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What just happened? In just 27 minutes, the Nasdaq 100 just fell -1,000 points and the S&P 500 erased -$1 TRILLION without any major headlines. The Nasdaq opened +1% higher then fell -3% between 9:30 AM and 9:57 AM ET. What does it all mean? Let us explain. (a thread)
Take a look at the chart below. At 8:30 AM ET, PCE inflation came in at 4.1%, which was followed by the Apple price hike news. At 9:30 AM ET, the Nasdaq 100 was up nearly +1%, then fell -3.5% before 10 AM ET on minimal news. Dip buyers are now attempting to form a bottom.
First, PCE inflation is now officially up to 4.1%, the highest since April 2023. Inflation is more than double the Fed's 2.0% target, and PCE is the Fed's preferred metric. But, this news did NOT drive markets lower today. In fact, futures were higher after the data.
This was followed by news that Apple, $AAPL, raised prices on Macs and iPads by up to +25%. Tim Cook said soaring chip costs made the hike "unavoidable." This was the first big sign of what we are calling "AI-flation." Inflation due to AI is being passed on to consumers.
Following the news, Apple stock, $AAPL, fell nearly -6% in a matter of minutes. This erased -$220 BILLION in market cap and we believe it led to the panic selling seen at the open. Why? Because a tremendous amount of uncertainty exists amid record levels of risk appetite.
The reality is that uncertainty in markets is arguably at some of the highest levels in history. And, the same goes for risk appetite. Investors know AI is the next big thing, and no one wants to miss "the next big thing." But, uncertainty is a major byproduct of innovation.
After the news of Apple's price hikes, investors began considering industry-wide implications. If inflation is above 4% and tech giants are starting to raise prices, what does this mean for the US economy? And, what does it mean for interest rates? Rate hike odds are rising.
Adding fuel to the fire is the ongoing carnage in crypto. In 60 minutes, amid the reversal in stocks, nearly $500 million worth of levered crypto longs were liquidated. This sent Bitcoin to $58,000 for the first time in 21 months. And, leverage is now a market-wide issue.
AUM in a single 3x levered Nasdaq 100 ETF is up to ~$40 billion. At the same time, AUM in the 3x Leveraged Long Semiconductor ETF, $SOXL, are up to a record $34 billion. Since April, these figures are up +200% and +300%, respectively. Leverage amplifies market swings.
In Asia, it's even worse. South Korea and Taiwan are now both part of the top 10 largest stock markets in the world amid the AI run. Meanwhile, AUM in leveraged South Korean and Taiwanese ETFs is up to a record $65 billion. YTD, total leveraged ETF AUM has surged +490%.
Sum this all up and we believe volatility is here to stay. We have record leverage, rising inflation, tons of uncertainty, and one of the biggest technological revolutions of all time. This presents tons of opportunity to capitalize on the broadening swings in the market.
Unusual times lead to unusual swings in the market, and the S&P 500 is swinging trillions in market cap. Our subscribers are capitalizing on it. Want to access our premium research? Subscribe at the link below to access our latest analysis and alerts: <a target="_blank" href="http://thekobeissiletter.com/subscribe" color="blue">thekobeissiletter.com/subscribe</a>
Lastly, we must recognize how quickly market structure is changing. Micron, $MU, has gone from $60B to $1.3T in just 15 months, with SanDisk, $SNDK, up +5,000%. Volatility always comes with change. Follow us @KobeissiLetter for real time analysis as this develops.
BREAKING: Crypto sees $450 million worth of levered long positions liquidated in just 60 minutes. Amid the liquidation, Bitcoin fell to $58,000, a fresh 21-month low.
Ladies and gentleman, the Nasdaq 100. What a chart.
BREAKING: The Nasdaq 100 erases all gains and turns negative after falling over -2% in 30 minutes.
