Nasdaq Has Worst Two Day Stretch Since October

Good morning investors,

The Nasdaq just capped its worst two day stretch since October, falling another 1.5% Wednesday while the S&P 500 dropped 0.5%. But here's what matters: the Dow rose 0.5% and the equal-weight S&P 500 gained 0.9%. The rotation out of Big Tech is accelerating, but it's rotation, not destruction at this point.

Alphabet beat estimates with Cloud surging 48%, then stunned the market by guiding capex to $175 billion to $185 billion for 2026, nearly double last year. AMD cratered 17% despite beating as investors demanded more than "good enough" from an Nvidia challenger. Silver crashed another 16% this morning, hitting the $78 level I called for weeks ago. The SaaSpocalypse continues claiming victims. Amazon reports tonight and will determine whether Big Tech spending gets the Meta treatment of approval or the Microsoft treatment of punishment.

S&P 500 ($SPY ( ▲ 0.07% )) futures down 0.2%, Nasdaq ($QQQ ( ▲ 0.21% )) futures off 0.3%, and Dow ($DIA ( ▲ 0.12% )) futures shedding 108 points as Alphabet's massive capex guidance weighs on sentiment.

Alphabet ($GOOGL ( ▼ 1.06% )) fell 3% in premarket despite beating estimates across the board. Qualcomm dropped 11% after guiding below expectations due to memory shortages. Silver ($SLV ( ▲ 2.94% )) plunged as much as 16% overnight, now trading around $78 per ounce, snapping a two day rebound as excessive volatility continues.

Bitcoin ($BTC ( ▲ 2.15% )) dipped below $70,000 for the first time since November 2024, another sign of risk-off sentiment gripping speculative assets.

Initial jobless claims arrive this morning with expectations at 213,000. JOLTS data is finally scheduled after the shutdown delay, providing December's hiring, firing, and quit rates.

Alphabet delivered a clean Q4 beat with revenue of $113.83 billion versus $111.43 billion expected, up 18% year over year. Adjusted EPS of $2.82 topped the $2.63 forecast. Advertising revenue rose 13.5% to $82.3 billion, showing continued resilience in Search despite AI disruption fears.

Google Cloud was the standout. Revenue surged 48% to $17.7 billion, well ahead of expectations, with operating margin expanding to 30% from 17% a year ago. Cloud remains the core monetization engine for Alphabet's AI strategy, housing Gemini, enterprise AI tools, and large scale infrastructure services.

But capex stole the narrative. Alphabet guided 2026 capital expenditures to $175 billion to $185 billion, nearly double 2025 levels and far above consensus expectations of roughly $120 billion. Q4 capex alone reached $91.5 billion, more than triple analyst forecasts.

CEO Sundar Pichai framed the spending as necessary to meet accelerating AI demand across cloud, enterprise services, and consumer products. The message was clear: Alphabet is prioritizing scale and infrastructure leadership over near term margin optimization.

Barclays noted that Infrastructure, DeepMind, and Waymo costs "weighed on overall profitability" and will continue to do so in 2026. But they added: "Cloud's growth is astonishing, measured by any metric. The AI story is getting better while Search is accelerating, that's the most important take."

Alphabet stunned everyone with its capex plan. With tech in a current state of flux, it's not clear whether that's a good or a bad thing.

The stock reaction reflects that trade off: strong fundamentals paired with a deliberate choice to spend aggressively to defend long term AI leadership. Nvidia and Broadcom rose on the news, boosting hopes that Alphabet's spending plans validate the AI infrastructure trade even as the parent company faces multiple compression.

AMD delivered a clean Q4 beat with EPS of $1.53 versus $1.32 expected and revenue of $10.27 billion versus $9.67 billion forecast, up 34% year over year. Data center revenue reached $5.4 billion, up 39% year over year.

The stock cratered 17% anyway because Q1 guidance of approximately $9.8 billion, while above the $9.38 billion consensus, disappointed analysts positioned for stronger upside. AMD also disclosed $390 million in unexpected China revenue from MI308 AI chips after Trump administration license approvals. When you account for that windfall, the beat was far less substantial than it appeared.

The sell off wasn't about execution. It was about expectations. In a market dominated by Nvidia's scale and momentum, investors demand accelerating guidance from every AI adjacent name. AMD is executing well, gaining share, and firmly positioned as the clear number two player in AI compute. But in this environment, the bar is set by Nvidia, not consensus.

I think AMD becomes very attractive, especially if it keeps falling at a sharp speed.

Qualcomm beat Q1 estimates with EPS of $3.50 versus $3.41 expected and revenue of $12.25 billion versus $12.21 billion forecast. But shares dropped 11% after management flagged the global memory shortage as a near-term constraint.

Q2 guidance of $10.2 billion to $11 billion in revenue fell below the $11.12 billion consensus, with EPS of $2.45 to $2.65 missing the $2.89 expected. CEO Cristiano Amon was explicit that the softer outlook is not demand driven. Memory is now defining the size of the mobile market as data center customers absorb capacity for high bandwidth memory tied to AI infrastructure.

Because Qualcomm's handset customers source memory independently and pair it with Qualcomm's processors, memory availability is increasingly determining how many devices can be built. This was a clean earnings beat overshadowed by a supply-side issue outside Qualcomm's direct control. The debate is less about Qualcomm's competitiveness and more about how long AI driven memory tightness persists across consumer electronics.

Silver crashed as much as 16% overnight to around $78 per ounce, exactly the level I called for weeks ago when the metal was trading above $100 in a parabolic frenzy. Spot gold declined around 1.7% to $4,878 per ounce.

There's too much retail optimism around silver. Too many people got trapped at the highs. When you look at different message boards, there's a large majority still talking about silver, which often makes me fearful for them after such a crazy run.

Analysts point to speculative flows, leveraged positioning, and options-driven trading rather than physical demand as key drivers of the price swings. CME margin increases following last Friday's crash are killing off speculation. As prices fell, dealer hedging flipped from buying into strength to selling into weakness, stop-outs were triggered, and losses cascaded through the system.

The volatility in silver has drawn comparisons to meme stocks like GameStop in 2021. Market watchers had warned prices were detached from sustainable levels. The fundamental case for silver demand still holds given its industrial and technological uses, but wait for speculative positions to get wiped out first before re-entering.

Wall Street has become so bullish on AI that it's made investors bearish on software. Legacy names like Salesforce, ServiceNow, Intuit, LegalZoom, Duolingo, and Chegg continued tumbling Wednesday, fueled by fears of AI disruption and optimism about how effective new AI tools have become.

The fear is that AI agents will move from being features within apps to becoming the apps themselves. That dismantles software firms' seat based business models that ruled the last decade, where companies charge subscription fees per human user. A single, well-prompted AI agent can now do the job of five or ten "seats." That does not bode well for the old framework.

Tuesday's sell off began with SaaS companies. Wednesday saw those losses stabilize somewhat, but Big AI names took up the mantle of leading the decline. Nvidia, Amazon, Tesla, and Alphabet all fell ahead of earnings. The market is saying the software era is over and AI is eating everything in its way.

Challenger, Gray & Christmas reported that January layoff announcements hit 108,435, up 118% from a year ago and the highest for any January since 2009 during the financial crisis. Hiring intentions reached their lowest January since Challenger began tracking in 2009.

"Generally, we see a high number of job cuts in the first quarter, but this is a high total for January," said Andy Challenger. "It means most of these plans were set at the end of 2025, signaling employers are less than optimistic about the outlook for 2026."

Transportation had the highest sector layoffs due largely to UPS plans to cut more than 30,000 workers. Technology was second on Amazon's 16,000 job announcement.

To be sure, official government data hasn't confirmed this trend. Initial claims remain near their lowest levels in two years. But the no-hire no-fire narrative may be shifting toward the layoff side of the equation.

ADP showed private payrolls grew only 22,000 in January, falling far short of the 48,000 expected. It's still job gains, but the weakness adds to questions about labor market momentum. The official January jobs report is now scheduled for February 11 after the shutdown delay.

The e-commerce and cloud giant reports after the close as the tech industry grapples with questions about overspending and uncertain AI returns. Investors will ask whether Amazon gets the Meta treatment of approval for AI spending or the Microsoft treatment of punishment.

The report follows Amazon's announcement of 16,000 job cuts to "strengthen our organization by reducing layers, increasing ownership, and removing bureaucracy." The company also closed Amazon Fresh and Amazon Go stores, replacing some with Whole Foods locations.

Wall Street expects $1.97 in EPS. AWS growth and forward capex guidance will determine market reaction.

It's been remarkable how small and mid cap U.S. stocks have held up in the face of the large cap selloff. Small caps continue to be my top pick for the year and appear far less volatile than mega cap tech. The equal-weight S&P 500 rose 0.9% Wednesday while the cap-weighted index fell 0.5%.

I continue to favor a portfolio with international exposure, but the attractiveness of tech is becoming more appealing for long-term investors during this selloff. Remember, I said at the start of the year this would be volatile with midterms and predicted pullbacks, including one larger pullback of 10% to 20%. While I don't think this is that one, it could be, and I wouldn't be scared to buy that dip if it's playing out now.

The market is repricing what it means to be an AI winner. Alphabet beat estimates and Cloud grew 48%, yet the stock fell because $175 billion to $185 billion in capex raises questions about returns. AMD beat and guided above consensus, yet crashed 17% because it wasn't above whisper numbers. Qualcomm beat, yet dropped 11% on memory constraints outside its control.

This is a market demanding perfection from tech and punishing anything less. Meanwhile, cyclicals and small caps are absorbing the rotation flows. The Dow rose while the Nasdaq cratered. The equal-weight outperformed the cap-weight. The broadening theme I've championed all year is playing out, just more violently than expected.

Silver hitting $78 validates the caution I expressed for weeks. Parabolic moves eventually correct, and when retail mania meets margin calls, the unwind is brutal. The fundamental case for precious metals hasn't changed, but technical damage takes time to repair.

Amazon tonight will test whether Big Tech can stabilize. AWS growth and forward guidance matter more than backward-looking beats. If Amazon delivers and guides confidently, it could mark a turning point. If it disappoints, the rotation accelerates.

The volatility I warned about at the start of the year is here. This environment rewards selectivity, favors diversification, and punishes concentration in last year's winners. Stay disciplined.

As always, feel free to reach out with questions about positioning.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.