The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Micron fizzle
Highly anticipated results from Micron released yesterday. The stock delivered and gained 14% today. S&P 500 futures rallied significantly in anticipation of the rejuvenation of the AI theme. The broader hype wore off quickly even though Micron did well the entire session. The S&P opened at intraday highs, about +57 points. Quickly the index lost value and went negative. It spent the rest of the day circling the unchanged level. News of a ship in the Strait of Hormuz getting hit by and unknown projectile, also helped the bears. Crude rallied all day, finishing modestly higher. Yields started the day lower but also turned. Interestingly, precious metals rallied all day, while Bitcoin started the day bid and finished down 2-3%. Lastly, the Dollar began the day strong and finished weaker.
The excellent results from Micron did not inspire the overall market. This is curious. The news concerning the Strait of Hormuz catalyzed the war-is-worsening trade, but only in some assets. There was no common theme or narrative today. If a narrative seemed to be working in one part of the market, it wasn’t working in another.
Is there something to make of this?
The easy answer is that the biggest AI winners can’t resume their runs at the moment, regardless of fresh hype. The market needs to digest both the story and the prices before lifting offers again. The space is fundamentally impressive and the future is not in question but the prices (and recent gains) are inhibiting further size buying.
Is there a hard answer?
There are many but they are all based on hidden risks around the corner. Perhaps investors are projecting peak AI spending already. Perhaps the rest of the world is dipping into recession, and that will pull the US in too. There are many scenarios we could imagine. We don’t have to imagine them all though. We don’t even have to imagine the correct one. The hard answer, which is also probably a low probability outcome, is that investors are starting to feel the risk of a large macro negative. That feeling is penetrating the largest stocks with the frothiest histories.
After all, if you’re going to de-risk, you’re going to target the riskiest assets with the highest betas first.
So do we think something wretched is brewing out there or are we just in a short-term consolidation?
I think the latter. The consolidation may be longer and nastier than usual however. After all, the upside run has been exceptional in terms of speed and magnitude.
See you tomorrow.
-Mike
Visdom Market Commentary
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