To The Moon

The market doesn’t need an interest-rate hike to fall. Sometimes, the fear of what comes next is enough.

Friday’s decline in the Nasdaq-100 ETF (QQQ) and S&P 500 ETF (SPY) highlights a difficult situation for investors. Hotter-than-expected inflation data has renewed concerns about interest rates, while Kevin Warsh’s refusal to offer forward guidance has left the market without a clear signal ahead of the October 27–28 Fed meeting.

But there is another question worth considering: What if the biggest risk isn’t the Fed’s next move, but how much investors have already assumed about it?

📊 1. Markets React to Expectations, Not Just Decisions

Share prices reflect expectations about future earnings, interest rates and economic growth.

When inflation comes in hotter than expected, investors may demand a higher return to hold equities. That can put pressure on valuations, particularly for growth stocks whose expected profits lie further in the future.

This helps explain why technology-heavy QQQ can react sharply to changing rate expectations.

However, a market decline does not automatically mean a rate hike is coming. Bond yields, inflation trends, economic growth and the Fed’s assessment of the data all matter.

The danger is that investors may make portfolio decisions based on a forecast that changes again with the next economic release.

⚡ 2. Could AI Help Ease Inflation — Eventually?

One argument supporting the longer-term bull case is productivity.

AI could help businesses automate routine tasks, improve efficiency and produce more with fewer resources. If these benefits spread across the economy, they could help moderate some cost pressures over time.

But there is a complication.

Building AI infrastructure requires enormous spending on data centres, computing equipment, electricity and networking. In the short term, this investment can increase demand for scarce resources and put pressure on certain costs.

The relationship between AI and inflation is therefore not straightforward.

AI may eventually improve productivity, but investors should be cautious about assuming those gains will arrive quickly enough to influence the Fed’s immediate decisions.

The long-term economic benefit of AI and its short-term impact on inflation can be very different stories.

🏦 3. QQQ Versus SPY: It Is About More Than Technology

When rate concerns rise, some investors consider moving away from growth stocks and towards more defensive or value-oriented sectors.

But switching from QQQ to SPY does not eliminate equity-market risk.

QQQ has substantial exposure to large growth-oriented technology companies. SPY offers broader exposure across the US equity market, including financials, industrials, healthcare and consumer sectors.

Their performance can diverge depending on earnings expectations, sector composition and changing interest-rate forecasts.

Rather than assuming one ETF must outperform, investors could examine three things:

• Valuation: How much future growth is already reflected in share prices?

• Earnings resilience: Which businesses can maintain profits if borrowing costs stay elevated?

• Balance-sheet strength: Which companies can fund operations and investment without relying heavily on new financing?

A lower valuation or a broader portfolio can help manage certain risks, but neither guarantees protection during a market sell-off.

🔍 4. What Would Change the Outlook?

Ahead of the October Fed meeting, I would watch three developments.

Inflation: Are price pressures broadening, or are the latest readings being driven by specific categories?

Bond yields: Are yields continuing to rise as markets reassess the interest-rate outlook, or is the move losing momentum?

Corporate earnings: Are companies maintaining their profit outlook despite higher financing costs and economic uncertainty?

These signals could help distinguish a temporary reaction from a more sustained repricing of financial assets.

The key is to avoid treating every market decline as proof that a new downturn has begun — or assuming every dip is automatically a buying opportunity.

💡 MY VIEW: FLEXIBILITY MAY MATTER MORE THAN PREDICTION

Trying to predict the Fed’s next move is difficult, especially when policymakers are reluctant to commit before reviewing the incoming data.

For long-term investors, the more useful question may be whether their portfolio can withstand several possible outcomes: rates staying higher for longer, inflation easing gradually, or economic growth weakening.

That doesn’t necessarily mean selling QQQ or rushing into value stocks. It means understanding how much risk the portfolio carries and whether its holdings still make sense under different conditions.

A strong company can still be a poor short-term investment if its valuation leaves little room for disappointment.

And a falling market can create opportunities — but only when the underlying business prospects and price justify the risk.

💬 LET’S TALK STRATEGY

If inflation remains stubborn and the Fed keeps rates higher for longer, would you prefer to maintain your QQQ position, diversify into SPY, or hold more cash until the outlook becomes clearer?

More importantly, what evidence would make you change your mind?

Disclaimer: This post is for information and discussion purposes only, not financial advice or a recommendation to buy or sell any security.