AI sell-off cools down financing costs, boosting small-cap stocks

According to Woofun AI, Richard Bernstein, Head of Macro Strategy at Janus Henderson, suggests that the sell-off in artificial intelligence-related stocks may create a favorable environment for small-cap stocks by reducing overall financing costs.

Last Thursday, a key chip ETF dropped nearly 14% from its October peak, raising market warnings. Bernstein told CNBC that this is a healthy repricing of asset values. Capital has previously flowed into AI data centers, resulting in funding shortages for other companies; if valuations adjust, economic financing costs will decrease.

Woofun AI's compiled data shows that although small-cap stocks have risen in the past few trading days, their overall performance this week remains negative. Credit Default Swap (CDS) spreads reflect earnings concerns, and chip stocks have fallen for eight consecutive trading days, marking the longest streak since 2008.

Bernstein counters expectations that the Federal Reserve will only raise interest rates once. On September 16, 2026, the Federal Reserve raised rates by 0.25 percentage points, the first hike since July 2023. He points out that consumer prices, producer prices, and import prices are elevated, and the growth rate of core import prices has surpassed that of core consumer prices, reversing a thirty-year trend. The U.S. is now importing inflation. The consumer goods sector is performing slightly better, but the market currently faces recession concerns.

Peter Schiff believes that most U.S. stocks are in a bear market. According to calculations by Goldman Sachs (GS.US), the median drawdown of S&P 500 index constituents from their respective peaks is about 16%. Bernstein acknowledges that market weakness is unfavorable for the chip and technology sectors, but the long-term trend will not be completely constrained by the dominant factors of the past two or three years.