Episode summary
AI Stocks Crack, Yields Fall, Defensives Surge; What’s Next | Cameron Dawson
The David Lin Report
· · 41 min · Hosts: David Lin · Guests: Cameron Dawson
Summary
Cameron Dawson argued that the recent selloff in South Korean chip stocks, U.S. semiconductors, and other AI beneficiaries may be signaling a broader market shift because price action tends to lead the fundamental data. She said the AI trade’s margin expansion has been so extreme that even a modest slowdown in 2027 or 2028 expectations could pressure the S&P 500, since semiconductors have been a major driver of overall index margin gains this year.
She also pointed to weakening market breadth, widening high-yield spreads, and a rotation into utilities, staples, and healthcare as signs that investors are becoming more defensive. In her view, the market is increasingly bifurcated: a small group of leaders is still carrying the index while many stocks are already well below prior highs.
On rates and policy, Dawson said the hot CPI print, firm long-end yields, and the move in the 2-year suggest the Fed may still need to hike again, with PPI and broader financial conditions likely to matter next. She thinks higher yields are tightening conditions, but she does not see them as a cleanly resolved peak yet.
Key takeaways
- Cameron Dawson said the market is increasingly sending a warning through price action, especially in semiconductors and South Korea’s Kospi, before fundamentals fully catch up.
- Cameron Dawson said semiconductor margins are extraordinary but vulnerable, with S&P 500 margin expansion heavily dependent on that one group.
- Cameron Dawson said widening high-yield and triple-C spreads are a more important caution sign than the still-strong headline index level.
- Cameron Dawson said utilities, staples, and healthcare leading is a risk-off signal, not a healthy breadth improvement.
- Cameron Dawson said the hot CPI and a rising 2-year yield keep another Fed hike in play, especially if PPI also runs hot.
Notable quotes
“price leads data. Price leads data. So, we've we've long been saying for the last 3 years, as long as 12-month Ford earnings estimates are making new all-time highs”
“the vast majority of the margin upside for the entirety of the S&P 500 has come from this operating leverage dynamic around semiconductors”
“high yield spreads in totality have been quesuscent all year long”
“usually we don't celebrate when utilities and staples are the leadership of the market because they are a sign of a deterioration in risk appetite”
How the episode opens
We're we're seeing these cascades start to happen now. Triple C spreads, as I mentioned, high yield spreads are starting to widen out. And always remember, price leads data.
Price leads data. So, we've we've long been saying for the last 3 years, as long as 12-month Ford earnings estimates are making new all-time highs, we think the market can make new all-time highs. And given the the weakness within financials, given the weakness within semiconductors, the market can start to roll over before earnings do.
It's Wednesday, October 14th, and South Korea's Cosby index fell for a sixth straight session. Is this a leading indicator for what's to come for the rest of the tech sector given how heavily weighted chip stocks are in South Korea? Also, the defensive sectors that have been lagging all year, namely things like utilities, consumer staples, and healthcare are now rallying.
So, what's behind this rotation? We're going to find out today with our next guest, Cameron Dawson, CIO of New Edge Wealth, where she leads the firm's investment themes and market views. She was institutional investor Raia, Intel's CIO of the year for 2024.
Meanwhile, today CPI data came out uh in the morning and headline consumer prices rose 3.7% in September, while gasoline jumped 9.1% in the month. The 10-year Treasury yield jumped to 5.289% to 89% and the October 7th auction paid the highest yield since November 2000. We're also going to ask Cameron if bond yields have peaked and what the Fed is going to do next in response to this higher than expected inflation print.
Right now on traders are predicting a 33% chance that the Fed will hike 25 basis points at the October FOMC meeting on the 28th. If you agree with those odds, a $50 trade could yield $114 if you're right, and they actually do hike.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai stocks
- semiconductor selloff
- bond yields
- inflation
- credit market stress
Companies and tickers mentioned
- NewEdge Wealth
Watch the episode
Watch “AI Stocks Crack, Yields Fall, Defensives Surge; What’s Next | Cameron Dawson” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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