'Air is coming out of the AI bubble': Strategists urge investors to buy after rout
Wall Street strategists see the recent selloff as a temporary correction and expect stocks to rise through year end
Leading Wall Street strategists see the recent selloff as a buying opportunity and are sticking to bullish year-end targets for the S&P 500 / Photo: Shutterstock.com
Many Wall Street strategists had expected a short-term market decline after the U.S. midterm elections. Thursday’s rout exceeded their expectations: the S&P 500 plunged 4.4% and the Nasdaq 100 tumbled 6.4% on concerns that the Democrats’ victory will slow the AI infrastructure buildout. Now, strategists are urging clients to buy into the selloff, expecting the market to rally through year end, Bloomberg reports.
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“This is the place where you should be adding risk over the next two to three weeks,” said Mike Wilson, chief U.S. equity strategist at Morgan Stanley. He acknowledged that the severity of the postelection selloff had surprised him. Nevertheless, he reaffirmed his year-end S&P 500 target of 8,000 points, implying an 8.4% gain from Friday’s close.
Wilson is confident that U.S. stocks are poised for a rally. He recommends buying consumer-focused stocks, particularly if interest rates and oil prices continue to fall.
Ed Yardeni, chief investment strategist at Yardeni Research, views the selloff as a correction rather than a reversal of the market’s uptrend. “We have had an AI bubble and I think the air is coming out of that bubble,” he said. “Bursting would mean that it would have significant adverse impacts on the economy, and I don’t see that happening.”
Yardeni is sticking to his year-end S&P 500 target of 7,900 points and recommends looking at healthcare stocks. “I anticipated buying opportunities after the elections, and I think we’re starting to see some pretty good ones,” he added.
“It would be imprudent to bail on the market after it had a slight adjustment in response to the election outcome,” reckons Jonathan Golub, chief equity strategist at Seaport Global Holdings. He expects the S&P 500 to end the year at 8,200 points and describes himself as “an unequivocal buyer.”
Strategists’ average year-end target for the S&P 500 is 7,973 points, according to Bloomberg data. One major obstacle to a rebound could be continued weakness in AI-related stocks, which have powered the benchmark higher for most of the four-year bull market. The Philadelphia Stock Exchange Semiconductor Index plunged 12% on Thursday and remains 36% below its June peak.
“The semis and the AI infra trade that really carried the market so far this year is going to continue to be under pressure,” said Ohsung Kwon, chief equity strategist at Wells Fargo. “For the market to go much higher from here, you need that contribution from the high-beta trade.”
However, if concerns about a pullback in AI investment persist, hyperscalers Alphabet and Amazon could support the market on expectations that they will have to curtail spending, Kwon said. His year-end S&P 500 target is 7,700 points, implying a 4% gain from the current level.
