More Market Bloodshed To Come? | Michael Lebowitz

Adam Taggart opened by calling Michael Lebowitz the “exsanguinated portfolio manager,” referring to Thursday’s market bloodletting: the S&P 500 fell more than 4% and the Nasdaq nearly 6%. Lebowitz said investors had positioned for the election, and the event triggered rebalancing, hedging, and forced unwinding. A sharp rally on Wednesday may have left hedge funds “offside,” and rumors suggested one or more funds faced margin calls or liquidation. He did not know which firms were involved. Because bonds, gold, and the dollar did not show a dramatic flight to safety, Lebowitz saw more evidence of a technical cascade than of a fundamental crash.

Taggart suggested the larger-than-expected Democratic gains could slow AI data-center construction, even if the projects ultimately proceed elsewhere. Lebowitz acknowledged that permitting resistance might slow the buildout but said demand already exceeds available capacity and many facilities are under construction. He emphasized that opposition is bipartisan: Texas has a huge data-center footprint, and officials there have discussed reviewing permits while allowing projects already under construction to continue. Many decisions are made by counties and states rather than Congress or the executive branch. Since investors already knew both parties had concerns about data centers, Lebowitz argued the election did not materially change the fundamental outlook.

Taggart noted that the Nasdaq had fallen more than 15% from its high, prompting claims that an AI-bubble unwind was already underway. Lebowitz rejected the idea that a percentage decline alone defines a correction or bear market. A volatile technology stock can fall 50% after rising several hundred percent, while a 20% decline in a low-beta utility stock is more consequential. He described the Nasdaq’s move as meaningful but potentially a consolidation rather than a terminal break. Earnings forecasts had not collapsed, and he would become more concerned if legislation materially slowed data-center growth or if earnings estimates began to deteriorate.

The sell-off began with technology, but losses broadened as the day progressed: the equal-weight S&P, the Dow, value stocks, and other sectors also declined. Taggart pointed out that nearly the entire market turned red, unlike the more familiar pattern of technology rising while defensive sectors fell or vice versa. Lebowitz agreed that this was notable but said one day cannot establish a trend, particularly immediately after a major event and months of positioning. The S&P was rebounding roughly 1% on Friday, while the market sat near its 200-day moving average. A renewed broad decline below that level would matter more.

Lebowitz said he and Lance had already adjusted portfolios on Monday, ahead of the election, but Thursday’s collapse had not prompted a new emergency allocation shift. They were continuing ordinary macro management—adjusting exposure between technology and value, reducing or adding broad exposure, and monitoring individual sectors and companies—rather than reacting politically. He told investors to take a breath and remember that stocks can move several percentage points in a day. As an example, he recalled the 2016 election night, when the S&P was temporarily down 7%–8% before recovering and rallying over the following month. His advice was to let event-driven trades settle before reassessing.

Although he listed reasons markets could fall, Lebowitz said his baseline view was that stocks would trend upward through the rest of the year. Buybacks and portfolio rebalancing could provide support, and the election uncertainty was behind the market. He was more concerned about the following year, when the effects of recent interest-rate increases could weigh more heavily on the economy. The immediate technical question was whether the S&P could hold its 200-day moving average after the broad one-day sell-off. Taggart clarified that RIA had not panicked, and Lebowitz agreed: the bias was higher for the next few months, but technical breakdowns would take precedence over that bias.

Taggart said the latest employment report beat estimates across hiring, wages, and unemployment, suggesting that the “no-hire, no-fire” economy might finally be seeing some hiring. Lebowitz called the report immaterial for now because one month does not establish a trend and employment figures have been revised substantially lower in the past. He wanted to see three or four months of strength, along with confirmation from ADP, JOLTS, ISM surveys, and regional Federal Reserve surveys. Seasonal adjustments can also distort comparisons. The report nevertheless gave the Federal Reserve more justification to raise rates at its December meeting, unless markets or subsequent data deteriorated.

Lebowitz expected the Federal Reserve to raise rates in December if the labor data remained firm, noting that markets were already assigning roughly an 80%–90% probability to a hike. He said the move was largely priced in, so a major reaction would require something unusual, such as a sharp fall in oil prices, a significant employment revision, or a severe market decline that forced the Fed to pause. He disagreed with the Fed’s decision to wait between hikes when rate changes take months to affect the economy, but he expected officials to follow through on their stated inflation concerns. Taggart then asked how another hike would affect longer-term yields.

Lebowitz said another Fed hike could lower long-term yields by increasing the odds of disinflation and weaker economic growth. The short end of the bond market was resisting further hikes, while the long end was effectively hoping the Fed would make a policy mistake. He said recent long-term bond performance already reflected this tension. Lebowitz was not convinced yields had definitively peaked, but the tone had changed: deficit and reserve-currency fears had faded, and term-premium pressures had eased. A double top in yields would strengthen the case that the peak was in. Companies issuing equity rather than debt also reduce bond supply and could contribute to lower yields.

Lebowitz argued that investors do not need certainty that yields have peaked to add some bonds. RIA had bought newly issued five-year Treasuries around 5% about a month earlier. Using a simplified example, he said a five-year bond bought at 5% could roughly break even after a year if yields rose to 6.1%–6.2%, while a fall to 4% could produce the coupon plus about 4% in price appreciation. If yields rose toward 6% or higher, the resulting economic weakness could eventually bring disinflation and lower rates. He compared locking in an attractive yield with kicking a field goal: it may not be exciting, but it improves the odds of meeting financial goals.

Taggart asked whether municipal bonds remained appealing. Lebowitz said they could provide additional yield and tax advantages, especially for investors buying bonds issued in their home states, but the market is more opaque and less liquid than the corporate-bond market. Municipal bonds generally default less often than corporate bonds, yet their prices can fall if credit concerns widen spreads even without an actual default. Investors should compare a muni’s tax-equivalent yield—not its stated yield alone—with Treasury or corporate alternatives. Lebowitz said RIA has tools and expertise to research municipal issues, but investors should understand the specific issuer, its finances, liquidity, and the wider bid-ask spread before buying.

Using RIA’s Simplevisor tools, Lebowitz showed that BBB corporate spreads had widened but remained roughly average over five years and low by 20-year standards. Lower-quality credit was more concerning: CCC spreads had risen materially and were near their highest levels since the pandemic, while single-B spreads were beginning to widen. He described this as an early sign to monitor rather than an alarm. Bank reserves had dipped below the Federal Reserve’s roughly $3 trillion comfort level, and the collateralized SOFR rate had recently traded 5–10 basis points above the uncollateralized fed-funds rate. If stress spread upward through credit quality, RIA would consider reducing equity exposure.

Lebowitz showed that the S&P 500 had been broadly range-bound since early May, even though individual stocks had experienced major moves. About 60% of S&P stocks had at some point fallen 20% from their yearly peaks, meaning the index concealed substantial internal weakness and rotation. Over a recent 20-day period, large-cap growth was down about 10%, while defensive sectors such as health care, staples, and real estate gained roughly 9% collectively; technology was down about 18%. RIA’s approach was to shift toward relatively undervalued sectors and away from overvalued ones rather than treat the index as a complete picture of market conditions.

Lebowitz demonstrated RIA’s absolute-relative framework, which evaluates whether an asset is overbought or oversold both on its own and relative to the S&P. Mega-cap growth had moved from strongly overbought in early October to deeply oversold, while large-cap value had moved the opposite way. RIA’s factor-rotation model therefore sold some value and bought growth, including additional exposure to large hyperscalers, chips, cybersecurity, and Palo Alto Networks. The model was up about 26% for the year versus roughly 7.5%–8% for the S&P, though Lebowitz stressed that it was a 100% equity strategy designed to outperform, not avoid, bear markets. Diversified portfolios still use bonds and hedges.

Taggart urged viewers not to let election drama or market volatility displace the things they can control: quality relationships, purpose, and health. He described dinner with investor David Hay as an investment in friendship that produced more value than any week’s market return. He also shared how his daughter, a design student interested in music and experiential design, persistently contacted California’s BottleRock festival and was invited to help develop its VIP experience. Lebowitz connected the story to his three children: two pursuing conventional marketing careers and a third serving in the Peace Corps in Paraguay. Both agreed that meaningful work and authentic living matter more than maximizing income.