time, escalating tensions in the Middle East — with ongoing strikes between the Iran-backed Houthi rebels and Saudi Arabia — have pushed oil prices higher. For most of the past month, Brent crude has remained above the $100-a-barrel mark and was hovering around $105 a barrel early Friday morning.
On top of that, chip stocks have declined, with the PHLX semiconductor exchange-traded fund down about 11% since the start of October, and the third-quarter reporting season has kicked off with a mixed start.
“The silver lining, though, is that bond yields have finally come down a bit, suggesting that bonds can still work as safe havens,” the strategists wrote, adding that this means it doesn’t make sense to worry about the artificial-intelligence trade and rising yields, as the two are interconnected.
Barclays continues to recommend a portfolio consisting of balanced sector allocation, especially as they no longer view AI stocks as a “one-way trade.” The London-based bank advises holding Big Tech stocks ahead of more third-quarter earnings reports, but it prefers companies with proven strong business models, solid balance sheets, noticeable revenue streams and fair valuations.
Meta and Tesla will be the first of the “Magnificent Seven” — which also includes Alphabet, Amazon, Apple, Microsoft and Nvidia — to post financial results, with both set for after the closing bell on Oct. 21.
“As we have highlighted previously, we think the AI thematic is entering a more mature phase, where valuations, funding requirements, competitive threats, regulation, and revenue visibility are coming under much greater scrutiny,” the strategists wrote. “It is certainly conceivable that the best of the AI thematic trade may be behind us, and therefore we think investors should be far more selective.”
They also see Europe as a potential diversifier in global portfolios in the event of the AI trade unwinding further, as regions less exposed to the theme could provide some protection.
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