Navigating the More Challenging Later Stage of the AI Rally

AI and semiconductor-related stocks continue to be supported by expanding capex and upward earnings revisions, but rising interest rates and elevated valuations make it difficult to remain optimistic about the sustainability of the rally. We see a risk that the concentrated, AI-led market could begin to shift around December and into the new year, and believe investors should start positioning for that possibility now while retaining near-term upside exposure. Specifically, we would selectively maintain positions in AI and semiconductor-related stocks backed by solid earnings, while gradually reducing concentration in the theme. At the same time, we would add exposure to low-volatility stocks tactically to increase resilience against a broader market correction, while maintaining exposure to financially sound value stocks to improve relative performance as concentration in AI unwinds and market leadership broadens. The S&P 500 fell 0.5% in September versus a 5% decline on an equal-weig