Leopold Aschenbrenner’s Situational Awareness Fund turned $225 million into as much as $45 billion. Not bad for a 24-year-old with little experience. In June alone, his fund was up 439% year-to-date. Despite the rapid wild success, last Thursday the fund was forced to sell all of its public investments to satisfy margin calls. Furthermore, they are trying to sell remaining stakes in private holdings like Anthropic to raise cash. Some pundits estimate the fund fell by 90% or more as a result of excessive leverage primarily employed in the once-hot semiconductor and hardware stocks. Some of the large declines of his favored holdings are shown below, courtesy of Bloomberg. Bear in mind that a 40% decline in a stock with as much as four times leverage wipes out your entire equity and then some.
This event teaches investors two very important lessons.
First, leverage can greatly enhance your returns, but it can just as easily bankrupt you.
Second, investors must understand the difference between an investment and a bet. Aschenbrenner transformed an investment thesis that rested on outsized profits for AI infrastructure companies over many years into a short-term bet. His bet was not based on future revenue and profits but on the daily whims and sentiment of fickle momentum traders. He made fortunes when his holdings doubled and tripled, but like all parabolic price trends, they ran out of steam. His leverage, which produced amazing returns, ultimately sunk him and his investors.
What To Watch This Week
Earnings
Economy
Market Trading Update
The S&P 500 ETF (SPY) closed Friday at 747.03, up 0.72% on the session and 1.1% on the week. The number that matters is 744.99. That is the 50-day moving average, and Friday finished 0.27% above it after three sessions below. The index reclaimed its first line of defense on the last day of the month.
Reclaimed is not confirmed. Momentum snapped back hard, but the trend signals have not flipped. RSI(14) closed at 53.0, up from 38.7 on Wednesday, which is neutral rather than strong. Williams %R(14) sits at −32.3 after printing −98.6 on Wednesday, among the deepest oversold readings of the year. MACD remains below its signal line and below zero, at −0.80 against −0.02, though the histogram improved from −1.52 to −0.78. That describes a bounce inside a damaged trend.
Volume supports the move without validating it. Friday traded 60.8 million shares, 1.27 times the 20-day average, and the session ranged from 737.68 down low to 748.89 high before closing near the top of it. Buyers showed up on the dip. Twenty-day realized volatility is 12.4% annualized, still low, meaning the tape is pricing very little risk into a 19-year high in long rates.
However, as we have noted previously, we are paying attention to market breadth. The market-cap-weighted index beat the equal-weighted index this week, 1.1% vs. 0.7%, reversing the prior month’s pattern. Semiconductors fell 4.2% while the index rose. Micron lost 5.9%, and SanDisk lost 5.1% on Friday alone, while the S&P gained 0.7%. Leadership is still contracting, not broadening.
From a trading perspective, the 50-DMA at 744.99 is the pivot, and it sits 0.27% under Friday’s close. While the market reclaimed that previously broken support, it needs to maintain that recovery this week. If you added any positions on Thursday or Friday, you can set a stop just below the closing price. A close below opens the July 29 low at 729.10, and under that, the 200-DMA at 700.39 is 6.2% lower. To the upside, the June 2 record close of 759.57 is only 1.7% away, and I would trim into it rather than chase through it. A marginal new high on contracting leadership is a distribution setup, not a breakout.
Watch 744.99 at Monday’s open. Holding it keeps this bounce alive into the record high. Losing it tells you that Thursday and Friday were the rally to sell.
The Week Ahead
As we share below, the earnings calendar will start to lighten up after a busy few weeks. AMD will provide another angle on data center growth. Additionally, they may also provide some guidance that will be helpful for estimating NVDA’s earnings later in the month.
The economic calendar this week is primarily focused on employment data. JOLTS on Tuesday, ADP on Wednesday, and the BLS report on Friday will be important indicators for the Fed. If the number of new jobs remains below 100k, the Fed has a key factor that, at a minimum, will cause them to pause before potentially raising rates in September. Also of note, PCE prices last Thursday showed the Fed’s preferred inflation gauge fell by 0.1%, and the core PCE rose by 0.1%. Like CPI, the data is good, but it’s only one month. The Fed will want more evidence to believe the worst of the recent inflation spurt is behind us. Furthermore, oil prices have since risen, thus the August inflation data may not be as friendly. The Fed will have two months of inflation and employment data to help them make its policy decision in September.
AI Bear Case: What Skeptics Get Right And Wrong
Here’s the problem with the way the AI bear case is usually discussed. The skeptics blur three separate claims into a single mood.
- The earnings are fake.
- The demand is manufactured.
- The spending will never earn a return.
Each one points to something real, but each one also gets stretched beyond what the evidence supports. Most notably, that often occurs in the same breath.
I’ve spent the better part of a year on this question. Last summer, I argued that the deficit narrative would find its cure in AI infrastructure. Then, last month, I stress-tested that thesis against Goldman’s research and conceded where my original multiplier math was too generous. So I’m not defending a permabull position here. I’m doing what my clients would want me to do: steelman the bear, then check the receipts. Let’s take the three in the order the skeptics usually make them.
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