1. Introduction
The U.S. stock market is experiencing a significant decline, led by high-tech stocks. With the earnings season about to begin in earnest, something called the “CoreWeave shock” is also unsettling market sentiment. I believe three conditions are necessary for the U.S. stock market to recover. In this article, I will examine the current state of the stock market and discuss these three conditions in detail.
2. Three Conditions for a Recovery in the U.S. Stock Market
① The State of the U.S. Stock Market
The U.S. stock market is shaken by anxiety. There are fears that the CoreWeave shock will spread to the credit market, leading to hedge fund failures, a halt in funding for private debt, and AI startups struggling with cash flow and exiting the business. This would cause AI investment itself to stagnate, pushing the U.S. economy into a recession. If the U.S. economy enters a recession, the global economy will also catch a cold. Furthermore, with the situation in the Middle East intensifying, the impact of a second energy shock could lead the global economy into “stagflation,” where it suffers from inflation amidst a recession… To put it extremely, such pessimistic stories have begun to appear here and there on the internet. (How nervous can people be!)
Of course, any pessimistic story has the potential to come true, but for now, I would like you to take a breath. It is natural for investors who are heavily concentrated in AI-related stocks to feel anxious at the moment, but for investors who are invested in, for example, the S&P 500 or All-Country World Index (ACWI), or those who are diversified across various sectors, it is a situation where it is not clear what is so pessimistic. There is a divergence here.
Let’s look at the actual situation. As shown in the table below, the U.S. stock market in the third week of October was in a difficult situation, centered on high-tech stocks. I was also surprised by this development. The SOX index rose by +9.5% in September alone, but plummeted by 11.4% in the third week of October alone. If you look only at semiconductor stocks, you might feel that an incredible bear market has arrived. However, the U.S. stock market is not just about high-tech stocks. The Dow maintained a positive return this week as well. The S&P 500 fell 1.9% for the week, but it remains within about 2% of its all-time high. Of the companies in the S&P 500, 350 (69.5%) maintained a positive return for the week. The S&P 500 Equal Weight Index also had a positive return for the week. The Magnificent Seven index also fell significantly for the week, but it did hit an all-time high at one point during the week. Also, if we look back at the year-to-date performance more broadly, all major indices are currently showing positive returns for the year. For many investors, their wealth has increased significantly compared to last year.
