Cautious on risk

I’m getting cautious on risk today, as ES made a lower high and the most speculative parts of the market sold off heavily yesterday on very little news. The end of the government shutdown was a positive catalyst that is now in the rearview mirror. The Fed looks set to increase the size of its balance sheet in December, but so many people are talking about it that it’s probably priced in already.

The market continues to question how long the AI bull market can last. The math on how the hyperscalers and AI companies will generate enough revenues to support their capex spending doesn’t add up. Credit spreads on Coreweave and Oracle widened out yesterday, as the market sees those names as highly leveraged to the AI capex cycle.