Connecting Data to Wealth Creation
Connecting Data to Wealth Creation
The Dow Jones Industrial Average took a nosedive, shedding nearly 800 points. The S&P 500 and Nasdaq followed suit, dropping 1.7% and 2.3% respectively. Headlines scream about a government shutdown hangover and delayed economic data. But let's cut through the noise and look at what really moved the market.
The narrative is that the reopening of the government allows investors to assess the implications of the shutdown, including the resumption of economic data collection. Okay, fine. But the real story simmers beneath the surface: the AI narrative, and its impact on sectors you might not expect.
Communication services, tech, and consumer discretionary stocks took the biggest hits. Fair enough. But utility stocks also tanked. And that's interesting. The connection? Renewed questions about an AI bubble. All that potential computing power requires a lot of electricity. And that realization seems to be dawning on investors. Stock market today: Dow tumbles 800 points with Nasdaq, S&P 500 hammered as investors pare rate cut bets
Nvidia, the darling of the AI boom, was down 3.6%. Tesla shed a hefty 6.6%. Even the "Magnificent Seven" weren't immune. Alphabet, Amazon, Microsoft, and Apple all saw declines. Meta Platforms, oddly enough, eked out a tiny 0.1% gain after Wedbush added them to their Best Ideas List. (I always take those "Best Ideas" lists with a grain of salt.)
Then there's Constellation Energy Group (CEG), billed as a way to invest in a nuclear revolution driven by AI's insatiable need for power. Down 5.2%. The market seems to be pricing in the costs of AI, not just the potential rewards. Is this a temporary correction, or the start of a more profound shift in sentiment?
Cisco Systems bucked the trend, rising 4.6% after reporting better-than-expected fiscal 2026 first-quarter results. The reason? AI-driven demand. So, the market isn't completely bearish on AI. It's becoming more discerning. This isn't just about throwing money at anything with "AI" in its name.
Louis Navellier notes that the market is "hungry for economic data." True. He also points to "a fairly ugly" employment situation based on non-government data, marked by low hiring and large layoffs. He thinks this should push the Fed to cut rates in December, but inflation concerns might give them pause.
I'd argue the Fed's decision is less about current employment numbers (which are, admittedly, a mess) and more about future inflation expectations, which are heavily influenced by energy prices. And energy prices are, increasingly, tied to the AI narrative. It's a self-fulfilling prophecy: AI hype drives demand for energy, which drives up prices, which fuels inflation fears, which impacts Fed policy.
While the AI narrative played out across the tech landscape, Disney had its own set of problems. DIS plummeted 7.8% after reporting fiscal 2025 fourth-quarter results. Traffic at its U.S. amusement parks was down 1%. The stock was also hit by an ongoing dispute with Alphabet's YouTube unit.
Disney posted earnings of $1.11 per share, down from $1.14 a year ago, but above the Wall Street consensus of $1.05. Revenue slipped to $22.46 billion, below analysts' expectations of $22.76 billion. Operating income for its entertainment segment was down 35% due to declining TV advertising and box-office sales.
Here's the key discrepancy: Earnings beat expectations, but revenue missed. That suggests cost-cutting, not organic growth. And the market hates cost-cutting as a long-term strategy.
The good news (for Disney, at least) is that its streaming and experiences segments saw profit growth. Disney+ added 3.8 million subscribers, and overseas theme parks did well. Management reiterated guidance for double-digit EPS growth in fiscal 2026 and 2027. But can they deliver?
The ongoing dispute with YouTube is a major headache. Disney "cannot predict how long this service blackout will last or reasonably estimate the adverse impact on our results of operations." That's not exactly confidence-inspiring.
Jeff Macke argues that "America is driving in the dark with the headlights off and the gas pedal to the floor." It's a colorful analogy, but I'm not sure it's entirely accurate. We have some data, but it's noisy and incomplete. The real question is whether we're interpreting it correctly.
The market's reaction to Disney's earnings suggests a deeper unease about the company's long-term prospects. Can Disney+ continue to grow subscribers in an increasingly saturated market? Can the company successfully navigate the shifting landscape of entertainment? The numbers, at least for this quarter, suggest a struggle. And this is the part of the report that I find genuinely puzzling. The market seems to be overlooking the strong performance of the overseas theme parks. Are investors too focused on domestic issues?
The market's downturn wasn't just about a government shutdown. It was about a reassessment of the AI narrative and a reckoning for companies like Disney that are struggling to adapt to a rapidly changing world. The data paints a picture of a market that's becoming more selective, more discerning, and perhaps, a little less blindly optimistic.
The market is starting to realize that AI isn't free energy. It consumes energy. And Disney's streaming dreams may be running out of steam.