The “Boom vs. Bubble” debate over Artificial Intelligence (AI) is getting louder. At the same time, money is rotating out of AI stocks and in to other groups. Will that continue? How can you profit? Leading MoneyShow experts share their takes this week.
Marilyn Monroe may have sung that diamonds are a girl’s best friend. But right now, “Diamonds” are a trader’s favorite! Specifically, the SPDR Dow Jones Industrial Average ETF (DIA) – once affectionately referred to as the “Dow Diamonds” – is quietly outperforming.
Just look at the MoneyShow Chart of the Day, which shows the percentage change in the DIA versus the Invesco QQQ Trust (QQQ) since the end of October. The DIA is outshining the QQQ, with a gain of 1.4% versus a loss of 2.2% for the tech-levered ETF (through yesterday afternoon).
SPDR
Yahoo Finance
You can see a similar pattern in S&P 500 sector ETFs. The Financial Select Sector SPDR Fund (XLF) rose 3.2% and the Industrial Select Sector SPDR Fund (XLI) gained 0.2% during the same timeframe. The Technology Select Sector SPDR Fund (XLK) lost 3.1%.
I’ll get the obvious caveat out of the way here: We’re only talking about a two-week trend. There’s no telling if it’ll last…or if we’ll revert back to a tech-led market before we all dive into our Thanksgiving turkeys.
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But consider the logic of the trade here. For one thing, investors tend to look for new leaders at the end of one year and the beginning of the next. For another, the Artificial Intelligence “Boom or Bubble” debate keeps raging. Those forces are likely fueling some rotational action.
The end of the government shutdown could help goose the economy, too, as affected workers get back pay and start spending it. Throw in the potential for new “stimmy” checks, an idea that has been floated in Washington, and you can see why more economically sensitive sectors and stocks could catch a bid.
Long story short? Maybe it’s time to “shop” for DOW diamond-type names in your portfolio this holiday season.
Nancy Tengler Laffer Tengler Investments
Is the market in a bubble? We may be due for a sustained correction, but it will be just that — a correction. Stocks are in a secular bull market, analogous to the second half of the 1990s as we have argued for almost three years.
If we are correct, then there is plenty of room for continued outperformance. Earnings season is telling us that companies are successfully navigating tariffs and a changing technology environment. We continue to hang our bull hat on productivity-driven growth.
SPDR S&P 500 ETF (SPY)
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We are watching breadth, which is lacking but certainly not fraught with weak internal days like we saw in March/April – and also see before corrections. We are also watching margins and top-line growth, which is surprisingly robust. And earnings have delighted to the upside.
Historically, based on BEA data since the mid-1980s, every US recession and major bear market was preceded by periods of profit contraction. The lead time averaged 10 months. We are seeing no evidence of deteriorating earnings.
In fact, corporate profits per employee have soared to record highs. We just don’t see a recession for the foreseeable future. As we did in March/April and during previous corrections, we will use weakness to add to high-quality names.
John Buckingham The Prudent Speculator
This is a market of stocks, not simply a stock market. So, while pundits fret about a broad-based index like the S&P 500 (^SPX) trading at a nosebleed forward P/E of 25.7, those willing to venture into individual equities have plenty of inexpensive names from which to choose. I like International Paper Co. (IP).
We understand that patience is critical to our success, and that we have not had even a 5% pullback since the April lows. But we think our future is bright as corporate profit reports have topped expectations in Q3 by a wider-than-usual margin, Asian tariff deals were just struck, the Federal Reserve is accommodative, M&A activity has picked up, and the economy has held up well.
International Paper Corp. (IP)
International Paper Corp. (IP)
QuoteMedia
As for IP, it’s one of the largest packaging companies in the world. It also remains a leading containerboard and box producer in North America, with an estimated quarter of the market.
IP’s Q3 results marked a meaningful step forward in its transformation under CEO Andy Silvernail, as adjusted EBITDA rose 28% from the prior quarter and margins widened by roughly 300 basis points. Mr. Silvernail underscored steady execution of the 80/20 strategy. It streamlines the portfolio and operations, while channeling resources to the best opportunities for profitable growth (with a further $600 million of EBITDA benefits expected in 2026).
Unfortunately, softer demand, higher labor costs, and planned outages will weigh on Q4 results, while management also reined in projections through 2027, sending the stock skidding 20%-plus. Despite the headwinds, a focus on efficiency and disciplined capital allocation toward high-return projects such as the Riverdale lightweight containerboard conversion should lift profitability and the 2027 consensus EPS estimate is north of $3.
Recommended Action: Buy IP.