After one of the nastiest technology liquidations in recent memory, the dip buyers have finally come out of hiding. Semiconductors are bouncing, shorts are covering, and Wall Street has rediscovered the virtues of buying a market that everybody wanted to sell 24 hours earlier. But beneath the recovery, the institutional crowd remains shell-shocked, the Fed is still leaning hawkish, and I suspect it will take more than one good session before the Street gets its sea legs back.

Takeaways by Dark Side of the Boom™

• The AI trade has staged a not entirely unexpected recovery as forced selling runs out of steam, but the rebound is doing more to repair positioning than to restore conviction.

• Stronger employment data have kept the December Fed hike firmly on the table, an uncomfortable development for a market still struggling with the cost of financing the AI boom.

• The next chapter for Big Tech may turn the old investment playbook upside down, with shareholders potentially rewarding capital discipline rather than another extravagant round of spending.

• After trading the rebound and the dollar’s recovery, I’m heading into the weekend completely flat for the first time in ages. Sometimes the best position is the one you don’t carry home.

The Bulls Get Off the Canvas

As is so often the case after what can only be described as a wholesale bloodbath, once the Street runs out of forced sellers, the brave of heart begin picking through the wreckage for bargains. Shorts start covering, the dip buyers find their courage, and suddenly the same stocks nobody wanted to touch yesterday become the hottest tickets on the board.

Throw in a decent helping of good economic news, and Wall Street manages to lift itself off the canvas despite still seeing a few stars after the recent knockout.

The Nasdaq 100 rallied, semiconductor heavyweights jumped, and technology shares dragged the S&P 500 higher even as most of its constituents remained in the red. Hardly the sort of broad-based participation that gets me reaching for the champagne, but after Thursday’s carnage, the market was probably entitled to a stiff drink.

The more interesting part is that the economic news responsible for helping the recovery is, in my book, almost precisely the opposite of what this market needs.

October employment growth accelerated, unemployment declined, and consumer sentiment improved to a three-month high. Taken together, those figures put another dent in the argument that the AI liquidation is already spilling into the broader economy. Main Street, at least according to the latest releases, hasn’t caught whatever Wall Street came down with this week.

For equity bulls, that’s encouraging from an earnings perspective. For anyone hoping the Fed might come riding to the rescue, it’s considerably less helpful.

Money markets are now pricing roughly 20 basis points of a December hike, leaving the probability of another tightening move uncomfortably high. Short-dated Treasuries duly underperformed as investors were reminded that the Fed still has a mandate to worry about inflation, even when the Nasdaq is behaving like a patient in intensive care.

Good economic news may be good for earnings, but when the market is already choking on the cost of capital, it can be a rather expensive form of encouragement.

And that contradiction sits at the heart of the trading dilemma.

The Street Hasn’t Found Its Sea Legs

I’m writing this Weekender considerably earlier than usual as I’m travelling to speak at a trading conference this morning, but I have to admit I don’t particularly trust this market.

( Note: Saturday’s usual stream of institutional research might be delayed until later )

I participated in the rebound, which is exactly the sort of opportunity I normally look for after a disorderly liquidation. Once forced sellers have finished dumping inventory into a vacuum, the absence of fresh supply can produce some spectacular reversals. Add a little short covering and the recovery can develop a life of its own before anyone has had time to revisit the investment thesis.

But trading a bounce and believing the worst is over are two entirely different propositions.

The WhatsApp chats with my institutional colleagues across Singapore, Tokyo, London and New York suggest the Street remains decidedly shell-shocked. The expressions doing the rounds after Thursday’s beating were variations of the old live-to-fight-another-day mantra.

Translated into dealing-room English: get flat, protect your year, keep your job and come back in January.

That tells you rather more about the institutional mood than Friday’s green screens.

The selling had become indiscriminate, with hedge funds reversing positions they had bought only a session earlier and long-only managers reluctant to defend even their favourite holdings. Once a liquidation reaches that stage, it takes time for risk committees to loosen the reins and portfolio managers to regain confidence in their numbers.

Extreme panic readings have historically offered attractive medium-term entry points, and there are certainly signs that the worst of the forced selling may be exhausting itself. But the market can stop falling long before investors recover the appetite to rebuild meaningful exposure.

That’s why I’m inclined to give the bulls the benefit of the doubt without assuming Friday’s bounce has magically repaired the damage.

There is a difference between the market finding a bid and the Street finding its nerve.

The AI Trade May Be About to Turn Its Own Playbook Upside Down

One of the more intriguing developments beneath the technology carnage is that the investment argument for the hyperscalers may be undergoing a rather dramatic change. And this is the part of the equation that might make it make sense to selectively buy a few hyperscaler dips next week

For the better part of eighteen months, Wall Street has rewarded almost every announcement of higher AI capital expenditure. The bigger the data-centre budget, the more enthusiastic the applause. Spending hundreds of billions on computing infrastructure became a badge of corporate ambition, and investors were willing to pay extraordinary multiples for the privilege of financing it.

Now the political backlash against data-centre construction, combined with concerns about power availability, permitting and infrastructure bottlenecks, is forcing investors to reconsider whether all that spending can actually be deployed on schedule.

After spending eighteen months rewarding Big Tech for spending more, Wall Street may now reward the same companies for spending less.

If the hyperscalers begin moderating their capital expenditure ambitions, free cash flow could improve materially. That would provide investors with a rather different route to higher valuations, one based on financial discipline and cash generation rather than an endless procession of increasingly extravagant construction budgets.

In other words, a slowdown in AI infrastructure spending need not automatically be bearish for every company involved. For the cash-rich technology giants, a more measured approach could improve shareholder returns, even as it creates headaches for the semiconductor, memory and construction businesses dependent on the original spending trajectory.

It’s a distinction I thought the market might begin recognizing in the post-election recovery, only to be proven wrong over the 24-hour window on Thursday

The bull case for the hyperscalers could increasingly become a free-cash-flow story rather than a capital-expenditure arms race.

Of course, that is cold comfort for suppliers whose earnings estimates depend on every new data centre being completed on time. The market still has to separate the companies that benefit from spending restraint from those that suffer when the chequebook closes.

And after the indiscriminate selling we’ve just witnessed, that sorting process could be anything but orderly.

The Opportunists Have Cash. The Survivors Want December to End.

There are still pockets of the market where the better-positioned volatility traders can play offence.

Those who entered the selloff with profitable long-volatility positions and plenty of cash have considerably more flexibility than the managers who were forced to liquidate at the lows. With volatility, skew and correlations having moved so violently, there are opportunities to use options to express a recovery view without taking on the full directional exposure of an outright equity position.

Energy also remains an interesting hiding place with potential upside, particularly after defensive sectors became crowded and expensive. But the Iran war is still a live geopolitical risk, and the oil market’s response to de-escalation headlines has been sufficiently violent to punish anyone treating crude as a comfortable one-way trade.

The hyperscalers are arguably the more intriguing contrarian opportunity, provided the market begins distinguishing between lower capital spending as a sign of weakening demand and lower spending as a route to stronger free cash flow.

Still, I suspect the institutional community will be reluctant to embrace either trade with much enthusiasm before year-end.

Most of the Street has spent the week discovering just how quickly profitable positions can become unwanted inventory. After an experience like that, protecting the annual scorecard tends to outrank the desire to catch the next five percent.

Those with money to spend can afford to be selective. Those nursing the wounds of Thursday’s liquidation would probably settle for a quiet December.

The Fed Hasn’t Blinked, and Neither Has the Dollar

Friday’s stronger employment numbers also help explain why the dollar has held together rather better than the political headlines might have suggested.

The Democratic sweep initially looked like a good reason to add dollar downside risk, particularly with oil retreating and Treasury yields falling. But the FX market has remained reluctant to turn that adjustment into a full-blown dollar bear trade.

The latest employment data have only reinforced the problem.

A December Fed hike remains heavily priced, and the economy is showing sufficient resilience to make a near-term dovish pivot difficult to justify. Lower oil prices may eventually alter the inflation equation, but for now the employment side of the mandate is giving policymakers little reason to abandon their tightening bias.

That leaves equities in an awkward position. Strong employment supports the earnings outlook, yet higher short-term rates increase the cost of financing the very AI investment cycle whose valuations have just been taken to the woodshed.

The dollar, meanwhile, retains its yield advantage and the liquidity appeal that becomes especially valuable when global risk appetite starts resembling a revolving door.

It’s not a particularly elegant market configuration, but nobody ever promised the final stretch of the year would be tidy.

Sometimes Flat Is the Best Trade on the Board

As I clear the decks ahead of the weekend, I’m closing out the short-term trend-following positions that captured the equity rebound and the dollar’s recovery.

For the first time in ages, I’m heading into Saturday completely flat.

That’s not a declaration that the bull market is finished, nor am I suddenly converting to the bear camp after buying the recovery. I still believe there is a constructive medium-term case for equities, particularly if the market begins rewarding better capital discipline in Big Tech and the decline in energy prices eventually gives the Fed more room to manoeuvre.

But the 24-hour trading window and the longer-term investment thesis are not the same animal.

I’ve made a living from recognising when the market has become sufficiently stretched to offer an attractive entry, and Friday’s rebound was a reasonable example. What I’m less inclined to do is carry that tactical position into a weekend when institutional confidence remains fragile, the Iran war is unresolved and the Fed has just been handed another reason to stay hawkish.

There is nothing particularly heroic about sitting through another violent gap on Monday simply because Friday’s bounce looked good on the screen.

The old hands on the Street appear quite content to play it lightly into year-end, and after this week’s roller coaster, I can understand why. The market may have found its footing, but it could take considerably longer before the institutional crowd is prepared to put both feet back on the dance floor.

We’ll see where the chips fall on Monday.

For now, I’ve banked the rebound, taken the dollar trade off the table and left the weekend risk to somebody else. After a week when Wall Street went from buying the dip to selling the furniture and back again, sometimes the most profitable decision is simply knowing when to leave the casino.

Not to mention, I have absolutely no interest in the distraction of glancing at perps all weekend long. I’ve got far more important things to prepare for: Sunday’s Notre Dame Fighting Irish showdown with the Miami Hurricanes, better known in college football folklore as “Catholics vs. Convicts.” ☘️🏈 Go Irish!

Running Update: Luang Prabang, Recovery, and the Road to Chiang Rai

I never really got around to writing about the Luang Prabang Half Marathon, which turned out to be pretty much everything I expected, at least as far as the experience was concerned.

What a fantastic place to run. The course winds past golden temples and follows the beautiful banks of the Mekong and Nam Khan rivers as the early morning mist begins to lift. Throw in a wonderful cause, Run for Children, with proceeds supporting the local children’s hospital, and it’s an event that deserves a permanent place on the running calendar. We’ll definitely be back.

The running itself was probably the low point, although I still managed to finish just 12 minutes outside my target time. An unexpected and rather persistent hip-flexor niggle appeared around the 12 km mark, forcing me to back off the pace by almost 1:30 per kilometre. I rarely train on hills, and I suspect I got a little too enthusiastic on the climbs and paid for it . Another lesson from the running gods, who seem to have an endless supply of them.

Anyway, I got back in the saddle fairly quickly and have enjoyed a pretty decent two-week recovery stretch, mostly easy running without worrying too much about pace or distance.

I’ve also pivoted back to my favourite low-carb diet this week, so I suspect the next couple of weeks will be very much low and slow as my body adjusts to relying more heavily on fat and ketones rather than carbohydrates. No heroics, just rebuilding the aerobic engine and letting the legs find their rhythm again.

Next up is Chiang Rai on January 31 2027, another absolutely scenic northern Thailand race that I’m really looking forward to.

And while the serious running enthusiasts can have their London, New York, Boston, Chicago and Sydney marathons, I’ll happily leave the big-city crowds to them.

Give me the Thailand, Laos and Malaysia running circuit any day of the week. Beautiful scenery, wonderful people, terrific local atmosphere and the chance to experience places you might otherwise never discover.

At this stage of my running life, that’s worth every kilometre. 🏃‍♂️