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This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
I am getting some friendly heat from all of you about a video I posted on X.com Friday before 6 a.m.
It was actually live — I began rolling from inside Yahoo Finance HQ around 5:30 a.m. with a full stream of consciousness on the software stock crash. If you are up before 6 a.m. studying stocks and reading news, I promise to be doing more live moments like this in the weeks ahead.
Now, some of you appear not to have liked that I called this a “crash” in software stocks. How else could you characterize it, I mean, really? I’m not being alarmist!
Workday (WDAY) is down 30% in a month despite zero indications that the company will go out of business in 2027 because of an Anthropic (ANTH.PVT) model update.
Send me a different word to use, and I’ll use it. And don’t tell me it’s a “pullback.”
Meanwhile, others were hoping I would hop to the mic and offer up a shopping list of software stocks to buy. I am not going to do that because: 1) I no longer pick stocks, and 2) I don’t believe the bottom in software stocks is in.
And this brings me to my guiding light for today’s Morning Brief: contagion.
The reason I’m worried about this new phase of the software stock crash is that it looks to be spreading to other areas of the market. We witnessed that during Thursday’s brutal session for stocks.
And Wall Street is beginning to take notice.
“Regardless of arguable ubiquity of AI application legitimately widening shakedown, the wider selloff in commodities/gold have hallmarks of cross-liquidation involving financial contagion risks,” Mizuho strategist Vishnu Varathan said. “Nonetheless, there are increasingly legitimate worries — involving with ‘contagion’ and froth in bull markets — associated with this ‘correlation creep’, whereby AI-driven sell-off cascade more indiscriminately.”
Varathan makes a great point, and it could be where market sentiment heads next. Think of the next dark cloud emerging in the sky coming to sit on top of your house. As this dark cloud rolls in, markets will adjust further.
To be sure, only time will tell if the massive software stock sell-offs are overdone. But this much we can say: It’s an exciting time to be in tech as billions get spent to build out America’s AI infrastructure. You just have to respect this hardcore trend and remember it won’t be great news for every publicly traded company.