There are so many different views on what could happen to the equity market if the AI capex fears continue or even get worse, but there is also some level of realism needed with these views. Is the market going to get sent to the floor in some type of 30% drawdown? Possible but EXTREMELY unlikely. There is a huge difference between possibilities and probabilties.
For a huge drawdown like this to happen in the equity market we’d need to see money pulled so fast from the AI capex that it actually causes a liquidation cascade. For that money to be pulled extremly fast we’d need to see a huge structural change, fast. Remember, the market is continuously pricing in flows and data to the highest degree of accuracy. To build a view on the market mispricing this type of huge drawdown would be a 2008 Michael Burry style idea. Put it this way, if you see rumours surrounding a black swan event all over Twitter and Substack, it’s probably not going to happen.
If you focus on fading ideas that are VERY unlikely to be realised in the market, you give yourself the best odds to at least get onside on your trade and roll your stops.