AI Stock MARGIN CALLS are Here... (Oh Crap)

The Nasdaq is now down 10% from all-time highs following a pretty violent collapse today in AI stocks triggered by margin calls in South Korea. You are seeing this rotation beginning to really take hold in healthcare and cyclicals and smaller communication services names, financials outside of your AI financials. Of course, nonAI industrials and software are catching a bid today. Ladies and gentlemen, welcome back to the channel. We have a lot of news to get into today and developments for this market with big catalyst coming in the next 24 hours. The only thing that I ask you to do is hit that like button for the YouTube algorithm. It helps to push these videos out to more people that need to see them. So, first and foremost, you are now in an official correction for the triple Q's. You are down 10% from highs. you are sitting right at about that 100 day moving average. Whether or not we can actually close above that is going to be a big deal today. But we will circle back to this towards the end of the video because first and foremost, you have to understand what is happening today. And yesterday was already a bad day for AI stocks. The news was essentially China is ramping up their manufacturing capabilities of AI chips, right? So, so ASML that is the company that is the only company that makes the machines to make chips. Well, these machines cost 200300 million a piece. They're the size of a semi-truck. They're they're not a small thing. Okay? So, they've basically had a monopoly on this. If you don't have the machines, you can't make chips. Well, China now is making the machines. So although I don't think this is a big deal personally, the markets are treating it as a big deal. They're basically saying, "Look, what's going to happen if China can make memory chips? How much of microns market share is going to go away?" Or same for Nvidia or same for AMD, same for all of these AI stocks. So there's not really anything like fundamentally that happened today. It's a shift of longer term expectations. And when you mix that with all of the leverage in South Korea and the hyper concentration, you've seen almost an 11% crash in the South Korean Cosby index last night. This triggered a double layer circuit breaker. This is the 14th full circuit breaker in South Korean history and the 8th of 2026. So yeah, it's like every other week there's a circuit breaker in South Korea. And it says here, "There is an unprecedented foreign capital flight. International institutions rapidly pulled their money out of South Korea, executing a record shattering net sell-off of 4.97 trillion Juan, about 3.6 billion US in local equities in a single day, leaving local retail investors absorbing massive margin calls. And that's a big problem in South Korea, specifically around retail investors and leverage. Now, the South Korean regulator recently said about a month ago that he regretted approving leveraged ETFs because these leverage ETFs seen billions of dollars worth of inflows from 90 95% retail investors. So people in South Korea are all in on this trade and whenever you're all in on a trade, it's inevitably going to go wrong. And when it goes wrong, it goes wrong big time. Now, there are also fears of an AI bubble bursting. There was some news in the past 24 hours that Nvidia is preparing a massive $750 billion financing and partnership strategy to back OpenAI's infrastructure. This left investors terrified that tech companies are taking on too much debt with no short-term path to actual profitability. And I do think one of the biggest problems is, as I said before, you know, it's very hard for companies to go out and raise private credit debt to keep it off the balance sheet. Yeah. It's it's shady accounting practices, right? These hyperscalers, they have a lot more debt than you think. Their balance sheet is not as great as you think it is. There's $1.8 trillion of debt in private credit markets that don't show up on a Meta's balance sheet or an Amazon's balance sheet, which protects those companies credit ratings because once your credit rating gets downgraded, it it's very even it's much more difficult to raise capital. It restricts who can invest in your stock. It's a it's a slipper slippery slope, right? But when your stock is down 65% from highs like Oracle, it it's virtually impossible to go to private credit and raise money. Almost impossible. Well, as Max 7 spends more and Wall Street punishes that spending and let's say Google is now down from all-time highs around 18.5%, it becomes more difficult for Google to raise money and thus to keep the spending going. So, Nvidia coming out today and saying, "Look, we're going to start backing these things." It brings up more fears of this circle financing. So, put this all together, massive leverage in South Korea causing margin calls. Mix that with markets punishing hyperscalers for spending more. And mix that with the China news around DUV machines and actually being able to make chips. Mix that with Nvidia, basically sending a red flag for financing, creating this backs stop, and you have a pretty violent decline in AI stocks. And this does give investors reasoning to own other areas like software, communication services, cyclicals, healthcare, even consumer defensives are going up today. Morgan Stanley says today the AI supply chain still offers attractive riskreward after the recent pullback calling the selloff largely technical and driven by profit taking. The bank expects AI compute demand to outpace supply for years. Meta today formed a partnership with BlackRock to develop an AI data center campus in El Paso, Texas. And we do have your major hyperscaler earnings including Microsoft and Meta Wednesday and after hours. So, tomorrow and after hours and then you have Apple and Amazon Thursday in after hours. So, this is this is a big deal heading into these hyperscaler earnings. It's a sign that you're probably not going to get a slowdown in spending. And unfortunately, Wall Street will continue to punish that because the more you spend, the more people don't want to invest in your stock, the more debt you're going to have to raise, the more stock you're going to have to sell. And well, for good reason. People want to stay away from those stocks right now. And then again, their stocks fall. That makes it harder for them to actually raise enough money to spend. And it's a again slippery slope here. Citadel Securities said they expect the Federal Reserve to raise interest rates this week, but the markets are currently only pricing about a 33% chance of a Fed rate hike this week, which would be unprecedented. Literally, Bank of America says a July Fed rate hike would be unprecedented. Bank of America expects the Fed to hold rates in July despart despite markets pricing a small chance of a hike. The bank says a July in interest rate hike would be unprecedented, noting the Fed has never hiked since 1994 with less than 60% odds priced in. Bank of America sees higher oil oil prices as the main inflation risk and remains bullish on the US dollar. Now, we did have some pretty worrisome economic data today. I know a lot of Wall Street's not talking about this, but the ADP employment change came in at 15,000 jobs, which if you look at the trend we're on, you're you've fallen from 40,000 per week down to now 15,000 last week for ADP employment change weekly. I mean, this thing has collapsed. And I do expect at some point the markets will begin to pay attention to this and start to factor this in to how we're pricing the Fed. And this could be one of the surprises coming Wednesday. You might hear Kevin W acknowledge that the labor markets starting to weaken. I mean, the last jobs report was terrible. Your ADP employment change numbers have been pretty terrible. I expect the next jobs report is probably going to be pretty bad as well, heading in that direction. and that offsets some of the inflationary pressures that people are concerned about in the Fed's dual mandate. You can also see today the goods trade balance came in worse than expected at negative 101.5 billion and this is going to incrementally push the GDP expectations lower. The current Atlanta Fed GDP now tracker sits at about 1.6% GDP for Q2. We also got the CB consumer confidence that came out today for the month of July came in at 90.8. The expectation was 92. So missed expectations and coming in lower than last month. Richmond Fed manufacturing index came in at 5, the estimate was 7. Manufacturing shipments came in at 8, the estimate was two. And services revenues came in at -3, the estimate was -2. Again, tomorrow we do have the Fed interest rate decision and the press conference. The decision itself will come out at 2 p.m. The press conference at 2:30 p.m. is really what is going to move the markets, though. Donald Trump says today, "We will go back and finish the job if there is no Iran deal." He says, "This is a good time for Iran to make a deal." And when asked about Pickax Mountain, he says, "We will take it out if there is no deal." Donald Trump says Iran doesn't control the straight. we control the straight. He says that Iran needs to make it formal to not have nuclear weapons. And Trump says, quote, would like to avoid striking Iran's bridges and power plants. Donald Trump says today new tariffs won't hurt the economy. Oman today has presented new ideas for the management of the Straight of Hermoose. Thrron has yet to respond. Also making headlines today, it says the US and Iran continue to send conflicting signals to despite the ceasefire. Trump said Iran requested talks, but Thrron denied seeking negotiations and said no US talks are underway. Iran is instead holding discussions with Oman on the straight of Hermoose, though officials say the talks are unrelated to the US and remain focused on Iran security and sovereignty. Now, if we circle back to what's happening here for your indexes and in the broader markets today, the S&P, you know, doesn't look great, but it looks a lot better than the NASDAQ. And I think that's a pretty solid sign of where sentiment is shifting, right? Just as bluntly as I can possibly say it, expectations got too out of hand for AI stocks and for tech stocks. And now you're in a situation where AI stocks, they need spending to continue to continue to move higher. And hyperscalers, they're selling off for spending more. So that's putting pressure on the longevity of the AI trade. And that's the problem here. It's not what revenue is going to look like for Nvidia a quarter or two from now. It's what revenue is going to look like for Nvidia a year or two from now. And there's doubts around that. So, the S&P is down about 2 and a half% from highs. But again, the NASDAQ's down about 10% from highs. And I do think at this point, you're starting to get pretty washed out in the AI trade from a sentiment perspective. But as long as the spending continues, you might actually start to find some opportunities in AI stocks. I think you want to be careful which ones you're looking at, right? Of course, prepare for volatility, but if you want to start buying the dip in some AI stocks, it could start to make sense because again, you're down 10% in the NASDAQ. So, you'd think the selling would slow down soon. It does look like you are holding support here at that 100 day moving average. As long as that happens, that looks pretty good. You probably get a relief bounce, but we do have big catalyst. Again, hyperscaler earnings. I'm not super optimistic. I think they're going to spend more kind of like Google. That could that's probably going to send down the index even further. You might have to come down to the 200 day moving average. That would be down about 14% from highs. But again, I want you guys to focus on the bigger picture here. Before the midterms, you do tend to have a correction. You do tend to have downside in markets, but after the midterms, that's where things tend to go pretty vertical, right? You tend to rally from around mid October or or so through July of the following year. The question is, what areas are going to rally the most? Again, could AI stocks work here? Of course. But I I do continue to favor that cyclical software small cap trade assuming the Fed doesn't hike rates like crazy. Assuming hopefully the war with Iran comes to an end and the consumer can get a little stronger and Treasury yields can come down and oil comes down again. That's going to be a perfect setup for the broadening trade to continue. Now, if we take a look at your indexes today, the Russell 2000 down 0.4%, 4%. NASDAQ 100 down 1.42%. NASDAQ down 0.76%. S&P's down a tenth of 1% and the Dow is up 0.7%. If we take a look at 10-year Treasury yields today, down about three basis points, sitting at 4.61%. Still not out of the woods here. Even though you've come down from, you know, 4.7%, you're down nine basis points or so in the last couple of days. That could still reverse higher at any moment. you are not in the clear. You really want to get below 4.5% on 10-year Treasury yields and then you start to get in a more comfortable position. Now, oil prices today, oil sitting at $8145 per barrel, down 1.5%. So, that's again also helping the rotation trade in the markets today. So, ladies and gentlemen, let me know your thoughts on this down below in the comment section. Stay tuned to the channel though because we're going to talk about the Fed tomorrow. But we're going to talk about hyperscaler earnings and expectations around Microsoft and Meta and what it's going to do to the markets because I have a pretty good idea. But hey, it's just my opinion. We'll talk about it later. Hit that like button if you guys have not done so already. Subscribe to the channel if you guys made it to the end of this video. If you guys want to come trade and invest alongside of us, come smash the markets with us. That link is down below in the description of today's episode.