Caruso Weekend Report: August 03, 2025
Weekend Summary
It was a busy macro week with the Fed rate decision, PCE inflation data, and the Jobs report. The mix of a stubborn Fed and Friday’s weak job numbers created a toxic combination which, when paired with an extended market, resulted in a swift and hard pullback.
Just as the July rally in leading stocks was perhaps a little extreme, so was this two-day decline. On Friday, the QQQ erased all of July’s progress. Small- and mid-cap stocks? They gave up all their gains going back to early May. For all the talk of exuberance and greed, making no progress over the past one to three months doesn’t seem very frothy.
This market has been a textbook example of both a lock-out and a thematic bull market. Had you been in key AI names like GEV or AMD, you would have far outpaced the indexes—and, importantly, given back very little of those gains during the recent drop. It’s also been far more productive to simply sit in winners rather than try to trade in and out of them.
This market character continues to line up well with the 1995 precedent we’ve been discussing over the past several weeks. Take a look back at April 1995. The music and movies were better, and a swift 3-day Nasdaq pullback wiped out a month of gains. Importantly, just as now, the leaders of that era—namely internet and PC stocks like CSCO and MSFT—brushed off the weakness and went on to lead the market substantially higher.
Looking at today’s market, our FOMO indicator has once again returned to near-Fear levels, just as most traders are shifting from buyers to sellers. We should see a tradable bounce early in the week, and if the 1995 roadmap continues to hold, perhaps the worst is already behind us.
Trading the market at large versus trading a specific theme is vastly different. The performance gap between mid-caps (MDY) and the QQQ underscores how dramatic the difference can be between the best and the second-best stocks. Our focus remains steadfastly on the AI bull. Action in leading names suggests this remains what it appears to be: a pullback within an AI-driven bull market.
