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“With artificial intelligence, we are summoning the demon.” – Elon Musk, October 2014.
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
In what you would expect for a Monday in mid-September, US equity futures are lower this morning, with the S&P 500 indicated to gap down 0.6% while the Nasdaq is down more than double that, looking at a decline of more than 1.5%. The primary catalyst for the weakness are calls over the weekend from leaders of the major AI labs that there should be a slowdown of AI development, as the potential dangers are becoming to large to ignore.
Besides the AI fears, crude oil is sharply higher, with both Brent and WTI trading up over 3% and each well over $100. Gold prices are down 1.7% while Bitcoin is fractionally higher at just under $78K.
In Asia overnight, stocks were lower. The Nikkei fell 0.8% while the KOSPI fell 3.3%. Given the fears over AI and the delayed IPO of OpenAI, shares of SoftBank fell over 10%, and semi stocks, more broadly, were sharply lower.
In Europe, equities are faring much better. The STOXX 600 is down 0.2%, but performance at the country level is mixed, with Spain and the UK firmly higher while France falls over 0.5%.
Treasuries will be an interesting area to watch, not just ahead of Wednesday’s FOMC meeting, but also as a secondary read on the AI trade. If the calls from the leaders of the major AI labs to slow development was really going to lead to a slowdown in investment, it should lead to lower demand for credit and therefore lower rates. This morning, the 10-year yield is unchanged at 4.975%.
A 1%+ decline to start the trading week is never fun. For some perspective, though, since the Nasdaq 100 ETF (QQQ) first started trading in 1999, there have been 544 days when it gapped down at least 1% which works out to about 8% of all trading days or an average of once every three weeks. Over the last year, today’s downside move will be the 23rd downside gap of at least 1%, and just over half of those (12) have occurred since the start of June. As much as they trigger the fear instinct in our minds, they’re pretty common.
If you’re wondering whether investors will step in to buy the dip on this morning’s weakness, the odds aren’t in your favor. Of the 544 1%+ downside gaps, 102 occurred on a Monday, and QQQ’s average performance from the open to close was a gain of just 0.08% with positive returns 48% of the time. That ranks as the weakest open-to-close performance for any day of the week, and the only other day of the week when the S&P 500 didn’t trade higher from the open to close at least half of the time was on Thursday (46%). Even over the last year, investors haven’t been especially eager to buy the dip, as QQQ’s average performance during the trading session was a gain of just 0.05%, with positive returns exactly half the time.
Just looking at the Nasdaq 100 using QQQ as a proxy, today’s rally does nothing to alter what has already been a gradual downward trend of lower highs and lower lows. If the weakness at the open accelerates during the trading day, that would change the picture, but for now, we’re still basically in a pattern that you would expect for this time of year.
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