1. AI volatility is the new norm.

Last week’s selloff, fueled by concerns over the cost and financing of the AI investment boom following Alphabet’s earnings, hit the Nasdaq 100 hardest, leaving it about 10% below its October peak and on the verge of a correction.
Morgan Stanley’s Mike Wilson says the equity market correction that began in June is entering its “final innings,” with breadth improving. Wilson still sees scope for one final capitulatory move, with Morgan Stanley’s sentiment indicator not yet at levels that typically mark the end of corrections, but says last week’s price action suggests the market is “getting close.”
"The bar for performance is rising and higher volatility in the AI trade is likely to be the new normal in this stage of the cycle," said Mark Haefele, CIO at UBS.

Below: Thus far, the S&P has respected the bottom of its trading channel.

2. AI concerns give investors reason to rethink their dollar exposure.

The dollar has become increasingly tied to the tech trade, leaving it exposed if the cycle turns. Two channels matter: capital flows and growth.
First, flows. US earnings have consistently outpaced developed-market peers, with tech accounting for an outsize share of that strength. That has helped drive equity outperformance and drawn foreign money into both stocks and credit.
AI capex has become an important contributor to the US economy, while a higher neutral rate, reflationary pressure and increased issuance push US yields higher versus peers. That reinforces the growth and rate differentials supporting the dollar.
The same flow and growth dynamics that supported the dollar on the way up can quickly work in reverse. The last dollar bull cycle ended alongside the dotcom bust.

Below: USD positioning is overcrowded

3. “The AI trade is still alive, but it is unlikely to return to past dominance, as the monetization concerns will stay.”

However, sentiment is too bearish as earnings are still on an uptrend in all regions, says JPMorgan.
Also, P/Es have derated year-to-date everywhere. US is now at 19x forward P/E, down from 22x, and international markets appear even cheaper.

4. China’s economic growth has relied too heavily on exports.

China’s year-to-date trade surplus nears $940 Billion as export growth surges.
But as domestic demand stagnates, the booming exports are also generating more pushback from China’s largest trade partners. After months of standoff with the EU, Brussels and Beijing have agreed to cap imports of hybrid cars from China, according to the bloc, though China describes the deal as ensuring “export space and steady growth” for its carmakers.
China’s domestic demand is stuck in a prolonged slump that has proved stubbornly resistant to stimulus efforts.

5. China’s road to 1 million robotaxis.

“China is the leading market for autonomous driving and robotaxis, supported by high EV penetration, rapid L2+ adoption, and one of the world's most mature auto supply chains.
We expect China's robotaxi fleet to reach 1% of the country's taxi and ride-hailing fleet in 2028, roughly 46k units vs. an estimated 10k by end-2026. As models improve, datasets expand, and hardware costs decline, we expect the industry to largely reach unit economics (UE) breakeven by 2028 and approach 35% unit profitability by 2030, supporting fleet expansion toward 1mn vehicles by 2035.”
Source: Morgan Stanley

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