Stock Market Crash Fears Meet Record Highs Before TSMC Earnings

Crash talk while the S&P 500 sets records

Financial media keeps warning about a stock market crash, but this week's trading did not look like one. On October 6 the S&P 500 closed at a record 7,819, its first new high since August, and the Nasdaq Composite set a new peak for the second session in a row.8 The week did have a sharp dip. On Thursday the Nasdaq fell about 1.25% after questions about OpenAI's revenue hit AI stocks.5 Schwab called it the index's worst day since mid-August.7 On Friday tech stocks recovered and oil prices eased. The Dow gained 0.83%, and the S&P 500 and Nasdaq each added about 0.6%.36

Reports give slightly different weekly totals. Investopedia and CNBC put the S&P 500's gain at about 1.2%.46 Another wrap reported about 1.04%.1 All of them agree that each of the three major indexes finished the week higher. Investopedia also noted the Nasdaq's fourth weekly gain in a row and put the year-to-date gains at roughly 18% for the Nasdaq and 14% for the S&P 500.4

The worry is still real. Close to half of individual investors in the latest American Association of Individual Investors survey expect stocks to fall over the next six months.21 In mid-September the same survey showed about 40% bearish, so pessimism has grown even as prices climbed.26 This article examines that gap between investor mood and market prices, and how it shows up in chip stocks and bitcoin.

The history behind "the best move"

A run of recent investing commentary asks what investors should do if a crash is coming. The answers are close to identical: stay invested, keep buying and hold quality assets.

The bearish case usually starts with valuations. One analysis says the S&P 500's cyclically adjusted P/E ratio is close to its all-time high, a level last reached at the peak of the dot-com bubble. It adds that the Buffett indicator, which compares total stock market value to GDP, is at a record.22 The same piece warns that the index is so concentrated in AI-linked tech stocks that one problem in the AI story could pull the whole market down.22 Investopedia found a related problem in this week's data: fewer stocks are driving the rally, and tech strength is hiding weakness elsewhere.4

The bullish case relies on historical return figures:

• Buying in bear markets. There have been 16 drops of 20% or more in the S&P 500 since 1940. Buying on the day the index first hit 20% below its high produced an average 12-month return of 17.3%. Buying after 30% drawdowns averaged 22.8%.22
• Median returns since 1985. After the S&P 500's first close in bear-market territory, the index returned a median of 17% over the following year. For the Nasdaq the figure was 40%.25
• Long holding periods. Crestmont Research found that every rolling 20-year period for the S&P 500 since 1919 ended with a positive total return.2126
• Midterm elections. Citing Fidelity, one piece says the market has risen from November to November 95% of the time after midterms since 1938.23 Yahoo Finance reporting cites the same pattern as a possible driver of a year-end rally.3

The commentary is less unanimous on timing. Some pieces say outright that a crash is coming and treat it as a matter of when.2527 Others say a crash within the next year is unlikely, mainly because of the midterm-election pattern.23 All of them end up giving the same advice, though: trying to time the market is the worst choice. One piece quotes Peter Lynch's observation that investors lose more money preparing for corrections than in the corrections themselves.22

My view is that the long-term argument is sound but it is being used to dismiss short-term risks that are unusually concrete. The Federal Reserve has started a new cycle of rate increases.23 Bitcoin coverage cites Fed minutes that suggest another rate increase before the end of the year.12 Reports put the 10-year Treasury yield at 5.32%.12 Longer-dated yields reached 24-year highs this week.6 One strategist quoted by CNBC said it would not take much more of a rise in long-term yields to create serious headwinds for stocks.5 "Stay invested" is reasonable advice. It is not a forecast that prices will stay calm.

Chip earnings: TSMC reports first

Semiconductors show the same tension most clearly. The iShares Semiconductor ETF rose 11% in September and another 3.6% in the first two trading days of October. It now trades at about 43 times earnings.32 The rally fades in late-week price quotes: TSMC's U.S. shares closed down 1.02% on October 9 at $453.31.31 Quotes published with an October 9 article showed the VanEck Semiconductor ETF down 2.84% and Micron down 4.79%.40

TSMC's full third-quarter report on October 15 is the next major test.35 The company has already reported that third-quarter revenue rose 50% from a year earlier.34 It has raised its full-year guidance twice: in April to more than 30% growth, and in July to at least 40%.34 Analysts say the key numbers will be:

• Growth in high-performance computing, which made up two-thirds of revenue last quarter
• The share of revenue from its 3nm chips
• Whether it raises full-year guidance again34

There is a warning in the bullish coverage too. One writer who is adding to his TSMC position notes that the stock fell an average of 3.61% the day after each of the company's last two earnings beats.39 Analysts also say that if TSMC only repeats its revenue guidance while raising its capital spending plans, the stock could fall and take other chip stocks with it.34

Other chip reports follow. ASML is expected to report on October 14 and Intel on October 22. Nvidia's report is estimated for November 18.35 Memory makers have posted the most extreme results. Micron's fiscal fourth-quarter revenue was $54.2 billion, beating its own $50 billion forecast and up 379% from a year earlier.40 Its full fiscal-year revenue rose to $133.19 billion from $37.38 billion.32

In my reading, this is where crash risk really sits. The S&P 500's gains depend heavily on AI hardware, so TSMC's outlook matters for the whole market, not just for chip investors. Thursday's sell-off after the OpenAI revenue questions showed how fast doubts about AI demand can spread through tech stocks.57

Bitcoin falls while stocks rise

Crypto moved the other way. Bitcoin finished the week down while all three major U.S. stock indexes rose. The amount of the decline depends on the snapshot. One weekly review measured a 2.1% loss, from $84,743 to $82,922, with a low just above $80,000 on Thursday.11 Another put the weekly loss at about 4%.20 A third said bitcoin was on track to fall close to 3%.18 Altcoins did worse: Ether fell 6.8% and Solana 8.1%.11

Coverage agrees on the causes:

• ETF outflows. Bitcoin ETFs lost $484.9 million on Wednesday, their worst day since late June, and another $244 million on Thursday.12
• Forced selling. Liquidations across crypto totaled more than $2.4 billion over the week, mostly from traders who had bet on higher prices.14
• Macro pressure. Commentators cite oil above $100, high Treasury yields and a stronger dollar.17

Traders expect more weakness. On the Myriad prediction market, traders put a 67% chance on bitcoin trading at or below $80,000 before the end of October.12 Analysts' bearish targets are in the mid-$70,000s.1320

The split between stocks and crypto matters here. Rising yields hurt bitcoin, but strong earnings expectations kept stocks up. Coverage on both sides points to Wednesday's September CPI report as the next major event.13 The Fed meets again October 27–28.13

The bottom line

The historical data supports the advice to stay invested, and this week's record highs are a reminder of what investors give up by waiting on the sidelines. The data does not support complacency. Crash risk depends on a few things right now: rising long-term yields, a Fed raising rates and how much faith investors keep in AI chip demand. Bitcoin is already reacting to the first two. Trading Economics' fourth-quarter forecast for the S&P 500 is 7,557, which is below Friday's close.10 My reading is that the best move is still to buy steadily and hold for the long term. TSMC's report on October 15 is the event most likely to test whether investors can stick to it.