The recent selloff in AI stocks raised concerns about market fragility, but as our Chief Economist John Norris explains in this Barron’s article, by Paul R. La Monica, there’s more to the story. While tech valuations may have been stretched, the broader market—particularly the banking, energy, and healthcare sectors—remains solid. Norris provides key insights on why investors should maintain a balanced outlook rather than relying solely on AI-driven momentum.
The sudden popularity of DeepSeek is raising questions about AI’s grip on the stock market. But will an AI pullback lead to a broader meltdown? Not necessarily.
While Nvidia, a Dow component, dragged the index down by nearly 150 points, 22 of the other 30 Dow stocks were up Monday, led by pharmaceutical/consumer healthcare company Johnson & Johnson, with a 4% gain.
It wasn’t just safe-haven stocks that pushed the Dow higher.
“People were looking for an excuse to lighten up on AI stocks. Broadcom, Nvidia and others were priced for continued rapid growth,” said John Norris, chief investment officer with Oakworth Capital Bank. “Valuations were getting stretched, and while they maybe were not as crazy as the dot com bubble, the multiples assumed growth will last forever.”
Norris told Barron’s that investors need more reasonable expectations. The market assumed (erroneously) that Nvidia would never have serious competition, which was somewhat absurd given the nature of tech disruption.
We won’t know for a while if the Dow’s resilience means the broader market isn’t as fragile as it might appear. For now, the Dow’s relative strength suggests the market has good things going for it beyond AI.
(This article is available to subscribers of https://www.barrons.com/. Read the full article, published on Jan. 28, here. )