Inside today’s Daily Journal…

We’re living through the biggest financial mania in history.

On April 24, the Semiconductor Index (SOX) closed higher for the 18th consecutive session. That’s the longest daily winning streak in the 32-year history of the index.

The move eclipsed a 15-day run in 2014. But that move only produced a 7.8% gain. During the April rally, the SOX rose 47%. The move was led by Intel (INTC), which has gone up 129% in the last six weeks.

Forgive the math, but I need to quantify these extraordinary moves.

The Semiconductor Index (SOX) has annualized volatility of 30% to 35%. Thus, the expected volatility over any 18-day period is approximately 1.2% to 1.5%. A 47% gain in 18 days is 4.1 standard deviations away from the mean. In a normal distribution, this kind of four-sigma event occurs less than 0.01% of the time, or roughly once every 40 to 50 years of trading days.

Something is happening in the markets that is not normal. And what comes next will not be normal, either.

On May 4, the SOX made an all-time high – and then closed below its opening price for the session. A daily reversal in overbought territory – with bearish relative strength index (“RSI”) divergence and a stochastic line-cross at extremes – is a classic sign of a top.

Then, yesterday, May 12, the index dropped 3.01% in a single session to close at 11,717. But the Nasdaq is still reaching new highs. That divergence – leadership rolling over while the broad index extends – is not a bullish setup.

It is the precise dynamic that preceded March 2000.

And guess what? On May 5, the weekly ratio of the VanEck Semiconductor ETF (SMH) to the Nasdaq-100 (QQQ) hit a 26-year peak – its highest level since May 2000, exactly two months after the dot-com bubble peaked in March 2000.

There are two other factors you must understand.

1. This top formed as the economy is experiencing rising inflation and an oil-price shock. April consumer price index (“CPI”) rose 3.8% year-over-year (“YOY”), with energy increasing 17.9% and gasoline 28.4%. Higher inflation will lead to higher bond yields. Falling bond prices will trigger a panic out of financial assets and cause a recession. As I’ve been forecasting all year, the 10-year U.S. Treasury yield will go above 5% and, when that happens, stock prices will fall.

2. What enabled this massive bubble and what will make its collapse far worse than most people expect, is this: credit has been mis-priced for far, far too long. Credit is way too cheap and far too much has been borrowed. The ICE BofA U.S. High Yield Option-Adjusted Spread closed May 11 at 2.79% – roughly half its post-1996 average. The margin debt of FINRA member firms – FINRA oversees brokers and trading in the U.S. – hit $1.22 trillion in March, up 38.7% YOY. Money is virtually free.

Market conditions like these: extremely cheap credit, wildly surging markets, and extremely overvalued stocks have appeared together before.

But only three times.

The U.S. cyclically adjusted price-to-earnings (“CAPE”) ratio currently sits at 40. Three prior comparison points exist in the modern record. In 1929: 21x. In 1972: 21x. At the dot-com peak in March 2000: 35x. The historical mean is 17.

The 2026 reading is the highest sustained CAPE in the history of U.S. equity markets.

But that’s not why it’s a bubble.

Most investors think a bubble is defined by the absolute level of valuation. It isn’t. It’s defined by the velocity of the deviation from trend. When prices move two standard deviations above their normalized growth path – not their nominal high, their trend – the asset has reverted to the trend line every time.

The trend, not the prior high. The arithmetic: a reversion from CAPE 40 to a historical mean CAPE of 17 implies a price decline of roughly 58%.

These mean reversions aren’t pleasant. They are violent because the leverage that drove the move up must be unwound, quickly. The selling isn’t conviction selling. It’s margin selling. Which brings us to credit.

The financial press treats the artificial intelligence (“AI”) rally as an earnings story. It is not. It is a credit story, and the credit cycle just turned.

The four largest hyperscalers – Amazon (AMZN), Alphabet (GOOG), Meta (META), and Microsoft (MSFT) – have collectively guided to between $610 billion and $725 billion of capital expenditure in 2026. Total data center spending is currently projected to reach $3 trillion by 2029.

That’s roughly 10% of U.S. GDP!

Some of that is being paid from cash flow. But most is not.

Data center debt issuance hit $625 billion in 2025, 4x the $166 billion issued in 2023. Oracle (ORCL) alone has accumulated roughly $100 billion of debt. It closed a $16 billion financing on a single Michigan data center in April. Meta is preparing as much as $25 billion in new investment-grade bonds.

CoreWeave (CRWV) is the cleanest case study of how financing has built this bubble. It has raised $28 billion in equity and debt in the last 12 months.

The company closed an $8.5 billion delayed-draw term loan in March. That was the first investment-grade financing in history secured by GPU hardware and customer contracts, rated A3 by Moody’s. Before March 2026, no one had ever managed to convince Moody’s to give an investment-grade rating to a loan backed only by GPU chips. Historically, GPUs were considered too volatile, too short-lived, and too easily made obsolete to support an investment-grade rating. And Moody’s gave this line of credit an A3 rating – that’s three notches into investment grade. That’s the kind utilities and railroads get.

The bond matures in March 2032. That’s a six-year maturity against assets (Hopper-generation GPUs) that Nvidia (NVDA) is already several development cycles past. This is a six-year loan against an asset with a two-to-four-year life span. The cash flows depend on payments from a company (OpenAI) that, by its own backers’ projections, is going to lose $35 billion in 2027.

OpenAI was valued at $30 billion in January 2023. Today: $750 billion. Anthropic: $4 billion in April 2022, $350 billion today. Total AI venture capital raised in 2025 alone: more than $200 billion – 60% of all U.S. venture capital deployed that year.

Where did all of the money come from…?