New Address as of 10/4/24 — 60 Broad Street, 39th Floor, New York, NY 10004
DJIA: 48,909
There was no bubble in AI… apparently there was one in Software. It was not that long ago the fear was that AI would displace workers. Now the fear is AI will displace the entire Software industry. To look at Software stocks, suddenly the idea of an AI bubble seems less relevant. It is as though the stocks, large and small, have sprung an unstoppable leak. And markets being markets, Software weakness is leading to even more general weakness in Tech. The good news about the bad news, it gets people to sell. What not long ago may have been thought of as a buying opportunity now seems less appetizing. Weakness itself can be a reason to sell – no one likes that drip of losing money every day. However, couple that with a reason to sell, the end of Software as we know it, then you get selling. Where is the good news? It’s selling not buying that makes lows.
The recent daily pattern may be the strangest we’ve seen in sometime. To look at the stocks we typically follow, it looks pretty much like the end of the world. Yet advance/decline numbers have been positive most days. There is, of course, a dramatic shift to Staples or defensive stocks, but how many soap stocks are there? When it comes to these stocks, we think there’s more to them than just the typical knee-jerk, sell Tech buy defensive reaction. The stocks have long been out of favor which, technically speaking, means under owned. To look at XLP (87), there’s more to that chart than just a bounce. Similarly, the better action in Oil seems more about it being only 3% of the S&P rather than worries about Iran. If the latter were the case, it’s not showing in Defense stocks. Meanwhile, the recent look has been one of getting to everything, what you typically see at the end of a decline.
Frank D. Gretz
PLEASE NOTE: Unless otherwise stated, the firm and any affiliated person or entity 1) either does not own any, or owns less than 1%, of the outstanding shares of any public company mentioned, 2) does not receive, and has not within the past 12 months received, investment banking compensation or other compensation from any public company mentioned, and 3) does not expect within the next three months to receive investment banking compensation or other compensation from any public company mentioned. The firm does not currently make markets in any public securities.
Back to Insights