One of Wall Street’s most notorious bears just declared war on artificial intelligence (“AI”)…

Andrew Left is an activist short seller and the author of the Citron Research newsletter. He has made (and lost) fortunes shorting companies like GameStop (GME), Shopify (SHOP), and Valeant Pharmaceuticals…

Last week, Left targeted one of AI’s biggest darlings – defense software company Palantir Technologies (PLTR).

Palantir was an early adopter of AI… and a major success story. The stock has soared more than 2,000% since ChatGPT debuted in November 2022. And the company has become a bellwether of the broader AI movement.

Left built his bearish report on the news that OpenAI, an AI leader and the developer of ChatGPT, is in early talks to make a $6 billion stock sale. That values OpenAI at about $500 billion.

Left claims that this casts serious doubt on Palantir’s current $371 billion valuation…

[OpenAI’s] new $500 billion valuation provides a true benchmark for evaluating Wall Street’s favorite trading stock, Palantir – a company now detached from fundamentals and analysis, ironically the very services it claims to offer.

Palantir shares plunged 9% the next day. And it dragged the broader tech sector down with it. Last week, Citron Research released its letter on Monday… and the Nasdaq Composite Index dipped 2% through Thursday’s close.

But it’s unlikely that last week’s scare will kick off a full-blown bear market in stocks. Let me show you why…

The Bull Market Isn’t Fading… It’s Getting Stronger
You may remember the chorus of pessimists earlier in this bull run…

The S&P 500 Index was rising. But the returns were largely driven by the Magnificent Seven. And bears warned that market breadth was too narrow.

In other words, the rally seemed likely to fail, since so few stocks were rising.

Of course, narrow breadth didn’t stop the bull market… But the fact remains that good breadth signals a healthy rally.

Last week, the S&P 500 fell as tech sentiment soured. But a deeper look shows that cash wasn’t rushing to the sidelines… It was rotating into the broader market.

We can see this by comparing the S&P 500’s 11 sectors across two time frames – three months and one week (each ending August 21).

The three-month returns show us which sectors have performed well over the past quarter. And the one-week time frame shows us how the rally has broadened out since then.

We’ll start with three months…

As you’d expect, technology and communications stocks have been leading the market. Consumer-discretionary companies (businesses that make “wants,” not “needs”) have also performed well. And industrial and energy companies round out the top five.

Take a look…

While sectors have rallied across the board, high-flying AI-related industries have led the market over the past three months.

But the status quo tilted last week. The market’s two leading sectors became the worst performers. And laggards like health care and real estate jumped into the top five. Take a look…

The S&P 500’s leading sectors contracted. But cash wasn’t exiting stocks… It was just flowing into other market sectors.

This means the current bull run is broadening out. That’s a signal of market strength, not weakness. It will give the rally a broader basis to forge higher from here.

But if the recent tech dip sank your portfolio more than you expected, you may be overexposed to the technology sector.

If that happened, consider selling some tech and adding more diversity to your portfolio. Gold, non-Magnificent Seven stocks, international companies, commodities, and bitcoin are all great ways to diversify.

But don’t let the recent dip turn you bearish. A shift in sector leadership doesn’t mean the bull market is losing strength… It’s just getting broader.

Don’t let recent volatility shake you out of the market.

Good investing,

Sean Michael Cummings

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Source: Daily Wealth