(These are the market notes on today’s action by Mike Santoli, CNBC’s Senior Markets Commentator. See today’s video update from Mike above.) Another flurry of treacherous rotation roiled the tape, though by the closing hour the swirling currents were showing signs of slowing. The highest-momentum, most-expensive, most-crowded stocks — the sort that drove the Nasdaq-100 up 40% and the S & P 500 High Beta ETF (SPHB) up 60% over four months – remained under pressure, peaking at midmorning. While largely mechanical and tactical, the action coincides with a moment of broad reconsideration of the trajectory of the AI-investment theme and the assumptions underlying it. Meta Platforms is now down nearly 5% on the week, as it again is said to be reorienting its AI efforts. Chat GPT5 has been deemed largely underwhelming. Perhaps most relevant, though, the AI trade became pretty crowded. Strategas here shows flows into AI-specific ETFs having shot higher in recent weeks. For now, the reallocation is relatively orderly, and has not undercut the stability of consumer cyclicals, financial stocks or industrials, and thus would seem to be saying little about the macroeconomic setup. This is largely how the market tries to relieve extremes in concentrated positioning, rapidly racing from leaders to laggards, the crowded to the neglected. Several similar episodes in recent years were sometimes hazardous but only a minority of the time resulted in a sizable, broad index correction. VIX flat today suggest little real stress. Minutes from the Fed’s July meeting were somewhat hawkish, though the bond market quickly moved on given that meeting was before the jarring Aug. 1 payroll report that caused odds of a September rate cut to soar above 80%. The market is holding this stance, though presumably Fed Chair Powell on Friday in Jackson Hole will stop short of fully endorsing any September move, not wishing to front-run another jobs report in early September. It remains debatable whether the economy “needs” a rate cut, but the market would gladly take one. Big picture, stocks are near highs, valuations full, credit spreads tight, market-based yields and oil prices unchallenging. A rate cut into such conditions is typically more than investors would dare ask for, although the cadence of the recent economic and monetary cycles has been unusual. So far this week, the equal-weighted S & P 500 is up 0.5% with the market-cap-weighted version down 0.8%. A small measure of “broadening” that so many seem to root for, even if it comes with a bumpier ride along the way.
