Cembalest Sounds Warning on US Equity Market Technicals Amid AI Trends

Michael Cembalest, a top strategist at JPMorgan, is sounding caution on US equity market technicals due to recent trends in artificial intelligence (AI) stocks. In his July 22 'Eye on the Market' report, Cembalest notes that semiconductor stocks have surged while AI hyperscalers have stagnated.

This trend is reminiscent of what occurred during the dot-com bubble in 1999-2000, when communications services stocks slowed their growth even as communications equipment stocks continued to climb. This ultimately proved to be a bad sign for the entire stock market.

Cembalest warns that if companies closely tied to final demand begin to falter while capital spending beneficiaries of the cycle continue to thrive, it may indicate a boom cycle is turning into a bust.

For those looking to diversify away from US AI stocks, international stock exchange-traded funds (ETFs) could be a viable option. Two such ETFs are the Vanguard FTSE All-World ex-US ETF and the State Street SPDR Portfolio Developed World ex-US ETF.