Everybody keeps arguing about whether AI is a bubble.
I’m going to throw this out there. If you believe AI is a bubble, and I’d suggest most of you probably do, it has already burst in most other parts of the world.
How many people have taken the time to look at China? I mean, take a good long look at it.
The Bubble Popped In China
Alibaba is right in the epicenter of AI in China, and it can’t catch a bid. It’s down 36% year to date and 44% over the last year. Baidu, China’s biggest search engine, is down 50% year to date.
Together, they’re putting a huge crack in FXI, the fund that tracks China’s biggest companies. Never in the history of Chinese markets have there been this many back-to-back losing weeks.
Then there’s NIO, the electric car maker. A year ago, it was one of the hottest stocks out there. Now it trades around $3.24, and in my opinion, it’ll be lucky to be in business.
Every Day Is The Worst Day Of Your Life
Look at Baidu through the lens of the expected move, the range the options market prices in for a stock each week.
Week after week, Baidu trades inside its expected move. Nobody’s hitting the accelerator to blow it out. They’re trading it lower, and lower, and lower.
It’s like every day is the worst day of your entire life, again and again.
South Korea’s market, another one of the epicenters of AI, is down 20% from its recent high, even though it’s still up more than 50% on the year. Taiwan Semiconductor is still holding it together, only about 16% off its high. But look around Asia, and those markets are in complete and total turmoil.
A Thin Line
So what are we doing here in the United States? We keep rotating, still trying to find a way.
But the S&P 500 is being held together by a thin line, a handful of stocks and not much else. It’s no longer a diversified instrument. If one of those stocks misses in a big way, you’re in real trouble.
I’m not saying the S&P is going to roll over and die. Somebody can come out and do something spectacular, and all of a sudden we pop.
But the market hasn’t moved in six months, and this is where we talk about asymmetric risk and reward. The upside is so limited versus the downside risk, and you need to be mindful of that every single day.
And this week, you’ve got roughly $10 trillion of market cap reporting earnings in one night, the same day the Fed announces its decision.
I’m going live at 2 p.m. ET Wednesday for the Fed decision, and I’ll show you:
- Whether the handful of stocks holding up the S&P can survive the Fed and that wave of earnings
- Where rate expectations go once the decision is out
- The sectors that come out winners, and the ones that get hit
→ Get In The Room For Wednesday’s Fed Reaction
To your success,
Don Kaufman
P.S. Microsoft is one of the names I’ve been shopping, and it reports Wednesday after the bell. If it comes off $530, it can push a lot lower. Be there when the Fed hits at 2 p.m. ET.
