CoreWeave's bonds traded distressed, the chip trade got its margin call and oil pushed through a hundred dollars while the Fed refused to blink. The question has moved from what AI earns to who pays for it, and the levered builders answered first.
Five things
- Credit found the weak link. CoreWeave's bonds traded at distressed yields while the broad high-yield index widened only modestly, which is the market saying the AI build-out is a debt problem for the levered builders first and for everyone else later.
- The chip trade got its margin call. A crowded momentum unwind took the Nasdaq 100 down more than five percent on the week with memory leading the fall, and the house would sell the bounce into software rather than buy it.
- The Fed scare came and went in two days. A hot September inflation print and Susan Collins's call for more hikes briefly put October odds above even until Warsh's refusal to prejudge unwound it, and our rates desk is long two-year Treasuries because the front end still prices too much.
- Oil's war premium reached Aramco's door. Houthi strikes on Dhahran and a tanker fire pushed WTI through a hundred dollars with diesel so tight that governments are now rationing the refinery margin, so the desk is long crude against heating oil.
- The rotation is real but it is buying shelter. Equal weight beat the giants and breadth was wide, yet small caps fell and the bid went to staples, which is a market seeking cover rather than hunting bargains, so own equal weight, tilt to staples and skip small caps.
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Cambridge Sigma Weekly, written on Sunday after the week's close. For information only; not investment advice.