The get together cannot final ceaselessly.
Friday’s rally in inventory markets — notably in chip shares — stunned me. The Fed was hawkish and inventory market offered off throughout the FOMC press convention as bonds priced in a more-hawkish fee path. That each one made good sense however then shares instantly turned after the shut and hit information on a couple of fronts on Thursday.
The market is closed right now and futures are a tad decrease nevertheless it was a shocking reversal. The one seen catalyst was Trump signing the MOU with Iran however the market has rallied on that very same headline dozens of occasions.
What has me apprehensive is valuations. This is a worrisome chart from Grant’s:
What’s even-more worrisome is that the P/E of the S&P 500 is about to spike as a result of earnings are going to crater in 2026 due to the capex increase from the hyperscalers. Now, a lot of that spending will trickle all the way down to different names however the large earnings from mecacap tech are gone as long as they preserve spending greater than they’re making on knowledge facilities and chips.
The issue is that corporations are starting to query AI spending. The mania round it’s fading partly as a result of even builders are hitting partitions. Speaking to contacts in Silicon Valley, the code that comes out of Claude and Codex is close-to-great however by no means nice. It is like they’re reaching for the rainbow however can by no means fairly grasp it.
That close-to-great has been seductive for managers however they’re now discovering out that it might probably by no means get to the end line and is a perpetual tease. Furthermore, bringing folks into the loop to repair it’s usually simply as costly as doing it the old school manner.
I additionally suppose we’re on the level the place among the capex will get reigned in. For starters, there’s a great quantity of overspending and that by no means lasts however we might additionally see somebody — most likely META — bow out of the race. Now that might be subsequent month or subsequent yr however I believe it is the catalyst that causes a tech bear market.
For now, I retain some skepticism on this post-Fed rally however we’ll see what Monday brings.
