Tech stocks, including Nvidia and Amazon, faced pressure last week, with Nvidia down 5.9% and Amazon falling 8.6%. This decline contributed to a 1.9% drop in the US market. The technology and consumer cyclical sectors were hit hard, signaling growing skepticism about AI investments.
Despite overall tech stock weakness, Alphabet rose 8.2% after receiving a $3.7 billion investment from Berkshire Hathaway. Meta Platforms and Netflix, however, experienced sharp declines. These diverse outcomes suggest investors may be becoming more selective in identifying companies poised to deliver strong returns from AI spending.
Consumer defensive, healthcare, and real estate sectors were the only sectors to rise last week. These sectors are less correlated with economic growth and have gained favor with investors seeking diversification. Healthcare stocks, in particular, have risen 13.6% over the last three months.
The weakness in technology stocks caused a 3.6% decline in emerging markets, with China and Taiwan leading the drop. Developed markets outside the US also fell, partly due to a stronger US dollar. These movements emphasize the importance of effective portfolio diversification.
Private assets, particularly private credit, have been popular among investors seeking diversification. However, a failed merger involving Blue Owl suggests weakening demand for semiliquid funds focused on private credit. Morningstar has released new semiliquid fund ratings to assist investors in evaluating these strategies.
Interest rate cut odds shortened last week, with a 71% probability of a cut at the December FOMC meeting. The uncertainty surrounding the meeting was fueled by comments from New York Fed President John Williams. Investors should focus on long-term investment goals rather than short-term interest rate predictions.
The absence of key economic data, such as the PCE measure of inflation and US GDP growth estimates, due to the recent government shutdown could lead to market volatility. Limited data points may result in unexpected market movements, highlighting the need for caution and avoiding hasty investment decisions.
Read more at Morningstar: Markets Brief: Nvidia Stock Weakens as Investors Doubt AI Spending Boom