Folks, there's no denying we're in a historic bull market... And as you know, the narrative about AI and its necessary hardware has kept powering stocks higher.
Investor Fear Is Gripping the Stock Market Again
By Ethan Goldman, junior analyst, Chaikin Analytics
Folks, there's no denying we're in a historic bull market...
And as you know, the narrative about AI and its necessary hardware has kept powering stocks higher.
But we've also heard plenty of talk about the market's high valuations. And many investors think we're in an expanding bubble.
This year, Big Tech companies are on track to spend nearly $400 billion on AI. Expected spending from four of the "Magnificent Seven" mega caps would account for more than 85% of that figure.
And these companies will need immense profits to make this spending worth it...
Financial-services firm Morningstar recently noted that profits would need to come in at $2 trillion annually by 2030 to justify these rising costs.
And a recent report from data-analytics company GlobalData says that the U.S. AI market will generate $41 billion in revenue this year.
Based on those figures, that's a staggering gap between revenue and profits.
Put simply, making that huge profit is a lofty goal. And recent market activity could signal that investors are getting increasingly restless...
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Signs of Shifting Sentiment
As you know, we're moving through third-quarter earnings season. So we've been hearing plenty of AI talk in earnings results...
After the market close on Monday, data-analytics giant Palantir Technologies (PLTR) announced its third-quarter earnings.
The company grew its revenue by 63% compared with the third quarter last year. CEO Alex Karp even said that "These are arguably the best results that any software company has ever delivered."
And yet, Palantir's stock plunged by about 8% on Tuesday.
Many analysts have been nervous about the company's soaring valuation. And the "smart money" activity on Wall Street has shifted recently...
For most of this year, Palantir has seen strong buying activity from the big institutions. In mid-September, this metric started to shift lower. And in mid-October, it dropped into negative territory for the first time since July.
Since then, Palantir's smart-money activity has flipped between positive and negative.
Meanwhile, famed investor Michael Burry has even taken a bet against Palantir. Burry was one of the few investors who successfully predicted the 2008 market crash.
Regulatory filings show Burry's hedge fund purchased "put" options worth more than $910 million against Palantir. This is in addition to put options worth nearly $190 million against fellow AI darling Nvidia (NVDA).
If you're unfamiliar with options, that's OK. A put option simply means that the holder benefits from a decline in share price.
Whether or not this "bearish" bet plays out isn't important for us now...
But it signals that sentiment on AI and tech spending could be changing. And AI companies will keep facing pressure to turn their big investments into profits.
As I said, its stock plunged 11% right after the company's third-quarter earnings report. And the fall continued earlier this week. In fact, Meta is now down about 15% from its levels prior to the earnings release.
Meanwhile, another recent trend caught my attention...
I'm talking about a shift in CNN's Fear and Greed Index. It's a gauge of investor sentiment based on seven indicators.
On October 10, the index closed at 32 out of 100. That's "Fear" levels. And it marked the first time the index closed in "Fear" territory since the beginning of May – in the aftermath of the "Liberation Day" tariff turmoil.
The Fear and Greed Index recovered to close in "Neutral" territory by the end of October. But then, it collapsed again...
In fact, in its reading earlier this morning, the index stood at 24 out of 100. That's "Extreme Fear" territory.
To be clear, I'm not saying the AI boom is over...
Even in a bull market, it's not a straight line higher for stocks. And we could easily see sentiment swing back higher again – that's just how the markets work.
And no matter where the market goes, here at Chaikin Analytics, we'll continue using the Power Gauge to uncover the next winners... in any industry.
Good investing,
Ethan Goldman
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
+0.47%
11
9
10
S&P 500
+0.35%
119
228
156
Nasdaq
+0.65%
27
49
24
Small Caps
+1.44%
486
1035
390
Bonds
-1.09%
Consumer Discretionary
+1.22%
0
0
0
— According to the Chaikin Power Bar, Small Cap stocks remain somewhat more Bullish than Large Cap stocks. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Health Care
+1.17%
Financial
+0.98%
Consumer Discretionary
+0.8%
Real Estate
+0.69%
Energy
-0.67%
Consumer Staples
-0.84%
Industrials
-1.21%
Utilities
-1.39%
Materials
-2.43%
Communication
-2.47%
Information Technology
-2.97%
* * * *
Top Movers
Gainers
ENPH
+11.0%
STX
+10.14%
MU
+8.93%
JCI
+8.84%
AMGN
+7.81%
Losers
ZBH
-15.15%
SMCI
-11.33%
LYV
-10.59%
AXON
-9.43%
ANET
-8.55%
* * * *
Earnings Report
Earnings Surprises
TKO TKO Group Holdings, Inc.
Q3
$0.39
Beat by $0.17
PTC PTC Inc.
Q4
$3.47
Beat by $1.20
ALL The Allstate Corporation
Q3
$11.17
Beat by $3.63
SRE Sempra
Q3
$1.11
Beat by $0.20
FTNT Fortinet, Inc.
Q3
$0.74
Beat by $0.11
* * * *
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