State Street reaffirmed its optimistic outlook on the artificial intelligence (AI) investment landscape despite the Nasdaq experiencing its toughest week since April.
Anna Paglia, Chief Business Officer, emphasized that momentum stocks remain attractive as investors are hesitant to move away from the year's growth narrative. "How would you not want to participate in the growth of AI technology? Everybody has been waiting for the cycle to change from growth to value. I don't think it's happening just yet because of the momentum," Paglia stated during a CNBC 'ETF Edge' segment earlier this week. "I don't think the rebalancing trade is going to happen until we see a signal from the market indicating a slowdown in these big trends," she added.
With two and a half decades in the exchange-traded funds (ETF) sector, Paglia forecasts a cooling of the market by early next year, leading to increased diversification focus.
State Street manages several ETFs tied to the technology sector, including the SPDR NYSE Technology ETF, which has shown a 38% increase this year as of last Friday's close. Nonetheless, the fund declined over 4% this past week as investors claimed profits from AI-related stocks. Notably, Palantir Technologies, the fund's second-largest holding as per State Street's website, saw its shares plummet more than 11% following an earnings announcement on Monday.
Despite these setbacks, Paglia reiterated her positive stance on technology stocks in a statement to CNBC later in the week.
On a different note, Todd Rosenbluth of the same interview signaled that a market rotation might already be underway, highlighting a growing interest in healthcare stocks. "The Health Care Select Sector SPDR Fund ... which has been out of favor for much of the year, started a return to favor in October," noted Rosenbluth, head of research. "Health care tends to be a more defensive sector, so we're watching to see if people continue to gravitate towards that as a way of diversifying away from some of those sectors like technology."
The Health Care Select Sector SPDR Fund, previously lagging behind the technology sector, rose by 5% since October 1 and was the second-best performing S&P 500 group for the week.