The Sentiment Cooldown Unfolding

Editors’ Note: MarketMinder doesn’t make individual security recommendations. Those below merely represent the broader theme we wish to highlight.

10 months ago, it was hot. Oh, not the weather, it was winter! But Tech sentiment was flirting with euphoria. Data center investments were pumping earnings, hot IPOs were on everyone’s radar, and few seemingly noticed Tech sector returns were kinda flatlining. But then IPOs started fizzling, the data center backlash got louder, and the shine came off. Now a fresh burst of Tech volatility has everyone on edge. Many wonder whether “the bubble” has burst. To us, it is the wrong question. We don’t think it is even worth playing the is it a bubble game. Sometimes that is a distinction without meaning. A sector needn’t be in a “bubble” for expectations to get too hot. Maybe they were a little toasty toward Tech early this year, but now they are cool. While we doubt Tech outperforms, it should fare fine.

When a sector (or the broad market) has a true euphoric peak, you will generally see some standard things. Outlandish earnings expectations are one. Weird arguments attempting to justify companies’ poor cash flows are another, like when dot-com cheerleaders called clicks the new profits in 2000. You will probably also get a flood of sloppy IPOs as investment banks take advantage of investors’ hot expectations. And if the market slides, you will get about 14,847 opinion articles arguing it is a rare buying opportunity.

As 2026 unfolded, we mostly saw the opposite. When AI diehards suggest a company’s “compute” is more valuable than sales or earnings, the Internet mostly pokes fun. Semiconductor-backed loans raise eyebrows, not champagne toasts. Every data center construction delay gets cast as a sign the party is ending, as if local permitting hangups haven’t been stalling projects in this industry and many others for years. Analysts downplay solid S&P 500 earnings growth, arguing it comes from a few Tech companies’ investments. AI seemingly generates far more scrutiny than celebration.

You can see this in IPOs, too. When a certain rocket builder prepared to go public earlier this year, headlines claimed it was just the tip of the iceberg. Soon AI giants Anthropic and OpenAI would follow, with many more in their wake. Folks presumed returns would soar, minting oodles of new multimillionaires. But then the rocket launched … and fizzled. Since its midyear debut, it has spent most of its time below its Day One closing price. Meanwhile, OpenAI pushed its planned debut to 2027. Smart ring maker Oura pulled its September IPO at the last minute. Anthropic filed Monday for a November IPO after previously delaying, but the pipes are otherwise clogged. Per Bloomberg, October is on course to be the slowest IPO month this year.^[i] One Korean cloud services provider took a chance, listing on the Seoul exchange this week, and it fell about 30% at open.^[ii] Ouch. Meanwhile, Anthropic’s pending debut sparked balance sheet scrutiny and skepticism, not global greed.

Markets aren’t ignoring risk, as they do when euphoria’s blinders are on. They are pricing it. Exhibit B is the rampant financing concerns after one US cloud service provider’s bond yields jumped to 15%, suggesting markets see high default risk.^[iii] Its stock price duly went south. Our interest here isn’t with this company, but with the broad reaction. Some analysts assessed it rationally, noting some company-specific issues and, um, quirks about its leadership’s approach. But many more took the “canary in the coalmine” route, proclaiming the bubble was pricked. Two weeks of Nasdaq volatility made the chorus even louder.

All of this strikes us as confirmation bias. People see the news and decide it confirms their priors. Stories that match their pre-existing notions are important. Those that don’t match go unnoticed. It is normal investor behavior (and behavioral error). But when you get a rash of it in the same direction, it shows you where sentiment is. The abundance of people who chose to see a Tech crash erupting from one company’s financing issues shows sentiment is gloomy again.

Volatility has that effect. It is a giant reset button. This is why we often say corrections help extend bull markets. They take some of the froth out and replace bricks in the wall of worry. Broad markets are nowhere close to a correction (usually a sentiment-induced -10% to 20% drop), but Tech is on the cusp of one, down -8.3% from October 6 – 22.^[iv] Like corrections, it has a big story, one that can let skeptics believe the big bad thing they feared came true. In addition to lowering expectations, it can help investors get over their collective fear and move on a bit.

Turning points are unpredictable. Short-term returns always are. But tempests generally blow over, and this looks like a sentiment-induced tempest. Note, though, that recovery doesn’t always mean outperformance. While Tech’s wall of worry has rebuilt, the wall outside the US still looks higher (and has grown even taller this month, thanks to France’s protests and UK Budget blather). We aren’t saying Tech will go gangbusters. But doing fine, marching with a global bull market, would be positive surprise enough for the legions of doubters now.