Not Even Warren Buffett Could Stop the Mega-Cap AI Downturn
Dip buyers barely tried as the market dripped steadily lower.
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There is a misconception that market corrections result from sudden panic selling. The reality is that the worst market action tends to be slow and miserable. Bad markets don’t scare you out — they wear you out. Investors sell because they are disgusted with the painful action. That eventually leads to a low, but it occurs with a whimper, not a bang.
The main problem with the market recently is that corrective action has been very uneven. Much of the damage is well hidden as the indices hold up reasonably well. On Monday, the selling spread, and only about 20% of stocks finished in the green. New 12-month lows expanded to the highest level in a while, with over 440 names.
The indices still haven't corrected that deeply, but the S&P 500 closed below its 50-day moving average for the first time since late April. The breach of the 50-day likely triggered technical selling, adding to the pressure.
Even the mighty Warren Buffett was unable to do much to help with the relentless pressure. His buy of Alphabet (GOOGL) boosted it about 3% but there was no sympathy action in the AI group. All other mega-cap AI names finished in the red. Tesla (TSLA) and Walmart (WMT) were the only other bigger names with gains.
The billion-dollar question is, how much lower does this go? There is no way to know. We have the Nvidia (NVDA) report coming up, along with some retailers, but there isn’t much news flow on the horizon. Dip buyers have lost their nerve, which means there is a greater likelihood that a bounce will be sold.
My best advice is to focus on stocks with earnings and strong valuations and don’t be in a rush to buy. The goal isn’t to buy at the absolute low; the goal is to buy them when they start going up. It is better to be a little late rather than too early.
The optimistic take on this action is that it will set up a solid year-end rally. The more pessimistic that investors are now, the greater the likelihood that a strong bounce will develop before the calendar rolls over.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
