The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Mega tech
Today’s drop was a regular trading hours affair. The overnight and premarket futures were slightly bid. The S&P 500 opened up small. It drifted into the red just before 10 AM and kept going for four hours. The index was down 1.6% at the lows. Big tech was the culprit, especially some of the Mag 7. Interestingly, Bitcoin’s trading pattern today matched the S&P. A strong linkage between Bitcoin and US stocks hasn’t been around for a while. As a sign of the heightened risk in the market, US Treasuries benefited with a very small flight to safety bid. Later in the day, helping the dip-buyers, news out of D.C. broke that the US government shutdown should end shortly. Capital flow was heavy at 146%.
Supposedly a new AI automation tool, created by Anthropic, threatens to compete with many existing software makers and software service companies. This concept that AI will cannibalize the most tech-savy firms first, is an interesting new narrative in the AI story arc. Why this story gathered attention today and where it will go, is anyone’s guess. However, until the market either rejects the narrative or modifies its existential consequences, it will be difficult for tech to resume its bullish trend.
I don’t have good insight into this particular AI issue but it strikes me as a new variant of the AI story we’ve already seen. The power of AI is first perceived to be destructive. Remember how it was going to put programmers out of work? Then the narrative shifts somewhat towards constructive. Now AI makes programmers more productive. Or so the current story goes.
Perhaps the AI-will-kill-software-companies story is just history rhyming with itself. Maybe in the future, the story becomes something along the lines of AI-will-improve-software-company-efficiency?
I’m just speculating of course but there’s something about the market’s (and the public’s) narrative-creating arc that seems at work. First reaction is doomsday, then something less horrific, then something potentially positive.
I’m not sure whether I’m seeing the psychological parts of this correctly, but if I am, the changing of the narrative will be things to watch for. Even in the last couple of hours, the market is backing away from the Doomsday concern. If interpretations of positivity start hitting the newswires, we could be looking at a true FOMO rally.
See you tomorrow.
-Mike
Visdom Market Commentary
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