Market Malaise Persists With AI Worries Emerging as Big Problem

The market action on Monday wasn’t as bad as it was on Friday, but it was not impressive. 

Some dip-buyers showed up about an hour after the open, producing a bounce that lasted a couple of hours. However, it faded slowly all afternoon, and selling accelerated into the close. The Nasdaq 100 QQQ and S&P 500 finished at the lows of the day.

Growth stocks FFTY were the big losers again, with a loss of 1.6%, but they finished well off their lows. The DJIA managed a slight gain, but the other major indices were in the red. Breadth was about 4,400 gainers to 5,150 decliners, but new 12-month lows expanded to around 375 names. There was a lot of ugly, and the bounces were quite weak.

This action is not a full-blown correction, as breadth hasn’t been that bad. It is an ugly rotation out of high-PE growth stocks and into some other areas of the market that are defensive or viewed as value plays. Market players are dumping various ETFs, and that is causing some indiscriminate selling, but there are buyers out there who are very selective and are primarily focused on stocks that are not technology-related.

One of the main problems is the worry that AI infrastructure spending may be slowing. There is talk that the bubble in AI infrastructure spending is bursting, and many of those stocks have elevated PEs. However, those charts don’t show much support.

The mood has become very sour, and most dip buyers are flippers looking for quick gains before they return to hiding in cash.

At this point, there is no choice but to play defense and protect capital. Opportunities are developing, but timing is key.

Have a good evening. I’ll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.