James Brodie
Head of Learning & Development, Flux
NASDAQ 100 Falls, Momentum Unwinding, Leveraged ETFs Hit Record
Nasdaq slips on AI spending fears, but softer PPI lifts macro outlook as momentum unwinds beneath resilient index performance.
CALM ON THE SURFACE, ROTATION UNDERNEATH
The NASDAQ 100 fell 0.8% after Fed Chair Kevin Warsh questioned AI spending, with memory and AI stocks hit hardest. Warsh called the infrastructure buildout impressive but flagged early overcapacity signs, especially in memory chips - his worry is that investment is outpacing monetization, and not every AI project will justify its priced-in returns.
The pressure isn't confined to the US. South Korea's central bank raised rates for the first time in over 3 years, and the KOSPI fell another 7%.
Yet the broader macro picture looks constructive. PPI came in cooler than expected - 5.5% YoY vs 6.2% expected, down 0.3% MoM vs flat expectations. The S&P 500 is closing in on new all-time highs (Chart 1: Bloomberg),
and global investors have turned their most bullish since February, per BofA's latest survey (Chart 2: Bank of America).
Here's the disconnect: while the index looks calm, momentum is unwinding at a historic pace beneath it. Goldman Sachs' High-Beta Momentum Index is down 24% month-to-date through the first half of July, its worst stretch since April 2009. Morgan Stanley's Tech Momentum Index has fallen 35% over just 17 days, the sharpest drop in its 27-year history (Chart 3: US Momentum Index, Bloomberg).
Buffett's take on where this lands, in three points:
- No bubble in computing power. MSFT, AMZN, Meta, and SPCX should see soaring profits and valuations as demand for compute keeps outstripping supply.
- Open-source models will hurt OpenAI and Anthropic, as cheaper alternatives from China and elsewhere erode the moat around paid AI services.
- Enterprise AI spending is unsustainable. Companies aren't controlling API token costs, making a pullback inevitable.
The market's plumbing is shifting too. Leveraged ETFs have hit a record 700 US-listed products, more than double the count at the end of 2024, with 400+ tied to individual stocks. Position sizing matters more than ever. Stock correlations to the S&P are at historical lows (Chart 4: @MichaelKantro),
and sell-offs are increasingly selective: over the last 20 S&P 500 down days, an average of 239 stocks still finished positive, the highest reading on record, triple 2022 bear market levels (Chart 5: Bloomberg, Citadel, GMI).
Written by
More News
It’s Not Coming Home (The Barrel, Through Hormuz)
Brent stabilises below $85 as backwardation returns. Dubai weakens sharply, while refining margins climb to record highs.
16 page report
Swap Dealers Anticipated to Reduce Longs and Increase Short Length
Money managers are set to adopt a risk-on posture across commodities, extending long positions while reducing short exposures next week.
8 page report
Brent Stable As War Risk Priced In
Brent trades down to $84 with war risk priced in; US hits sanctioned vessel for the first time since reimposing blockade
Brent Dips to $83/bbl as the US Set to Back Iraq-Syria Crude Oil Pipeline
US supports Hormuz bypass pipeline, Russia refinery hit, China fuel demand weakens, while Japan diversifies crude supply.