The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
A new chill
Sentiment took a negative turn when poor US housing data printed at 10 AM today. Risk-off became the play and stocks dropped. Flight-to-safety was at work with Treasury yields falling significantly across the curve. The S&P fell most in the late morning and spent the rest of the session down about 1.3%, slipping further into the close. There was no powerful bounce so it seems the usual dip-buyers did not act usually. Capital flow was high at 140%.
Recession concerns return to the front-of-mind of the markets. In today’s iteration, the housing market is the first domino. There is also an interesting AI twist at work too, which is being called the “AI scare trade.” Here’s the present incarnation: AI will result in many fewer new hires and ongoing employees that office space will be less demanded and real estate incomes and values will drop.
It’s an interesting idea. It is way too early to quantify however. Stock market investors simply felt the chill of negativity and risk-off ensued. It’s a classic sell first, ask questions later scenario. I don’t think that this particular scenario for widespread AI adoption is the on-the-screws prediction of the future but it doesn’t have to be. It tells us about the present investor attitude regarding AI.
Investors are now worrying about disruption. They are no longer assuming AI will help everyone. They are fearful of a brave new world where some entire industries go extinct. That’s a worst case scenario. Investors are also worrying about AI-driven demand shocks, which force massive revalutions.
Again, these are interesting ideas. They are not without merit either. But are they likely? Are they comprehensive? Are they too first-order?
The market’s attitude towards the shiny new technology changed today. We will not know, nor be able to quantify, all these AI what-ifs. So we speculate. Stories and fears and attitudes are driving the tape. They can turn on a dime or trend horribly. There are no facts that we can latch on to either.
Hold on for volatility. Maybe prices rip higher, maybe they fall further. It’s not the wisdom of crowds, it’s the emotions of crowds.
See you tomorrow.
-Mike
Visdom Market Commentary
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