The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
The streak ends.
The S&P fell today after 7 previous positive closes. Overnight was quiet and our futures caught a small bid in the premarket. The S&P 500 opened about +10 and the bulls seemed to be in charge again. Treasury yields fell small too, which should have helped the equity longs. The tape sagged slightly early and negative news from Oracle sent the market down further. The S&P stabilized around lunch and bumped along in the afternoon, around -30 points. Capital flow was higher at 117% but nothing suggesting something material.
The Oracle news sent a chill through the megacap tech world and the rest of the market went along for the ride. Evidently the profit margin for Oracle’s cloud computing business is lower than the Street estimated and the whole AI complex came into question. Will compute be as valuable to users as hoped? Will compute deliver sufficient ROI to those building it?
These were the questions asked today. To be fair, they been asked for months. Today, in light of the negative report concerning Oracle, investor’s got a little skittish and engaged in a little risk-off behavior. It’s been quite a while since we’ve seen that and after a 7-session winning streak for the index, it’s not too surprising.
We don’t have good answers to the questions concerning compute by the way. We won’t have good answers for a long time either. The market is attempting to discount what appears to be a very powerful but novel technology. Is the market over or under discounting the value of this development?
The process of valuing AI/compute has been mostly bullish. Today, and back when the DeepSeek news broke, both represent moments when the sentiment of the market delivers a negative adjustment to things. We don’t know whether this adjustment is proper or not. Similarly, we know whether the prior positive speculation was proper or not.
The process is educated guesswork and we will swing with emotions at this stage. We are left to wonder whether today is just a brief questioning or if this is a true revaluation.
I suspect that today’s dip will be bought instead of developing a bearish momentum but we’ll find out this week.
See you tomorrow.
-Mike
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