The big AI trade is 'probably over' for now: Strategist
The three major indexes closed Thursday's trading session fairly mixed, with the Dow Jones Industrial Average (^DJI) holding onto gains of 0.2% while the Nasdaq Composite (^IXIC) fell by over 0.9% and the S&P 500 (^GSPC) stumbled 0.5% lower. Meanwhile, the Russell 2000 (^RUT) continues to rise. Morningstar Chief US market strategist David Sekera joins Market Domination Overtime to discuss the movement and how investors can best position their portfolios. "It's finally about time to see this rotation. You know, we've long been advocating for investors to rotate out of those stocks that have been getting overvalued," Sekera says. He believes now is the time to move to an overweight position in value stocks as arguing the market "is least a couple percent overvalued at this point." He believes the market can remain overvalued until a catalyst comes along to correct it, but in the meantime, he sees value stocks trading "at about a 7% discount to a composite of our fair values." He believes that small caps are also undervalued, claiming they are trading "easily a 15 to 20% discount to fair value." While the AI hype has pushed the major indexes to record highs this year, Sekera argues that the "big AI trade — at least in the short term — is probably over." He believes investors are rotating out of big AI names like Nvidia (NVDA) because they're trading at very high multiples. He adds, "We probably have at least a couple quarters of these really high growth rates yet to come. But for the most part, I think those are already priced into those stocks." For investors looking to play into the market rotation, Sekera points to the real estate sector. Despite underperforming in the last year due to pressures from high interest rates, he believes that "much negative sentiment has brought down a lot of those names relatively unfairly." He recommends investors stay away from urban office spaces and instead focus on healthcare, medical offices, and research and development names like Healthpeak (DOC) and Ventas (VTR). For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime. This post was written by Melanie Riehl
