Investors often fall in love with stocks. However, the best investors learn to invest without emotion. Typically this involves buying bad companies at high valuations, selling great companies at bad valuations, or buying great companies at fair prices.
This theme seemed to play out in the third quarter of the year, as billionaires with big funds began pulling out of high-flying artificial intelligence stocks like Nvidia(NASDAQ: NVDA) And Palantir(NASDAQ:PLTR) and to more traditional sectors that are admittedly quite boring compared to AI and fast-growing technology. Billionaire investors even rushed into a sector that investors – until recently – ignored during a two-year bull market. Let’s see.
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Artificial intelligence has been the main driver of this bull market, as investors believe AI could be the biggest technological innovation since the advent of the internet. Companies have spent a lot of money to compete in the new world. Investors have been doing their best to be a part of it, seemingly buying stocks that have an AI story and a large potential market – even if the market size and actual usage are still somewhat vague.
On the other hand, bank stocks have been largely ignored. Many view banking as a commoditized industry, and banks have struggled with a range of issues, including an inverted yield curve, a tightening regulatory landscape, a slowdown in mergers and acquisitions, several bank failures in 2023 that left a bad reputation, and higher capital proposals. lines. It’s easy to understand why investors weren’t interested. Even after a big run in recent months, bank stocks have still significantly underperformed AI stocks and the broader market during this bull market.
In the third quarter, several billionaires became wary of AI valuations and started valuing banks’ setups. The Federal Reserve had started cutting interest rates, causing the inverted yield curve to begin to normalize. Banks prefer a steepening yield curve because they typically borrow money short and lend it long. President-elect Donald Trump’s victory only fanned the flames as investors saw an improving regulatory environment for banks, more mergers and acquisitions (M&A) and initial public offerings, and continued economic growth.
Here are some AI stock sales and bank purchases that billionaire hedge fund managers made in the third quarter ended September 30. Keep in mind that many of these billionaires run huge funds or “pod shops” where small teams invest with corporate capital, so it’s not always these billionaires who make decisions directly. Furthermore, not all of these sales and purchases are exclusive. In some cases, the funds listed below bought or sold AI stocks and banks, but there has been a widening of the market.
AI sales
Stanley Druckenmiller of Duquesne Family Office left Nvidia and cut his position in Palantir by 95%.
Israel Englander’s Millenium Management has cut its stake in Nvidia by 13% and its position in Palantir by 90%.
Ray Dalio’s Bridgewater Associates has cut its position in Nvidia by 27%.
Philippe Laffont’s Coatue Management has cut its Nvidia position by 27%.
Druckenmiller bought more than 2.05 million shares of the SPDR S&P Regional Banking ETF(NYSEMKT: KRE)giving it a top 10 position in Duquesne’s portfolio.
Billionaire Ken Griffin’s Citadel Advisors bought more than 948,000 shares in KRE and more than 10.6 million shares in the disputed area. Community Bancorp of New York.
Billionaire Louis Bacon’s Moore Capital Management bought 950,000 shares of KRE.
Banks have recovered in recent months, so investors are right to wonder whether the rally is overheating. KRE is above levels not seen since early 2023, but still below levels seen in early 2022. A key driver of banking stock performance will be the yield curve, which recently briefly inverted. As I said above, banks want to see a steep yield curve. However, tailwinds, including an improved regulatory environment, the revival of investment banking and mergers and acquisitions, and better credit growth, could continue to fuel the sector.
Now is the time to pick stocks within the sector. There are still banks that trade at fair prices, while some banks like that JPMorgan Chasenow trading at highs not seen since before the Great Recession are starting to look pricey.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends JPMorgan Chase, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
The dull trading has begun: Billionaires are dividing their positions in AI stocks like Nvidia and Palantir and piling into a sector that has left the market for dead for two years. originally published by The Motley Fool
