Is there a "stealth bear market" in US stocks? AI stocks plunged 13% in October, and the "S&P 500 excluding AI" hit a new high
AI-related stocks have cumulatively declined by over 13%, while the S&P 500 index, excluding AI components, has risen by 8% and reached a record high. Some institutions refer to this as a "stealth bear market," suggesting that capital is shifting from high-valued AI stocks to non-AI component stocks. Despite intensified short-term volatility, these institutions remain optimistic about the medium- and long-term market outlook, believing that the current adjustment is fueling momentum for the next round of gains, and expect turbulence in the market in November.
Over $4 trillion has evaporated from the Nasdaq 100 index in just 25 days, but on the other side of the US stock market, records are quietly being set—this rare split is reshaping the market landscape.
According to a research report released on the 1st by the independent US macro research firm The Kobeissi Letter, AI-related stocks fell by more than 13% in October, while the S&P 500 index, after removing AI components, rose 8% and hit a new all-time high last Friday. This historic divergence indicates a structural rotation underway within the US stock market.
The firm defines this phenomenon as an "invisible bear market"—a localized bear market beneath the shell of an overall S&P 500 bull run. Last week, the Nasdaq 100 briefly slipped into correction territory, which the firm viewed as a validating signal for its thesis first proposed on October 15.
The firm also stated that although the "invisible bear market" is ongoing, it believes the market is building momentum for the next rally and expects a volatile November.
AI giants plunge, triggering sector-wide sell-off
The market downturn last week was primarily triggered by two major heavyweight stocks. Google lost about $480 billion in market capitalization in a single day, while Intel recorded its largest single-day drop since 1971. Both stocks have been core leaders of the market's AI theme this year, and their sharp declines dragged down the entire AI trading ecosystem.
The intensity of this downturn underscores the high concentration risk of the AI sector within the index. Data shows that AI-related stocks now account for about 48% of the S&P 500's weight, with Nvidia alone contributing roughly 7.5%. Such high concentration means that volatility in the AI sector can theoretically have an overwhelming impact on the overall index movement.
Unprecedented internal market divergence
Within sectors, more than half of the stocks in the information technology and communication services sectors have fallen over 30% from their highs. In contrast, only 28% of stocks in the financial sector, 29% in the energy sector, and 30% in healthcare have seen such declines.
Overall, about 40% of S&P 500 components (including tech stocks) have dropped by more than 30%, meaning the remaining 60% are still in relatively healthy condition—providing resilience to the index as a whole.
Historical patterns break down, with rare market divergence
The market is not following its usual logic. The firm notes that since 2022, weakness in tech sectors has typically been accompanied by broader market declines. But this time, the two have diverged—while AI stocks have undergone a major correction, non-AI components of the S&P 500 not only avoided a drag but instead accelerated upwards, hitting all-time highs.
This divergence reveals a proactive rebalancing of funds: Investors appear to be withdrawing capital from the overvalued AI sector and reallocating it to non-AI stocks that have long underperformed. The S&P 500 excluding AI components rose 8% in a single month—a stark contrast to the AI sector's 13% drop. The more than 20-percentage-point difference in monthly returns underlines the essence of the current "invisible bear market."
Capital expenditure concerns are the main source of pressure
The firm believes the selling pressure on AI stocks stems from growing doubts over return on investment (ROI). Building AI infrastructure is consuming massive amounts of capital and is increasingly reliant on debt and equity financing to proceed. Data shows that AI-related corporate bond issuance has reached a record $419 billion so far this year.
Post-correction may prepare for a new rally
Despite near-term pressure, The Kobeissi Letter remains optimistic about the medium- and long-term outlook. The firm believes the unprecedented scale of capital spending is a necessary investment for supporting "the largest technological revolution in history", and that corrections are a healthy part of a bull market.
The firm also points out that the market currently faces a rare degree of uncertainty. If not for the global energy crisis, the S&P 500 index could have topped 8,500 points. Their view is that as the "invisible bear market" continues, the market is accumulating momentum for the next bull phase and that November will be a particularly eventful month.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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