Struggling Market Takes Turn for the Worse
I was not expecting things to get this ugly.
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After a few days of selling pressure, the market showed signs of stabilization late on Tuesday, but another round of bad news in the data center sector raised concerns about AI profitability and prompted investors to liquidate positions again.
Market breadth wasn’t terrible, with around 40% of issues finishing with gains, but the stocks that powered the market higher in 2025 were aggressively sold again. The Magnificent Seven (MAGS) lost 2.2%, semiconductors (SMH) took a 3.7% wack and the SPDR Select Technology ETF (XLK) was hit for a 2.2% loss, as was the IBD 50 Fund ETF (FFTY) , which is mostly growth stocks. The mighty Nvidia (NVDA) no longer looks as mighty with a loss of 3.9% and its lowest close since mid-September.
Investors could have handled concerns about data centers and their repercussions better, but there is also the matter of uncertainty: President Trump is giving a speech on Wednesday night, which some folks think may be a prelude to a war with Venezuela. In addition, there is CPI data to be released on Thursday morning, option expiration on Friday and some massive end-of-year rebalancing by large 401(k) and pension plans.
Investors who have been hoping for positive December seasonality have been trapped leaning the wrong way, and that likely produced some capitulation when the lows hit on Tuesday were breached. The mood was definitely much more somber as there wasn’t even a feeble attempt at a bounce.
This is a painful action, but the good news is that many great stocks are being unfairly punished and at some point they will be fantastic opportunities. The flows at the end of the year make it very tricky because, in many cases, valuations and technical conditions take a back seat to positioning moves.
I was not expecting things to get this ugly, but I’m optimistic that we are going to see a snapback before the end of the year. How far or fast things can bounce, I have no idea, but we are stretched enough to the downside that some relief is likely to occur soon.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
