The AI Trade Is One Stock, Not A Sector

Since June 1: Russell 3000: - 89% of stocks down more than 10% - 54% more than 20%. Semiconductors and equipment: - 96% down more than 20% - 83% more than 30% - 69% more than 40% - 34% more than 50%. Banks: 5% down more than 20%. Separately: the S&P 500 is up 117% since October 2022 while equal weight has underperformed by a record 52 percentage points; on Oct 8 the Nasdaq 100 fell 1.4% while equal-weight S&P rose 0.6%.

The market story is that AI is carrying the index. The breadth data says something narrower: most of the AI supply chain is already in a bear market. Chip and equipment stocks outside the leaders have been sold as hard as anything in the market, and software has 77% of names down more than 20%. What holds the index up is a small group led by Nvidia, up over 1,900% this bull market. That changes what a break looks like. When concentration is this extreme, the rest of the market has already corrected. The next leg depends on the leaders alone, and there's no breadth underneath to catch the index. The first test came on Oct 8. When the FT reported OpenAI's revenue was $20bn below what it had signalled, the AI cohort sold while the equal-weight index rose. That's rotation out of AI, not a market-wide liquidation. Dealers have started offering an S&P-ex-AI basket so clients can trade the two apart.