AI fears are giving rise to ‘HALO trade’

AI is losing its stock. More investors are opting to put their money into industries that are less likely to be affected by the technology and selling off shares of companies that are more likely to be impacted by AI. While this may not become a long-term investment choice, it points to a skepticism about whether AI truly benefits the economy.

What is HALO trading?

HALO trading stands for “heavy assets, low obsolescence.” This means investing in “businesses less vulnerable to being supplanted by AI,” including companies operating “pipelines, utilities, transportation infrastructure, factories and ports,” said Bloomberg. Fast-food restaurants and commodity companies are included as well. “These are the companies that you cannot type something in a prompt and disrupt,” Josh Brown, the chief executive at Ritholtz Wealth Management, who coined the term, said to The Wall Street Journal.

HALO trading also goes hand-in-hand with AI scare trading, defined as selling “all things AI-linked,” said Bloomberg. Two specific developments are causing the rise of the scare trade. The first is the concern that companies will lose valuation after announcing they are spending money on AI infrastructure, and the second is the fear that “AI will severely disrupt entire industries because AI agents will be able to replace white collar workers, shrinking the workforce and, by extension, consumer spending.”

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AI scare trading has “been on a bender this year, steamrolling entire industries based on the flimsiest of evidence that the technology is coming for them,” said Axios. HALO trading, on the other hand, is a more recent occurrence and is “why many real-world sectors are outperforming this year, even as the overall market and especially tech stocks have floundered,” said CNBC. The two “top-performing sectors are energy and materials, which are surging more than 23% and 15%, respectively.”

What is the future of investing?

HALO trading may be a temporary trend or “another iteration of the jitters that have periodically rippled through markets since the AI investing boom began,” said the Journal. Many investors are “trading on the expectation that AI will eat away at future revenue streams rather than current ones.” Much of the trading “has felt very whiplash-y,” Lisa Shalett, the chief investment officer of Morgan Stanley Wealth Management, said to the Journal. We “don’t have any real idea who the [AI] losers are going to be.”

There are some recent signs that HALO trade has been decreasing. Tech shares have already “regained some ground this past week, with the Nasdaq besting the Dow industrials,” and stock values went up “after the news that the U.S. Supreme Court had struck down President Trump’s global tariffs,” said the Journal. However, many HALO stocks “have room to run after years of underperformance, can benefit from easier monetary policy and fiscal stimulus, and could even realize improved margins from AI,” said CNBC.

What is certain is that the “choppy trading of the past few weeks,” along with “lingering concerns that big tech companies are overspending to get ahead in a technological arms race,” indicates a “kind of evolution for the AI investing frenzy,” in which investors are “more discerning,” said the Journal. A company’s previous success is not a good enough reason to continue investing in it. “We’re in a new chapter, and I think that chapter is going to be defined by companies proving” their longevity, Jed Ellerbroek, a portfolio manager at Argent Capital Management, said to the Journal. “Hype isn’t cutting it anymore.”