The stock market isn’t all about AI anymore

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Subscribe to enjoy similar stories. AI fever has loosened its grip on the stock market. Gone is the first half of 2024, when investors’ passion for artificial intelligence drove the market skyward even as stubbornly high inflation dashed hopes that the Federal Reserve would begin cutting interest rates.

The third quarter brought a new order to markets. Investors began to look askance at big tech companies’ heavy spending on AI. They took heart in a series of tamer inflation readings that led the Fed to finally lower rates.

And many, seeing signs of economic strength, grew confident that the central bank had managed to control price pressures without driving the U.S. into recession. It was a recipe for the broadening of a rally that many investors worried had grown precariously reliant on a few big tech stocks.

In the third quarter, broad swaths of the market, from utilities to industrials to financials, trounced the powerful technology sector. Value stocks beat growth stocks. Small-capitalization stocks emerged from their torpor to leave their large-cap peers in the dust.

Many investors think the economy looks healthy enough for stocks from a variety of industries to continue to run, potentially contributing to a more sustainable rally. “It really does appear as though the Fed is pulling off a soft landing," said Ellen Hazen, chief market strategist and portfolio manager at F.L.Putnam Investment Management. “We do think the broadening of the market beyond the Magnificent Seven is likely to continue." F.L.Putnam recently bought shares of industrial company Trane Technologies, believing the stock will do well if the economy avoids recession, Hazen said.