Stock market rally thrives on AI and semiconductors—but at what cost?

The stock market has seen a strong but uneven rally since October 2022. Growth stocks, particularly in sectors like AI and semiconductors, have driven much of the gains. Yet critics argue the surge has relied too heavily on a small group of high-flying companies. Over the past year, semiconductors have more than doubled in value. Older tech firms, including Dell and Hewlett Packard Enterprise, have also posted sharp earnings-driven jumps. Meanwhile, AI-related stocks have dominated the headlines—13 of the 20 S&P 500 companies hitting all-time highs last Friday fell into this category.

The S&P 500 itself closed at new highs for nine straight weeks after the March lows, with seven of those marking fresh records. But the rally’s breadth remains a concern. Only 20 stocks in the index reached their own peaks last week, a pattern last observed in March 2000. Mike Cintolo, Cabot’s Chief Investment Strategist, stays bullish on the market’s long-term prospects. He warns, however, of potential short-term turbulence. His advice centres on making decisions based on current data rather than flashy headlines. Keeping risk in check remains a priority. While growth stocks have led the charge, the past year has also seen value stocks perform well. This ‘catch-up’ trend contrasts with the rally’s earlier phases, where gains were more concentrated.

The market’s recent strength has been undeniable, but its reliance on a narrow set of stocks raises questions. Investors like Cintolo stress the importance of discipline and evidence-based trading. For those tracking his approach, a subscription to Cabot Growth Investor offers deeper insights into his strategy.