AI Pullback Drags Down U.S. Stocks
According to foreign media statistics, the Nasdaq lost $2.5 trillion in market value last week, mainly due to pressure from AI-related stocks. On the 5th, AI concept stocks plunged, dragging down the Dow Jones, S&P 500, and Nasdaq in tandem, all posting their worst single trading day in 19 months. In addition, the opposition Democratic Party's sweeping victory in the midterm elections has heightened concerns that the pace of AI data center construction could slow or even be halted, significantly intensifying market volatility.
Rising Index Concentration Heightens Risk
Over the past 4 years, AI-related stocks have become the dominant force in the stock market, driving up high-tech companies, semiconductor chipmakers, and other stocks related to data center construction. As tech companies' market values have surged, their weight in major indexes such as the S&P 500 has continued to rise, and AI holdings in many investment portfolios and 401(k) retirement plans have climbed as well. Chipmakers now account for nearly 20% of the S&P 500's total market value. From OpenAI's release of ChatGPT in November 2022 to the sharp sell-off on the 5th, the S&P 500 index rose a total of 88%. Among the top 10 stocks by market value in the S&P 500, as many as 9 are tech stocks, and these 10 stocks together account for about 40% of the S&P 500's total market value. CFRA Research believes the recent tech-led sell-off serves as a warning to investors who may have drifted away from diversified investing.
Experts Recommend Diversified Allocation to Hedge Volatility
Investment experts point out that there is no one-size-fits-all strategy, as much depends on investors' age, investment horizon, and risk tolerance, and trying to time the market is seen as futile. Investors should adopt different strategies to diversify portfolio risk over the long term. When concerned about declines in AI stocks, allocating to healthcare stocks, long-term bonds, or specific ETFs may be viable options. By comparison, the healthcare industry is less affected by AI developments, and related companies can maintain solid earnings. The sell-off in U.S. Treasury bonds in recent months has pushed yields to relatively attractive levels, offering stable long-term income, while actively managed futures funds can also help reduce losses when stocks fall. Analysts believe investors should proceed cautiously and do not necessarily need to sell all AI holdings. Tech stocks represent high-growth stocks in bull markets and can deliver generous returns, but diversification can be achieved through healthcare, consumer staples with low AI correlation, as well as commodities such as gold and high-quality bond products, to hedge risk.