Sherwood Market Head Luke Kawa: AI Capex Drives Extreme Speed and Breadth Divergence

On October 1, 2026, the Odd Lots podcast invited Luke Kawa, Head of Markets at Sherwood News, to discuss the current market state. Kawa argued that the most significant feature of markets is speed — the pace of both news events and asset price fluctuations has accelerated. He noted that at the time of recording, the S&P 500 was 0.5% off its record high, yet only 51.2% of its constituents were above their 200-day moving averages. He compared this to the day after the dot-com bubble peak in March 2000, when similar proximity to highs coincided with extremely narrow breadth. However, he cautioned that similar low breadth appeared in 1998 before the market rallied for two more years, so breadth alone is not a sufficient predictor of tops but reveals structural fragility.

Kawa attributed this divergence to the dominance of AI capital expenditure. Citing Goldman Sachs research, he noted that approximately half of this year's expected earnings growth is driven by hyperscaler capex. This implies that market pricing increasingly relies on expectations of continued AI hardware and infrastructure investment rather than broad consumer demand. In this environment, rising interest rates impact AI companies (which can issue debt at scale) far less than rate-sensitive sectors like homebuilders. Kawa also observed that despite higher nominal yields, hyperscaler credit spreads did not widen significantly, indicating the market still views them as relatively safe borrowers.