US market wrap: AI is still the market’s north star

The market’s north star

For all the noise about the Fed refusing to bless a December cut—and it will happen—and for all the headlines about Trump and Xi striking their one-year tariff truce in Seoul, the real gravitational force in global markets remains the same: artificial intelligence. AI isn’t just in the market; it is the market. Every tick of the Nasdaq and every oscillation in the S&P is still tethered to this singular narrative—the promise, the cost, and the arms race it has unleashed.

After Powell’s hawkish pushback, the old trader’s 48-hour rule comes into play: don’t fade a central-bank surprise too soon. So, the dollar ripped higher, yields firmed, and equities took one on the chin—Nasdaq down 1.6%, S&P off 1%. Big Tech led the retreat. Meta and Microsoft slipped after earnings; Nvidia fell 2% after Trump said he hadn’t discussed China chip sales with Xi. The market’s exuberant AI-driven rally paused, not because the dream cracked, but because the cost of chasing it suddenly came into focus.

Three tech titans—Alphabet, Meta, and Microsoft—just spent a combined $78 billion last quarter on capex, up nearly 90% year-on-year. These are the new infrastructure projects of the digital age: massive server farms where the next generation of productivity and profit will either be born—or buried. Meta alone sold $30 billion in bonds this week, the biggest issuance of the year, to feed its AI ambitions. Wall Street’s mood shifted from greed to nerves as traders began asking a simple but existential question: who can stay in the AI race the longest before the cash burn becomes a liability?

Meta’s 11% plunge felt like a warning flare over Silicon Valley’s super-cycle. Microsoft disappointed, Alphabet impressed, Amazon’s cloud unit held the line—but the market tone turned reflective. After a $17 trillion surge from the April lows, the S&P finally hit the kind of altitude where even a whisper of thin air can trigger a stall. Breadth has narrowed, the Hindenburg Omen flashed on the technical charts, and sentiment is cooling. It doesn’t mean the AI bubble is bursting—it means traders are tightening their seatbelts for turbulence at high altitude.

And yet, in the grander narrative, AI remains the only engine still humming at full throttle. It’s the through-line connecting capital markets, tech policy, and geopolitics.

Speaking of geopolitics, the US–China truce is less a peace treaty than a timeout in a broader technology cold war. Both sides have agreed to stop throwing punches—tariffs have been rolled back, and export curbs eased—but neither is lowering its guard. The détente buys time, not harmony. Washington steps back from strangling China’s semiconductor lifeline; Beijing reopens its rare-earth tap and soybean orders. Each side is quietly fortifying supply chains, preparing for the next round.

In this light, the trade deal is not the story—it’s a subplot. The real battleground lies in who owns the next generation of chips, clouds, and cognitive infrastructure. AI is no longer just a productivity tool; it’s a national strategy wrapped in silicon and code. Markets know this. They’re oscillating not on headlines about tariffs, but on whispers of data-center builds and GPU shipment delays. Every tick in Nvidia or Broadcom carries more weight than any White House communique.

Back in the macro theatre, Powell’s hawkish tone—10-2 vote, with dissent both ways—was less about rates and more about a sign of political independence and control. Not to mention, and by design or not, he pulled the market back from front-running him. The Fed cut 25 bps but offered no comfort for December. In trader terms, Powell closed the dovish door without locking it, leaving the market guessing which hand will turn the knob next. The message was clear: the moderates are pushing back, and the jobs data—not the doves—will dictate the outcome in December. Hence, the dollar reached its three-month high and a mild yield grind above 4%. The fog thickens, but the road ahead still tilts toward easing once the politics and payroll dust settle.

For now, the market is in recalibration mode. The Fed’s messaging, Big Tech’s spending discipline, and the geopolitical chessboard have all merged into a single mosaic where liquidity, valuation, and ambition are negotiating in real-time. History suggests this kind of pause—this post-shock digestion—often clears the way for the next leg higher, especially as November kicks off the market’s seasonally strongest six months.

The real question isn’t whether the AI trade is over. It’s whether anyone dares sit it out.

The friday trader lens: When the market starts financing its own delusion

You could almost hear the tape exhale when Trump called his meeting with Xi a “twelve out of ten.” But the market’s amplifier of optimism short-circuited almost immediately. The trade truce—more handshake than architecture—couldn’t overpower Powell’s hawkish flicker, the soft rot in mega-cap earnings, or the eerie resonance of a Hindenburg Omen flashing on traders’ screens like the Exorcist theme cue.

This wasn’t a “risk-off bear” roar; it was the sound of a market realizing its oxygen mask might not deploy. Nasdaq and the S&P drifted lower as the AI-capex loop that’s held this tape aloft began to feel circular, almost reflexive—like a snake financing its own tail. NVIDIA’s announcement of yet another billion-dollar AI startup fund didn’t inspire confidence; it exposed how self-referential this euphoria has become. The financing wheel turns, but it’s the same players passing chips around the table.

Small caps are the first casualties whenever liquidity feels thinner than it looks. The retail crowd is still throwing darts, but even that bid is fading. This is what late-cycle looks like in 2025: breadth narrowing to a sliver, Mag7 dominance turning from marvel to menace, and quants quietly bleeding on factor reversals they can’t hedge fast enough. Desk chatter speaks of chaos—pairs breaking down, back-tested strategies unspooling like bad code, and that strange silence when market-neutral books suddenly aren’t.

The anti-dispersion trade—the one that drove the Mag7’s vertical climb—is now overshooting into mean reversion. It’s as if the tape’s internal geometry finally bent back on itself. The Fed didn’t slam the brakes, but Powell’s “not so fast, my friend” was enough to make traders lift their foot off the accelerator. The Xi-Trump optics added nothing but noise, while the AI-earnings parade—MSFT, META, GOOGL—revealed how overdrunk expectations had become. Great prints, mediocre reactions. That’s what happens when the market stops rewarding performance and starts demanding miracles.

Nomura’s flow trackers talk about a 3–5% pullback window, and that feels right—not as a crash call, but as the inevitable air pocket that follows vertical asymmetry. The Mag7 markup into fiscal year-end is running on fumes, and once the mutual fund “mark your winners, torch your losers” rotation clears, the tape’s gravitational field changes. The dollar’s bid adds another layer of tightening, squeezing both liquidity and narrative comfort.

Underneath the gloss, the credit market is whispering the real story. META’s debt binge, ORCL’s credit decoupling—these are not isolated quirks. They’re early tremors of a broader truth: if AI capex outpaces actual cash flow, the math stops working. More debt, wider spreads, fewer buybacks. That’s when valuations stop floating on faith and start sinking on funding.

The street is full of Hindenburg chatter again—“worst breadth since the dot-com bubble.” But what matters isn’t the omen; it’s the asymmetry it represents. Too much capital in too few hands. When five stocks account for over sixty percent of U.S. GDP, you’re not looking at diversification; you’re staring at concentration risk dressed as innovation. In 2021, the ratio peaked at 44%. During the dot-com bubble, it was 22%. Today it’s 61.6%. That’s not market leadership; that’s gravity distortion.

And like all distortions, it feeds on its own momentum—until the laws of financial physics reassert themselves. AI spend is the tape’s final tether, the only story still holding the market’s emotional liquidity together. But if that tether frays, the unwind won’t be orderly. When corporates over-earn, taxes follow. When debt chases hype, credit cracks. And when traders start pricing doubt instead of risk, the illusion of perpetual bid collapses under its own weight.

So yes, Powell sounded hawkish, but the real story isn’t monetary—it’s behavioral. This is a market financing its own delusion, borrowing conviction from yesterday’s winners and pledging tomorrow’s liquidity to sustain today’s price. That works until it doesn’t. And when it stops, it won’t be some cinematic crash—more like a slow decompression, the sound of air leaking from a trade that forgot how to breathe.