LIVE MARKETS-AI drives the index, but not most stocks 

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AI DRIVES THE INDEX, BUT NOT MOST STOCKS

The US stock market is telling two very different stories, according to Philip Palumbo, founder, CEO and chief investment officer of Palumbo Wealth Management.

On the surface, the S&P 500 .SPX sits less than 1% below its all-time high. Beneath that, however, market breadth has weakened considerably. As of October 8, roughly 68% of S&P 500 stocks were trading below their 50-day moving average and about 53% were below their 200-day moving average, Palumbo notes.

Behind the disconnect is an exceptionally concentrated market. According to Palumbo, the S&P 500's entire year-to-date gain can be traced to just 30 stocks, each up at least 82.8% this year. Most are technology names, while a handful come from energy, industrials and healthcare -- many of them tied to artificial intelligence.

"The trade remains all about AI," Palumbo wrote in a note late Friday.

The concentration is striking. Investors holding the other 470 S&P 500 stocks would be roughly flat for the year, while 211 index members remain in negative territory. In Palumbo's view, the index looks strong on the surface but increasingly fragile underneath.

That kind of narrow leadership is not typically the foundation for a powerful broad-market advance. Still, Palumbo says that anything that eases interest-rate pressure, such as lower energy prices or softer inflation expectations, could provide a near-term tailwind.

More broadly, he argues that the economy continues to benefit from AI-related investment, helping support employment and consumer spending. At the same time, demand for capital from government borrowing and data-center construction may keep a floor under interest rates.

For now, Palumbo sees the AI buildout as the market's key pillar. If it stumbles, broader weaknesses could become harder to ignore. His advice is simple: avoid chasing the hottest AI winners and stay diversified, especially as market corrections can create new opportunities.

(Terence Gabriel)

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