Retail Is Winning. AI Didn’t Get the Memo.

Welcome back to The Cypher!

The market once again greeted the prospect of lasting peace with Iran with considerable jubilation, despite the minor administrative detail that no lasting agreement has been signed. Markets have never allowed paperwork to interfere with a good rally.

What has not returned is the familiar playbook from the first half of the year. The AI-heavy leaders are no longer doing all the leading, and investors have begun examining balance sheets with the regrettable intensity normally reserved for earnings season.

This week, our team looked at three areas: the relative performance of AI and retail stocks, what Galaxy Digital may be signalling for crypto, and housing data across the four major regions of the United States.

TL;DR: The rally is being led by the retail sector, if not necessarily retail investors. Galaxy’s two growth engines remain parked. Real estate, meanwhile, is flourishing in places where prices still maintain a passing acquaintance with incomes.

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Idea 1: Retail is Making New Highs. The NASDAQ Isn’t.

The market’s enthusiasm for “peace with Iran” without signed documents is, at this point, a bold interpretive choice. The more surprising development is that retail stocks, represented by XRT, appear to be powering much of the recent advance.

Since roughly June, AI has struggled for direction as investors have looked more closely at the balance sheets of key players. The exercise has revealed that even artificial intelligence must eventually reconcile with actual arithmetic.

Retail stocks, shown by the gold line, have moved steadily higher over the same period.

This suggests that a rotation may be under way. The market is not abandoning technology, but it may be broadening beyond the handful of AI names that previously carried the index like an exhausted parent carrying a sleeping child through an airport.

Takeaway: A market rotation may be developing, with previously lagging retail stocks positioned to benefit disproportionately from further de-escalation and improving consumer sentiment.

Relevant Tickers Impacted: SPY, RSP, QQQ, MAGS, IGV, XRT, GLD, IEI, TLT (Note that inclusion is descriptive, not prescriptive, as long duration instruments, such as IEF and TLT bear the most acute risks).

Idea 2: GLXY Has Two Engines. Neither Is Firing.

Galaxy Digital began as a crypto-only shop, then added a second growth engine through its Helios AI data-center business. Recently, both engines have stalled.

GLXY dropped below its 200-day SMA as crypto continued lumbering through the four-year-cycle bear market and investors began asking awkward questions about the debt supporting the AI boom. Apparently, “artificial intelligence” does not make the liabilities artificial.

Hopes for de-escalation with Iran have lifted the broader market, but neither crypto nor AI has supplied Galaxy with much thrust. Two engines are useful, provided at least one of them starts.

Our team treats this as a “we’re so back” stock. A close above the 200-day SMA would suggest that the immediate worries are fading and momentum may be returning to at least one of Galaxy’s two growth engines.

Takeaway: Because GLXY sits at the intersection of crypto and AI infrastructure, it is worth watching as a barometer of growth sentiment in both markets. As an investment, patience may be rewarded, although patience has yet to receive its own ticker.

Relevant Tickers Impacted: BTC, IBIT, MSTR, STRC, COIN, GLXY (Inclusion is descriptive, not prescriptive; note that not all tickers are strongly correlated with BTC’s price movements.)

Idea 3: The Midwest Is Quietly Winning the Housing Market

The National Association of Realtors just released new housing data, and the story is unusually cooperative.

Plot regional home prices against annual appreciation, and one clear winner emerges: the Midwest. It is the only region combining below-average prices with above-average gains.

The Northeast is appreciating at a similar rate, but buyers must first survive the purchase price. Major metros such as New York are not known for their commitment to affordability.

The West is currently the weakest of the four regions, with the highest prices and negative appreciation. Think San Francisco, where even the housing corrections are expensive.

Takeaway: For real estate investors, the “Sun Belt to Rust Belt” shift still appears intact. Cheap basis, stronger appreciation, and fewer bidding wars over houses that require spiritual renovation.

Relevant Tickers: Z, RDFN, VNO, SPG, HD, LOW, ITB, VNQ, XLRE (Inclusion is descriptive, not prescriptive; some commercial names may decouple from sector trends.)

Final Remarks

“I’d be a bum on the street with a tin cup if the markets were always efficient.”

-Warren Buffett

Present market circumstances are unusual because it is rare that so much of the US economy is under the influence of the President. One “Truth” post can shave or add billions to the market in minutes and the man in the President’s office is fond of exercising this capacity. The market, as a result, is currently less a weighing machine than a push notification.

That creates noise, but it also creates dispersion. And dispersion is where patient investors tend to find opportunities.

If retail leadership continues to broaden, individual companies that lagged the initial rally may offer better opportunities than the index itself. McDonald’s, for example, remains on my watchlist as a familiar business with an unfamiliar chart.

Crypto has been in a bear market long enough to qualify for tenure.

Housing tells a similar story. The data continue to favor markets where the purchase price leaves room for an actual return. We are looking closely at Indiana, although it is only one of several Midwestern states worth reconsidering.

None of this means that everything cheap is attractive. Sometimes cheap is simply the market communicating in a larger font. But when valuation, balance-sheet quality, and market structure begin to align, this environment should produce opportunities for investors willing to wait for them.

We believe knowledge is power. If you learned something, share The Cypher. Help others before a CNBC anchor starts yelling at them in all caps.

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Happy Trading!

The Team:

Sebastian Purcell, PhD

Julian von Loesch, PhD

David LaRoca, PhD

Elyse Purcell, PhD

Todd Mei, PhD

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