Thursday's AI-to-defensives swing was rare, not routine

Our read: Thursday's swing out of AI stocks and into defensives was rare, not routine. The Defensives/AI-stack ratio rose 9.0% in one day (our calc), the 8th-largest day of 7,015 since 1998 (99.89th pct).

What the baskets are: Defensives is an equal-weight basket of 14 holdings: 11 defensive stocks plus the $XLP, $XLU and $XLV sector funds. The Complete AI Stack is an equal-weight basket of 18 AI names, including $NVDA, $MSFT, $AMZN, $ORCL, $AMD and $TSM. AI Power (11 names) and Semis (15 names) are separate equal-weight baskets that overlap the stack. The ratio is simply one basket's value divided by the other's, so it rises when defensives beat AI.

Thursday 10/22:
- Defensives +2.83%
- AI Power -6.83%
- Semis -6.37%
- Complete AI Stack -5.70%

Big days like this cluster. 2 of the 5 biggest days have come since Jan 2025 (our calc). Over the last 20 trading days the ratio is up 21.5% (our calc).

Context: that sounds extreme, but it's a snap-back from a deep low. The ratio is still only -0.13σ vs its 1-year average (our calc), close to that average.

What would prove us wrong (our thresholds)

Set before publication. We report back in public when one trips.

• Friday's close gives back half or more of Thursday's move (the ratio falls 4.5% or more). Then Thursday reads as a one-day blip, not a rare shift. Not tripped · checked at the Oct 23 close: ratio -1.42% vs the -4.5% line (our calc)
• A recheck puts Thursday below the 99th percentile on any of our three basket builds, including simple $XLP/$XLU/$XLV vs $SMH or $SOXX versions. Open · next check: Next basket rebuild

Method and sources

Figures marked "our calc" are our own arithmetic on the cited primary sources (company filings, earnings releases, public datasets). Every figure was checked against its source before publication.

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General research, the same for every reader. Not investment advice.