The stock market has just witnessed the potential impact of investor concerns about AI's disruptive power across multiple industries.
The turbulence began with software stocks and spread last week to wealth management, transportation, and logistics sectors, raising questions about the extent to which AI will reshape the technology industry and high-fee service businesses.
Both the S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) fell more than 1% for the week, with financial, consumer discretionary, and technology stocks being sold off due to AI anxieties.
The Dow Jones Industrial Average (^DJI) dropped 1.2% for the week, the Nasdaq Composite declined 2%, and the S&P 500 fell 1.4%.
"This is the dark side of AI," Tim Urbanowicz, Chief Investment Strategist at Innovator Capital Management, stated. "We have to pay attention to this because I think there are more industries to be disrupted, and it is certainly a threat."
Shares of C.H. Robinson (CHRW) and Universal Logistics (ULH) fell 11% and 9% during the week, respectively, after a Florida-based company introduced a new tool that can increase freight volume without adding staff.
This sell-off mirrored the decline in wealth management stocks: Following the launch of an AI tax tool, shares of Charles Schwab (SCHW) and Raymond James (RJF) fell 10% and 8% during the week. The market is concerned that automation will put pressure on the industry's high advisory fees.
The "AI panic trade" has spread to various sectors. Software stocks have been hit hard in recent weeks, as investors worry that AI will take over the traditional business of giants like Salesforce and ServiceNow, upending their profit models.
The Technology Software Industry ETF (IGV), which includes giants like Microsoft and Palantir, is down 22% year-to-date.
Many on Wall Street believe this sell-off is an overreaction.
"I don't think the bottom is necessarily in," said Urbanowicz. "These types of stocks have extremely high profit margins, which haven't come down yet, and valuations are still elevated."
Nevertheless, he still considers the overall market environment "very favorable" and expects the S&P 500 to reach 7600 by year-end.
Reasons include a friendly regulatory environment from the Trump administration, corporate tax benefits from large stimulus bills, and leadership from sectors like energy, consumer staples, and materials.
These sectors have all posted double-digit gains year-to-date, while the technology sector is down 2.5% over the same period.
Amanda Agati, Chief Investment Officer at PNC Asset Management Group, advises ignoring short-term volatility and focusing on the bigger picture.
"I think this is just short-term noise. Beyond these individual stocks, we see fairly good market breadth... which gives me confidence that even if the path is volatile this year, this rally is sustainable," Agati said.
UBS strategists recently suggested that investors should look beyond tech stocks to manage potential risks and fully capture the upside opportunities AI presents across all industries.
Ulrike Hoffmann-Burchardi, Chief Investment Officer for Global Equities and Americas at UBS Global Wealth Management, stated in a recent report: "We believe companies that actively use AI to enhance operations and upgrade their business models will benefit, particularly firms in the financial and healthcare industries."