Indices Turn Ugly, Fail to Hide Damage Under Surface
The stock market endured another ugly day on Thursday.
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It was another ugly day for many stocks on Thursday, and this time the indices did not do a very good job of hiding it. The Magnificent Seven (MAGS) was the largest problem, with a 2.2% drop that broke last week's lows and brought the group to levels last seen in September 2025.
The Magnificent Seven is only down about 10% from its highs, but the most severe damage has occurred in the software group. The iShares Expanded Tech-Software Sector ETF (IGV) has declined by more than 30% from its September 2025 highs. AI has become a wrecking machine, battering various industries that are being disrupted. Software was the first to fall, followed by financial services, video streamers, engineering and others.
Technology Laggards Face Reality
The largest technology losers on Thursday were Cisco (CSCO) , Shopify (SHOP) and AppLovin (APP) , which failed to meet elevated expectations. Apple (AAPL) fell sharply, and AI software king, Palantir (PLTR) , broke key support and hit a new recent low.
There is a substantial disparity between the technical health of the indices and that of many individual stocks. Groups such as software are already in a bear market, and fear of AI's impact appears to be growing in many areas that were previously viewed as immune to the new technology.
Defensives And Safe Havens
The biggest negative now is that the weak action is broadening and claiming some innocent victims. Only about 27% of stocks were positive on Thursday, and most of those were defensive names in groups like pharmaceuticals or dividend plays. Walmart (WMT) is now the premier safe haven play as it benefits from consumers looking to cut costs.
The bad news is that it will take some time for the market to sort this out. There is a major shift taking place as investors try to determine the winners and losers in AI. AI used to be the magic word that attracted buying and now it is the magic word that creates fear that no one is safe from growing innovation.
Strategy for the Current Shift
The good news is that many stocks are being caught in this corrective action despite not having undergone any major changes in their fundamentals. Biotechnology, for example, is under pressure because of a reduction in speculative interest. Most of these stocks are not impacted to a great degree by AI but that doesn’t matter right now.
My best advice is to stay patient and wait for better technical action in names that you like. Don’t rush to bottom fish. There will be plenty of opportunities to buy the stocks you favor when price action improves and new uptrends start to develop.
At the time of publication, DePorre had no positions in any securities mentioned.
