Investor Interest in Artificial Intelligence Wanes as Tech Stocks Experience Outflows
Investors are showing signs of skepticism towards the hype surrounding artificial intelligence (AI), as they pour money into cash, equities, and bonds while abandoning investments in gold and emerging market equities. This shift in sentiment is evidenced by the first outflow from technology stocks in nearly three months, according to a report by Bank of America Global Research.
While equity funds saw inflows of $2.2 billion in the week leading up to September 6, tech stocks experienced $1.7 billion in outflows, marking the first such occurrence in 11 weeks. This comes after a period of strong performance for global equities, mainly driven by the success of mega-cap U.S. technology stocks like Microsoft and Nvidia, which have capitalized on the AI boom.
However, the rally in tech stocks has recently stalled as government bond yields rose due to the resilience of the U.S. economy. This shift has led markets to delay expectations for potential rate cuts from the Federal Reserve. BofA strategist Michael Hartnett explains that though investors are currently focused on a soft landing, there is widespread belief among bond managers that a hard landing is inevitable.
Looking ahead, Bank of America highlights higher oil prices, a strong U.S. dollar, elevated yields, and tighter financial conditions as potential risks for risk assets in September and October. Brent crude reached its highest level since November, the dollar is on track for its longest weekly winning streak in nine years, and the financial conditions index remains a concern. The report suggests that any rally in risk assets triggered by an easing financial conditions index would be seen as an opportunity to sell.
On the other hand, bonds received a net inflow of $4 billion, while cash experienced its largest inflow in nine weeks with $68.4 billion, indicating a preference for safety as investors become more cautious.
Bank of America’s Bull & Bear indicator dropped slightly from 4.4 to 4, driven by outflows from emerging market bonds and stocks, as well as narrow market breadth in equities.
In summary, investor interest in artificial intelligence appears to be faltering as technology stocks experience outflows for the first time in months. While the rally in global equities has paused, fueled by the success of AI-focused companies, concerns about a potential hard landing and a shift towards safer investments have emerged. As economic conditions evolve and market dynamics change, investors will need to closely monitor developments to make informed decisions.
