There was a lot of noise in the markets last week about geopolitics, economic growth, and the Fed, but for all the headlines, none of the outlooks for those situations materially changed, and they didn't alter the broader outlook for markets (geopolitical risks are high and rising, economic growth is robust, but with elevated inflation pressures, the Fed will likely hike once more this year). Given that lack of substantial change, the biggest "takeaway" from last week was that this market is very, very vulnerable to a legitimately negative AI headline.
I realize that isn't a surprise in general, but last week's OpenAI revenue headline from the FT is a bit of a "warning shot" that the market is susceptible to AI disappointment. I say that because tech dropped hard on the Financial Times article about OpenAI revenue disappointment, and if that were legitimate, that is a problem. I say that because with the surge in spending to build out data centers, markets need AI to continue to grow direct revenue at a substantial pace; otherwise it resurrects concerns about bad ROI (return on investment) on hundreds of billions of data center capex. Regarding the OpenAI story, it was more about an accounting change than an actual shortfall in revenue, and the "sell first/ask questions later" reaction shows how sensitive AI sentiment is in the market.
To be clear, that's not a reason to de-risk right now. AI enthusiasm is still a powerful bullish force and almost single-handedly holding this market up at times. But last week was a "warning shot" that I think needs to be heeded from a volatility standpoint, and we all need to realize the market is telling us that if we get legitimate negative AI news (especially as it pertains to revenue from AI data centers), then the market fallout will be painful.
Our approach to this is to diversify our positions so that we have bonds and mid cap and growth, and value, with little exposure to AI. This defensive approach is just prudent for now. If interest rates fall in the next two months, we will be less positioned in bonds and more in growth.
Source: Sevens Report 10/12/26