Did The AI Bubble Just Burst, And What Happens Next

The great rotation started last Thursday.

In what DB's Jim Reid called a "fascinating day" for US equities. 396 of the S&P 500 were up on the day, the equal weighted index rose +1.17%, and the Russell 2000 small cap index (+3.57%) had its best day since November 2023. And yet, the overall S&P 500 fell -0.88%, which is the biggest gap between the overall S&P 500 and the equal weighted S&P 500’s performance since the Pfizer vaccine announcement in November 2020. The driver for start of the great rotation, of course, was a -4.26% fall for the Magnificent 7 - whose ridiculous skyhigh prices are the result of what even Goldman's head of research admits is an AI bubble - the largest drop since October 2022, the month before chatGPT was launched.

So in retrospect - and keeping in mind the historic rout for the Mag 7, which have lost over $1 trillion in market cap in just the last 5 days...