Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

The tech-fueled stock market selloff snowballed on Thursday and slammed the Nasdaq to its lowest since November, while precious metals prices and bitcoin tanked, as worries over companies' massive AI capex spending and the U.S. job market deepened. 

In my column today, I dig into the 'tech wreck' and explain why the AI tide no longer lifts all boats. Buying an index fund and watching the 'Mag 7' drive it higher is not a strategy any more - investors must turn to stock picking and active management strategies. 

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* And it sure been a cold, crypto winter

The selloff in bitcoin and cryptocurrencies is turning into a rout, making this year's 'crypto winter' perhaps the coldest ever. Bitcoin fell 12% on Thursday for its worst day in nearly four years, and has lost half of its value in just four months. 

Momentum and technicals are clearly bearish, but at a time of growing dollar debasement fears, shouldn't bitcoin be rising? Obviously not, and the long-term bull cases put forward by crypto enthusiasts are now coming under greater scrutiny too. 

* JOLTS shock backs Fed in a corner

Just what the Fed didn't want. After signaling in December that rate cuts are on hold because the labor market appears to be steadying and inflation is more of a concern, figures on Thursday showed a sharp rise in layoffs and a collapse in job openings.

With inflation around 3% and showing few signs of cooling - economic activity is accelerating - strains are intensifying at both ends of the Fed's dual mandate. Presumptive Fed Chair Kevin Warsh has his work cut out. 

* U.S. yield curve steepest in 4 years

The gap between two- and 10-year U.S. yields is more than 70 basis points, the widest in four years. Weak economic data enhances rate cut expectations, strong data points to inflation-boosting growth - we have had both recently, and both steepen the curve. 

Of course, a steep curve is consistent with a normal, healthy economy. And it's great for banks. But it can also reflect growing worries over inflation expectations becoming unanchored or other risks that inflate the term premium. Of the two scenarios, that's probably where we are right now. 

Investors are going to have to get a lot more discerning when it comes to artificial intelligence bets, because the inclusive narrative that drove the widespread boom in U.S. tech stocks last year is over. 

AI's rising tide no longer lifts all boats, and those that are sailing along smoothly one quarter could find themselves sunk the next.

This week's slump is not simply about a new, mostly unproven, plug-in. It's a sign of investors' realization that the AI revolution is entering a new phase where the tech world is splintering, between AI disruptors and AI casualties. 

Simply buying an index fund and watching it rise on the back of the megacap tech boom is no longer an optimum strategy. Investors will have to pick winners and eschew losers, determining where AI will enhance and where it will disrupt. In other words, after a decade of bumper passive investing returns, active management may once again have its day.