US Stocks Crash? Midterm Election Rally Dead?

Summary

Adam Khoo argues that the sharp sell-off in popular AI-related stocks looks like a crash to investors concentrated in those names, but is more consistent with sector rotation within a still-rising bull market. He says money has moved from AI and large technology companies into areas such as healthcare, industrials, energy, consumer staples, and financials. He remains constructive on the broader U.S. market, while emphasizing that neither a market bottom nor a post-election rally is guaranteed.

Market Performance and Rotation

• The S&P 500 was down roughly 3% from its high—less than a 10% correction, by the speaker’s definitions—and was up about 10–11% year to date.
• Khoo cites sharp declines in several AI-associated stocks:
  • On Friday: Micron −5.3%, AMD −10.88%, Intel −28%, and SanDisk −13.47%.
  • From their peaks: SanDisk and Intel about −50%, Micron about −30%, IREN about −50%, and Meta and Alphabet about −30%.
• He describes the rotation as healthy broadening, not a collapse in the whole market. His portfolio is diversified across AI and non-AI investments to reduce dependence on any one sector.
• October sector moves cited:
  • Technology: −8.56%
  • Communication services: −12.25%
  • Consumer staples: +11%
  • Energy: +10%
  • Healthcare: +4%
  • Consumer cyclicals: +3.88%
• Year to date, he cites technology at +19%, healthcare at +15%, consumer staples at +14%, and materials at +6%.
• His own portfolio had been up about 25% year to date by October, then fell to +18.7%, still ahead of the S&P 500. He says he owns Fortinet, Meta, and Alphabet, has a large healthcare allocation, and does not own Micron.

Technical View and Possible Support

• Khoo says the S&P 500’s uptrend remains intact: the 20-day EMA is above the 40-day EMA, the 50-day moving average is above the 150-day, and the 200-day average is rising.
• He describes the decline as a pullback rather than a confirmed trend reversal. A further short-term decline is possible, and no one can know the exact bottom.
• The transcript gives chart support levels of 749 and 716. It says a fall to 716 would represent about an 8% decline from the high. These levels are reported as stated in the subtitles.
• Khoo defines a correction as a decline greater than 10% and a bear market as a decline greater than 20%. He says he does not expect the index to fall below the cited 716 support, but presents that as his judgment, not a certainty.

Valuation and Company Fundamentals

• The S&P 500’s forward P/E is cited at 18.7, versus a 5-year average of 19.8, a 10-year average of 19.1, and about 22 at the start of the year.
• A Stock Oracle valuation breakdown presented in the video says about 27% of S&P 500 companies are fairly valued, 30–32% are undervalued, and about 40% are overvalued. Khoo favors quality companies with wide economic moats that are fairly valued or undervalued.
• In the third-quarter reporting season, reported S&P 500 earnings growth is cited at 30.2%, above the 29% expected at the end of September.
• Khoo says earnings growth is becoming broader: the Magnificent Seven are growing earnings by 22% this season, while companies outside the group are contributing 32% of earnings growth. He also cites a 17% net profit margin for S&P 500 companies and interprets the trend as evidence of productivity gains and cost savings.
• He argues that AI-related capital expenditure is investment in future growth, rather than necessarily a reason for concern. He says recent declines in Meta, Alphabet, and Fortinet reflect short-term sentiment despite strong underlying fundamentals.

Positioning, Midterms, and AI-Cycle Comparisons

• Khoo says hedge funds reduced positions at an unusually fast pace: he cites −7.8%, one of the largest sell-offs in ten years, while the S&P 500 fell only about 3%.
• In a small set of prior occasions when hedge-fund de-grossing exceeded 5%—with cited episodes of 5.8–7.1%—the market was near a low. In those six examples, he says the S&P was higher one month later by 4–8%, and positive at three and six months. He stresses that the sample is small and not statistically conclusive.
• He cites historical midterm-election performance: average returns of 8.1% three months after the election, 16.4% six months after, and 22% twelve months after. The stated historical positive-return rates are 95%, 100%, and 100%, respectively. He notes that a repeat is not assured and that 2018 was a negative case.
• The video says Polymarket estimated Democrats’ odds of winning both the House and Senate at about 72%, but Khoo says the market’s historical tendency to rise after midterms has not depended on which party wins.
• To argue that the AI boom may have further to run, he compares it with the dot-com era:
  • The current AI boom is described as about 3.9 years old, with the Nasdaq 100 up 137% since the period associated with ChatGPT’s 2022 release.
  • The dot-com boom is described as lasting 5.3 years and producing a much larger total rise. Khoo suggests the AI cycle could have more time to run, while acknowledging this is not assured.
  • In a Cisco–Nvidia comparison, he cites Cisco’s pre-crash forward P/E at 131, versus Nvidia’s current forward P/E at 17. He also cites Cisco’s eventual rise of about 4,200% and Nvidia’s rise of about 1,000% at the comparable point. He uses the comparison to illustrate possible upside, not as a forecast. The cited multiples and historical comparisons are the speaker’s figures.

Trading and Risk-Management Points

Khoo’s practical cautions and strategies include:

• Don’t assume hedge-fund selling means the exact bottom is in; wait for confirmation from candlestick patterns if trading.
• Use a stop-loss and risk only a small portion of capital; avoid going “all in.”
• He specifically warns against buying call options, including LEAPS, arguing that time decay and volatility declines can erode returns even when the market direction is right.
• For bullish exposure, he mentions bullish synthetic spreads, cash-secured puts, and credit spreads as alternatives.

Assets and Instruments Mentioned

Companies and tickers: Micron (MU), AMD (AMD), Intel (INTC), SanDisk (SNDK), IREN (IREN), Alphabet/Google (GOOG/GOOGL), Meta (META), Amazon (AMZN), Fortinet (FTNT), Nvidia (NVDA), and Cisco (CSCO).

Markets, sectors, and instruments: S&P 500, Nasdaq 100, AI and semiconductor stocks, hyperscalers, technology, communication services, healthcare, industrials, energy, financials, consumer staples, consumer cyclicals, materials, S&P 500 ETF (not specifically identified), moving averages, call options, LEAPS, bullish synthetic spreads, cash-secured puts, credit spreads, and stop-loss orders.

Disclosures and Caveats

Khoo says viewers should make their own decisions rather than follow him blindly. He repeatedly notes that market outcomes and historical patterns are not guaranteed. He discloses holdings in Fortinet, Meta, and Alphabet, a large healthcare allocation, and that he does not own Micron. No explicit “not financial advice” disclaimer appears in the subtitles.

Presenters and Sources

Presenter: Adam Khoo.

Other people and sources mentioned: Allison Chu (a friend, referenced regarding a possible “bear trap”); Tom Sosnoff (quoted from an interview about not buying call options); Bang Pham Van (referenced regarding options views); Stock Oracle (valuation tool); and Polymarket (election-odds source).