S&P 500 Hides the Carnage in Growth Stocks and AI
Most stocks are in positive territory, but under the surface there is severe selling.
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Market breadth is positive on Wednesday with about 53% of stocks in positive territory and the S&P 500 trading flat, but under the surface, there is some very severe selling.
Many small caps and growth stocks are being hit hard. The Innovator IBD 50 ETF (FFTY) , which tracks high-beta growth names, was down over 4% but has rebounded a little.
Pain in the AI Sector
The Nasdaq 100 ( (QQQ) ) is the weakest of the indices with a loss of 1%, but it is mostly AI-related names suffering the most. AMD (AMD) is the biggest loser with a loss of 14%, but the most worrisome action is in Palantir (PLTR) , which has broken below recent lows despite great earnings and guidance. The market is punishing anything that is viewed as expensive, which is a large number of growth stocks.
This is painful action, but there are many stocks that are being unfairly punished. I have my eye on several but am not rushing to buy just yet.
Seeking Opportunity in Data Centers
One example is Solaris Energy (SEI) , which has been a leading IBD 50 name. It is down 7.5% on no news. SEI provides power generation for data centers, and in its most recent quarter, EPS grew 300%, and revenue was up 122%. It trades with a high PE because it has such strong growth. I added a small amount. Data centers are being hit hard, and I’m looking at some bottom fishing there.
Alphabet Earnings and the Magnificent Seven
Most interesting is the selling pressure on Alphabet (GOOGL) , which reports earnings after the close. It is likely that investors are nervous in view of how other Magnificent Seven stocks have performed recently after their earnings reports. Meta (META) had the best report and was up big but has now completely given back that post-earnings gain.
I’m long GOOGL and will look to add to the position if it drops on a report that meets current expectations. I believe it will be a safe harbor play in the AI group no matter how things develop in the industry.
The Game Plan
There is very heavy sector pressure taking down some of the stocks that have performed best. The good ones will come back, but there is technical damage being done, and it is going to take time for that to be repaired and new support to form.
The good news is that there are some more opportunities being created. The bad news is that some of the stocks you are holding are causing tremendous pain.
At the time of publication, DePorre was long SEI and GOOGL.
