Rising Risks: Fed, Bonds, and Gold Point to Uncertain Markets

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Our View

The NQ was the weak link yesterday right from the get-go. While the ES closed down 23.5 points, it was held captive by the weakness in the NQ, that fell 252 points. As of yesterday’s close, the ES is 2.7% off its high, and the NQ is 4.0% off its high.

I can't rule out more rallies, but I think the "Trump bump" is over. The ES is down 166.5 points from its contract high at 6166.50 in just 3 sessions. I have a bad feeling about the markets. That doesn’t mean they can’t or won’t rally, but it seems like there is ‘new’ bad news coming out almost every day.

According to Goldman Sachs, hedge funds exited U.S. tech and media stocks in the two weeks leading up to February 21 at the fastest pace in six months—just as NVDA is set to do its investor call on Wednesday. According to LSEG, Nvidia is now the world’s second most valuable company, with a 6.3% weighting in the S&P 500 (.SPX). Its shares have skyrocketed over 550% in the last two years.

After a 17% drop following China's DeepSeek AI and a nearly $800 billion decline in Nvidia’s market cap, the stock has almost recovered most of its losses. Still, it’s clear that a cheaper Chinese rival has cast a fair amount of doubt on the extensive amount of money being spent in the U.S. on AI development.

Personally, I think there has been a gross level of spending by some of the AI firms in the US and there could be a rude awakening coming. Maybe not right now, but I feel strongly it’s coming even if there is strong demand for NVDA’s H2O from China.

I was there during the Dot-Com bubble, and while I’m not saying this is the same thing, there are a lot of similarities. The main one is the over-investment in a handful of tech stocks. I don’t know when or how big it will be, but a larger decline is coming.

Does that mean the ES can't go to 6200 or higher? No. But the higher the markets go, the riskier they become. The Fed is useless, the bond market scares me, and let’s not forget about $3,000 gold. It’s all a prelude to something big, and I don’t think it’s a question of if—it’s a question of when.