The big news is that Nasdaq fell 4% on Friday, which takes it all the way back to where it was a month ago.
The AI trade has become huge. And it is noticeable that equities have diverged from HYG. When HYG is going down, then equities tend to follow.
But credit spreads remain tight.
The real driver is the market reassessing the likely interest rate path of the Federal Reserve. US 2 year rates sold off on strong data.
So my main view is that a negative shock on bond yields led to a sell off in momentum stocks.
The big problem is that if I look at memory spot pricing, its hard to see any big change in the market. That is AI demand is still pushing prices up. The proposed equity raises seems to encourage that view.
We have seen a big increase in announced IPOs in 2026.
Could this mark a top? Unlike 2000, buybacks will still be greater than issuance.
As a share of nominal GDP, it is a large number, but not outside of historical ranges, but certainly at levels that suggest caution.
This issue here is that AI is now the main driver of growth and inflation. Could the Fed really end the AI boom by raising rates? My guess, given the AI/Cloud cartel that now exists, interest rate policy would be almost totally ineffective. JGB yields for me still reflect government policy that is inflationary rather than deflationary. A real change would be government policy to encourage competition and lower prices - something I do not expect from a Trump Presidency.
The price action of JGBs in the 2000s was starkly different.
My best guess is that the market is worried that new head of the Federal Reserve, Kevin Warsh, could be a Paul Volcker in disguise. With consumer expectation of inflation running at 6%, to my mind short rates in the US should be closer to 8 or 9%.
Politically, I find the Fed being uber hawkish very hard to believe. To me it looks like a position clearing sell off - but not a top. If I saw evidence that AI adoption was slowing, then I think we could read a top.
