Shades of 1999
In a must watch interview on CNBC’s Squawk Box Tuesday morning, legendary investor Paul Tudor Jones compared the current environment to 1999.
PTJ is a trader and his primary reason for saying so is “flows”. What he means by that is that the IPOs of SpaceX, Anthropic and OpenAI combined with all the borrowing from the hyperscalers to fund the buildout of AI are soaking up a lot of cash. That cash has to come from somewhere: it will be funded by selling other parts of the market. The question is if the market can hold up while absorbing all this stock. (For other fundamental and technical reasons to be concerned see my “Premonitions of a Major Market Top”, Tuesday September 29).
Wednesday mornings hotter than expected CPI report may be the catalyst for a market top. That’s because it puts another rate hike on the table when the Fed meets in two weeks (Wednesday October 28). Fed Futures have increased the probability of a quarter point hike on October 28 to 34% from 22% yesterday. Anybody that’s been around markets for a while knows that when the Fed tightens something frequently breaks.
The reason for my making such a bold statement is the market action today. While the S&P is currently down only 1.32% and the NASDAQ 2.06%, the AI trade is taking a much harder hit. The semiconductor ETF (SMH) is -4%, down for the seventh consecutive day and has lost its 50 DMA. Oracle (ORCL) – which I explained in “Premonitions of a Major Market Top” is a proxy for confidence in the AI trade – is down 9%. And CoreWeave (CRWV) is -16% after DA Davidson tech analyst Gil Luria told the Professor G Markets podcast that it could go to $0 if the AI trade rolls over.
While market timing is notoriously elusive, I believe today’s action is a warning signal to investors to get their portfolios in order for what may be a very difficult 2027.
(For anyone who wants to know what happened in 1999, you’re in luck because John Cassidy wrote a terrific history of the period called Dot Con).
