Institutional traders sell most stocks in over nine years. We are likely at the very peak of the capex cycle once again.

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Last week, institutional traders unloaded the largest amount of stocks seen in more than nine years. This trend raises alarms, echoing the final stages of previous market bubbles like those in 1929, 1987, 2001, and 2008. Each of these historical events was marked by institutions selling off their holdings, leaving retail investors, often called “bag holders,” to buy at inflated prices.

The recent sell-off hints at a looming crisis. Institutional investors appear to be positioning themselves for potential declines, a strategy that suggests they foresee trouble ahead. Such behavior is a red flag, indicating that the market may be reaching a tipping point.

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In the backdrop of this turmoil, both Microsoft and Meta reported earnings that surpassed Wall Street’s expectations, yet their stock prices fell. Microsoft shares dipped by 5.1%, while Meta’s dropped by 2.6%, contributing to a more than 1% decline in Nasdaq futures. Despite strong financial results, the market reacted negatively.

What triggered the stock drops? Microsoft issued a cautious outlook, predicting slower growth in its Azure cloud business, a key revenue driver. Meanwhile, Meta raised concerns about “significant acceleration” in costs related to its AI infrastructure next year. This signals potential headwinds for both companies, despite their robust earnings.

To put this in perspective, the S&P 500’s market capitalization now accounts for nearly 50% of global GDP. This concentration raises questions about market sustainability and potential overvaluation. As institutional traders retreat, retail investors are left to navigate a precarious market landscape, which may soon be poised for a significant correction. The warning signs are clear: this bubble will pop.

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