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How would you describe this market right now, especially with the S&P, which if you look at the last few months, has been in a pretty tight range? Um, good morning. You know, the S&P is actually holding up very well. It's very close to historic highs, but as you know, there's an incredible amount of turmoil lurking underneath as it tries to digest this wall of problems.
The costs of AI, how it will be funded, and even the growth rates of these advanced models. In addition to this, energy, which is very important but very unpredictable, because not only are prices high, but there are also two wars going on, and both, in Ukraine and in Iran, seem to be escalating. And I think this comes at a time when there is a lot of criticism about valuations.
So I think investor sentiment is negative. I know that sounds really scary, but to me, because the fundamentals are so strong, it's like a compressed spring. I think stocks will eventually overcome this, but we are in a time of great concern. I want to go back to the compressed spring metaphor, Tom.
Where do you see these opportunities now, especially when the focus has shifted to rotation within the S&P in recent trading sessions? I mean, if you look at semiconductor stocks compared to the S&P 500, there is a certain inverse correlation. So should this balance out and merge together so we can move higher and see this spring unfurl?
Um, well, I think the opportunities lie where investors have been actively exiting positions. You know, I've seen brokerage reports that hedge fund positions in AI, which were almost entirely overweight, have been almost entirely sold off. I think this, first of all, explains a significant part of the selling pressure.
But I also think that's where the opportunities lie, because the visible growth, the sources of the S &P earnings drivers—it's really AI and all the bottlenecks, and that's where the valuations are still quite reasonable. So , for me, despite the fact that people are somewhat afraid of it, I would venture into AI, semiconductors, the Magnificent Seven, and software.
These are companies working in the field of AI, as well as cryptocurrencies, which also fell under this sell-off. Imagine this. You check your portfolio and everything looks good. The S&P 500 is close to a record high. But behind the scenes, according to broker reports cited by Tom Lee, hedge funds have just exited almost all of their AI bets, almost all of them.
And at the same time, the war with Iran is pushing oil prices up. It's that calm that makes me anxious. So in the next few minutes, I'm going to show you what's really going on in this market. I will explain why the famous Wall Street bull says that this fear is actually a gift. And stay with me until the end, because one of the world's largest banks just made a move that most people completely missed.
The "bull" I'm talking about is Tom Lee. He's a managing partner at Fundstrat, and he's known for his optimism when everyone else is panicking. He recently appeared on CNBC, and here's what's interesting. He didn't start by calling everyone fools because of their fear. He agreed with them. He said there was a sea of problems bubbling beneath the surface .
People are concerned about how all these AI costs are paid for. They worry that the development of large AI models may slow down. Energy is expensive, and, in his opinion, the wars in Ukraine and Iran are only escalating. Add to this the cost estimates. Everyone is screaming that stocks are too expensive.
So, the market sentiment is quite negative. Honestly, at that point I was ready to hide the money under the mattress. But then he changed his tone. He said all this fear exists because of strong fundamentals, and called the market a compressed spring. Have you ever pressed a spring with your thumb? The harder you push, the more she wants to get even.
That's his whole idea. Fear is a thumbs up, and when the pressure is gone, stocks can soar. Okay, but if things are so great, why does the market seem stagnant? Hold on to that thought, because the answer lies in who exactly was selling. Here's something strange. The S&P hit a record high in early October, but it mostly moved sideways for several months.
This is what tug of war is all about . Recently, chipmaker stocks and common stocks have moved in opposite directions. Last month, the typical stock actually fell, even though the index rose slightly. It's like a family photo where everyone is smiling, but under the table two cousins are digging at each other.
So, who is "digging" here? This is where hedge funds come in again. Okay, I want you to make a decision right now. You manage a large fund. You hear that hedge funds have dumped almost all of their AI stocks. The news is disappointing. Everyone is nervous. Are you also selling or buying? Choose one.
Decide. I bet many people will make a mistake here. Tom Lee replied: buy. He said that hedge fund sell-offs explain the pressure on stocks, but that's where the opportunity lies. Why? Because, in his opinion, the real growth in S &P profits comes from AI and its related bottlenecks: chips, data centers, energy .
And he believes these stocks are still reasonably priced. So, in his opinion, the sale was not related to the business crisis. It was a purge of overcrowded deals. It's like everyone is running out of a restaurant because the person next to them left. The food didn't get any worse. People just panicked.
So he said he would invest in AI stocks, semiconductors, the Magnificent Seven, and software. And then he added something that surprised me: cryptocurrency. Wait a minute. Cryptocurrency is not exactly breaking records right now . Bitcoin had a strong September, but has slumped this month. Tom even admitted that crypto was caught in the same sell-off.
So why does he want her? He said that wars and political chaos help cryptocurrency. The only thing that isn't helping is the Fed, which isn't offering cheap money right now. Still, he called crypto's resilience impressive, but said the main driver is completely different, and this is the part I promised you.
Tom believes that Wall Street is starting to realize that the future of finance runs on blockchains. He said that BlackRock wants to create collateral through tokenized products on the blockchain, and Robinhood CEO Vlad Tenev said that tokenization will eventually engulf the entire financial system.
But here's the most important thing. On the day of that interview, JP Morgan launched its digital dollar, JPM Coin, on Ethereum. For reference: JP Morgan calls this a deposit token, not a stablecoin. Think of it as real-world bank deposits moving on the blockchain. Remember , this is a bank whose CEO once called Bitcoin a scam, and now is launching digital dollars on Ethereum.
To be fair, this is not their first move. JPM Coin has been on Coinbase's Base network since last year, but this is the first time it has run directly on Ethereum. It's like your uncle who spent years ridiculing online shopping and now has packages delivered to his doorstep every day. So why all this?
Tom's answer: calculations. He believes that transferring funds via blockchains can be faster and more secure, and argues that a significant portion of real-world action underlies financial transactions. Even if a small portion switches to blockchains, the opportunities will be huge. So, let's summarize.
The market looks scary due to war, expensive energy, concerns about AI costs, and high valuations. According to reports cited by Tom, the sell-off was driven by hedge funds closing popular AI deals. He calls it a compressed spring because he believes fear puts pressure on strong fundamentals. What about the silent giant?
Large banks are starting to build their systems on blockchains. Just remember, Tom Lee is known for his optimism, and no one guesses the market every time. This is not financial advice. Think carefully about your situation. Here is the main conclusion in one sentence. As everyone runs for the exit, ask yourself if the building is really on fire.
If this made the market situation a little clearer for you, subscribe. I'm breaking these things down so you don't have to . And next time, I'll show you the AI action that everyone is ignoring and that may be quietly at the center of it all .
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