How to Invest Through an AI-Led Market Regime

TL;DR

Market weakness is presented as a rotation and an orchestrated slowdown, not evidence of an approaching recession. Extremely bearish sentiment, improving market breadth, stable credit, and strength outside the Mag 7 support the case for buying researched opportunities, particularly in energy, copper, global equities, and the next phase of AI infrastructure.

Transcript

anymore but uh every week's going to be a busy week I guess under uh under the new Administration so uh Market recap sentiment just continues to get worse um tariff redwork actually died down this this week and I think that's important and I'll discuss why uh the FED is back with the word transitory again uh Great Scott Besson interview I think whi... Read More

Key Insights

• Market weakness is concentrated in the Mag 7 rather than the broader market. The Mag 7 was down 14%, while the equal-weight S&P 500 was down 1.1% and the S&P 500 excluding those companies was approximately unchanged for the year.
• Improving market breadth is evidence against an economic collapse. The cumulative breadth measure remained near its highs, and consecutive sessions with more than 400 advancing S&P 500 stocks represented a strength pattern last seen near the early October 2022 lows.
• Extremely bearish sentiment has historically accompanied attractive buying periods. Bearish readings remained near 60 for a third week, the three-week average exceeded 58, and Investors Intelligence stayed below 30% for a second consecutive week.
• Stable credit spreads indicate that financial stress had not materially intensified. Credit conditions remained well below the deterioration observed in July of the prior year, supporting the argument that volatile equity prices were not yet confirming a broader economic crisis.
• The current slowdown is described as deliberately orchestrated by the government. Lower GDP is expected, but rotation toward energy, less economically sensitive assets, international equities, and different AI-related investments suggests markets are repricing leadership rather than forecasting an unavoidable recession.
• Copper strength reflects a supply-and-demand imbalance connected to AI data centers, Chinese spending, and European defense investment. Germany and China are especially important to metals demand, while expanding AI infrastructure adds another source of consumption that supports the copper trade.
• International equity strength supports the rotation thesis. MSCI World excluding the United States held up while the S&P 500 declined, unlike periods when both domestic and international markets fell together, such as during COVID and the 2022 market decline.
• The next AI investment phase extends beyond the previous group of leading technology stocks. Energy and infrastructure needs could benefit companies such as Chevron, Intel, Cisco, IBM, and Micron Technology, with Jensen Huang’s GTC keynote presented as evidence supporting this regime change.

Questions & Answers

Q: Why is the market decline described as a rotation rather than a recession signal?

The decline was concentrated in the Mag 7, which was down 14%, while the equal-weight S&P 500 was down only 1.1% and the index excluding the Mag 7 was approximately unchanged. International equities remained resilient, energy led the sectors, copper strengthened, breadth stayed near its highs, and credit spreads remained stable. Together, those conditions looked more like shifting leadership than economic collapse.

Q: What market indicators suggested that stocks were beginning to stabilize?

The S&P 500 remained below its 200-day moving average, but five of the previous six sessions showed strength through late-day rallies or closes above opening prices. Momentum recovered through its 20-day level and appeared to bottom before the S&P 500. Consecutive sessions with more than 400 advancing stocks also showed improving participation across the index.

Q: How did bearish sentiment affect the investment outlook?

Bearish sentiment stayed near 60 for a third week, while its three-week average exceeded 58. Investors Intelligence also remained below 30% for a second consecutive week. Comparable periods were described as strong buying opportunities. With positioning already reduced and sentiment deeply negative, additional selling could become less powerful while any improving market trend could attract substantial buying.

Q: What did market breadth reveal about the health of the broader stock market?

Cumulative market breadth remained close to its all-time highs, which did not resemble an economic collapse. The market also recorded consecutive days when more than 400 S&P 500 stocks advanced, a pattern last observed near the early October 2022 lows. No session during the year had recorded more than 400 declining stocks, further distinguishing the environment from broad liquidation.

Q: Why were stable credit spreads important to the recession argument?

Credit spreads remained stable and were not close to the stress levels seen in July of the prior year. Because credit conditions can reveal whether economic and financial problems are spreading beyond equity prices, the absence of significant deterioration weakened the recession case. The analysis therefore treated volatile stocks and worsening surveys as insufficient evidence of a genuine economic crisis.

Q: How could systematic trading flows support a market recovery?

Goldman’s commodity trading advisers were net short for the first time since 2023, meaning much of their earlier selling had already occurred. The cited estimates suggested $14 billion of buying over one week if markets stayed flat, $19 billion on a rising market, and $45 billion over one month during a rally. This positioning could amplify upward price movement.

Q: Why are energy and copper important in the next phase of AI investing?

AI data-center expansion requires physical infrastructure and contributes to demand for energy and metals. Copper was rising amid a supply-and-demand imbalance, with additional support from Chinese spending and European defense development. Energy was also the best-performing sector despite oil trading near multiyear lows. These moves supported an AI thesis extending beyond the previous technology leaders.

Q: Which companies were identified as beneficiaries of the new AI regime?

The description identifies Chevron, Intel, Cisco, IBM, and Micron Technology as companies that could benefit from the next stage of AI. The investment case expands beyond the earlier AI trade toward energy, computing infrastructure, networking, established technology platforms, and memory. Jensen Huang’s two-hour GTC keynote was presented as important support for this broader market transition.

Summary & Key Takeaways

• The S&P 500 remained below its 200-day moving average, but improving daily price action, momentum, and breadth suggested that positioning was beginning to stabilize. The sharp decline had already discounted a major economic and earnings slowdown, while the index was down only 3.6% through the referenced week.

• Market weakness was concentrated in the Mag 7, which was down 14%, while the equal-weight S&P 500 was down 1.1% and the S&P 500 excluding the Mag 7 was approximately unchanged. Stable credit spreads, strong international equities, rising copper, and energy leadership supported the interpretation of rotation rather than collapse.

• The emerging investment regime centers on AI infrastructure, energy requirements, metals demand, international spending, and structurally important technologies. Jensen Huang’s GTC keynote supported the next-stage AI thesis, while Chevron, Intel, Cisco, IBM, and Micron Technology were identified as potential beneficiaries. Bitcoin also remained near its 200-day moving average.