Namely, the firm pointed out the circular financing between AI frontier companies and the manufacturers of AI equipment, the sector’s growing reliance on debt to finance the buildout and the brewing political backlash to AI’s deployment.
“So many factors have lined up to cause this great boom that it might take disruption in only one or two of them to shift this momentum into reverse, leading to a cascading, self-reinforcing unwind of this bull market and an abrupt change from FOMO to FOGO (fear of getting obliterated),” the letter said, according to the WSJ.
What to do in a bear market
A bear market is typically defined as a stretch in which equity prices drop 20% from their previous highs. It’s separate from market corrections when share prices fall only 10% from their past high.
Since Oct. 15, the Magnificent Seven stocks — Google, Amazon and Apple among them — have shed about $4 trillion in market value, Bloomberg reported.
Goldman Sachs trader Bobby Molavi observed in a client note that 60% of the S&P 500 benchmark is in bear market territory, as AI companies hold up a large share of the index’s growth.
Investment advisors typically suggest stockpiling enough emergency savings to cover basic expenses for three to six months, depending on the household size. It’s also worth reassessing risk tolerance if taking losses triggers emotional distress that begins weighing on sleep and overall wellbeing.
It’s difficult to forecast the end of a bear market, which occurs roughly every six years on average. Yet they do end at some point with financial markets reclaiming lost ground over the long run. The S&P 500 has increased by about 11% this year so far.
Stock boom post-midterms
Investors, though, showed no sign of cold feet on Wednesday. Instead, stocks jumped in a post-midterm election bounce following massive Democratic wins across the country that led them to recapture control of the House and Senate.
The Dow surged 1,500 points, or 3%, during Wednesday afternoon trading as investors absorbed the outcome of the election and poured new cash into financial markets, now that the balance of power in Washington has been decided. The S&P 500 was up about 130 points, or 1.7%.
“Stock markets up after election results. But what is most interesting is the composition. Health and solar up, data centers and Musk-related down,” Jason Furman, a former top economist to President Barack Obama, wrote in a post on X. “Crypto up may be the one I wouldn’t have expected. And note, markets presumably had already been pricing in large Democratic gains,” he said.
Joseph Zeballos-Roig is a policy and politics journalist based in Washington D.C with a focus on economics. He is experienced in connecting the significance of events in the capital to the lives of everyday Americans whether its taxes, tariffs, interest rates or federal programs.
