AI funding worries drag the Nasdaq down 2.5% this week while the Dow stays flat

The week's drop is a 2.5% move on the Nasdaq (or rather, a 2.5% move through Wednesday's close, since Thursday's session is not in the figure) ^[1], and it lands on top of a gain. The index is 2.3% higher since the club's Sept. 10 meeting ^[6]. That puts it up roughly 4.9% on last Friday's close, assuming the two windows nest (1.023 divided by 0.975) ^[17]. The Dow was down nearly 1% over the longer stretch and has not moved this week ^[6][2], so the Nasdaq's lead over it was about 6 points and is now about 3 ^[18][19]. The week has taken back about 44% of that lead ^[20].

The club's five-week scoreboard sends a different signal from the week. Its biggest winners include Meta, up 14.4% since the Sept. 8 launch of its Muse agent ^[10], and CrowdStrike, up 19.4% ^[9]. Its biggest losers include Bank of New York, down 15.4%, and Goldman Sachs, down 13.8% ^[8]. The club ties the bank losses to the Fed's September hike ^[7]. Over that window the penalty fell on rate-sensitive financials while an AI spender was rewarded, and the club says the steady pace of AI releases is easing earlier concerns about whether Meta's billions in AI spending would generate sufficient returns ^[11]. In our view the market is sorting AI spenders by visible return on the spending. The evidence for that is thin: one source, describing its own holdings. Meta's rally could also reverse as fast as the slide in Micron, the club's biggest loser this week ^[3].

On the debt point itself the source is brief. It says expectations of at least one more Fed hike before year-end are not helping investors feel better about whether companies are borrowing too much to fund the AI buildout ^[4]. The post does not include borrowing figures, borrower names or the size of Thursday's inflation print. It says that report "and another terrible day for AI stocks were widening the gap between the haves and have-nots" ^[5].

We could be wrong in more than one way. If the AI selling carries on, a further decline of about 2.2% would erase the Nasdaq's entire 2.3% gain since Sept. 10 (1 divided by 1.023, less one) ^[21]. If the Dow starts falling with it, the cause is the rate path across the market and not AI financing, and the banks' losses of 13.8% to 15.4% already point that way ^[8]. If hike expectations fade, the AI borrowing worry loses the one catalyst the source names ^[4].

The club owns what it describes, a 32-stock portfolio ^[14], so its calls are positions. Of the Goldman decline it wrote: "We view the pullback as a buying opportunity" ^[13]. BNY reported better-than-expected fee growth on Thursday, according to the post ^[16].