Nearly 60% of S&P 500 stocks are in bear market territory even as the benchmark index trades about 3% below its record high, according to Goldman Sachs trader Bobby Molavi, who warned that mounting concerns over AI spending are driving investors away from technology stocks.
Molavi, Goldman Sachs’ head of execution services for Europe, the Middle East and Africa, described the divergence as a “stealth bear market,” according to Bloomberg.
Since Oct. 15, the Magnificent Seven technology companies have lost $4 trillion in market value, Molavi said. Investors have increasingly questioned whether massive investments in AI infrastructure will generate sufficient returns.
The concern is not a lack of demand for AI services but the enormous cost of building the infrastructure to support them.
Amazon’s long-term debt climbed to $173 billion from $66 billion in nine months, he said, illustrating how technology companies are increasingly relying on borrowing and other financing to fund their AI expansion.
The sell-off has spread to semiconductor companies. The Philadelphia Semiconductor Index fell 7% on Oct. 30, dropping below its 200-day moving average for the first time in a year.
Molavi also pointed to widening credit spreads as a potential warning sign for equities.
The spread between B- and CCC-rated corporate bonds has reached 8 percentage points on fewer than five occasions since 1996, according to his analysis.
On each previous occasion, the S&P 500 was at least 11.5% below its 52-week high. This time, the index was trading much closer to its peak.
The divergence suggests that credit markets may be signaling financial stress not yet reflected in major stock indexes.
Meanwhile, investors have been shifting into defensive sectors, including health care, real estate and consumer staples, helping cushion broader indexes against steep technology losses.