🥛 When will the “software smash” end? 🔨

GM. This is Milk Road Macro, the newsletter that hits harder than opening your portfolio and seeing “SaaSpocalypse” wasn’t just a meme.

Here’s what we’ve got for you today:

✍️ Everything you need to know about the “Software Smash”.
🎙️ The Milk Road Macro Show: The Government Is Engineering a Business Cycle Surge Into 2026 w/ Andreas Steno Larsen.
🍪 Trump wouldn’t pick Warsh as Fed chair if he’d hike rates.

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Prices as of 10:00 a.m. ET.

EVERYTHING YOU NEED TO KNOW ABOUT THE “SOFTWARE SMASH”

There’s an attempted murder occurring in plain sight.

Major AI disruption is here and now.

You can see it in the charts.

And it’s brutal.

We’ve reached the “get me out at any price” phase, according to one trader.

But meanwhile, the S&P 500 is just chilling near to all-time highs.

So, what in the world is happening?

Let’s take a look…

RIP software?

The software sector had been an investment favorite for years - because of its reliable and predictable margins and revenues.

But both of these things are now under direct attack from AI.

New and increasingly more advanced AI tools are being released, seemingly every day.

Allowing software to be created in minutes.

The ETF for the U.S. software sector is IGV - including big names like Microsoft, Palantir, Oracle and Salesforce.

It had been sliding since October last year, but things got really wild in recent days.

It’s now in a severe bear market - down 30% from its October 2025 highs.

Source: TradingView

Bloomberg reports that sentiment in the software space “turned from bearish to doomsday” this week.

The chaos was encapsulated by Jeffrey Favuzza, who works on the equity trading desk at Jefferies.

He said:

“We call it the ‘SaaSpocalypse’ - an apocalypse for software-as-a-service stocks. Trading is very much ‘get me out’ style selling. People are just selling everything and don’t care about the price.

“The draconian view is that software will be the next print media or department stores, in terms of their prospects.”

According to JP Morgan analyst Toby Ogg:

“We are now in an environment where the [software] sector isn’t just guilty until proven innocent - but is being sentenced before trial.”

Some people have drawn a link between the ongoing software smash and the ongoing crypto crash.

They believe that the market is currently lumping bitcoin/crypto into the same bucket as software.

Source: TradingView

I don’t really see how this makes sense, from a fundamental perspective - but the correlation is apparent.

So, what’s going on - why the mayhem?

Jitters started when Anthropic released its new and impressive Claude Cowork tool in January - supercharging software disruption fears.

But was there a specific catalyst that sparked the software beat-downs this week?

Traders point to this week’s release of new AI automation plugins from Anthropic.

These plugins focus on legal, sales and marketing, finance and accounting, and data analysis.

According to a note from JP Morgan:

“The main trend being observed is the evolution of Claude from a chatbot that answers text-based questions to an agent that executes labor.”

Say a prayer for private credit

The software smash is spilling over to the world of private credit (companies that raise capital and use it to lend directly to other companies).

This is because private credit companies are full of software exposure, after gorging on the sector for years.

But now, the value of those software companies is rapidly cratering.

And shares in private credit companies (BIZD) are also sliding.

Source: TradingView

In a note, Barclays analyst Peter Troisi wrote:

“Software is the largest sector exposure for BDCs [private credit], at around 20% of portfolios, making the industry particularly sensitive to the recent decline in software equity and credit valuations.”

According to UBS, private credit could see default rates rise to as high as 13% in the U.S. if AI triggers an “aggressive disruption” among corporate borrowers.

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EVERYTHING YOU NEED TO KNOW ABOUT THE “SOFTWARE SMASH” (P2)

So, why is the S&P 500 just chilling?

Software companies make up a hefty chunk of the overall U.S. stock market.

But while all this mayhem has been going on behind the scenes, the S&P 500 is still just chilling out.

It’s been essentially flat for months and is currently less than 2% from an all-time high.

Source: TradingView

So how can this be?

While software and related sectors are seemingly being murdered in plain sight, a lot of other sectors are thriving.

Overall, the market is broadening out (typically, a healthy sign) - which is keeping the S&P 500 index afloat.

From an economic standpoint, we’re right in the middle of what appears to be a “cyclical reacceleration”, or “business cycle expansion”.

This can be seen through the latest ISM Manufacturing PMI print, which shot higher into “expansion” (above 50) on Monday.

Source: TradingView

U.S. economic momentum is seemingly accelerating strongly and the growth outlook looks promising.

And since November 2025, cyclical sectors have been ripping higher.

This includes:

Industrials (stuff makers) - XLI, up 15%.
Transports (stuff movers) - DJT, up 27%.
Energy (stuff powerers) - XLE, up 22%.

The “boring” parts of the market.

Or in other words - actual, real physical things.

Not things that only exist on screens.

Take FedEx (up 61% since October) and Caterpillar (up 46% since October).

Two companies (logistics and construction equipment) deeply tied to “the real economy” and economic growth.

So, the S&P 500 is currently being pulled hard in both directions - by both glorious winners and spectacular losers - and it’s all ending in a standstill.

So, is there any hope for software?

Is this really the end for software?

IGV has been beaten down hard.

But at this point, the beat-down has probably been driven too far ahead of the fundamentals.

High quality, entrenched software companies aren’t about to disappear overnight - even if the severe concerns over AI are a real and pressing threat.

And the sentiment around software has now reached extreme levels of pessimism and capitulation.

In any case - from a technical standpoint, you’d expect IGV to bounce soon, purely because it’s just so “oversold”.

Even if it eventually rolls over again and the beatings continue.

IGV is currently oversold to a level that it's only been seen four times since 2001.

In all four of those previous cases, IGV was higher three and six months later.

Source: Bluekurtic Market Insights

And on the private credit side of things, Julian Klymochko, of Accelerate Investments, thinks that private credit is “pricing in a credit crisis that isn't occurring - at least not yet”.

He said:

“Current prices roughly assume that all software loans go bad. NAV discounts have only been wider during the Covid crash and the global financial crisis, in which the financial system almost failed and amid deep recessions.”

Even Nvidia CEO Jensen Huang waded into the debate this week.

When asked about the software smash, he said he believes software products are tools, and AI will use those tools, not reinvent them.

Huang added:

“It’s the most illogical thing in the world. There’s this notion that the tool is in decline and being replaced by AI. Would you use a screwdriver or invent a new screwdriver?”

Wrapping up

There’s one word to describe the U.S. stock market since the turn of the year, and that is:

Dispersion.

Stephen Yiu, CIO of Blue Whale Growth Fund, said:

“This year is the defining year of whether companies are AI winners or victims, and the key skill will be in avoiding the losers. Until the dust settles, it’s a dangerous path to be standing in the way of AI.”

Right now, everybody hates software (and apparently bitcoin too) - while the “boring stuff” is performing really well.

Whether this will continue or not is another question.

But this is the current direction of travel.

That’s it for this edition - catch you in the next one.

THE GOVERNMENT’S ENGINEERING A 2026 CYCLE SURGE 📈

In today’s episode, we sat down with Andreas Steno Larsen, economist, macro strategist, and founder of Steno Research, to talk about how policy decisions are reshaping the cycle into 2026, from AI’s impact on SaaS to metals, energy, and geopolitics.

Here's what you'll hear:

Why Andreas thinks AI can commoditize the “middle layer” of SaaS, with re-pricing risk over the next 3 to 5 years.
How software-heavy private credit and buyouts could be vulnerable, and why he draws an Apollo to Bitcoin risk analogy.
Where he’s rotating instead: hardware, critical metals, rare earths, and decentralized energy, plus specific names he highlights.
His take on deglobalization and Fed “liquidity plumbing”, and what could drive a 2026 capex surge alongside key risks to watch.

Hit play and see for yourself 👇️