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As noted last week, there is a major shift underway in the global monetary system that requires a complete rethink on the part of investors. “The underlying forces of anti-globalization will continue to play out in global commerce and markets. For investors, that will require a shift away from the large cap technology companies that have been the market leaders in the last two decades,” writes Aswath Damodaran.

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This represents a significant risk for the stock market indexes that have only ever been as highly-exposed to large cap technology stocks once before. “Current sector weights and valuations are remarkably similar to those at the peak of the market in 2000 (and in 2022). This suggests that the relative contributions to the next stock market decline may be similar to the 2000-2002 and 2022 selloffs,” writes Bill Hester.

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Of course, the technology sector has recently been boosted to such heights in part by the massive boom in capex related to the build out of generative AI. However, a new IPO at the heart of this trend is testing the validity of the bullish narrative. “If generative AI had this incredible demand, CoreWeave would be making far, far more money, have a far more diverse customer base, and, if I’m honest, not have to take out more than five times its revenue in burdensome loans with loan shark-level interest rates,” writes Ed Zitron.

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History is littered with examples, across a number of industries, where, as noted by The Crude Chronicles, massive capex booms inevitably turn to busts. In fact, this is a defining feature of long-term market cycles.

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Currently, however, the stock market appears to be pricing in something closer to a permanently higher plateau. As Simon White writes, “disquietingly for the market, expectations have never been so fantastical when valuations are so high.”

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A Major Shift In The Global Monetary System
As Good As It Gets
Another Massive Misallocation Of Capital? Part Deux