JPMorgan says the long momentum portfolio trailed the broader market by 11% in October, its worst month in a series going back to 1985. The bank attributes the slide mainly to a fast sell-off in AI-related stocks, yet argues investors have largely capitulated and advises clients to buy.
The stocks that carried the market for months just had their worst month in four decades. JPMorgan's head of global markets strategy, Dubravko Lakos-Bujas, says the long momentum portfolio trailed the broader market by 11% in October.
That works out to roughly a 6-sigma move, and the worst single month in a data series that goes back to 1985.
AI doubts and hedge fund selling drive the slide
Lakos-Bujas laid out the numbers in JPMorgan's latest Global Equity Strategy note. The research ties the slide mainly to a fast sell-off in AI-related stocks, driven by doubts about whether massive capital spending on AI will pay off and by tighter liquidity.
Hedge funds did not wait for answers. They dumped global tech stocks at a pace of net selling not seen since 2016.
The Nasdaq 100 also posted its biggest single-day drop since the pandemic during October, and it finished the month approximately 5.3% lower.
Why JPMorgan says buy
Rather than calling time on the AI trade, JPMorgan frames October as an intra-cycle deleveraging reset inside the AI supercycle, not the end of it. Its deleveraging metrics snapped back to levels last seen around "Liberation Day".
The Relative Strength Index on the Invesco QQQ, a popular Nasdaq 100 tracking fund, dropped below 30, the traditional line for oversold. According to the research, major cloud providers kept their AI capital expenditure trends robust even as their stock prices wobbled.
Not every JPMorgan strategist expects a quick bounce
However, other JPMorgan strategists had previously flagged that the potential for a fast market rebound looked limited. Their reasons: retail buying had weakened and corporate buybacks had slowed.
The bull case, in turn, depends on cloud providers continuing to spend, and on that spending eventually showing up as revenue for the companies supplying the chips, servers and software.
Source: Crypto Briefing
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