Contents:
Changes to Research
AI Theme Overview
Risks to the AI Cycle
Pass/Fail Screen for AI Universe
Changes to Research
I’ve decided to start publishing my research on a daily basis. Each day will have a specific focus:
Monday: The Week Ahead - Potential market-moving catalysts (news, earnings, data, etc).
Tuesday: Macro Watch - Macro themes that are driving the market.
Wednesday: Sector Watch - Sector rotation, leadership, and where the next opportunities may emerge.
Thursday: AI Model Update - An update on my AI-themed model.
Friday: The 30,000 Foot View - An opinion/observation piece on the themes driving the market/economy.
Each day I will also be including the names within my AI Universe (these are the companies that are involved in the AI theme) that pass or fail my screen. These are not just technology companies, but companies across various sectors that are benefiting from the growth in AI.
The 30,000 Foot View
What is the 30,000-foot view? This is when I take a step back from the market and look at what’s going on in the big picture.
I find that taking a look at the intermarket relationships between different asset classes can help give us a better idea of how themes outside of the equity markets can positively or negatively affect the stock market.
Risk On or Risk Off?
Currently, equities are still “risk-on.” High beta and growth names continue to show improving upside momentum and relative strength:
However, the broader market hasn’t been participating, as non-large-cap growth and technology stocks continue to show signs of weakening momentum and relative strength:
Zooming in on the individual sectors that make up the S&P 500 index, we can see that the technology sector is leading, while the other sectors fall behind:
This is why market breadth is so bad right now.
Currently, only a quarter of stocks are trading above their respective 50-day moving average, and less than half are trading above their 200-day moving average:
Market breadth continues to deteriorate. While rare, this type of scenario can last a long time (remember the Nifty 50?).
Typically, we would expect to see the market fall as the majority of stocks fall, but because of the large weighting of tech stocks within the index, the outperformance of the tech sector has kept the S&P 500 index above its support level.
So what’s going on, and can tech stocks alone keep the S&P 500 from collapsing?