Markets continued to plow into stocks despite the major indices closing near all-time highs. Although the Dow Jones (DJI) slipped by 0.52% on Thursday, the strong performance in the Nasdaq (QQQ) and S&P 500 (IVV) suggests that bulls are not concerned about a selloff next.
Cautious investors may need to prepare for an unexpected reversal in sentiment. Markets dismissed the government shutdown, which is in its second week, high inflationary rates, and the weakening job market. The credit market might slump first in response to weaker economic conditions.
Watch out for Visa (V) and Mastercard (MA) leading the credit services sector lower.
Bank stocks might give up much of their ~ 30% YTD returns. JPMorgan Chase (JPM), Citigroup (C), and Bank of America (BAC) would underperform, too. Weak business conditions would hurt deal volumes.
The real estate sector is already showing weakness. Homebuilders Pultegroup (PHM) and D.R. Horton (DHR) now trade at their pre-breakout prices. Their shares trade at levels not seen since August. PHM stock, for example, lost 10.3% in the last month.
The technology sector is less likely to drop by much. Nvidia (NVDA) has too strong a moat to face any margin pressures. Demand for AI hardware is spilling over to benefit its competitors. Intel (INTC) and Advanced Micro Devices (AMD) gained 52.6% and 45.98% respectively, in the last month. They will supply hardware when Nvidia is unable to meet excess demand.
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