Jefferies has highlighted the growing volatility in the markets, particularly linked to investments in artificial intelligence, prompting a recommendation for investors to consider quality stocks with low momentum.
Desh Peramunetilleke, head of quantitative strategy at Jefferies, noted that while AI has driven significant market performance, it also poses risks of a potential downturn due to overcapacity and rising costs associated with AI technologies.
The S&P 500 momentum index has surged over 70% since 2024, reminiscent of the dot-com bubble, but the current reliance on AI raises concerns about sustainability. Jefferies suggests that investors should seek companies with strong fundamentals, high quality scores, and attractive valuations, specifically those with market caps over $10 billion and free cash flow yields above 3%.
Among the recommended stocks are AbbVie, which is expected to see substantial earnings growth and has recently made a significant acquisition, and Netflix, which, despite recent challenges, maintains a strong market position.
Other companies on the list include Lowe's, McDonald's, and American Express, all of which meet Jefferies' criteria for quality and stability in a potentially turbulent market