AI Bull Market Needs Tech Recovery to Keep Advancing

The AI-driven bull market cannot sustain its advance without a recovery in technology stocks, as recent gains have been fueled by a rotation into defensive names like Walmart, Berkshire Hathaway, and Eli Lilly rather than the sector leading the rally. This shift has left the S&P 500 stalled at levels from May despite strong earnings growth. The Nasdaq-100 closed Monday at its 200-day moving average, down nearly 11% from its record high, while the Philadelphia Semiconductor Index fell another 3.8% below a late-July low. Strategists advise staying defensive until clear signs of a bottoming process or capitulation emerge, noting that AI-related stocks still hold near 45% weighting in the S&P 500. Historically, prolonged outperformance of equal-weight indexes over market-cap-weighted ones signals a bear market, and the current AI pullback differs from past phases where bottlenecks like GPUs or memory offered buying opportunities. With capital now the constraint, no clear asset benefits, though reduced valuations and oversold sentiment suggest some downside risk has been priced in.