Sebastian Mullins
The July tech sell off is a sign of crowded positioning and not a broken AI investment case, says Sebastian Mullins, head of multi asset and fixed income at Schroders.
“The speed of the sell-off reflected just how stretched positioning had become in technology stocks rather than a collapse in the underlying investment case for AI,” said Mullins.
“Markets had become heavily concentrated around a handful of AI beneficiaries. Once sentiment shifted, leveraged positions quickly unwound, amplifying the move lower.”
While semiconductor stocks and AI-linked markets fell during July, earnings season reinforced the strength of the sector, with Microsoft, Amazon and Apple posting strong results and boosting capex plans.
“When the chips were down, the hyperscalers didn’t fold,” said Mullins.
“The long-term structural growth story remains intact.”
Mullins said the macro backdrop still points to resilient growth, not recession.
“While markets have become more volatile, we’re not seeing the conditions typically associated with an economic downturn,” he said.
“Consumer spending remains healthy, earnings continue to surprise on the upside, inflation is easing and our recession indicators remain benign.”
Risks persist, including central bank policy uncertainty, higher oil prices and ongoing tensions in the Middle East, but Mullins says this is unlikely to derail the broader investment outlook.
“There are still reasons to be cautious, particularly around policy uncertainty and the eventual pace of AI investment,” he said.
“However, the recent correction has also removed some of the excesses that had built up in markets, creating a healthier backdrop for investors. Periods like this often create opportunities for long-term investors willing to look through short-term market noise.”
“Our view remains that economic growth is holding up. Inflation is gradually moderating and earnings momentum continues to improve. That combination continues to support risk assets over the medium term. While volatility is likely to persist, we believe investors should stay focused on the long-term outlook rather than reacting to short-term swings.”
