After a stellar and persistent run in the stock market between the tariff-driven selloff in April and the start of November, stocks and other risk assets are experiencing a correction. Between April and the start of November, the S&P 500 gained an incredible 42% and the Nasdaq 100 nearly 60%. A little pullback after that is normal and healthy, as periods of digestion like this are historically favorable to an enduring bull market.
As of now, there is no reason to believe this is anything more than a garden-variety correction, and certainly not the end of a bull market or bursting of an AI bubble. This action appears to have been driven largely by investors simply rotating out of the more speculative corners of the market. Frankly, some of those areas, particularly around quantum computing, crypto, and the more extreme ends of the AI-infrastructure complex, had become extremely frothy in recent weeks. A shakeout like this, though harsh for those investors, is ultimately a reality check.
But investors should not take their eye off the ball. There is a tidal wave of liquidity coming that will push this market higher over the next year. All three major liquidity engines, namely AI capital expenditures, massive US fiscal spending deficits, and a Federal Reserve that is on the verge of further monetary stimulus, are trending higher at the same time. That combination is unequivocally bullish.
In this piece, I’ll walk through why the market is selling off, why this is not the start of a bear market, where the pain is concentrated, what is holding up, and where the strongest opportunities are emerging.
Keep reading . . .
------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------
Why Is the Market Selling Off?
ChatGPT said:
There hasn’t been a single obvious catalyst. Some are pointing to the end of an AI bubble, but that doesn’t hold up against the actual news flow. In fact, several recent developments have been encouraging: the government finally reopened after the longest shutdown in history, the president rolled back portions of the tariffs that triggered the April selloff, and there have been no major earnings collapses or recessionary data prints. In reality, there’s been barely any data at all, yet the market has sold off sharply.
Understanding why stocks are down is important, because it tells us why this is likely to remain a temporary setback.
The government shutdown not only delayed data releases but also disrupted the collection process, creating legitimate gaps in visibility. That uncertainty alone can make markets uneasy. Additionally, concerns of an AI bubble have become extremely vocal, something I cover more in depth farther down.
But those effects acted more as catalysts than causes. The bigger driver has been changes in liquidity. When liquidity is abundant, markets rally on both good and bad news. When liquidity tightens, even minor negative headlines hurt.
Following the most recent Federal Reserve meeting, the Fed did cut interest rates, but Chair Powell signaled a more patient approach going forward. Markets have been flat to lower since then. Expectations for another cut at the December meeting collapsed from near-certainty to essentially a coin flip and that shift pulled liquidity out of financial markets and temporarily created a more vulnerable environment.
Importantly, this does not indicate a new bear market regime.
The Fed has ended its Quantitative Tightening program. Labor data, while sparse lately, continues to soften just enough to matter for policymakers. Inflation risks still exist, so it makes sense that the Fed wants optionality, but the direction of travel remains toward easing. I lean toward a December rate cut, but even if they hold, cuts are coming and monetary liquidity is cyclically turning up, not down.
AI Bubble Concerns Are Overblown
You hear skeptics calling the AI boom a bubble every day. There is still limited evidence of that. Yes, there are speculative pockets. Yes, some investors chased the thematic extremes. But broad valuations are nowhere close to bubble conditions.
Nvidia trades at roughly 41x forward earnings, which is elevated but not absurd given its structural position. The S&P 500 trades at 22.4x forward earnings versus a long-term median of 18.2x. The Nasdaq 100 trades at 27.6x versus a historical median of 24.3x. These numbers simply do not support a bubble thesis.
The problem is that bearish narratives get airtime during market pullbacks, which makes them appear validated.
The AI boom is far more nuanced. One real discussion emerging is around efficiency. If AI hardware becomes dramatically more efficient, more tokens per watt, data centers may eventually require less buildout than some thought. That could moderate the most extreme infrastructure bull-case scenarios.
But this is still a positive development.
Efficiency means AI tools become cheaper, easier to deploy, and more widely usable. That accelerates adoption and allows businesses to integrate AI across their operations. Meanwhile, the major AI labs continue to pursue extremely ambitious roadmaps. They still believe they need enormous compute power. So the current trend, huge capex spending, is unchanged.
In short: there are pockets of froth, but the AI adoption cycle is real, early, and strengthening.
What Is Selling Off and What Is Holding Up?
The hardest selling is in the speculative areas: quantum, crypto miners, and the more extreme ends of AI-thematic investing like neocloud companies. These are the parts of the market most sensitive to liquidity swings and investor sentiment. They also ran the hardest on the way up.
Meanwhile, defensive sectors such as energy, healthcare and utilities have been performing extremely well and actually started perking up months ago. That may have been an early sign that investors were getting cautious. Should investors add defensives now? Possibly, but this is tactically better done ahead of a selloff, not after. Still, balanced portfolios always benefit from owning high-quality defensive businesses.
The more interesting story is the relative strength in some mega-cap leaders. Apple and Alphabet are showing tremendous resilience. Microsoft too. Apple avoided the AI-capex arms race altogether. Alphabet and Microsoft have positioned themselves exceptionally well across AI models, enterprise adoption, cloud integration and are managing the capex strategically.
Meanwhile, several AI infrastructure leaders have pulled back but not in a way that disrupts the broader trend. If you do not buy into the “AI bubble” idea – and I do not – then these resets should be viewed as opportunities. The next leg of leadership is likely to come partially from leading AI players, who still have long, durable demand pipelines, and also from what I call the AI implementers, businesses integrating AI tools directly into their operations to drive immediate bottom-line efficiency gains.
Those are the companies that will shine as AI becomes less conceptual and more embedded in everyday business operations.
Those Who Keep a Cool Head Will Prevail
No one knows exactly what happens next. But the core drivers of this bull market remain intact. Liquidity is trending higher. AI adoption is accelerating, not slowing. Fiscal spending is enormous. Monetary stimulus is re-entering the picture.
Those who were positioned too large or levered in the most speculative assets, like quantum, miners and certain AI-thematic trades, are learning a hard but timeless lesson. Higher returns come with higher volatility. Successful long-term investing requires diversification across themes, disciplined risk management, and the ability to stay calm during shakeouts.
This pullback does not mark the end of the bull market but rather is likely setting up the next leg higher.
And for investors who stay focused on quality, liquidity trends, and the structural forces shaping this cycle, the opportunities emerging right now could be among the strongest of this bull run.
Targeting Long-Term Gains in the AI-Driven Market
To help you make the most of this historic investing opportunity, we've opened up our Zacks Investor Collection, which gives you access to recommendations from all of our long-term investor portfolios. It's made for markets like this.
Over the next 30 days, for the total cost of only $1, you're invited to enjoy, including...
• Real-time buys, sells, and exclusive market commentary from Stocks Under $10, Home Run Investor, Value Investor, ETF Investor, and Income Investor.
• Plus, you'll get full access to our powerful research, tools, and analysis, including the Zacks #1 Rank List, Equity Research Reports, Premium Screener, and more, as part of Zacks Premium.
These portfolios have closed 48 double and triple-digit wins so far this year. Although we can't guarantee every pick will be a winner, recent gains have reached as high as +121.9%, +163.6%, and +198.4%.¹
Bonus Report: If you act quickly, you'll also get our exclusive Special Report, High-Yield ETFs: 4 to Buy Now. Zacks' Director of ETF Research just identified the high-yield funds that blend peace of mind with substantial returns. One fund gained a whopping +286% in under 6 months. The following 6 months may be just as profitable.
So please don't wait - be sure to click below right now. This restricted $1 opportunity ends at midnight Sunday, November 23.
Click here for Zacks Investor Collection and High-Yield ETFs: 4 to Buy Now >>
All the best,
Ethan
Ethan Feller has a decade of experience trading in markets. He graduated from Ithaca College with a BA in Economics. Prior to joining Zacks, Ethan worked at a proprietary trading firm where he focused on statistically significant short-term trading strategies in stocks and futures. He invites you to check out all of Zacks’ long-term picks for 30 days for only $1.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.
Image: Bigstock
AI Bubble Fears Are Overblown - Here's What Happens Next
After a stellar and persistent run in the stock market between the tariff-driven selloff in April and the start of November, stocks and other risk assets are experiencing a correction. Between April and the start of November, the S&P 500 gained an incredible 42% and the Nasdaq 100 nearly 60%. A little pullback after that is normal and healthy, as periods of digestion like this are historically favorable to an enduring bull market.
As of now, there is no reason to believe this is anything more than a garden-variety correction, and certainly not the end of a bull market or bursting of an AI bubble. This action appears to have been driven largely by investors simply rotating out of the more speculative corners of the market. Frankly, some of those areas, particularly around quantum computing, crypto, and the more extreme ends of the AI-infrastructure complex, had become extremely frothy in recent weeks. A shakeout like this, though harsh for those investors, is ultimately a reality check.
But investors should not take their eye off the ball. There is a tidal wave of liquidity coming that will push this market higher over the next year. All three major liquidity engines, namely AI capital expenditures, massive US fiscal spending deficits, and a Federal Reserve that is on the verge of further monetary stimulus, are trending higher at the same time. That combination is unequivocally bullish.
In this piece, I’ll walk through why the market is selling off, why this is not the start of a bear market, where the pain is concentrated, what is holding up, and where the strongest opportunities are emerging.
Keep reading . . .
------------------------------------------------------------------------------------------------------
Navigate Today’s Market with Zacks’ Private Long-Term Picks for Only $1
Starting today, for one month, you can follow these exclusive portfolios in real time from the best stocks under $10 to Warren Buffett-style value plays to high-paying dividend stocks. While future success isn’t guaranteed, recent gains have reached as high +121.9%, +163.6%, and +198.4%.¹
These picks are based on the system that has more than doubled the market since 1988 (including bear markets).
Total cost $1. No gimmicks.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Why Is the Market Selling Off?
ChatGPT said:
There hasn’t been a single obvious catalyst. Some are pointing to the end of an AI bubble, but that doesn’t hold up against the actual news flow. In fact, several recent developments have been encouraging: the government finally reopened after the longest shutdown in history, the president rolled back portions of the tariffs that triggered the April selloff, and there have been no major earnings collapses or recessionary data prints. In reality, there’s been barely any data at all, yet the market has sold off sharply.
Understanding why stocks are down is important, because it tells us why this is likely to remain a temporary setback.
The government shutdown not only delayed data releases but also disrupted the collection process, creating legitimate gaps in visibility. That uncertainty alone can make markets uneasy. Additionally, concerns of an AI bubble have become extremely vocal, something I cover more in depth farther down.
But those effects acted more as catalysts than causes. The bigger driver has been changes in liquidity. When liquidity is abundant, markets rally on both good and bad news. When liquidity tightens, even minor negative headlines hurt.
Following the most recent Federal Reserve meeting, the Fed did cut interest rates, but Chair Powell signaled a more patient approach going forward. Markets have been flat to lower since then. Expectations for another cut at the December meeting collapsed from near-certainty to essentially a coin flip and that shift pulled liquidity out of financial markets and temporarily created a more vulnerable environment.
Importantly, this does not indicate a new bear market regime.
The Fed has ended its Quantitative Tightening program. Labor data, while sparse lately, continues to soften just enough to matter for policymakers. Inflation risks still exist, so it makes sense that the Fed wants optionality, but the direction of travel remains toward easing. I lean toward a December rate cut, but even if they hold, cuts are coming and monetary liquidity is cyclically turning up, not down.
AI Bubble Concerns Are Overblown
You hear skeptics calling the AI boom a bubble every day. There is still limited evidence of that. Yes, there are speculative pockets. Yes, some investors chased the thematic extremes. But broad valuations are nowhere close to bubble conditions.
Nvidia trades at roughly 41x forward earnings, which is elevated but not absurd given its structural position. The S&P 500 trades at 22.4x forward earnings versus a long-term median of 18.2x. The Nasdaq 100 trades at 27.6x versus a historical median of 24.3x. These numbers simply do not support a bubble thesis.
The problem is that bearish narratives get airtime during market pullbacks, which makes them appear validated.
The AI boom is far more nuanced. One real discussion emerging is around efficiency. If AI hardware becomes dramatically more efficient, more tokens per watt, data centers may eventually require less buildout than some thought. That could moderate the most extreme infrastructure bull-case scenarios.
But this is still a positive development.
Efficiency means AI tools become cheaper, easier to deploy, and more widely usable. That accelerates adoption and allows businesses to integrate AI across their operations. Meanwhile, the major AI labs continue to pursue extremely ambitious roadmaps. They still believe they need enormous compute power. So the current trend, huge capex spending, is unchanged.
In short: there are pockets of froth, but the AI adoption cycle is real, early, and strengthening.
What Is Selling Off and What Is Holding Up?
The hardest selling is in the speculative areas: quantum, crypto miners, and the more extreme ends of AI-thematic investing like neocloud companies. These are the parts of the market most sensitive to liquidity swings and investor sentiment. They also ran the hardest on the way up.
Meanwhile, defensive sectors such as energy, healthcare and utilities have been performing extremely well and actually started perking up months ago. That may have been an early sign that investors were getting cautious. Should investors add defensives now? Possibly, but this is tactically better done ahead of a selloff, not after. Still, balanced portfolios always benefit from owning high-quality defensive businesses.
The more interesting story is the relative strength in some mega-cap leaders. Apple and Alphabet are showing tremendous resilience. Microsoft too. Apple avoided the AI-capex arms race altogether. Alphabet and Microsoft have positioned themselves exceptionally well across AI models, enterprise adoption, cloud integration and are managing the capex strategically.
Meanwhile, several AI infrastructure leaders have pulled back but not in a way that disrupts the broader trend. If you do not buy into the “AI bubble” idea – and I do not – then these resets should be viewed as opportunities. The next leg of leadership is likely to come partially from leading AI players, who still have long, durable demand pipelines, and also from what I call the AI implementers, businesses integrating AI tools directly into their operations to drive immediate bottom-line efficiency gains.
Those are the companies that will shine as AI becomes less conceptual and more embedded in everyday business operations.
Those Who Keep a Cool Head Will Prevail
No one knows exactly what happens next. But the core drivers of this bull market remain intact. Liquidity is trending higher. AI adoption is accelerating, not slowing. Fiscal spending is enormous. Monetary stimulus is re-entering the picture.
Those who were positioned too large or levered in the most speculative assets, like quantum, miners and certain AI-thematic trades, are learning a hard but timeless lesson. Higher returns come with higher volatility. Successful long-term investing requires diversification across themes, disciplined risk management, and the ability to stay calm during shakeouts.
This pullback does not mark the end of the bull market but rather is likely setting up the next leg higher.
And for investors who stay focused on quality, liquidity trends, and the structural forces shaping this cycle, the opportunities emerging right now could be among the strongest of this bull run.
Targeting Long-Term Gains in the AI-Driven Market
To help you make the most of this historic investing opportunity, we've opened up our Zacks Investor Collection, which gives you access to recommendations from all of our long-term investor portfolios. It's made for markets like this.
Over the next 30 days, for the total cost of only $1, you're invited to enjoy, including...
• Real-time buys, sells, and exclusive market commentary from Stocks Under $10, Home Run Investor, Value Investor, ETF Investor, and Income Investor.
• Plus, you'll get full access to our powerful research, tools, and analysis, including the Zacks #1 Rank List, Equity Research Reports, Premium Screener, and more, as part of Zacks Premium.
These portfolios have closed 48 double and triple-digit wins so far this year. Although we can't guarantee every pick will be a winner, recent gains have reached as high as +121.9%, +163.6%, and +198.4%.¹
Bonus Report: If you act quickly, you'll also get our exclusive Special Report, High-Yield ETFs: 4 to Buy Now. Zacks' Director of ETF Research just identified the high-yield funds that blend peace of mind with substantial returns. One fund gained a whopping +286% in under 6 months. The following 6 months may be just as profitable.
So please don't wait - be sure to click below right now. This restricted $1 opportunity ends at midnight Sunday, November 23.
Click here for Zacks Investor Collection and High-Yield ETFs: 4 to Buy Now >>
All the best,
Ethan
Ethan Feller has a decade of experience trading in markets. He graduated from Ithaca College with a BA in Economics. Prior to joining Zacks, Ethan worked at a proprietary trading firm where he focused on statistically significant short-term trading strategies in stocks and futures. He invites you to check out all of Zacks’ long-term picks for 30 days for only $1.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.