S&P 500 Fights Back After AI Fund Forced Sell-off Catastrophe...Investors Who Endured 42-Day Plunge Are Winners

▲ US stock market/AI generated image

Investors who endured the plunge in momentum stocks are smiling again. The S&P 500 recovered its all-time high in 42 days, rewarding investors who did not participate in the sell-off.

According to MarketWatch on August 4 (local time), the S&P 500 recorded its 25th all-time high closing price this year. This is the first time since June 2. The gap to a new high was 42 days, the longest since the 53-day gap that ended on April 16.

Looking only at the index's decline, the correction was not severe. The S&P 500 remained 4.9% below its previous high even at its intraday low on June 9. However, beneficiaries of artificial intelligence (AI) investments, such as semiconductors, power, and industrial materials, plummeted. The correlation between S&P 500 constituent stocks also fell to its lowest level in years.

The turnaround came after forced selling by AI-focused investment funds. Situational Awareness transferred most of its listed stock positions to Citadel in a block deal to respond to margin calls. Since then, signals that the AI stock sell-off has bottomed out have followed in the market.

Mega-cap tech stocks also launched a counterattack. The Roundhill Magnificent Seven ETF (MAGS) outperformed the S&P 500 by approximately 5 percentage points over two days until Monday. This is the largest two-day outperformance since the product's launch. As large tech stocks, software, and semiconductor stocks rose together, the divergent trends within the market also eased.

Michael Monaghan, portfolio manager at Founders 100 ETF, said, “The forced selling of Situational Awareness stocks appears to have created a market bottom.” Adam Turnquist, senior technical strategist at LPL Financial, stated, “The fact that it broke through 7,600 is the most important thing.” The Dow Jones Industrial Average, Russell 2000, and ACWI, which tracks global stock markets, also closed at all-time highs.

[Article Key Summary]

-The S&P 500 recovered its all-time high in 42 days, recording its 25th highest closing price this year.

-Despite the sharp decline in AI-related stocks and forced selling by hedge funds, the maximum decline in the index was only 4.9%.

-Mega-cap tech stocks and semiconductor stocks rebounded together, pushing major US and global stock markets to new highs.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*