AI Disruption Drives Sell-First Sentiment: XSW/XLF YTD Down 19%/3%

Investors are pivoting from AI valuation fears to disruption concerns, driving indiscriminate selling across software and financials. This week, shares of Charles Schwab (SCHW) and LPL Financial (LPLA) declined amid announcements of AI models for financial analysis and an AI-powered tax tool. The SPDR S&P Software & Services ETF (XSW) and Financial Select Sector SPDR (XLF) are down 19% and 3% YTD, versus gains in the S&P 500 and Nasdaq. Morgan Stanley analysts report 30% of its tracked companies citing AI impacts in Q4 2024 (up from 16% in Q4 2023), signaling recurring disruption-related volatility. Stocks such as Microsoft (MSFT), Intuit (INTU), Palo Alto Networks (PANW), Sony Group (SONY), Tencent, and Spotify (SPOT) are being flagged as potentially mispriced. Analysts and strategists, including Deutsche Bank’s Brad Zelnick and Yardeni Research’s Ed Yardeni, suggest overreaction is pricing in disruption over a longer timeline, with Yardeni maintaining an overweight view on financials.