What Happened Yesterday
Monday, October 12. Columbus Day. The bond market took the day off. The stock market showed up, looked around, and mostly wished it had too.
The 30-second version: Chip stocks got hit after a top chip CEO called AI investing a casino. The big indexes barely moved, so your 401(k) probably did too. Today, the big banks report; tomorrow, the monthly inflation report.
Close | Move | Mood | |
|---|---|---|---|
S&P 500 | 7,807.24 | -0.06% | Showed up, did nothing |
Nasdaq | 27,245.90 | -0.44% | Got a lecture |
Dow | 51,850.55 | +0.38% | Light on chips, feels great |
Small companies (IWM fund*) | $277.90 | -0.37% | Meh |
Chip stocks (SOX index of 30 big chipmakers) | 12,236.79 | -2.67% | Left the casino early |
VIX (the fear gauge) | 15.21 | +2.49% | Checked the exits |
10-Year Treasury | closed | Holiday | Out fishing (last: 5.24% Friday) |
Gold (GLD fund*) | $382.15 | -0.63% | Took a breather |
Oil (USO fund*) | $151.03 | +1.91% | Climbed Monday |
Bitcoin | $81,763 | -2.29% | Also in the casino |
The S&P 500 slipped 4.30 points, the Nasdaq fell 120.27 points, and the Dow rose 195.60 points. *Rows marked "fund" show the price of one share of a fund that tracks that market, so the move is what matters, not the price. Energy (+1.43%) led. Tech (-1.22%) was the worst of the 11 sectors. Eight of 11 rose anyway.
The Guy Who Sells the Shovels
Says the Gold Rush Is a Casino
Broadcom makes custom AI chips. It's one of the world's most valuable chip companies. So when CEO Hock Tan talks about AI investors, he is talking about his own customers' customers.
Here's what he said Monday at a conference in Singapore, per Bloomberg: "A lot of investors have no clue what they are investing in." He said they set "very extreme expectations only to find out that it's almost like they are in a casino." Picture the blackjack dealer warning you the odds are bad, then dealing the next hand.
He wasn't done. He said OpenAI's roughly $50 billion yearly sales pace shows a real business, but it still loses money. And he compared companies trying out AI to kids burning through allowance: "Your parents give you $10 of tokens, you finish it in 10 minutes, and you haven't learned anything." Tokens are the units AI companies charge you by, roughly one chunk of a word at a time.
The chip index, a basket of 30 big chip stocks known as the SOX, fell 2.67%. Micron dropped 3.88%, AMD 2.28%, Broadcom itself 1.88%, and Nvidia 1.29%. Oracle, the company betting its data centers on OpenAI paying the rent, slid 2.84%.
Last Thursday, a newspaper questioned how OpenAI counts its money. Monday, a guy whose company gets paid by OpenAI said the crowd is gambling. When the person running the table tells you to check your chips, he means both kinds.
Then Korea Woke Up
and Made It Worse
Overnight, South Korea's main stock index, the Kospi, fell as much as 7.4% before closing down 5.46% at 6,035. That's five straight losing days and 13.8% gone, per Korean press. SK Hynix fell 10.1% and Samsung 7.4%. SoftBank, an OpenAI investor, lost about 8% in Tokyo.
If that sounds like a crash, it is one. The Kospi closed above 9,100 in June. It's now about 34% lower. Samsung and SK Hynix are so big that Korea's stock market is mostly a bet on memory chips. When AI was the hottest thing on Earth, Korea soared. When AI comes under scrutiny, Korea falls first and farthest.
The extra kick: reports that Chinese memory maker CXMT made progress on a new memory chip design that Samsung and SK Hynix are also racing to build. Memory chips are the short-term brain storage inside every AI server, and they've been in short supply all year. More competition means the "sold out forever" story gets a sequel.
And here's what should worry you: a Bank of America survey of fund managers found that 37% are betting more than usual on tech, the most since August 2020. They also named chip stocks the market's most crowded bet. A crowded bet means too many big investors own the same thing, so when they all exit at once, prices fall fast. Everybody's sitting at the same table.
A crowded trade is a crowded theater. Everyone's comfortable until someone yells "competition." As of early this morning, Nasdaq 100 futures, which are bets on where the index will open, were down about 0.6%, per Bloomberg and Yahoo Finance. Micron was down another 2.4% before the bell, Seeking Alpha reported.
Meta Built a New AI Model
People Love It After the First Date
Meta jumped 3.38% to $742.96, on roughly twice Friday's trading volume. The company unveiled Muse Wonder, its newest AI model, and says it matches what OpenAI and Anthropic offer. That claim comes from Meta. Independent testers haven't weighed in yet.
App tracker Sensor Tower provided the extra fuel, per StockStory. On day one, 73.3% of people who downloaded Meta's Muse app came back, versus 41.3% for ChatGPT. By day 14, ChatGPT was ahead, 26.8% to 22.5%. Great first impression. Second date, not so much.
Meta reports earnings October 27.
Monday's market rule was simple. If you sell AI chips, you got punished. If you spent on AI chips and could show people actually using the product, you got paid. Same casino, just on the other side of the table.
Quick Hits
Oil, Diesel Diplomacy, and the $1,000 Test
Oil climbed Monday. The oil fund rose 1.91%, and energy led the way (+1.43%). Saudi Arabia's aviation authority said Houthi rebels targeted Riyadh's main airport again Sunday, then an airport in Dammam. Overnight, oil gave back a little: Brent crude, the global oil benchmark, was about $105.20 early Tuesday, down 1.4%, per AP. Per Yahoo Finance, US gas has now tied 2022 for the most days above $4 a gallon in a single year.
The Russia diesel deal is a drop in the bucket. Trump announced Friday that Russia will send 300,000 metric tons of diesel. Oil analyst Andrew Lipow put that at about 75,000 barrels a day, compared with roughly 28 million barrels of diesel the world burns daily, per Seeking Alpha. About a quarter of one percent. It's an announcement, not a delivery.
The $1,000 test: $1,000 in the S&P 500 index on January 1 is about $1,140 today. Still up. Just quieter about it.
What to Watch Today
Tuesday, October 13 (all times CT). The bond market is back from vacation, and the 10-year yield was about 5.19% early this morning, per Bloomberg.
Before the bell: the big banks kick off earnings season. Wall Street expects JPMorgan to post $5.94 per share, Goldman Sachs $12.90, Citigroup $2.66, and Wells Fargo $1.85. Also reporting: Johnson & Johnson, UnitedHealth, and Domino's. Listen for what the banks say about borrowers falling behind on payments. Banks see the bills before the rest of us do.
9:00 AM: existing home sales for September. Forecasts sit around 3.96 to 3.97 million homes a year, depending on who you read, down from 3.98 million. With mortgage rates over 7%, "nobody's moving" remains the housing market's whole personality.
Fed talk: Governor Christopher Waller, one of the 12 officials who vote on interest rates, spoke about AI and the economy in New Delhi early this morning. Richmond Fed's Tom Barkin speaks at noon and Boston Fed's Susan Collins at 3:00 PM. The regional Fed presidents take turns voting, and neither one has a vote this year, so take it as color, not a signal.
Tomorrow, 7:30 AM: September consumer prices (CPI, from the Labor Department). Forecasts run 3.6% to 3.7% from a year ago, depending on whose you read, up from 3.4% in August. Friday's Michigan survey already showed that regular people expect prices to rise 4.7% over the next year, the highest in five months.
Rate odds: Polymarket, a site where people bet real money on events like Fed decisions, puts an October 28 rate hike at about 19.5%, up from about 15.5% Friday morning. A December hike sits near 75.5%.
The one thing that could ruin everyone's day
How the chip stocks open after Korea's 5% drop. Asia already sold. Europe is selling. If US buyers don't step in by mid-morning, the "most crowded trade in the market" finds out how narrow the exit door is. Bank earnings could steady things. Or a bank CEO could pick up a microphone, and CEOs with microphones are 0 for 1 this week.
Yesterday, the casino supplier told everyone they're gambling. Today, the banks report how much the house made.
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