The hype around artificial intelligence has decreased: stocks of which industries are in the top

Since their rise, especially since the 2010s, technology stocks have confidently led the stock market. This trend has intensified significantly during the COVID-19 pandemic, with giants such as Apple, Microsoft, Amazon, Google and Facebook showing impressive growth due to increased demand for digital services and products.

The main factors contributing to the dominance of technology companies are obvious. First, there is a real hype surrounding artificial intelligence (AI) and related innovations. Secondly, the growing demand for digital solutions in various fields, as well as the active expansion of technology companies into international markets. Equally important are significant investments in research and development.

It seemed that the AI ​​boom would provide the shares of the “Magnificent Seven” with stable growth and further cement their position at the forefront of the stock market. However, market dynamics have changed. Investors have become wary of large tech companies spending heavily on AI development. Their optimism was fueled by falling inflation rates, which forced the US Federal Reserve to finally cut interest rates. Many investors, observing signs of economic stability, were convinced that the central bank managed to control price pressure without bringing the US economy into recession. This signaled to the market that there is an opportunity to replenish investment portfolios with new assets, which many investors believe have become too dependent on the stocks of a few large technology companies.

And the last will be first

In the third quarter of the current year, broad segments of the market – from utilities to industry and finance – defeated the powerful technology sector, – asserts competent edition.  Why value stocks beat growth stocks. Here it is worth explaining that value stocks and growth stocks differ in their characteristics and investment strategies.

Value stocks usually trade at a price below their intrinsic value. They may have low price-to-earnings (P/E) ratios, high dividend yields, or low price-to-book value ratios. Investors believe that these stocks are undervalued by the market and have the potential to grow in the future.

Growth stocks belong to companies that expect significant earnings growth in the future. They often reinvest their earnings for further development, so they may not pay dividends.

When value stocks are said to beat growth stocks, it means that over a period of time, value stocks outperform the market compared to growth stocks. This can be due to various economic conditions, such as rising interest rates or economic instability, where investors are looking for more stable and less risky investments.

Consequently, small-cap stocks have broken out of their doldrums to leave their large-cap counterparts in the dust.

“Magnificent Seven” came off the pedestal of the stock market

This marks a significant change from the first half of 2024, when tech stocks, driven by enthusiasm for artificial intelligence, led the market.

Big tech companies, including Microsoft, which was part of the “Magnificent Seven” group of big tech stocks, retreated during this period. The “Magnificent Seven” of technology stocks includes seven of the largest and most influential technology companies that significantly influence the market. These are Apple, Microsoft, Amazon, Alphabet (parent company of Google), Meta Platforms (formerly Facebook), Tesla Inc and Nvidia.

The artificial intelligence hype that fueled the market at the start of the year has died down. The change is due to persistently high inflation, which has dampened expectations that the US Federal Reserve will start cutting interest rates.

There has been a trend in the stock market for investors to diversify their focus beyond just AI and technology stocks, reflecting a more balanced approach in response to economic conditions.

Utilities, industry and finance lead the market

Experts believe that investors should take a more measured and informed approach to investing, given the changing market landscape, economic indicators, inflation and Federal Reserve policy. Utilities, industrials and financials actually outperformed the technology sector in the third quarter of 2024, according to the latest data.

The utilities sector is showing steady growth, made possible by increased demand for energy and water supplies, especially in the face of global climate change. Industrial companies have benefited from increased investment in infrastructure and production, which has had a positive effect on the growth of their shares. The financial sector also benefited from higher interest rates, which boosted the profitability of banks and other financial institutions.

“It really looks like the Fed is making a soft landing,” – said the chief market strategist and portfolio manager of F.L.Putnam Investment Management. – “We believe that market expansion beyond the Magnificent Seven is likely to continue”. The company recently invested in the stock of industrial company Trane Technologies, believing that the stock will do well if the economy avoids a recession.

The analytics provided by the publication show that sectors other than technology are performing well, and therefore it is worth considering diversifying your investment portfolios rather than focusing exclusively on artificial intelligence and technology stocks.

In a volatile stock market, AI stocks that were previously at the forefront of the investment boom have given way to utilities, industrials and financials. Among the main factors that influenced this dynamic, we can note a decrease in optimism around the costs of technology development and signs of economic stability, which encouraged investors to diversify their portfolios.

Value stocks, which typically trade below their intrinsic value, have outperformed growth stocks. This indicates a change in investment strategies and a reorientation of investors to more stable and less risky assets in the conditions of growing inflation and uncertainty in the market.

Experts recommend a balanced approach to investing, taking into account the new economic realities that can open up new opportunities for investors in sectors that have traditionally not received as much attention as technology. This highlights the importance of diversifying investment portfolios to maximize the potential of different industries in the context of changes in financial markets.

Tatyana Morarash