As the US economy continues to grow, investors are facing new challenges in navigating the market. The latest data from the nonfarm payrolls report has yielded a strong print, leading to higher yields and increased fears of AI disruption. This week’s blog post will delve into the sector dispersion and investor fears that are dominating market dynamics.

The S&P 500 saw a minor decline of 30 basis points, fading early strength. Cyclicals vs. Defensives (UBPTCYDE) opened higher but have since given up those gains, down 280 basis points. The Rate Cut Winners (UBXXCUT) reversed Tuesday’s strength, falling 1.4%.

The AI Risk basket (UBXXAIRK) continues to sell off, making its fourth over 2 sigma move in the last two weeks. Unity Software and Freshworks gapped lower post-earnings as AI concerns dominate. Wealth Managers (UBXXWLTH) were down another 3% after Tuesday’s 5% decline triggered by the launch of a tax advisory tool from AI start-up Altruist.

In response to the sharp selloff in software stocks, Aaron Nordvik launched two new software baskets. The first basket, AI-Resilient Software (UBXXSORT), consists of data infrastructure, cybersecurity, and chip designing software stocks that he believes may be more shielded from disruption. The second basket, AI Risk Software (UBXXSORK), tracks names perceived as most at risk of disruption. Resilient is outperforming At-Risk by 5.4 percentage points today.

Investor fears of AI disruption are dominating market dynamics, leading to increased sector dispersion and volatility. As the US economy continues to grow, it’s essential for investors to stay informed and adapt their strategies to navigate these challenges. Stay tuned for our next blog post as we continue to monitor the latest market trends and insights.