The get together cannot final ceaselessly.
Friday’s rally in inventory markets — notably in chip shares — shocked me. The Fed was hawkish and inventory market offered off throughout the FOMC press convention as bonds priced in a more-hawkish charge path. That every one made excellent sense however then shares instantly turned after the shut and hit information on a number of fronts on Thursday.
The market is closed as we speak and futures are a tad decrease but it surely was a shocking reversal. The one seen catalyst was Trump signing the MOU with Iran however the market has rallied on that very same headline dozens of instances.
What has me fearful is valuations. Here is a worrisome chart from Grant’s:
What’s even-more worrisome is that the P/E of the S&P 500 is about to spike as a result of earnings are going to crater in 2026 due to the capex growth from the hyperscalers. Now, a lot of that spending will trickle right down to different names however the large earnings from mecacap tech are gone as long as they hold spending greater than they’re making on knowledge facilities and chips.
The issue is that firms are starting to query AI spending. The mania round it’s fading partly as a result of even builders are hitting partitions. Speaking to contacts in Silicon Valley, the code that comes out of Claude and Codex is close-to-great however by no means nice. It is like they’re reaching for the rainbow however can by no means fairly grasp it.
That close-to-great has been seductive for managers however they’re now discovering out that it may well by no means get to the end line and is a perpetual tease. Furthermore, bringing individuals into the loop to repair it’s typically simply as costly as doing it the old style method.
I additionally assume we’re on the level the place a number of the capex will get reigned in. For starters, there’s a super quantity of overspending and that by no means lasts however we may additionally see somebody — in all probability META — bow out of the race. Now that might be subsequent month or subsequent yr however I believe it is the catalyst that causes a tech bear market.
For now, I retain some skepticism on this post-Fed rally however we’ll see what Monday brings.
