Will boring stocks get their revenge on the stock market?

Economic

Summary:

AI-driven tech stocks are losing momentum as investors rotate into undervalued “boring” sectors. The Dow hits record highs while the Nasdaq slips, echoing past rotations where value briefly outperformed. Markets watch for a lasting shift.

The flurry of records continued yesterday on global stock markets, which almost all closed higher. France's CAC 40 reached a new all-time high, crossing the 8,280-point mark for the first time during the session. The extra boost came from banking stocks, which regained their crown as the best sector of the year on the continent after stalling in September and October.

While Europe is shining thanks to banking and industry, in the absence of a technology sector worthy of the name on the stock market, Wall Street has relied more on companies closely or remotely linked to artificial intelligence to rebound after the slump in early spring. But that may be changing. In any case, this is a trend that has been circulating for the past few sessions, resulting in a fourth day of decline out of five for the Nasdaq 100. It was a slight decline (-0.06%), but a decline nonetheless, while the old Dow Jones broke its previous day's record by gaining 0.7%.

A company like Microsoft has posted a decline of more than 3% in three months, while the market has gained just over 6%. This 10% underperformance shows that the company has not been entirely convincing on AI, due to lavish capital expenditure. It's not a disaster either, because the share price is still up 20% over a year, but it shows that investors have started to secure their opulent gains on the AI theme. Meta Platforms is perhaps even more symptomatic. The share price is now only up 4% over the year, after falling 23% in three months. Meta initially caused concern due to a certain delay in AI, then its boss Mark Zuckerberg began recruiting across the board and investing tens of billions of dollars. A bit like when he became passionate about the Metaverse. But this time, he rode the main wave, which allowed the stock to triple in 2023 before gaining another 65% in 2024. Since then, things have been less fun, and Meta's AI dream team, recruited from the competition at great expense, has found itself facing what looks like a good old-fashioned redundancy plan. The company's leading AI guru (not Mark Zuckerberg, but Yann LeCun) is even on his way out.

The question now is whether profit-taking will lead to a more pronounced market rotation in favour of undervalued sectors. This has been something of a recurring theme on the stock market over the last decade: will investors abandon the expensive tech stocks that have been inflating their portfolios since 2009 and return to boring companies? There have been 50 such phases in recent years. Most of them came to nothing. A few have led to temporary outperformance by stocks that reasonable people call ‘value’ and others call boring. The most notable episode was in 2022, when the Nasdaq lost a third of its value while the archetype of old-fashioned investing, Warren Buffett's conglomerate Berkshire Hathaway, gained 4%. At MarketScreener, we have an in-house indicator to track these rotations, the Berkark index. In fact, the index is simply a comparison between the performance of the Ark Innovation ETF, run by the high priestess of risky investment Cathie Wood, and the performance of Berkshire Hathaway shares, run by Warren Buffett. Since the beginning of October, this indicator shows that Berkshire has gained 5.5% while Ark Innovation has lost 5%. This is a signal to watch, as it marks a turning point since the beginning of the year, when the queen was beating the king hands down (42% increase vs. 11%). For the more curious among you, I would point out that since 1 January 2022, i.e. taking into account both the plunge in technology stocks and the AI boom, Berkshire Hathaway has risen by 70% excluding dividends and the Nasdaq 100 by 55%. Ark Innovation is down 13%. This just goes to show that you still need to keep an eye on boring stocks.

Today's news is dominated by Donald Trump's signing of the end of the shutdown, following the House of Representatives' vote in favour. The affected federal agencies will now begin to restart operations. However, they will not be ready to publish October's inflation figures today, as the announcement has been postponed. On the monetary front, Kevin Hassett, director of the US Council of Economic Advisers, has officially declared himself a candidate to succeed Jerome Powell as head of the Fed. To strengthen his candidacy, he immediately announced that he was in favour of a large rate cut in December. Here is someone who knows the arguments that move the boss.

In Asia-Pacific, the picture is mixed this morning. Japan, mainland China, India and South Korea are up slightly. The Hang Seng is stable in Hong Kong, while Taiwan and Australia are losing some ground. Leading indicators are bullish in Europe and the United States after the official end of the budget impasse in Washington.

Source: marketscreener

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Will boring stocks get their revenge on the stock market?

Source: marketscreener

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