Investors chase smaller firms as risk aversion hits tech sector

Investors are turning to cheaper, smaller companies while reassessing how much risk they are willing to take owning volatile assets after market whipsaws pounded some sectors and assets.

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Wariness and risk aversion have swept through some corners of the market that have shone the brightest in recent years, accompanied by gains in other areas, as investors rotate their holdings. For example, the Dow Jones Industrial Average, a benchmark designed to track industrial companies, hit a record high on Friday even as software stocks lost $I trillion over the week.“The selloff in the names that carried markets higher may have paused, but we're instead seeing a wave of aggressive buying of altogether different stocks,” said Tim Murray, capital markets strategy at T. Rowe Price.

Investors are considering the risk of investing in Al hyperscalers, he said, referring to companies such as Amazon.com, Microsoft and Alphabet whose businesses support the rollout of artificial intelligence, as well as the downside of companies whose business models Al might disrupt.

“Now, they're all chasing to buy cheaper companies, perhaps indiscriminately,” Murray said. While the S&P 500 stock index rallied 1.788 on Friday, and the Nasdaq IOO bounced nearly 28, the broader Russell 2000 index outpaced them with a 3.58 surge. Some Magnificent Seven companies did not participate in the rally: Amazon shares plunged amid investor worry about how the firm would earn a return on its massive planned $200 billion Al capital spending.