Software Finally Putting in a Low?
Climbing out of a hole
MSFT has a long way to run if it wants to fill the gap.
Strength in Nasdaq helps here. QQQ finally cleared resistance. New resistance here, but a rally mode should take it out easily and setup a test of their highs.
Implied correlation has plunged. A new plunge setup in the making.
On social media, the new meme is the market is too bearish; the leading financial Substacks are bearish. (Burry, Doomberg and now Citrini because of their AI scenario). Can you have a market too bearish at all-time highs? Maybe, if the last bear is nearby. In this market, 17 years in to a bull? Probably not. Though maybe everyone turned too bearish on software, itself fed by being optimistic about AI.
Markets are a poker game, a voting machine in the short-term, and a weighing machine in the long-run as Buffett put it.
Judging by sentiment expressed through culture and politics, the year 2000 is arguably the peak of positive mood in Western culture. Politics became more polarized in part because ruling class members chose to jam extremist policies against the will of the voters. A ban on immigration is the opposite of open borders, and the public mood shifted towards immigration restriction for a decade before the governments of the West forced open borders. Localities became opposed to tourism because of heavy population influx. Vancouver residents complained about high home prices caused by migration and the Canadian government ramped it up in response.
Unpopular wars keep coming, now under Trump who is in office partly because anti-war sentiment became so strong that Democrats ditched their party. Transgender surgeries pushed on children appears to have peaked. The popular figures going viral in 2026 represent a total pendulum swing to vapid, shallow influencers who focus entirely on extreme male and female looks. This is an extreme, temporary blip that could easily reverse, but if mood were to turn positive, a trend in the direction of more traditional masculine and feminine energy, rising fertility, traditional sex roles and so on, will start showing up across the culture. For what it is worth, the number of people identifying as some form of queer dropped for the first time in more than a decade. This will go sub-5 percent in a positive mood cycle and if it is proportional, maybe towards 2 percent as homosexuality goes back into the closet.
What does this have to do with AI? Under negative mood, people view technology suspiciously. They see the negatives instead of the positives. There are plenty of bullish people in the stock market, but widen the field to the population at large and most takes on AI and automation are very negative, focused on short-term job losses.
Drug use is up, drinking alcohol is down, both negative mood trends, but Gen Z movie attendance ticked up. Extreme fighting, NFL football are more popular than the NBA and MLB which have faded, but were popular during peak mood eras.
What’s most amazing about this period isn’t that there are bears in the stock market, it’s that the stock market kept making new highs straight through an era of negative mood because government and central bank policy put the concerns of investors above everything else.
In the long-term, getting the American economy back on track will involve distributing capital away from the stock market for a generation. First, America has to believe in itself again, that it can do manufacturing, that it wants automation, that it wants the tight labor markets that help. There’s a dilemma though, expressed by the current President who admitted the downside of lower home prices is a hit to net worth for the many people whose main asset is their home. Everyone can win from a larger pie, but not at first when the bulk of wealth is based on squashing the earnings of the rest of the country.
There’s Always a Bull Market Somewhere
Zoom out and what is happening in the markets? This is expressed through the relative performance of different equity segments.
As the West has gone through what looks like a generational decline in mood and an ongoing economic depression for the middle and lower class as a cohort—not individually because individuals move out of cohorts—so the coming corrective era will likely be as confused with strong wages and inflation pummeling financial assets. Or front-loading it all into a epic bear market for the ages.
