I. AI Still Boosting Capital Goods Orders
The AI investment boom has been a double-edged sword for S&P 500 Industrials this year. Back in July, we noted that the sector was the second-best performer among the S&P 500's 11 sectors, with a 17.7% ytd gain, as investors favored companies supplying the equipment and infrastructure needed for the AI buildout. Since then, however, intensifying AI jitters have weighed on industrial stocks, fueled by a potentially toxic trifecta of financial constraints: elevated borrowing costs, uncertain investment returns, and concerns about whether sufficient capital will be available to finance everyone's ambitious AI spending plans.
The corresponding reversal has been significant. As of October 27, Industrials was up just 8.2% ytd, compared with a 12.8% gain for the S&P 500, slipping to sixth place among the 11 sectors (chart).
The sector's stock price index is trading below its 200-day moving average but remains on a solid multi-year uptrend (chart).
