Why The Tech Selloff Just Reversed Course

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Ed Elson (1:39)

Welcome to Prof G Markets. I'm Ed Elson. It is October 20th. Let's check in on yesterday's market vitals.

The S&P 500 and the NASDAQ rallied as traders bought last week's dip. The Dow was flat. Meanwhile, Brent crude remained above $109 per barrel. The dollar climbed and the yield on 10-year treasuries rose.

Okay, what else is happening? Yesterday was the 39th anniversary of Black Monday, the worst single-day stock market crash in history. And this week, investors were bracing for something similar. Tech stocks were coming off their worst week since April 2025, and there was little sign that the selling was over. But then Monday rolled around, and investors decided that it was time to buy. Chip Giants rallied 1.6% yesterday, and the Nasdaq gained 1.2% as investors bought the dip. Still, CoreWeave fell another 0.4%, even after Goldman Sachs upgraded the stock to a buy. That was on top of a 20% drop last week. So, were last week's fears overblown? Here to help us answer this question, we're speaking with John Mowrey, Chief Investment Officer at NFJ Investment Group. John, thanks for joining us on the show. So, last week was very bad for tech.

It was generally brutal for any stock that was related to the AI trade. There was a lot of speculation that it would continue into this week. When I was scrolling on Twitter, that's all I saw over the weekend, is we might see Black Monday once again. That is not what happened. Investors bought. What do you make of what we saw in the markets?

John Mowrey (3:22)

Well, I think there's a couple of different things going on. I think the concerns around what was happening with the credit markets with core weaves bonds is definitely something that investors need to take very seriously.

I think that that's had a major impact across the space. These companies that are very exposed, kind of the NeoCloud bill out, which is the specialized data centers, those have a lot of debt. And if you have slowdown in the economy or a little bit of a slowdown in capex spending, those are going to be the most exposed, Ed. So I think that the market's rightfully concerned about that. And some of those core weave concerns have kind of woven their way into the market.

Ed Elson (4:00)

When we just look at the price action we saw on Monday, it seems like core weave might have been ring-fenced a little bit because the NASDAQ rose, tech stocks rose, but core weave continued to slide. Do you think of this as a specifically core weave NeoCloud problem that isn't a problem for, I mean, one, the rest of the stock market, but two, the rest of tech stocks. Is this sort of contained?

John Mowrey (4:28)

I really think it's about the credit market. So I go back to where we're seeing interest rates today. When you've got the 10-year, over 5%, that's gonna have a direct impact on the cost of capital for the companies that are the most exposed to debt financing. I mean, the hyperscalers, and if you remember, those can self-finance a lot of this. They're not as impacted by those higher rates. So I think that you're gonna have companies like CoreWeed that are gonna be more exposed, but I think that it does provide a real opportunity because you've got a lot of companies that are now trading at some of the lowest multiples in six months. I mean, if you look back at kind of the AI trade and the company's more exposed to that, a lot of these have been dead money now for six months. People are now starting to pay attention to it because of additional volatility.