The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Questions linger
The long weekend settled down nerves a little but didn’t inspire a surge of courage. News also didn’t move investor attitudes. Markets were left with lingering fears and an absence of new information. Premarket futures traded down some, implying a 30 point loss on the S&P 500. Treasuries were bid as well. A small continuation of the risk-off trades was in motion. The S&P opened down a handful of points and quickly rallied small before rolling over and dropping somewhat. The index bottomed around 10:30 AM, down about 55 points. It then recovered all the losses within 30 minutes and spent the afternoon in positive territory.
Early weakness and midday strength have been a common pattern for a while, at least on days without material news. Perhaps the final hours of European trading has a significant influence. Why it seems to be bearish at first and bullish later is a puzzle. The morning dip-buyers are probably thrilled however. If the pattern holds for a while, it may become exaggerated too. I would certainly attempt to play it until it breaks.
The AI scare trade continues, although it’s less scary now and more a conversational item. I don’t think this means that it’s on its way out of the market. I think it has simple become a cause in search of an effect. Investors are trying to find something more concrete than “AI will ruin it.” They are looking for some plausible sequence of events that clearly illustrates the significance of AI and the impact on the existing company and/or industry. It seems that investors have been shaken by the theoretical threat of AI, but for them to really discount value, they need to see it with detail and its likely application.
This may end up being quite dangerous. Imagine a stock research analyst outlines such a detailed process for some stock they cover…. Not only could the risk be existential and cause the stock to crash, but the implementation of the real-world AI process could happen very quickly. The idea becomes a reality in a matter of months. Is such a scenario likely or just as abstract as the “AI will ruin it” idea?
I don’t know. An AI org chart, with AI agents, implementing various business processes autonomously…. It seems very weird, and yet possible. It explains why everyone is on edge. When/if the first one shows up, I assume markets will shake.
See you tomorrow.
-Mike
Visdom Market Commentary
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