Incredible day in US stock markets extends, S&P 500 up 2%
What a day for the bulls.
The message after the earnings smoke has cleared is optimistic and the thinking is that: Maybe all these AI investments can continue and there is actually an ROI on all of them. For the valuations of the hyperscalers, you don’t need a big return on the huge amounts of capex as even making a bit further enforces their moats and will allow them to transition to a new era as leaders. Amazon and Google in particular made compelling cases for why there could be returns. So long as that capex continues, it’s tough to fade the chip names and they’re leading today. The Situational Awareness blowup has marked a bottom in the DRAM names like Sandisk and Micron. They’re tough to sell for long at 5-6x forward earnings. Obviously the party will end one day but it’s tough to wait through 8 quarterly earnings reports and hold shorts while they make massive amounts of money.
There is some talk that the big losers at the end of the day could be the model makers like OpenAi and Anthropic if/when those become commoditized. The Chinese open source models look almost as good and Palantir today was making an impassioned argument why companies should avoid getting locked into silos with model companies. Despite those worries, the thinking is that no matter which models users want, there will be a need for computing power and the huge data centers that are going up will be relatively agnostic.
So from the market’s point of view, everyone is a winner today. Then you layer on very strong earnings from Caterpillar and there are paths for AI capex and the wealth effect to spread to the broader economy. That’s the kind of tide that lifts all boats and it’s certainly getting priced in today with the S&P 500 hitting a record at 7754 and the Nasdaq up 2.6%.
The big gainers today are mostly familiar names tied to the AI trade.
Technically, there is room to run as the breakdown from last week gets emphatically rejected.
The degens have been wiped out they’ll reload and be back for another squeeze higher. There’s even more good news if Trump can find a way to get Hormuz open and take the pressure of the Fed to hike rates. I’m not holding my breath on that front but the market is certainly willing to bite.
In terms of the Mag7 today, the only blemish is Amazon after Jeff Bezos sold $4 billion in shares.
This article was written by Adam Button at investinglive.com.