Avoid the Momentum Trap | Find True Value with Kevin Abbott

In this episode of the Market Misbehavior podcast, Dave is joined by Kevin Abbott, Senior Sector Research Strategist at State Street Investment Management and former Fidelity colleague. Recorded in August 2026.

Kevin breaks down why the "AI" label is no longer a monolithic rising tide, emphasizing the critical need to identify the winners and losers as massive hyperscaler spending trickles down into cloud computing backlogs and infrastructure hardware (like semiconductors and memory). We explore why the software sector was "sold off indiscriminately" as business models faced AI disruption, how negative free cash flow isn't always a death knell if long-term analyst estimates hold strong, and the structural advantages of using sector rotation for risk management. The conversation also explores why investors must avoid getting "swept up in the momentum of the moment" by anchoring their decisions with a stable, uncorrelated sector framework.

State Street Sector Insights: https://www.ssga.com/us/en/individual/capabilities/equities/sector-investing/select-sector-etfs

State Street on LinkedIn: 
https://www.linkedin.com/company/state-street-investment-management/

📈 Topics Covered
• Differentiating the AI ecosystem: Why "AI" is no longer a monolithic block, and how to spot the actual winners in cloud computing backlogs and infrastructure hardware
• Unpacking the hyperscaler spending boom: Why massive CapEx and negative free cash flow (similar to Amazon in 2020) can still yield long-term returns
• The indiscriminate software sell-off: How AI disrupted traditional seat-based software models, creating mispriced opportunities for contrarian buyers
• Evaluating the "circular financing" risk: Monitoring debt levels and free cash flow in legacy tech names like Oracle
• The stability of the sector framework: Why the 11 GICS sectors provide a far more consistent tracking mechanism than rapidly shifting factor models (like Value or Growth)
• Strategic sector correlations: How to hedge a tech-heavy index by maintaining core exposure to negatively correlated sectors like Energy, Staples, and Real Estate
• The four-legged stool of investing: Balancing Fundamental, Technical, Quantitative, and Behavioral inputs to avoid making the wrong decisions
• Generating yield in a low-dividend market: Utilizing premium income sector ETFs (like XLKI) for retirees seeking both market exposure and cash flow

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The content in this presentation should not be considered as a recommendation to buy or sell any security. All information is intended for educational purposes only and in no way should be considered as investment advice.