Tech stocks may soon enjoy a 'violent bounce' - but one strategist warns investors not to take the bait

By Barbara Kollmeyer

Jim Thorne says slowing capex spending will be good for the AI trade

Investors should use any tech stock rally to trim exposure, says strategist Jim Thorne.

Oversold technology stocks could see a "violent bounce" over the next two to three weeks, but investors should beware of diving in, says a strategist who is calling for the S&P 500 to reach 10,000 next year.

"I would be trimming into this bounce and adding to the cyclical areas" such as equal-weight S&P 500, banks and small cap value companies, Wellington-Altus Private Wealth's chief market strategist Jim Thorne told the David Lin Report podcast in an interview that published Wednesday. "If you're already balanced in your portfolio between cyclical and structural, then I'd decide to let that ride."

Thorne said last week's selloff for the tech and AI trades was "a liquidation trade where some hedge funds got over their skis," and maintains his view that the index will finish at 8,000 by the end of 2026. The interview was conducted on Nov. 9 and markets have continued to churn since the worst one-day selloff for the Nasdaq Composite COMP, S&P 500 SPX and Dow industrials DJIA since April 2025.

Thorne's optimism is partly based on a historically bullish post midterm stretch within the four-year presidential cycle. "I think the period between now and the end of the second quarter next year, you're going to have significant gains within risk assets," said Thorne.

While he's targeting that big 10K number for next year, he says investors need to broaden their exposure beyond tech. "As the AI trade contracts, the breadth of the market expands," he said.

The strategist believes investors will see the AI investment cycle slow out, and isn't worried that Democrats will dramatically slow data-center building.

"Data centers will be built, but what we are going to get is the hyperscalers are not going to spend as much capex in the near term, which means they are going to become free cash flow positive sooner and I think people are going to have to shift their view from the AI bottleneck trade, which is still fine, it's just not the only game in town," said Thorne.

Thorne said a capex slowdown will separate the winners from the losers, but the high-quality hyperscalers will still get the capital they need, so earnings momentum will continue.

"I think what investors have to understand is this prisoner dilemma - spend everything, because if we don't, we're going to get wiped out - I think that phase is over," he said.

Last year, Thorne correctly predicted the S&P 500 would reach 7,500 by this past spring, suggesting investors keep money in leading AI sectors, along with digital assets. His year-end 2025 target was 7,000 and the index finished at 6,845.

His 10,000 S&P 500 view rides on expectations the 10-year Treasury yield BX:TMUBMUSD10Y will drop to 4% by the end of next year, as President Donald Trump ultimately resolves the Iran war, bringing inflation and energy prices will come down and easing pressure on the Fed to raise interest rates.

He had advised clients at the start of the year to broaden exposure by stepping into interest-rate sensitive areas.

-Barbara Kollmeyer

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11-12-26 0634ET