AI trading may leave investors vulnerable to significant losses.
Julien Emmanuel of Evercore ISI warns that Big Tech’s focus in the S&P 500 is at extreme levels.
The company’s senior manager said in an interview with CNBC’s “Fast Money” program: “It is possible that the AI revolution is quite real, and very important. But … Monday.
In a research note this week, Emanuel listed Microsoft, Apple, Amazon, Nvidia and Google’s Alphabet as concerns due to pooling in the names.
“two-thirds [of the S&P 500 are] spurred on by the top five names, he told host Melissa Lee. The public remains disproportionately exposed.
Emanuel reflected on the “one-on-one conversations” he had had over the past several days with people who viewed big tech stocks as hiding places.
“[They] Actually look at the treasury bills and wonder if they are safe. [They] “Look at bank deposits over $250,000 and wonder if it’s safe and put money into the top five big tech names,” Emanuel said.
It’s particularly worrisome because the bullish activity comes with the drop in small caps, according to Emanuel. The Russell 2000 Index, which is under pressure from regional banks, is trading near the October low.
To guard against losses, Emmanuel has a heavy hand in cash. He finds 5% returns attractive and plans to put the money to work during the next market downturn. It is believed that it will result from the debt ceiling chaos and a turbulent economy during the next few months.
“You want to stay in the more defensive sectors. Interestingly, with all this talk of AI, health care and consumer goods have outperformed since April 1,” Emanuel said. “They will continue to excel.”
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