AI Spending Doubts Trigger Tech Rout; Monday Futures Point to Bounce – Try the Escarole Soup

Things You Need to Know

• Friday’s AI-cost anxiety crushed tech (Nasdaq -2.9%, semis -8.2%), AMZN holding up better than feared.
• Rotation showed up in defensives, bonds, and a late oil drop on Iran-US diplomacy hopes; gold sold off for liquidity despite the risk-off tone.
• This morning futures are higher., oil down, bonds up, gold up
• AAPL and PLTR after the bell.
• Try the Escarole Soup.

So, remember what I said Friday morning…It was the Friday before Halloween. It was month end. Geopolitical tensions, midterm election anxiety and disappointing tech earnings already had investors on edge…and then AMZN and INTC gave them another reason to hit the SELL button.

Tech got smacked as investors confronted the question that just won’t go away…Who pays for the AI revolution while we wait for it to pay for itself?

The promises are enormous…but so are the bills. Investors want to know how long they have to wait before all this spending produces an acceptable return. Friday’s results did little to settle that argument…and the selling spread. Crowded tech positions took the hardest hit.

XLK plunged 4.9%, Semis lost 8.2%, Cyber fell 3.8%, Disruptive Tech dropped 6.1%, Memory names sank 7.2%, Software gave back 3.4% and Quantum names tumbled 7%.

Think about that…an 8.2% hit to the semis in ONE session. That tells you how quickly enthusiasm can turn into anxiety when the bills keep growing and the answers fail to satisfy.

At 4 pm, here’s what the damage looked like…the Dow lost 1.1%, the S&P gave back 1.8%, the Nasdaq Composite plunged 2.9%, the Russell lost 1.7%, the Equal Weight S&P fell 0.8% and the Mag 7 gave back 1.7%. The Transports bucked the trend, rising 0.5%.

But look beneath the headline numbers…the Equal Weight S&P lost less than half as much as the traditional, market-weighted index, while the Transports actually advanced.

Six of the 11 sector ETFs advanced, including energy, staples, utilities and healthcare.

That still supports rotation—but don’t turn that observation into an all-clear. Nasdaq decliners outnumbered advancers roughly three to one. Selling pressure was real, even with defensive sectors providing shelter.

And the issue goes beyond a few earnings misses. The advertising, retail and consumer businesses financing these enormous AI ambitions are under increasing scrutiny. Remember…these companies are looking to spend $750 billion this year on AI. Investors need confidence that the businesses footing those bills can keep generating cash.

Those businesses don’t have to collapse to disappoint. When expectations are sky-high and stocks are priced to perfection, even a modest shortfall can force a reassessment of earnings, cash flow and how long shareholders must wait.

Now, plenty of people pointed to AMZN as ONE reason for Friday’s pressure…but let’s be fair. That report was hardly a disaster. AWS grew nearly 40%, and Amazon delivered a record operating margin. Yes, advertising growth slowed, but Andy Jassy pointed to timing issues and expects growth to accelerate again in the fourth quarter. Those details matter.

Still, in a market already questioning the cost of AI, those strengths weren’t enough to prevent an initial selloff of 6% leaving some investors completely frazzled…. Fair enough. But to suggest AMZN’s business is falling apart? Don’t be ridiculous.

The move sent the stock plunging through its long-term trendline, before recovering much of that decline to finish down just 1.4%. This morning, it’s quoted up another 1%—putting it within striking distance of where it stood before Friday’s selloff.

Anyone that sold into the opening flush on Friday is kicking themselves – and that’s the danger of letting the market’s anxiety dictate your timing.

Which is why I told Liz Claman…I wasn’t doing anything on Friday. An anxious day is no reason for a long-term investor to make an emotional decision. Traders will trade…and that’s their business. I’d rather let the dust settle, assess the damage and then decide where to put money to work.

Remember…you don’t HAVE to do something in the middle of everyone else’s panic.

INTC was a different story…although even here, the distinction matters. Third-quarter revenue rose 21%, margins improved and data-center growth was the strongest in 15 years. The trouble was what came NEXT.

PC revenue fell short of expectations, management sees that weakness extending into the first half of 2027, and fourth-quarter guidance pointed to lower revenue and earnings than the quarter just reported. Add manufacturing constraints and continued investment, and investors had real reasons to question the pace of the recovery.

Did that justify wiping nearly 29% off the stock in one day? I’m not sure…and to be clear, I do not own it. But INTC gave investors reasons to reassess what they were willing to pay for that recovery. The stock is quoted another 0.6% lower this morning. The chart suggests it should find support in the $60–$65 range.

And then there was META…and the possibility of a credit-rating downgrade from S&P Global Ratings.

To be clear…a potential downgrade is NOT an actual downgrade. But it brings the balance-sheet question into focus. How much spending can META support, what does that spending leave for free cash flow and how much financial flexibility remains if results disappoint? Those are questions a credit-rating agency should examine.

This is in addition to the circular-financing concerns out there. When suppliers (NVDA, AMD, AVGO) help finance customers (META) who then purchase their equipment, investors need to understand the terms and the exposure of that financing.

I’m not saying that those arrangements automatically invalidate demand. But they do make the financial relationships more intertwined…and investors have every reason to understand the circle.

Next up bonds…..The TLT gained 0.4% while the TLH gained 0.5% as investors ran into the safety trade. The 10-yr ended the day yielding 4.92% and this morning it yielding 4.90%. The 30-yr ended the day at 5.30% and this morning it is yielding 5.28%. Yield are down substantially off their highs…. The 10 yr down 8.5% off the high while the 30-yr yield is down 8% off its high.

And oil added another headache. WTI rose 2.1% to $104.12. Ongoing middle east geo-political concerns kept supply concerns front and center. But this morning, that has all changed…. WTI is down $4.75 at $99.40 as renewed diplomacy between Iran, and the US takes some of the fear out of the price. Qatari mediators worked all weekend, raising hopes that a solution could be at hand and that is giving the trader types a reason to hit the sell button and lock in profits. But remember – talks are just talks, they are not a deal, supply risks remain and all we need is another threatening headline and up we go.

Gold – well it got hammered…..falling 3.3% to end the day at $3898…..that’s right – we are now in the 3800’s….. With tech getting hammered, investors started selling gold to raise cash and possibly meet margin calls. Remember—when you need money, you sell what you CAN sell, not necessarily what you want to. Gold can get caught in that cycle, even when the headlines would suggest otherwise. In the end the need for liquidity overwhelmed its otherwise safe-haven appeal. We are now in the $3500/$4200 trading range.

Eco data today includes – S&P global US Manufacturing PMI – expectation of 56 – well into the expansion zone. ISM Manufacturing of 54.5- also in the expansion zone. We will also get Prices Paid of 77.2 and if that is the case, it will be down from last month’s 77.9 – and that is a positive.

Most of today’s earnings reports come out after the bell. And there are a few that need your attention. APPL, PLTR, VRTX, FANG, WMB, – and they represent Consumer Tech, AI/Data analytics/software, Biotech, Oil exploration and midstream energy – think nat gas pipelines.

AAPL and PLTR will take center stage as investors look for them to steady their nerves after Friday’s tech wreck.

European markets are all higher…

US futures are higher…. Dow futures up 270 pts, S&P’s up 35 pts, the Nasdaq up 215 pts while the Russell is up 18 pts.

The S&P closed at 7,580 – down 140 pts – down 3% off the highs. We busted down thru the intermediate term trendline at 7,610 to test as 7,527 – leaving us in the 7500/7800 trading range that we have been discussing.

Look – I suspect this could be another volatile week – more earnings and the mid-term elections…are upon us…. ongoing geo-political concerns remain front and center…The VIX which jumped 12.9%, to close at 19.42 after testing as high as 23.88 and that suggests a bit of discomfort. This morning it is down 1.4% but is still above all 3 trendlines and that suggests an elevated level of angst.

If you’d like to discuss your goals, evaluate the risk in your portfolio or simply get a second opinion, give me a call at 561-931-0190 or better yet – click on this link to connect. https://slatestone.com/contact-us/

I’m always happy to provide a complimentary portfolio review and risk assessment.

Take good care,

Kp

[email protected]

Source: Bloomberg, CNBC, Reuters, Wall Street Journal

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