Two market watchers warn 'enormous correction' could happen soon

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Two market watchers warn 'enormous correction' could happen soon
Credit: © Reuters.

(Updated - April 1, 2024 6:34 AM EDT)

Market watcher Vital Knowledge cautioned that the current frenzy over artificial intelligence (AI) could be heading towards “an enormous correction,” comparing the current market situation to those of in late 1990s and early 2000s internet bubble.

Specifically, the market commentary provider notes that while the technology underpinning AI is undeniably real and the investment in it substantial, the primary AI tools gaining attention are consumer-oriented and largely serve as proof-of-concept rather than offering solid, return-on-investment (ROI) benefits that enterprises seek for wide-scale deployment.

“This discrepancy between massive infrastructure investment and utility could lead to an enormous correction, much as occurred the late-‘90s/early-‘00s with the internet (the internet and browser were more revolutionary than even the biggest optimists could have imagined, but the process wasn’t instant or linear),” analysts wrote.

Still, analysts highlighted Google as a case where the consensus may be underestimating the company's resilience and capacity for innovation.

Google's search and other core services remain unchallenged, with no evident loss of market share to AI-driven competitors, even in the face of Bing's collaboration with OpenAI, they said.

Moreover, the company’s own AI capabilities are significant “and its products related to this area are likely to only improve going forward,” analysts noted, pointing out Alphabet’s (NASDAQ: GOOGL ) potential AI partnership with Apple (NASDAQ: AAPL ). This would not only boost Google's standing in AI but also affirm its technological prowess.

Meanwhile, another market commentary provider, Stock Trader’s Almanac, maintains an optimistic outlook for 2024, anticipating the majority of market growth to unfold in the latter half of the year.

However, analysts expect “some consolidation and/or weakness during Q2-Q3” before that next leg.

Stock Trader's Almanac said that Monday marks the start of the final month of the "Best Six Months (BSM)" for the Dow and S&P 500 , spanning from November to April, and this period has proven to be exceptionally profitable.

“From our Seasonal MACD Buy Signal on October 9, 2023, through yesterday’s close (March 27, 2024), DJIA is up 18.32% and S&P 500 is up 21.05% – more than double the historical average BSM gains,” the market watcher said.

“Our Best Six Months Seasonal MACD Sell Signal can trigger anytime on or after the first trading day of April, which is Monday April 1st this year.”

Meanwhile, the NASDAQ, following its own "Best 8 Months" strategy, has recorded a 21.62% gain since the buy signal, nearly doubling the average, with expectations high for further improvements by the end of its cycle in June.

Stock Trader’s Almanac said it will dispatch an email alert once the DJIA and S&P 500 MACD Sell indicators activate a new sell signal after April 1.

The strategy will involve either selling certain holdings outright or setting up tight trailing stop losses.

“We will also consider establishing new positions in traditionally defensive areas of the market which may include bond ETFs, gold and gold stocks, outright bearish (short) positions and other sector ETFs with a demonstrated track record during the “Worst Six Months,” it said.

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