By Connor Smith | Tuesday, August 19

Upside Down. The stock market's biggest winners this year were some of the biggest losers today.

The Nasdaq Composite dropped 1.5%, while the S&P 500 slipped 0.6%. The Dow Jones Industrial Average ticked 10 points higher.

The Dow hit an intraday record at 45,207.39, but once again failed to lock in a closing level above its Dec. 4 record close of 45,014.04. The Dow has seemed snakebitten in that regard. Last month it closed within four points of the record before retreating the following day.

Trading started slow this morning, but as the session rolled on a rotation away from recent winners and growth/risk assets gained momentum.

In fact, momentum was one of the day's worst performing strategies, or factors, with Palantir Technologies, Coinbase Global, Oracle, Super Micro Computer, and Advanced Micro Devices comprising the S&P 500's bottom five slots today.

“Some modest weakness on the surface today across the major indices, but it's the factor unwinds showing the true story,” wrote Jonathan Krinsky, BTIG’s chief market technician. “Baskets such as high beta momentum, high vs. low volatility, or retail favorites are all suffering their worst days since April.” 

Normally we could blame such a move on the kind of thin trading that characterizes late summer trading, but volume on major U.S. exchanges was plenty healthy today, and not terribly far off this year's average.

“Could this be the start of the August corrective move?” wrote Andrew Brenner, head of international fixed income at NatAlliance Securities. “Maybe a tad early to say.”

Or maybe traders saw headlines that "Spac King" Chamath Palihapitiya is plotting another special purpose acquisition company and viewed that as a bridge too far -- even for this market.

DJIA: +0.02% to 44,922.27
S&P 500: -0.59% to 6,411.37
Nasdaq: -1.46% to 21,314.95

The Hot Stock: Intel +7.0%
The Biggest Loser: Palantir Technologies -9.4%

Best Sector: Real Estate +1.8%
Worst Sector: Technology -1.8%

Sizing Up the Real AI Opportunity

Artificial intelligence stocks like Palantir and Super Micro were today's biggest laggards, but the AI trade is still underpinning much of the current bull market run.

While it's clear that Nvidia is benefitting from AI because all of the key upstarts clamor for its chips, AI's benefits to the average company remain less certain. Still, when it comes to new technologies where hard numbers are left to the imagination, Wall Street tends to think big.

My colleague Al Root reports that Morgan Stanley analyst Stephen Byrd estimates the trickle-down effects of AI for S&P 500 firms could be worth $13 trillion to $16 trillion in stock market value, which would add 22% to 27% to the S&P's current market cap of nearly $60 trillion. Al writes:

The creation of value “represents a mix of cost cutting (lower headcount, lower costs to perform a wide variety of tasks by deploying AI) and new revenue and margin generation (freeing employees to spend more time on higher value-added activities that could both increase revenue and enhance margins),” Byrd wrote.

There is a risk of job loss, but higher productivity typically leads to more employment in other areas of the economy.

The potential for lower costs and higher profits should comfort investors as they weigh Big Tech’s capital-spending plans. Outlays by Alphabet, Microsoft, Meta Platforms, and Amazon.com, much of it to develop AI capabilities, are expected to reach some $340 billion in 2025, up 50% from 2024. Spending in 2026 is expected to rise by almost 20%. Between 2024 and 2026, the quartet is expected to spend almost $1 trillion developing AI.

It's not all rainbows and butterflies in the AI world, though. Barron's Tae Kim has recently covered potential trouble at Salesforce, which is trying to push its clients to new so-called Agentic AI. He cites new research from Jefferies:

There is “decision fatigue among enterprise customers given the influx of AI tools in the market, driving a more cautious approach to CRM Agentforce,” analyst Brent Thill wrote on Sunday. “Customers are overwhelmed by the rapidly evolving nature of the AI landscape.”

Wall Street has been excited about the prospect of AI agents, which can handle routine sales, marketing, and service tasks. Agentforce is Saleforce’s AI agent offering that can use internal Salesforce customer data.

Thill pointed to talks with several Salesforce partners that indicated sales pipelines have deteriorated in recent months due to declining interest. That's put partners' Salesforce business targets for this year at risk, Tae reports.

“Lack of control over ROI and confusion over pricing are still big hurdles for adoption. As a result, consumption and the number of live deals continue to lag expectations,” Thill wrote.

You can read more from Al here and Tae here.