To The Moon

AI Stocks Fall... But The Bull Market Lives On

For the first time in a long while, investors weren't chasing AI Monday.

And surprisingly...The market didn't collapse.

• Dow Jones: +0.3%

• S&P 500: -0.4%

• Nasdaq: -1.3%

At first glance, it looks like another rough day for stocks, but beneath the surface, the story is much more interesting.

The Market Is Rotating, Not Breaking

Gauge

For months, market performance has depended on a handful of mega-cap technology names. When AI stocks rose, the market rose. When AI stocks fell, the market struggled.

Monday was different, while technology dragged down the Nasdaq, many other parts of the market quietly moved higher.

• Real Estate: +1.4%

• Financials gained ground

• Industrials advanced

• Small caps hit new highs

This wasn't a broad selloff. It was a rotation, and that could be healthier than many investors realize.

Is The AI Trade Finally Cooling?

Technology stocks faced pressure across the board.

One catalyst was $Alphabet(GOOGL)$ losing a key AI researcher to Anthropic. But the selling wasn't limited to Google. Investors appeared to be reducing exposure to AI-related names more broadly.

After all:

1. Valuations remain elevated

2. Interest rate uncertainty persists

3. AI infrastructure spending is becoming increasingly expensive

Small Caps Keep Sending A Different Message

While everyone watches $NVIDIA(NVDA)$ , $Microsoft(MSFT)$ and Alphabet...Small-cap stocks continue quietly outperforming.

The Russell 2000 reached another new high. That's important.

Because strong small-cap performance often suggests investors are gaining confidence in the broader economy, not just a handful of technology giants.

From FOMO To FEMO

One of the most interesting market concepts comes from Ed Yardeni.

He argues this cycle isn't being driven by: FOMO (Fear Of Missing Out)

Instead, it's being driven by: FEMO (Fabulous Earnings Momentum)

In other words: Investors aren't simply chasing hype, they're chasing earnings growth.

And according to Yardeni, that earnings momentum is no longer confined to the Magnificent Seven. Mid-cap and small-cap companies are increasingly joining the party. That's exactly what a healthy bull market should look like.

Why Inflation Still Matters More Than Most Investors Think

This week's biggest economic focus isn't earnings. It's inflation.

Markets will closely watch:

• PCE Inflation (the Fed's preferred measure)

• Consumer Sentiment

The reason is simple. Interest rates remain the biggest variable for the second half of 2026.

And rate expectations affect everything:

1. Housing

2. Consumer spending

3. Business investment

4. AI infrastructure spending

The AI Boom Has A Hidden Dependency

Many investors focus on AI's growth potential. Few focus on its financing.

Building data centers, chips, cloud infrastructure, and AI models requires enormous capital. Historically, much of this spending was funded by cash flow.

Increasingly, however, companies are relying on: Debt financing , Equity issuance

Which makes the entire AI ecosystem more sensitive to interest rates. Higher rates don't just impact consumers, they could eventually impact AI itself.

The Bigger Question

Monday's market action may be sending an important signal: The bull market isn't ending, It's broadening.

And that could be far more sustainable than a rally driven exclusively by seven technology stocks.

What do you think?

1. Are small caps the most overlooked opportunity in today's market?

2. Is the AI trade becoming overcrowded?

3. Would you rather own the Magnificent Seven or a diversified basket of small and mid-cap stocks over the next 12 months?

Drop your thoughts below in comment with tag with 1, 2, or 3

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This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.

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