The market may be witnessing a significant shift away from artificial intelligence stocks. According to John Davi, CEO and chief investment officer at Astoria Portfolio Advisors, a wider variety of stocks are now receiving positive signals due to an increase in liquidity.
In a recent discussion on CNBC's 'ETF Edge,' Davi highlighted that the Federal Reserve's interest rate cuts, including four reductions last year and two more this year, have historically marked the onset of a new market cycle. 'Typically, with Fed rate cuts, we see a transformation in market leadership, often happening subtly,' Davi noted.
He pointed out that sectors such as emerging markets and industrials are currently experiencing notable growth, showcasing these trends through key metrics. The iShares MSCI Emerging Markets ETF, which represents these groups, has risen by 17% over the past six months to Wednesday's market close. Similarly, the Industrial Select Sector SPDR Fund has increased by 9% during the same timeframe.
Davi remarked, 'These sectors offer a good counterbalance to the pricey large-cap tech holdings that form a substantial part of most portfolios. In today's world of elevated structural inflation, with the Fed reducing rates, it's worth questioning the risk appetite for investing heavily in just a handful of tech giants.'
Emphasizing a more globally diversified investment strategy, Davi advocates for a balanced approach rather than concentrating on the 'Magnificent 7' tech stocks, including Apple, Amazon, Meta Platforms, Nvidia, Microsoft, Tesla, and Alphabet, which have been trading near all-time highs. Notably, these tech giants constitute roughly a third of the S&P 500 index.