AI narrative cracking

Summary

The presenter argues that this week’s sell-off reflected three forces: weakening confidence in the AI build-out, falling oil prices and inflation expectations, and renewed focus on whether the Federal Reserve will raise rates in December.

Market performance

• The S&P 500 fell 2.7%, the Nasdaq 3.4%, and the Dow 0.9%.
• The semiconductor index dropped 12% during the week, including a sharp fall on Thursday.
• The presenter says roughly $2 trillion in Nasdaq market value was lost in one day and describes Thursday as the S&P 500’s worst session since April 2025.

AI-related stocks

Chip suppliers were hit harder than major data-center buyers:

• Micron and AMD each fell about 17%.
• Nvidia fell about 9%.
• Amazon declined around 2%, Google around 3%, and Microsoft around 4%.

The S&P 500 Equal Weight Index fell about 2.9%, compared with 4.4% for the regular S&P 500. The presenter interprets this as evidence that the sell-off was concentrated in larger AI-linked stocks.

Why AI suppliers fell

The presenter identifies two possible drivers:

1. Political and regulatory risk: Investors worry that a Democratic Congress could slow data-center approvals. Analysts estimate that around 30% of data centers expected by 2028 may be at risk, potentially reducing future orders for chipmakers. The presenter emphasizes that this is an estimate, not the result of an enacted bill.
2. Positioning and profit-taking: Hedge funds may have sold strong-performing stocks to lock in gains and reduce exposure amid post-election uncertainty.

The presenter sees both factors at work: political concerns may help explain which stocks fell, while positioning may have affected how much they fell. The main caution is that AI infrastructure is not politically immune, though the scale of any slowdown remains uncertain.

Oil and Treasury yields

Oil futures fell about 13% for the week, and Brent crude reached roughly $95 on Wednesday after the election. The presenter considers three possible explanations:

• Expectations of a quicker end to the war
• Reduced federal spending and bond issuance
• A shift into Treasury bonds as a safe haven

Because both the 10-year Treasury yield and the 10-year breakeven inflation rate fell, the presenter concludes that lower oil prices and reduced inflation expectations were probably the main drivers. Lower yields could support equities, but the presenter says that effect was outweighed by broader macroeconomic and political uncertainty.

Federal Reserve and interest rates

Market-implied odds of a December rate hike moved from about 70% last Friday to 80% after strong data, fell to 67% during Thursday’s sell-off, then returned to nearly 80% on Friday.

Recent economic and Fed developments included:

• Initial jobless claims of 189,000, the lowest since 1969
• Friday’s employment report showing 165,000 jobs added, versus 65,000 expected
• Unemployment at 4.1%
• Monthly wage growth of 0.4%
• Hawkish comments from Cleveland Fed President Beth Hammack and San Francisco Fed President Mary Daly

The presenter’s view is that a December hike remains the base case unless upcoming CPI data is soft or markets suffer another significant decline. The next FOMC meeting’s messaging may matter as much as the rate decision itself.

Framework and Takeaways

• Separate AI companies into chip suppliers, data-center buyers, and specialized AI software firms. The presenter notes that OpenAI and Anthropic are private, so public-market exposure is concentrated in suppliers and buyers.
• To assess a political threat to AI spending, trace the potential chain: approval delays → uncertainty about 2028 capacity → weaker supplier order books → profit-taking and share-price declines.
• To assess why Treasury yields are falling, compare the nominal 10-year yield with the 10-year breakeven rate—the difference between nominal Treasury yields and TIPS yields. A falling breakeven suggests declining inflation expectations.
• Watch CPI data, labor-market reports, Fed comments, and the next FOMC meeting for clues about the rate path.

Assets and Entities Mentioned

S&P 500, Nasdaq, Dow, S&P 500 Equal Weight Index, semiconductor stocks and index, Micron (MU), AMD (AMD), Nvidia (NVDA), Amazon (AMZN), Google/Alphabet (GOOGL), Microsoft (MSFT), oil, Brent crude, U.S. Treasuries, 10-year Treasury yield, TIPS, OpenAI, Anthropic, and the Federal Reserve.

Disclosures

No explicit “not financial advice” disclaimer appears in the subtitles.

Presenter and Source

The presenter is unnamed. The video is from Defiant Gatekeeper.