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!

The crash was a major structural shock that wiped out leveraged positions and forced necessary, but painful, deleveraging across the digital asset ecosystem.

Did irresponsible marketing campaigns by certain platforms contribute to the crash? Again, I believe yes. When you incentivize users to treat a tokenized hedge fund like a stablecoin and then allow unlimited leverage on top of that, risk is amplified.

As massive as the crash was, it may have been necessary medicine. Sometimes excess leverage needs to be flushed from the system before the next move higher can begin. I believe we’re in the last stages of that process.

Gallup reports that 62.1% of Americans describe themselves as thriving in 2025, down 2.7 percentage points from 2024. Yet, only 59.2% expect a high quality of life in five years, the lowest reading on record. We wonder how many of the 40.8% of the naysayers were trading on Robinhood…

Our goal at Grey Swan is to make sure we’re in the cohort of thrivers now, five years from now… and beyond.

To that end, folks who build durable positions tend to focus on balance sheets, cost structures, and who controls the pipes — whether those pipes carry rockets, data, oil, or dollars.

Mustafa Suleyman, who leads Microsoft’s AI initiatives, told the Financial Times that most white-collar professional tasks could be automated within 12 to 18 months.

Lawyers, accountants, marketers, project managers — anything related to desk work faces compression.

Challenger data showed 7,624 January layoffs attributed directly to AI — about 7% of the month’s total. Since 2023, AI has been linked to nearly 79,500 announced job cuts. Morgan Stanley’s Stephen Byrd cautioned clients that measurable macroeconomic impact may lag several years.

In Silicon Valley, Mercor quietly hired tens of thousands of highly credentialed contractors at $45 to $250 per hour to train large language models for OpenAI and Anthropic.

Despite a stock market within 3% of its all-time highs, your portfolio likely feels a bigger pinch right now.

Fears of high spending on AI are leading to another pullback in the market’s biggest names. The Mag 7 stocks are collectively 10% off their peak, and now in correction territory.