Wednesday's Market Minute: Things Are Getting Pretty Insane

I don’t think people quite appreciate how insane things are getting.

Nvidia NVDA is one thing – Jensen Huang has always been an incredible showman, the numbers are good, and the company has been steamrolling the sector for a decade. Fine. How about Broadcom AVGO? We haven’t even seen their earnings yet, and the 25-year-old stock is surging like it’s the latest Covid SPAC.

Let’s go into that time machine for a minute. One popular refrain during the Covid bubble was that all the stuff going bananas in EVs, crypto, metaverse, etc., was that at least the madness was being contained to a few niche areas that wouldn’t have an impact on the broader market when they inevitably went bust. You certainly can’t say that today, with the charts going vertical belonging to trillion-dollar companies and pillars of the mega-cap world. When the AI hype reverses, it’s going to hurt.

Without broad participation across the market, this type of hyper-concentrated leadership in the biggest names creates something of an asymmetric skew in the market. The upside for the S&P 500 has actually stayed pretty limited because very little outside the AI halo is working, but if the AI hangover is bad – and the sectors currently in the backseat don’t roar higher – the selloff could be particularly brutal.

Having all the generals on the front line and charging should be inspiring, but there’s no plan B if they fall. It’s like playing poker at stakes you can’t afford and jamming ace-king all-in before the flop. It’s not an unreasonable play and often works, but if it doesn’t, you got nothing left (crucially, not even the right to complain, as you would if you ran bad with aces).

Something else odd may be related. The bond market’s rally on Tuesday was pretty bizarre. It’s just a day, but it’s very out of place with the circumstances. The odds of a Fed hike have been surging, and progress on the debt ceiling should be negative for safety assets like bonds. Either the debt ceiling isn’t resolved yet, or maybe bonds are sniffing out a comedown for stocks.

If the S&P 500 can stay above 4,200, bulls probably don’t have anything to worry about in the short-term. But that doesn’t mean things aren’t getting a bit nutty.

Image sourced from Shutterstock

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.