Can the Stock Market Survive a Tech Meltdown? | WAYT?

The Two-Day Market Blowup [00:06:55]

• Wednesday and Thursday saw a massive liquidation event, with 57 S&P 500 stocks falling over 10% in just two days.
• Tech and industrials bore the brunt of the selling pressure, with 32 tech stocks and 12 industrial stocks accounting for the bulk of the decline.

  It was a two-day blowup that was equal to the tariff Liberation Day blowup.

NVIDIA's Relative Resilience [00:08:00]

• Despite being at the center of the AI narrative, NVIDIA outperformed many other semiconductor stocks during the sell-off.
• NVIDIA still experienced a significant 12% decline over the two-day period, highlighting the sensitivity of high-valuation stocks to negative sentiment.

  I would expect this to hold up the best, no?

Sector Rotation and Stability [00:09:00]

• Unlike previous sell-offs where almost every asset class fell, this correction saw gains in insurance, pharmaceuticals, and consumer staples.
• Six sectors remain within 3% of their all-time highs, indicating that the negativity is isolated to specific tech subsectors.

  This one, we actually see some sectors that are showing leadership.

Forward Earnings Trends [00:11:00]

• Forward earnings are updated daily by analysts, providing a real-time view of market expectations that differs from quarterly trailing data.
• NVIDIA's forward earnings estimates actually hit an all-time high on the Friday following the sell-off.

  So what's great about forward earnings is you can view it in real time.

The Broadening of Earnings [00:13:00]

• For the first time in four quarters, the '493' (S&P 500 excluding Magnificent 7) are expected to outpace the Magnificent 7 in year-over-year earnings growth.
• Analysts expect 32.6% growth for the 493 compared to 22.6% for the Magnificent 7 this quarter.

  This is the first quarter in the past four where the other 493 are actually expected to outpace the MAG-7's earnings growth.

Earnings Revisions and Price Ratios [00:14:30]

• The ratio of forward earnings for the 493 relative to the Magnificent 7 bottomed on August 31st and has been rising.
• Price performance is currently tracking these upward earnings revisions, suggesting fundamental backing for the broadening trend.

  There's actual earnings to back up the story of the 493 in the broadening.

The 'Beat and Sell' Phenomenon [00:16:00]

• Four of the six Magnificent 7 stocks that reported earnings this quarter beat expectations but still saw their stock prices fall by an average of 3% the next day.
• This trend is viewed as a negative signal, suggesting that the 'wall of worry' is growing among investors.

  A beat and a sell-off, the conventional wisdom would say, like, yellow light, right?

Key Man Risk at NVIDIA [00:18:30]

• Jensen Huang is identified as having significant 'key man risk' for NVIDIA, similar to Elon Musk's role at Tesla and SpaceX.
• Recent news regarding leadership conduct has added volatility to the stock, which has fallen nearly 30% from its all-time high.

  Outside of Elon Musk, I would think that Jensen is number two for key man risk.

Accuracy of Forward Earnings [00:20:00]

• Historical analysis shows that forward earnings estimates for NVIDIA have been surprisingly accurate, with actual trailing 12-month earnings often exceeding projections.
• Discrepancies between price growth and earnings growth are common, but the track record of analyst estimates remains robust.

  And actually, the actual trailing 12-month earnings have come in above the estimates.

Value vs. Growth Dynamics [00:21:30]

• Value stocks recently outperformed growth by the widest margin since 2000, creating a significant shift in market leadership.
• The sustainability of this rotation depends on whether the AI trade has truly peaked, a question that remains unanswerable.

  If the AI trade has peaked, then you're, sure, value will continue to outperform.

The Composition of Value [00:23:00]

• The S&P 500 Value index contains a significant allocation to technology, making its performance closely linked to the broader index.
• Index construction can lead to counterintuitive results, such as Tesla appearing in value indices depending on the methodology.

  In what universe, I guess this universe, is Tesla a value stock?

Lessons from the Dot-Com Bust [00:26:00]

• During the dot-com aftermath, tech and communication services fell 70%, while the rest of the market remained relatively stable.
• Many sectors, including staples and financials, saw a high percentage of stocks trading higher at the market low than at the peak.

  The rest of the market was up 3%. And in fact, like before the puke at the bottom, the rest of the market was up almost 40%.

NASDAQ Catch-Up Potential [00:29:00]

• Historically, when the equal-weight S&P 500 hits a new high while the NASDAQ 100 is in a 10% correction, the NASDAQ tends to catch up.
• Excluding the tech bubble, the NASDAQ 100 has historically gained an average of 21.6% in the 12 months following such signals.

  The NASDAQ historically catches up to the equal weight and subsequently makes a new all-time high.

Market Reaction to CPI [00:31:00]

• A 'hot' CPI print led to a rise in Fed funds futures and a repricing of interest rate expectations.
• Data suggests that when stocks rise on a 'hot' inflation print, the forward three-month return for the S&P 500 is positive 91% of the time.

  The best-case scenario for today, I think he would say to me, is, like, a hot CPI report, and the market actually finishes positive.