Hi friends! 👋
My inbox has been busy. The question I keep getting is some version of this one. Is this AI fatigue? Is this the start of something bigger?
Fair questions. Alphabet, Amazon, Intel, CAT and Microsoft all got hit after earnings. Then Monday’s failed bounce made it worse.
So I wanted to send a special edition. No weekly recap. Just what I think is really going on, what history says, and what I’m doing with my own money.
I’m writing this Tuesday night as the results come in. It looks like a clean sweep for Democrats. And the market’s first reaction isn’t pretty. Nasdaq futures are down about 2% as I write this. I’ll get to why I’m not changing my plan.
Let’s get into it.
Eric
Three Bad Days
Monday was supposed to be the bounce. It wasn’t.
The Nasdaq just had its worst three-day stretch since Liberation Day. It closed at its lowest level since July 30th. By Monday’s close, it was down almost 11% from its record high on October 6th. Semis fell below their 200-day moving average. Tuesday finally brought a bounce. The Nasdaq rose about 1% as chip stocks rallied ahead of AMD’s earnings. One good day doesn’t change the picture. But it’s a start.
And look how much damage is already done under the surface. These are drawdowns from 52-week highs across the S&P 500.
Alphabet is down 32% from its high. Meta, 22%. Nvidia, 17%. Tesla, 19%. Amazon, 15%. CAT, 43%. Oracle, 55%.
Now look at what’s green. Visa. Mastercard. Berkshire. Coca-Cola. The boring stuff.
So is the AI trade finally breaking? Or is something else going on? I think it’s the second one. And one chart in particular has me convinced.