According to CNBC, State Street is sticking with its bullish AI stance despite the Nasdaq’s worst week since April. Chief Business Officer Anna Paglia told investors on “ETF Edge” that momentum stocks still have legs because everyone wants to participate in AI growth. Her firm’s SPDR NYSE Technology ETF has gained 38% this year but pulled back over 4% last week as investors took profits. The fund’s second-largest holding is Palantir Technologies, which tumbled more than 11% this week after earnings. Meanwhile, Todd Rosenbluth noted health care stocks are seeing renewed interest as a potential rotation play, with the Health Care Select Sector SPDR Fund returning to favor in October.
The AI Momentum Question
Here’s the thing about momentum trades – they tend to overshoot in both directions. Paglia’s been in ETFs for 25 years, so she’s seen this movie before. The question isn’t whether AI is transformative technology – it clearly is. The real question is whether current valuations have priced in too much perfection too quickly. I mean, how many companies can realistically become the next Nvidia? And yet investors keep piling in because, as Paglia puts it, “How would you not want to participate in the growth of AI technology?” That FOMO is real, people.
The Rotation Watch Begins
Now Rosenbluth’s health care observation is fascinating. Health care’s been the boring cousin at the tech party all year, but suddenly people are noticing it again. When defensive sectors start getting love while growth names pull back, that’s usually a signal. Not necessarily a death knell for tech, but definitely a yellow flag. The market’s basically saying, “Hey, maybe we should have some dry powder in case this AI party gets too wild.” It’s the classic diversification play that always emerges when concentration risk gets uncomfortable.
When Does This Cool Off?
Paglia thinks early next year is when we’ll see more focus on diversification. That timing makes sense – we’ve got earnings season wrapping up, Fed decisions looming, and everyone trying to position for 2025. The tricky part? Momentum can keep running longer than anyone expects. Remember how everyone kept saying “this can’t continue” about tech stocks in 2021? Yeah, that went on for months longer than seemed rational. The difference this time? AI actually has real revenue potential behind the hype, which makes this trade both more justified and more dangerous.
What Comes Next
So where does this leave investors? Basically, we’re in that awkward phase where the smart money knows valuations are stretched but nobody wants to be the first to leave the party. The Palantir drop this week shows what happens when expectations meet reality – even solid companies can get punished if they don’t beat by enough. I think we’ll see more of this volatility through year-end as earnings season continues. The real test will be whether the rotation into sectors like health care gains steam or if AI FOMO brings everyone rushing back in after any dip.
