Stargate Euphoria Isn't Healthy for the Market — And Could Get Dangerous

Wednesday was rotation day, with big-cap technology names sucking up the buying as smaller stocks sold off. The catalyst for the move was the announcement of the Stargate project, which will invest up to $500 billion in data centers needed for the development of AI.

The news boosted semiconductor stocks such as Nvidia NVDA and Arm Holdings ARM as well as Microsoft MSFT, Oracle ORCL, and other big tech names that are heavily leveraged to AI.

At the end of the day, the Nasdaq 100 QQQ had gained 1.3%, and the Magnificent Seven MAGS was up 1.5%. However, market breadth was negative, and the Russell 2000 IWM lost 0.7%. Energy, healthcare, and financials struggled, and bonds lost ground as interest rates moved higher.

Index strength on narrow big-cap leadership is nothing new, but it isn’t healthy action. There has been good small-cap action recently and very positive breadth, so the market was due for some consolidation, but if this disparity in performance expands further, it is going to create very dangerous market conditions.

Next week we will have a flood of earnings announcements that will help determine if big-caps can keep running higher. There will also be more Trump announcements. So far, Trump has been very positive for the market, but the issues going forward will be more contentious, and the market may not be as thrilled if there is some short-term economic pain.

We have quite a few extended stocks, and there is some question whether the euphoria over Stargate is justified or not. I’m expecting struggles in the near term as we await a barrage of earnings and more Trump-related news.

Have a good evening. I’ll see you in the morning.

At the time of publication, Rev Shark was long NVDA.