AI Stocks Crack, Yields Fall, Defensives Surge; What’s Next | Cameron Dawson

SPEAKER_1 (0:01)

Into the wild, the Kalshi panther encounters a shimmering crocodile, a lonely love bird, a breathless zebra, and a restless tiger.

Cameron Dawson (0:15)

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 long been saying for the last three years, as long as 12-month forward earning estimates are making new all-time highs, we think the market can make new all-time highs. And given the weakness within financials, given the weakness within semiconductors, the market can start to roll over before earnings do.

David Lin (0:42)

It's Wednesday, October 14th, and South Korea's KOSPI 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 Newedge Wealth, where she leads the firm's investment themes and market views. She was institutional investor, RIA Intel CIO of the year for 2024

Meanwhile, today, CPI data came out 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% and the October 7th auction paid the highest yields 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-cash, you 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. This video is sponsored by Kalshi, the largest prediction market in the US.

Unlike a sportsbook, you're trading peer-to-peer on real-world events from economic data to political outcomes, and the price moves based on public opinion, not a house. Go to the link in the description down below. Scan the QR code here, and use my code LIN. New users who use my code can get $25 in app credits when they trade $25. Kalshi is CFTC approved and available in all 50 states, including California and Texas. Welcome back to the show, Cameron. Good to see you.

Cameron Dawson (2:31)

Good to see you, David. Thank you for having me.

David Lin (2:33)

It's been much too long. Welcome back. Now, the COSPI index has been selling off for the sixth session in a row, basically. But this is not the first time Korean chips have been selling off. Earlier in the summer, as you'll recall, in July was a brutal month for the COSPI. SK Hynex is down 23% from its October 1st highs.

But as you'll recall, SK Hynex did recover from its July, late July, early August lows. And so the question is, what is different this time? I'll pull up one chart that you have in your slide deck, but also this particular article from, even Reuters is talking about it. This particular article is called, Brutal Session for Chips Show AI Trade is Turning.

A sell-off in AI supplier shares on Tuesday is the strongest sign to date that the mood on their trade of the decade is shifting. And here is your chart. Is KOSPI an early warning indicator? Anyway, what's different between now and July? And can we use this as a warning indicator?

Cameron Dawson (3:34)

Yeah, look, I think that the price action in the KOSPI is telling us that something is changing. And it's always really important to remember that price leads data, meaning that the prices will move long before the data or things like earnings or revenue or gross margin estimates, that the price will act before you see it in the data. And so when we see price action like this, it causes us to ask questions of what are these stocks telling us? What is it they potentially telling us about the forward path for earnings revisions or gross margin revisions, which we know are really important for the memory sector? And you asked a question of how is today different than what we saw with the correction back in July?

And the key message on that one is that back in May and June, we had a full blow-off top bubble. There are a lot of different ways to define a bubble. Our favorite one from a technical perspective is Jeff DeGraaff over at RenMack, who talks about a doubling of a stock in less than a two-year time, that it would fall into the bubble camp. And he talks about an analog that comes after that, where you typically see a correction, which we certainly saw, as you mentioned, in July, a really big correction. And you saw somewhat of a bounce, really strong trends will start to take out the prior high quickly, or get back above the 50% retracement level. But weaker trends will go sideways, and then once they break support, it's typically a sign that you are starting to form a more, what you could call, distributive top. So effectively, this idea that this weakness, yes, the Cospi is oversold, there's other pockets of the semiconductor index in the US that are oversold, some China Tech is oversold, but you can see that bounce, that's not necessarily something that will persist and suggest that we're starting to form some kind of top formations in these names.