Markets Ready to Crack as the AI Story Implodes

In the past eight-day trading period, over 20% of S&P 500 stocks have had at least one intraday decline of at least 7%.

Typically, that kind of volatility occurs in the middle of a market correction or crash – not this close to all-time highs:

Turn Your Images On Individual stocks are crashing at a level usually associated with bear markets, not stocks near all-time highs. (Source: The Compound)

While AI technology is transformative, the valuations in AI stocks do not match the price you have to pay to own them.

Ironically, a crash across the board would have a profound effect on 401(k)s, IRAs and pensions that have benefited greatly from a frenzy for tech stocks — the exact reason why prices have gotten out of whack from earnings in the first place.

Bull markets don’t end limping across the finish line. They end in a speculative mania – or what we call a “most terrifying bull market.” We’re not there yet, but conditions are setting up for it.

Despite the drawdown in a significant number of individual names, some of the moves lower have been short-lived. While the Mag 7 stocks cool, pockets of other 493 stocks in the S&P 500 benefitted last week from capital rotating out of tech and crypto.

~ Addison

P.S. Last week, U.S. Global Investors founder Frank Holmes reviewed some of the more important market trends impacting his portfolio of ETFs. Despite the short-term challenge to the stock market, economic fundamentals are in good shape early in this midterm election year.

Frank explained in detail how alternative data, like global airline demand, helps his team rebalance their portfolio of ETFs when market trends shift.

This week, we turn to a corner of the capital markets usually reserved for well-connected investors: the pre-IPO space. Companies like SpaceX and Anduril have caught our attention as investments, but they’re not officially publicly-traded.

Our friend Matt Milner over at Crowdability has created a way to get access to these companies before they go public – and at the valuations where institutional investors are able to invest today.

So mark your calendar for this Thursday at 12 p.m., ET. More details to come!

In the past eight-day trading period, over 20% of S&P 500 stocks have had at least one intraday decline of at least 7%.

While AI technology is transformative, the valuations in AI stocks do not match the price you have to pay to own them.

~ Addison

Frank explained in detail how alternative data, like global airline demand, helps his team rebalance their portfolio of ETFs when market trends shift.

Our friend Matt Milner over at Crowdability has created a way to get access to these companies before they go public – and at the valuations where institutional investors are able to invest today.

So mark your calendar for this Thursday at 12 p.m., ET. More details to come!

Copper and resources are sending us a cleaner market signal than AI stocks.

Channeling Ludwig von Mises, we observe this morning that price is not just a number; it’s information. Price reflects what buyers and sellers collectively believe: demand, scarcity, fear, speculation, disappointment, future expectations and available supply.

When prices rise, and inventories fall at the same time, the message is usually straightforward: buyers need the stuff, and there is not enough of it.

A low VIX does not predict disaster. It measures complacency. A serial skeptic will read it as the calm before a storm. We shook off that feeling this morning and opted to pursue an opportunity instead.

Here goes:

A VIX reading below 15 means the market is not pricing in much near-term trouble, even though there are obvious risks still sitting in the room: Iran, oil prices, memory chip speculation, circular financing, high valuations, epic high concentrations, spiking long-term interest rates, a regime change at the Fed, a meltdown in Japan and a historic deficit and rising national debt.

Money is not flowing in a clean, straight line from outside investors to productive businesses. The firms at the top are investing in and buying from each other.

Microsoft and OpenAI are the easiest examples to follow.

Microsoft says OpenAI has contracted to purchase an additional $250 billion in Azure services, while Microsoft continues to account for $13 billion in funding commitments to OpenAI as an investment.

At this stage, it’s a stock picker’s market.