Market Update: AI Stocks, Market Rotation & Credit Spreads

This week got a lot more interesting toward the end.

AI-related stocks, semiconductors, and technology all came under pressure, but at the same time we finally started seeing some rotation into areas of the market that had been weak throughout September.

That is an important distinction.

The S&P 500 is still in an uptrend, breadth has started to improve, the advance-decline line held up relatively well, and the equal-weight S&P has started to bounce.

So for now, I still think the bigger picture is constructive.

That said, there are a few things I am watching closely.

The first is the AI trade. The Nasdaq and semiconductors are still above the major levels I care about, but the recent failed breakout is something I do not want to ignore.

The second is the bond market.

The 10-year Treasury yield came very close to a target I have been watching for months, and I would not be surprised to see some backing and filling from here before the longer-term trend potentially resumes.

The third, and probably most important, is credit.

Credit spreads have widened over the last couple of weeks, especially in areas connected to companies financing the AI and data-center buildout. I have already started moving toward higher-quality fixed income in some of the portfolios I manage.

I also discuss Friday’s unusual spike in volatility, what may have caused it, and one market-neutral strategy I am watching if the AI trade continues to unwind.

Topics Covered

• S&P 500 breadth and the advance-decline line
• Rotation away from AI and mega-cap technology
• Semiconductors, South Korea, and the Nasdaq
• The potential failed breakout in tech
• My outlook for the 10-year Treasury yield
• Why CTAs remain heavily short bonds
• What widening credit spreads may be telling us
• Why I have started upgrading credit quality
• Friday’s unusual VIX spike
• BTAL as a possible risk-management tool if high-beta stocks continue weakening

For now, I still think the market is in an uptrend, but I am paying a lot more attention to what is happening in credit than I was a few weeks ago.

As always, things can change quickly.

The ETFs, indexes, securities, and strategies discussed in this video are for illustrative and educational purposes only and do not constitute a recommendation to buy or sell any security. Please refer to the disclosures at the beginning and end of the video.

Matt Williams, CFP®
JTM Williams Capital Management

matt@jtmwilliams.com
703-782-3110
jtmwilliams.com

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