Expert view: A correction possible in the US stock market, says Marcellus Investment Managers' Head of Global Equities
Expert view: Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, believes the US stock market may see some correction as parts of the AI ecosystem are showing bubble-like behaviour. In an interview with Mint, Mandal said the US stock market is rewarding a narrow set of winners, even as consumers remain cautious. Edited excerpts:
The contrast is because the US stock market has diverged from being a proxy for the economy.
Consumer sentiment is weak because households are still worried about inflation, rates and affordability. But actual spending indicators are not as weak as sentiment suggests.
Real wage growth is still positive, retail sales are holding up reasonably well, and the consumer is spending, though more selectively rather than splurging across categories.
At the same time, the S&P 500 is dominated by large global companies, especially AI and technology-linked names, where earnings momentum remains strong. So the market is rewarding a narrow set of winners, even as consumers remain cautious.
A correction is possible, but margin pressure outside tech is not necessarily a negative from a long-term investing perspective.
In fact, we see it as an opportunity. If AI has to prove its economic value, the benefits eventually need to show up outside technology, through productivity gains, better margins and improved cash flows across industries.
That is where the real opportunity may lie. The index is vulnerable because current profit growth is concentrated in a handful of very profitable AI and tech companies, but many non-tech businesses with strong franchises are now trading at more reasonable valuations.
It is not a clean 2000-style bubble because many of today’s leaders have real earnings, cash flows and balance sheets. But parts of the AI ecosystem are clearly showing bubble-like behaviour.
When semiconductor proxies, unprofitable technology and speculative baskets move 20% to 30% in a month, the market is not just discounting fundamentals.
It is also discounting a lot of future perfection. The risk is not that AI is fake.
The risk is that expectations and valuations might have moved ahead of what even a good outcome can justify.
Yes, selectively. We would not abandon technology, but we would be careful about chasing the most crowded AI names.
Value is better in high-quality industrials, aerospace, select financials, healthcare distribution, exchanges, infrastructure and other non-tech compounders where earnings are still growing but valuations have not expanded in the same way.
The opportunity is in businesses with predictable cash flows, pricing power and long runway growth, not in low-quality cyclicals just because they are cheap.