From growth to risk: Trendlines break as markets reprice the AI trade

Here is my latest Yahoo Finance Podcast – Trader Talk. This week I speak with Keither Lerner – Chief Market Strategist at Truist and we discuss the importance of being IN the market and being patient.

And the hits keep coming…. stocks traded lower again…. trendlines are getting busted and that causes the algo’s to get more anxious. Add in the ongoing drama around the ‘tech trade’ – and that drama is no longer about the valuation story, oh no, it’s shifting to one where debt, capital intensity, and funding risk are ‘top of mind’.

In short - the narrative has shifted from growth at any price to how much debt is too much debt before earnings catch up. Markets are increasingly nervous about how massive AI infrastructure investments are being financed — especially data centers funded with heavy leverage.

Let me be clear: AI remains the dominant theme heading into 2026 and beyond. We’ve talked for months about stretched valuations, and yes — that reality is now being tested by a few high-profile headlines. But I am not in the camp that says this is 1999 or 2000 all over again. This is not the dot-com bubble.

The poster child for the current anxiety is Oracle. The stock was down roughly 37% from its September high, and after this week’s selloff, it slid another 18% from there. Yesterday’s news was the catalyst: The Financial Times reported that Blue Owl pulled its financing, opting not to support a $10 billion data-center deal tied to OpenAI. That raised fresh questions about Oracle’s balance sheet, capital commitments, and leverage — and it immediately sparked a broader risk-off move across tech, which then bled into the wider market.

The bottom line? This isn’t about abandoning AI. It’s about repricing the risk. The market is no longer rewarding growth at any price — it’s demanding proof, discipline, and a clearer path from investment to earnings.

Take a look at the damage - the XLK lost 2.2%, Semi’s -3.7%, Disruptive Tech – 3%, Cybersecurity – 1.5%, AI & Robotics – 2.2%, and the AI Power & Infrastructure sector got hit as well…Just look at the Defiance ETF - AIPO down 5.3% and think all the ‘small’ nuclear energy names as well….SMR -8%, LTBR – 10%, BWXT – 3%, OKLO -9%, CEG – 6.7%, Quantum Computing got smashed too – 2.5%. And the newest member of the group the Ershares Private Public ETF – XOVR lost 1.6% - I mean do I need to go on?

And that weakness took everyone lower….the Dow lost 229 pts or 0.5%, the S&P down 78 pts or 1.1%, the Nasdaq – 418 pts or 1.8%, the Russell down 27 pts or 1%, the Transports – 90 pts or 0.5%, the Equal Weighted S&P lost 23 pts or 0.3% while the Mag 7 got creamed – down 720 pts or 2.15%.

And I’ll say it again — Once trendlines get broken, especially in an already anxious market, the outcome becomes almost mechanical. Volumes are light, participation is thin, and many players simply aren’t at their desks as the holiday season begins. That’s when price discovery disappears — and stocks drift lower.

And when that happens, the algos take over. We saw it clearly today. The S&P and Nasdaq have broken their short term trendlines. Once those levels gave way, you could feel the pressure building. Sell algos accelerate, buy algos step aside, liquidity evaporates, and suddenly there’s a void in prices — and down we go. This isn’t emotion — it’s structure. When trendlines break in a thin, nervous market, the algos don’t hesitate. They amplify the move lower and it stings a bit more.

Now, to be fair, not everything has cracked. The Dow, the Russell, the Transports, and the Equal Weight S&P have not yet pierced their key trendlines — but we are watching them very closely. Those are the last lines of defense for the broader market.

That said, it’s not all darkness. There was rotation, and that matters. We saw Energy up 2.2%, Consumer Staples higher by 0.5%, Basic Materials up 0.4%, and Real Estate up 0.4%. Everything else ended lower — led by Technology, with additional pressure in Industrials (-1.6%), Consumer Discretionary (-1.1%), Communications (-0.7%), Utilities (-0.6%), and Healthcare (-0.2%). Financials finished unchanged, quietly holding their ground.

And naturally, the contra trades did exactly what they’re designed to do – go UP in a DOWN market. The DOG +0.5%, SH +1.1%, PSQ +1.8%, VIXY +1.7%, and the SPXS (triple-levered short) +3.4%

Today we get the latest CPI report, and as I said yesterday, expectations are for headline CPI at 3.1% year-over-year and core CPI at 3.0%. What does that mean?

It means that inflation remains sticky, but it is well below the peak levels of the last few years. That’s the reality. Progress has been made — even if it doesn’t always feel that way to consumers. And that’s the disconnect.

Despite easing inflation, Americans still don’t feel good about their financial situations. Prices are higher than they used to be, and sticker shock hasn’t gone away.

So, here’s the reality -

Option one — and this is the preferred path — we see continued economic growth, which allows wages to rise faster than inflation. Right now – GDP is growing at better than 3% and is expected to hit 4+% (some think 5%) next year. Wages are growing around 3.5%, while inflation is near 3%, meaning real wages are positive. If the economy continues to expand into next year, wage growth should remain supportive.

Option two — and this is the path no one should be rooting for — we fall into a real recession, which would indeed bring prices down, but at a very real cost: job losses, falling incomes, and economic pain. Think 1980/1982.

So yes, inflation is still with us (and it may get worse if the FED keeps stimulating the economy by CUTTING rates) - But the solution isn’t economic contraction — it’s growth with moderation and maybe that means leave rates right where they are.

Bonds did nothing yesterday and rates remain unchanged. The 10-year Treasury is yielding 4.12%, while the 30-year sits at 4.81%.

Oil continues to churn in the $56 range.

Gold is trading at $4,325 – in line with where it has been. The next move will be determined by what we hear at 8:30 surrounding the latest CPI. For now – we remain in the $4,140/$4,380 trading range.

This morning futures are higher…. Which again, I think, is more technical than not. Dow futures are +124, S&P +30, Nasdaq +200, while the Russell is +8. It’s just more churn as asset managers do some ‘window dressing’ before the end of the quarter. Remember – the next two weeks are holiday shortened weeks, players will be away, volumes will decline and moves will be amplified – in either direction.

This is not the time to make emotional decisions…. stick to the plan – Capisce?

European markets are churning a bit higher. The ECB announces their decision today and is expected to keep rates unchanged. The BoE will also announce, and they are expected to cut rates by 25 bps.

The S&P closed at 6,721, down 78 points on the day. As we discussed, the market retested key trendline support at 6,763 — and failed. That failure was the trigger. Once it gave way, the algos went into overdrive, liquidity remained thin and down we went.

That said, context matters. We are in the final days of 2025, and this is not the time to be making emotional allocation decisions. I am not putting new money to work right here unless we see either - a meaningful further decline in the broader indexes, or specific individual names move to levels that offer real opportunity.

Since the short-term trendline has now been broken, the focus shifts to the next level of technical support. That comes in around 6,637, which is roughly 1.2% lower from here. That’s the line that will help define whether this move is simply a year-end shake-out or something that wants to go a bit further.

My view remains constructive. Volatility aside, I expect we finish the year closer to 6,850, give or take. This feels far more like year-end window dressing rather than a fundamental breakdown.

Butterscotch peanut clusters

Here is a personal favorite of mine – they are Butterscotch/Peanut clusters (all in 10 mins) and are a Christmas favorite…. My grandmother used to make these every year and every time I eat them - it brings me back to an earlier time... Today it is something that I do with my girls – and it always brings them back to their childhood.

For this you need - Nestle Butterscotch morsels, salted peanuts, and Chinese noodles.... (you know the crunchy ones).

Begin by setting up a double boiler - when ready add in the butterscotch morsels.... Stir until melted.... now add the noodles and the peanuts.... Stir to coat really well. When ready - remove from the heat and with a tablespoon - take scoops of the mix and plop them onto wax paper.....They will harden into clusters in about 10 mins.

They make a great addition to the other holiday desserts at the table.