Tale of Two Markets

It is the best of times for a handful of mega-cap tech giants, but for the average stock on Wall Street, it is decidedly the worst of times.

It seems almost impossible, but as of the close on October 8, the S&P 500 is a mere 0.7% below it’s all time high, yet approximately 68% of the S&P 500 stocks were trading below their 50-day moving average and 53% were trading below their 200-day moving average.* (50 trading days is approximately 2.4 months and 200 days is about 9.5 months.)

The stock market has been massively concentrated. The 30 S&P stocks that with the highest returns year to date account for the entire YTD increase in the S&P 500 and to make it into the top 30, the YTD return had be at least 82.8%. Of those 30 stocks, 22 are classified as Information Technology; 4 are classified as Energy companies (primarily refiners); two are classified as industrials (both related to AI) and 2 are classified as Health Care, both linked to AI.*

The trade remains all about AI, pretty much to the exclusion of everything else.  If you only owned the other 470 stocks, you’d be about flat for the year and 211 of the 500 stocks would be down year to date.** The stock market is strong as judged by the index value, but appears increasingly fragile underneath the AI trade. This is not a typical set up for a strong move higher from here, but anything that brings interest rates down (war resolution, lower energy prices, leading to lower inflation expectations) could still be a strong catalyst for the stock market in the near term.

The economy is strong on the back of the AI build out. Employment remains strong so consumer spending continues apace and that strength will tend to keep upward pressure on interest rates which will increasingly take a bite out of economic activity. The 10-year and 30-year treasury auctions went better than expected and that has taken some near term pressure off of interest rates, but demand for capital from the Treasury demand and datacenters remains strong and that combination should keep rates from declining too far. There is no end in sight in Iran and Ukraine continues to hit Russian refining assets, which should maintain inflationary pressures for the time being.

For now, everything hinges on the AI buildout. If that falters, the dominoes could begin to fall. This is a time where emotions look to load up on AI, but diversification is the proper tool. Market corrections are a fact of life and as unpleasant as corrections can be, they also give rise to new opportunities.

Have a great week!

* Source: Bloomberg, 10.8/2026, ** Source: Koyfin, 10/8/2016

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All information has been obtained from sources believed to be dependable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that no such statements are guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Past performance is no guarantee of future returns.

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By: Adam