I’m doubling my efforts to find new ideas.
At the time of publication, Rev Shark was long GOOGL, NVDA and SEI.
