Are We in a Bear Market?
Speakers
Summary
- Market Characterized by Phased Corrections & Negative Sentiment: The S&P 500 is only down ~5%, but 40% of its components are in a bear market (down >20%), with 61% of tech and 57% of consumer discretionary stocks hit. Corrections have been sector-phased, not broad-based.
- Current Risks are "Real" but Many are Prospective: The market is digesting actual events (Strait of Hormuz closure) alongside fears about the future (AI job destruction, private credit defaults). This creates a "carousel of nightmares" but earnings revisions remain net positive.
- Strong Contrarian Signal from Bearish Sentiment: The AAII bull-bear spread is at its lowest level since June. Historical data shows forward 1-year returns are significantly higher (~16%) when sentiment is this negative, providing a high-probability setup for future gains.
- AI Spending: Bubble in Venture, Not in Hyperscalers? The bubble may be forming in venture-backed AI startups, not the profitable compute spending by giants like Microsoft and Amazon. Hyperscaler spending is driven by unmet demand and is currently profitable, unlike the 1990s fiber optic bubble.
- Software / AI Job Displacement is a Key Economic Risk: Recent college graduate (22-27) unemployment is 6% vs. 4% overall and rising for three years. AI tools threaten entry-level tasks (decks, research), creating a tangible headwind for consumer and business sentiment before a clear path to replacement jobs.
- Private Credit Panic is a Liquidity/Headline Issue, Not (Yet) a Solvency Crisis: Redemption requests are driven by investor fear and adviser-client relationship pressure, not a wave of underlying loan defaults. Senior secured loans are protected by equity; systemic risk requires burning through $8.9T in private equity first.
- Market Lacks a Capitulation Catalyst but Remains Vulnerable: A positive geopolitical "tweet" could instantly reset prices higher, but if such news results in a failed rally (pop then fade), it would signal deeper trouble. The absence of broad panic (VIX ~24) suggests modern investors are more conditioned to volatility.
- Microsoft & Apple Represent "Great Company at a Good Price" Thesis: Microsoft trades at a PEG ratio <1 (~22x P/E, >20% growth) and its RSI (~36) is at multi-year lows, indicating a washed-out technical condition for a dominant secular winner, despite near-term seller control.
Trade Ideas
Batnick asserts that even if the Iran conflict resolves, the "bigger story" remains the potential disruption from AI to software companies, questioning the impact on corporate and consumer spending if software investment dries up. The "software apocalypse" or AI displacement thesis threatens the business models and valuations of a wide range of technology service companies, which are already seeing significant stock price declines (61% in bear markets). This is a developing, high-magnitude risk that could drive further volatility and re-rating in the sector, requiring close monitoring regardless of other geopolitical developments. The impact may be overstated or take much longer to materialize than feared.
Lebenthal states Microsoft is a "great company" and at ~22x forward earnings with >20% growth (PEG <1), it's a "steal." He explicitly says, "this is a price that I think two years from now I'm going to look back and say man that was a steal" and that he is loading up. The recent downdraft is attributed to general market selling (QQQ/SPY outflows), not company-specific news. Its RSI is at multi-year lows (~36), indicating extreme technical weakness. The combination of a low valuation metric (PEG) for a dominant, profitable franchise in AI (Azure, OpenAI) and a washed-out technical setup presents a high-conviction long opportunity. The stock could become more oversold (RSI 25) if market sentiment on tech/AI spending worsens further.
Brown argues Apple is the "stealth AI winner," collecting nearly $900M in App Store fees from generative AI apps in 2025 without increasing capex. He states they are in the "pole position" to be the biggest beneficiary due to their dominant device ecosystem. While others spend heavily on AI capex, Apple monetizes AI adoption through its existing platform tax (15-30% on subscriptions). The upcoming "Agentic Siri" launch will integrate with all apps, making AI utility concrete for consumers. Apple's unique, capital-light toll-bridge model in the AI ecosystem is underappreciated and provides a clear path to monetization, making it a compelling long. Delays or failure in the Agentic Siri rollout could postpone the market's recognition of this thesis.
Lebenthal calls Citigroup the "easy button," citing its valuation (trades at book value), profitability improvements, a ~2.5% dividend yield, and the pending Banamex Mexico IPO/spin-off as the "final piece of the puzzle." CEO Jane Fraser's restructuring is bearing fruit, and the removal of the Banamex overhang will simplify the story. The stock's discount to book value offers a margin of safety. A straightforward value play with multiple near-term catalysts (profitability, divestiture) that should lead to a re-rating. A broader economic slowdown impacting credit quality could offset operational improvements.
Lebenthal describes Oracle as a "coiled spring" for AI believers, down ~50% from highs. He acknowledges the market doubts OpenAI can pay its large contract with Oracle but argues "they just have to be good for some of it." OpenAI's recent massive fundraising ($110B) and incoming customer contracts provide credibility that at least partial payment will flow through to Oracle's earnings, which the market is not pricing in. The extreme sell-off on OpenAI solvency fears is overdone, creating a high-risk/high-reward long opportunity if AI spending remains robust. OpenAI faces financial or operational difficulties, jeopardizing its contract payments to Oracle.
Up Next
This The Compound News video, published March 20, 2026, features Michael Batnick, Jim Lebenthal, Josh Brown discussing XLK, MSFT, AAPL, C, ORCL. 5 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Michael Batnick, Jim Lebenthal, Josh Brown · Tickers: XLK, MSFT, AAPL, C, ORCL