What Happened?

A number of stocks jumped in the afternoon session after investors continued to pile into value-oriented names amid growing valuation concerns. 

This shift reflected growing caution over high valuations within the technology and artificial intelligence (AI) spheres. As market participants reassessed risk, they reallocated capital from growth-heavy indices, like the Nasdaq, to companies in areas like industrials and financials, perceived to be more reasonably priced. Contributing to the positive momentum, markets remained hopeful that a prolonged 40-day government shutdown would be over. The U.S. Senate approved a compromise funding package, which was pending a vote in the House. The potential end to the shutdown brought a sense of relief to markets.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Electrical Systems company Methode Electronics (NYSE: MEI) jumped 3.4%. Is now the time to buy Methode Electronics? Access our full analysis report here, it’s free for active Edge members.
• Engineered Components and Systems company Gates Industrial Corporation (NYSE: GTES) jumped 2.9%. Is now the time to buy Gates Industrial Corporation? Access our full analysis report here, it’s free for active Edge members.
• Maintenance and Repair Distributors company WESCO (NYSE: WCC) jumped 2.7%. Is now the time to buy WESCO? Access our full analysis report here, it’s free for active Edge members.
• Electronic Components company Novanta (NASDAQ: NOVT) jumped 4.4%. Is now the time to buy Novanta? Access our full analysis report here, it’s free for active Edge members.
• Internet of Things company Trimble (NASDAQ: TRMB) jumped 3.6%. Is now the time to buy Trimble? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Novanta (NOVT)

Novanta’s shares are quite volatile and have had 15 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 8 days ago when the stock dropped 5.2% on the news that markets became increasingly wary of high valuations following a significant AI-driven rally. 

The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market. A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector. Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.

Novanta is down 26.8% since the beginning of the year, and at $110.45 per share, it is trading 36.8% below its 52-week high of $174.71 from November 2024. Investors who bought $1,000 worth of Novanta’s shares 5 years ago would now be looking at an investment worth $971.20.

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