Listen to the audio version of this article (generated by AI).
The stock market has changed quite a bit since traders first began buying and selling shares in Amsterdam more than 400 years ago.
The attempt to find explanations for why stocks behave the way they do has not.
In 1688, Joseph de la Vega published one of the earliest accounts of the new market that had developed around shares of the Dutch East India Company. In his book, Confusion of Confusions, he wrote that the Dutch traders were “very clever in inventing reasons” for a sudden rise or fall in stock prices.
And some of their explanations would sound perfectly familiar today:
- The possibility of war.
- Disappointing business results.
- Delayed shipments and weaker-than-expected cargoes.
- Rumors planted by speculators trying to move the market.
But my favorite involved a trader who reportedly sold his shares because of a troubling dream.
Fast-forward more than 400 years, and the reasons behind Wednesday’s massive selloff – which saw the Dow plunge more than 1,100 points, or 2.2%, the S&P 500 drop 1.5%, and the NASDAQ decline about 1.7% – were surprisingly similar (minus the dream).
The Federal Reserve received much of the blame after three members dissented from its decision to hold interest rates steady and voted instead for a rate hike.
But that wasn’t the only reason behind yesterday’s selling.
Oil prices had surged as fighting resumed between the United States and Iran. Meanwhile, Big Tech and semiconductor stocks remained under pressure amid fresh concerns about the ungodly sums that technology companies are spending on chips and data centers to fuel the artificial intelligence boom.
But the Fed’s latest decision – and the unusually divided vote behind it – may tell us the most about what investors should expect next.
So, in today’s Market 360, we’ll break down the Federal Reserve’s latest interest-rate decision, what Fed Chairman Kevin Warsh revealed about the debate inside the central bank and why Wall Street reacted so sharply.
Then, we’ll put the Fed’s decision against the backdrop of rising oil prices, renewed tensions in the Middle East and the ongoing shakeout in AI and semiconductor stocks. Finally, I’ll wrap things up by showing you how to look past Wall Street’s endless explanations and focus on what’s actually driving the market – so that you can position yourself in the stocks best prepared to lead the next phase of the AI boom.
The Hold Wasn’t the Whole Story
The Federal Open Market Committee voted 9-3 to leave the federal funds rate unchanged at 3.5% to 3.75%.
The hold was widely expected. The surprise was the opposition. It was the first time since September 2016 that three policymakers dissented together in favor of the same move.
That matters because inflation has remained above the Fed’s 2% target for more than five years. Tariffs and rising energy costs have also raised concerns that price pressures may not disappear as quickly as investors hoped.
The Fed’s June projections already suggested one quarter-point increase by the end of 2026. The three dissents showed that some officials may be running out of patience.
The Fed left rates unchanged, but investors came away believing that another hike is very much on the table.
“Play the Ball, Not the Referee”
Warsh, for his part, welcomed the disagreement.
“I asked for a good family fight, and I got one,” he said during his post-meeting press conference.
He also rejected the idea that the Fed had merely “paused” rates. He described the meeting as a rigorous review of the economy and Wednesday’s decision as “the beginning of a story, not the end.”
Warsh has repeatedly criticized the Fed’s habit of providing detailed forward guidance. He does not want investors hanging on every word from the central bank or expecting policymakers to reveal what will happen several meetings in advance.
Instead, he wants markets to focus on the economy. As Warsh put it, investors are learning to “play the ball, not the referee.”
That means watching inflation, employment, economic growth, and the bond market rather than decoding every phrase in a Fed statement.
Personally, I like this approach. But it will take some time for folks to get used to it.
Warsh did not promise a rate increase in September, but he made clear that the Fed will not hesitate to act if necessary.
Bond traders heard that message loud and clear, sending the 30-year Treasury yield to its highest level since 2007. But yields have since moderated, which brings us back to the mechanics of Wednesday’s selloff.
What Turned the Decline Into a Rout
At 2:30 p.m. Eastern, while Warsh was speaking, the market was rallying. Investors were relieved that the Fed had not raised rates.
The abrupt reversal did not come until the final hour of trading.
In my view, that tells us the move was not just about the Fed. Margin selling, panic and the forced unwinding of leveraged positions helped turn a difficult session into a rout.
Wall Street has created a long list of leveraged products tied to AI, semiconductor and memory stocks. When those trades move sharply in the wrong direction, investors can be forced to sell regardless of the underlying companies’ fundamentals.
That is what I believe happened on Wednesday.
It was a capitulation day – a moment when leveraged traders are forced out, panic spreads and investors sell strong and weak stocks together.
The good news is that this kind of selling can exhaust itself. And today’s rebound supports that idea.
Microsoft Corporation (MSFT) helped lead the market higher after reporting spectacular results and demonstrating that it can translate its massive AI investments into actual growth.
Meta Platforms, Inc. (META), on the other hand, disappointed investors and moved lower.
In other words, the market did not abandon every AI company. It quickly returned to separating the companies delivering strong results from those that failed to meet expectations.
The stronger the fundamentals, the bigger the bounce.
Focus on What Can Be Measured
Wednesday’s selling was painful and had some investors reaching for their antacids while they watched it unfold.
But selling into a panic only adds to the problem. That’s why I want you to ignore the distractions. Focus on what can be measured instead.
Look for accelerating sales, strong earnings growth, rising guidance and expanding order backlogs. Those are the characteristics that help fundamentally superior stocks recover after indiscriminate selling.
That is exactly why I developed my proprietary system (subscription required).
Rather than relying on Wall Street’s latest explanation, Stock Grader analyzes companies based on their sales growth, earnings growth, buying pressure and other fundamental and quantitative factors. It gives every stock a simple letter grade, from A to F, so investors can quickly see which companies are strengthening and which ones may be deteriorating.
And that distinction is becoming especially important in artificial intelligence.
Investors are beginning to question whether Big Tech’s enormous capital expenditures will generate adequate returns. The market is also becoming more selective about which companies deserve to benefit from the AI buildout.
I do not believe the AI boom is ending. I believe it is entering a new phase.
And I believe the biggest opportunities may increasingly come from a different group of companies – the businesses supplying the advanced computing power and infrastructure needed to drive the next generation of AI breakthroughs.
That is the focus of my latest research.
I recently uncovered what I believe could become the world’s first AI “mega computer,” along with a group of companies positioned to help build it. I used Stock Grader to evaluate those companies – as well as several popular AI stocks that the system is currently warning investors to avoid.
In other words, this is not about guessing which explanation Wall Street will favor tomorrow.
It is about using objective data to identify which companies are prepared for what comes next.
That is exactly what I’ll show you in my urgent presentation, .
You’ll learn about the massive technological shift I believe could reset the AI market, along with the specific stocks I expect to benefit – and the names that could be left behind.
Sincerely,
91抖阴
Editor, Market 360
P.S. I have one more piece of good news for you today: My new Stock Grader AI feature is now live exclusively for Preferred Members of my Growth Investor service.
Stock Grader AI gives Preferred Members a new way to interact with the grading system you already know and trust. Instead of looking up individual tickers one at a time, you can now ask questions in plain English.
Which sectors are seeing the most upgrades? Which stocks have the strongest institutional buying pressure? Where are analysts raising their estimates most aggressively?
Just ask – and Stock Grader AI will show you.
There’s a lot more to cover, but it’s all powered by the same proprietary data and Stock Grader system I have used for decades. If you’re a Preferred Member, simply log in and click the Stock Grader AI tab at the top to get started. To learn more about Growth Investor, and how to become a Preferred Member,
