Yep, here we are you asked for the best I brought you the very best Ladies and gentlemen, I got short kid Matt here today Matt. I feel like everybody everybody left me this week except for you I got never leaving you that's it. I got I got I got Michael Bagnick on a flight to Austin right now Shout to Michael Nicole is in Paris Living out her her shopping fantasies right right? Ladies and gentlemen We got John Grayson in the background controlling the show tonight John's gonna crush it for us because we have charts on charts on charts for those of you listening on Spotify two things Number one just click the video button and you can watch or don't worry about it because whatever's on the screen that You can't see we're gonna make sure you understand the points that we're making and tonight We are going to bury you guys in insights. It's gonna. It's gonna be unbelievable. Alright, so first things first
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Visit Janice Henderson calm. All right. I do want to say a couple of quick. I'll open the chat I got Benjamin Lupo back Shapon's this year gave me the the storm arm emoji feeling that Luis JB bro wears Michael I just told you pay attention. He'll be back soon What is this Josh when the one of the breeds coming out no it's not a transplant this is my my literal hair Thanks, the doctor keeps shine bloom of shine bloom medical. I'm actually I'm growing this they have greables here KPS Fred says
Can't wait till Josh has a man bun. It's coming my friend any day now. All right, all right, so chart. Let's start here NVIDIA's looks like it wants to I should let me phrase this me phrases correctly NVIDIA looks like it wants to break out a Couple of things struck me about the recent trading and activity in NVIDIA. Let's just do the technical chart jump right to that So I'm just gonna narrate what I see here This is a stock that had a massive run up in May when all of its customers the hyperscalers were reporting not only earnings but forward guidance and their cap X plants and Basically they ratified what we already know Which is that not only are they spending this coming quarter and for the rest of the year But as far as the eye can see because the investments they've already made demand that they continue to spend and we've talked at length about replacement cycles and you know you build the data center 50% of the expenses to chips NVIDIA although there are other chips available for data centers. There are other components. There are a six there's CPU's
the GPU clusters are still gonna be the workhorses for the data centers for as far as the eye can see and Back to the chart so basically ran up in May as those reports were coming out and then we sort of had like I think a pretty orderly pullback to the 200 day moving average Which at that time was 199 200 bounced off at that level twice came right back into the 200s and it has been biting It's time pretty much consolidating below that 235 breakout level today The stock closed around 228 and the more the longer it knocks on that 230 235 breakout level the longer that testing process takes place The more powerful I think the eventual breakout would be just at a glance What are your thoughts on the technicals for NVIDIA?
So when I look at the chart I see a sending 50 day moving average a sending 200 day moving average We dipped right below the 50 day and surge right back up after Muse came out and yeah immediately and I think it's a great price reaction to that news and obviously we'll talk about The buyback and we'll get into that and what that means for the stock I have thoughts there, but just purely on the chart if you hit the name. This is a buy to me. Yeah last thing on the chart That bottom pane is relative strength RSI and we're not gonna get into like the calculation that goes into it But effectively what we're looking at is momentum for the stop relative and and you know People it's it's not science like people have this shorthand where they're like, okay, 60s is perfect When you have a stop making the new high you want relative strength to be at least in the 60s Which tells you like momentum is confirming the move and then people think about 70 plus as sort of overbought Like it's a technical term. It's not overbought like oh, I feel like it went up too much They will look at a momentum reading at 72 74 76 and say okay, not a great entry point
This thing has to cool off. We're at 58 like I don't I can't think of a bet if in fact this stop is gonna make a new high I can't think of a better momentum reading to go along with that than an RSI moving from the high 50s into the 60s It just gives you so much space for for that eventual breakout to take place in you follow me on that Yeah, I'm following you and I'm looking at the volume too. It's not like it's a super low volume move I'm always looking at our side divergence. So when the stock is making a high and the RSI is not making a high That is always something that I'm looking to see oh hold on a second Why isn't moment momentum confirming the move but here you see a lot of relative strength in name again purely based just on the chart It looks like it's ready. Yeah, and we don't have that divergence And at a new high if we can get RSI coming along for the ride Which obviously would probably happen if it really breaks out with conviction like that's what technicians are waiting for they're looking for those Moments I also want to show a 10-year chart Matt. So like this is just price and I pulled out is no volume
There's no moving averages. It's no bullshit. This is like so people like oh Nvidia's boring or You know the stock doesn't like poking the mean where you poking it with a stick do something guys This like split adjusted. This was a $10 stock at the beginning of 2023. It's 228 like relax Give it give it a minute right right and the insane thing is that if I charted the forward P ratio on top of this It would literally be making 2016 lows And I know we could we could talk about forward earnings and the estimates being wrong and we can speculate on that But I went back and looked the actual forward earnings tend to be very close to the actuals And it's not my opinion. You know it just is what it is. This is a this is a company that
This fiscal year is gonna do something like 96 or 98 billion dollars in free cash flow next year It could be three hundred and sixty billion dollars in free cash flow on six hundred eighty billion revenue It paid again not just based on the companies own guidance But like based on the CapEx plans and Nvidia share of that CapEx spend that we're getting from 50 other sources and You think about you think about a company that is Growing earnings at this rate. It would be shocking if the earnings multiple were going up If it were flat would be understandable, it's actually plunging the the multiple on the earnings And let's go back to let's go back to the buyback thing. So Matt you have a chart here. Tell us what's going on Yeah, all right guys So when video announced at $150 billion buyback okay Jensen dropped this like two weeks after Dario came out and said to slow the pace So like LOL He essentially turned around inside I'll do the opposite and so let's just alright So there's some assumptions baked in here, but let's just say in Vegas price stays flat for the next year and a half I gotta make it simple when I'm doing the chart So it stays flat Okay, if you take a hundred fifty billion dollars and you add a $85 billion that it already has in its buyback plan to get two hundred thirty five
Billion dollars a buybacks through Q1 2028 So that would theoretically reduce the shares by 4.3% And I guess we could we get chart off like if you just went down the laundry list of things that you would want to see as an Invitable as a market bull as an AI bull. I think at the top would be the most important C on the world at the most important company in the world Saying screw slowing. What's buyback $150 billion of stock? I'm not gonna go speculate buying a company Let's use the capital to to reduce our share count. Yeah, turn down for what?
So most important CEO, I think is accurate at the present moment There's nobody more important and also but he's not important and then hiding in a bunker this guy is literally everywhere He's popping on podcast like he's he I saw the seating chart for the AI dinner or meeting or whatever it was at the White House He was next to Trump like think about all the people that were there that theoretically could have been next to Trump It's Jensen one right and he knows how to manage the relationship. It's like how Tim Cook was you know He knows what he's doing and I think that it's overall you walk the administration on your side It's like it's like a double thumbs up. You need that. Yeah, he's he's a pop on top of being a genius and out innovating everyone and seeing the Machine learning trend turn into augmented reality turn into virtual reality turn into oh wait Actually, we should be using these for LLM's and AI like having done all of that in his time since founding the company Nobody I don't think people should be second guessing his instincts his public statements scrutinizing his capital allocation
One of the big things is like oh in videos like giving money to their customers and then the customers are turning around and buying more chips With that it's what do you want him to do you hear the number? I just trotted out 360 billion dollars in cash flow potentially over the over the next year you you want him to throw pizza parties for his employees like what You want to buy back 500 billion dollars worth of stock between now and 20 30 I mean might it's it's it's possible if margins hold up and revenue continues to grow But like he's supposed to be making these investments into the ecosystem Well and Georgie D and the chat is saying now he sucks up to the orange man. It's not about that It's what's best for the shareholders right? He needs legislation on his side to do what he wants to do And is that something that's baked into the price sure can that change absolutely but right now he's managing the relationship?
Well, it's another reason why you want to bet on Jensen. He's a complete he's a badass Yeah, it sucks up to the orange man or understands that Trump is a mercantilist So this is very important actually for the audience It's not fascism. It's not really capitalism the way the Trump administration thinks about the intersection of government business It's mercantilism and for any of you who remember social studies in high school Mercantilism is a economic system where companies are given a high degree of free rein So long as their aims are in concert with what the government wants and obviously the most prominent examples of that are things like the The Dutch East India company the South Sea Company and I know some of these didn't then well But like just this idea of like yes, we're gonna allow corporations or what they used to call joint stock companies to pursue their goals of dominating trade around the world and producing profits for their shareholders, but Those things have to work hand-in-hand with what the government wants in the case of the Trump administration They want massive GDP growth. They want to onshore industries that are currently
Manufacturing or hosting their facilities outside of the United States They want the first hiring inclination to be toward hiring people right here at home rather than somewhere else like that's that's the aim of the Trump Administration and bestened and like all of their policies and so Jensen has found a way like Tim Cook before him to Engratiate himself with the administration say okay. I get it. You want to build fabs here You want to make semiconductors here you want USA I to dominate the world and not Chinese AI of course wouldn't want that like okay We can we can do business we can work that way that's mercantilism. That's the nature of the administration I'm not telling you it's good. It's bad I'm just explaining to you the mindset if you're a shareholder in video What do you want him to fucking be an enemy of the people who control both houses of Congress the Supreme Court the military like are you Are you kidding yourself like this is about making money in today's day and age? This is how you make money?
It'll change this is where we are he's aligning with the administration. They want it okay? They need it they need to place jobs in areas around the country and he's helping with that in videos trailing 12 month operating earnings Okay, forget the private investments. Okay, the operating earnings are now above apples It's legitimate actual earnings. These are not estimates. This happened over the past 12 months, right?
Right, so can we talk about your entries? Let's go. Okay So yields are ripping higher. It feels like literally every day. I brought this chart 75% of the last 24 trading days So a higher 10 year yield. I don't know if you feel this way Josh
But like I check every day the CNBC One more time. Okay, so alright 18 out of the last 24 trading days the 10 year yield had a one day change that was positive So it's it's going up almost all the time almost all the time and also by the way This has happened 11 times since 1965. I went back and counted. It doesn't happen very often. Okay, I built the table I didn't add it I can paraphrase it the idea is what happens to yields after I can tell you that 80% of the March higher to like Like this often on a daily basis. Yes, correct when that happens 80% of the time over the next 12 months
You see yields that are lower and obviously we've lived since 1965 We did have a run up in yields, but we've lived in like a descending yield environment for a long time So yeah, there's a caveat there But it's like a 90 basis points on average that the 10 year yield falls one year after you have this many positive You know updates in the 10 year yield and alright, so then my question is Why is this happening and I think I found at least part of the reason why in this odd lots episode John can we play this? Four and central banks have had all that they need and they're not buying more and it's mostly domestic Discretionary investors that are being asked to take this additional supply and they just need more compensation So that's that's Daryl Duffy's a professor of finance. It's damn great. We hope that's the reason why okay That would be the best right like that would be the right of all the reasons people are floating that one would be the best case scenario It's just an asset allocation thing. It's the idea that four central banks own too many treasuries So there's no bid from them. Who's the next buyer?
The next buyer is a pension fund or an endowment or a macro hedge fund But how are they gonna explain away the macro hedge funds to their clients that they just you know Slide a ten billion dollars of ten years treasury on their balance sheet when in video just announced a hundred fifty billion Dollar buyback it's like, you know, that's not why we're paying you and so you know treasuries It's a stretch to say they've gone no bid, but there's just according to Daryl not is not enough buyers in the system at this level They would require higher yields. So at your Danny is friend of the show We've had him on recently and he's the guy that coined the term bond of a jalanthe's I think he did that in the 80s of the 90s or something crazy like that But the idea of bond vigilantes is they are enforcing Discipline on the treasury by refusing to show up at the auctions at prevailing rates And so like rates go higher because they just they refuse to buy because they don't like how we're running our budget or they don't like the deficit Or they think there are like insurmountable political problems that are going to introduce Potentially credit risk to the he's not saying that's what's happening now Ed is pretty constructive He still thinks his roaring 2020s decade is gonna end
To the upside for the economy and stocks But he was kind of this or I think it's over the weekend He kind of like was alright here are all the reasons why we're seeing the rates climb to the extent that they are like match Or in his chart and he's talking about like corporate debt issuance has doubled in a year And you know we were accustomed to a world where corporations were basically funding everything out of cash flow Especially on the AI cap ex-eyed and now they're selling tons of bonds that becomes competition for the US Treasury at roughly equal rates Not equal risk, but like all things being considered if you can buy off a bit paper at a 5% yield We're slightly higher right a better option. So there's a lot of that. There's a whole thing with the Japanese unwinding their negative interest rate policy and You know a lot of people were doing this carry trade where they would borrow in yen terms and then go around the world and reinvest that money at higher rates as the yen appreciates and The bond yield in Japan goes positive it makes it less appealing to pull that carry trade off or you see people unwinding
So that's like a mechanical thing that US investors don't pay any attention to but it could be part of like what's driving yields higher That's that less incremental buying from overseas that the professor was talking about so there's like it's like you have a play They'll game clue. Yeah, when you were kid. Yeah, it's like who done it and it's like well who did it in what room? And what was the murder weapon there's a lot of that going on and probably like the truth is some mixture of all those things I know I know you wanted to throw inflation into that mix Yeah, yeah, not that I know not that we can pinpoint the specific reason But we can't pinpoint what it is not and that is inflation expectations ripping higher You can see there's it's a finance term inflation break evens are well-anchored Okay, so the idea here is that if you see the break even inflation rate surging higher that is gonna filter into the nominal 10 year yield What we see on the screen when we type in 10 year yield that the reason for the rise in interest rates is not coming from this expectation that inflation is gonna search higher right so that would be another night in their scenario that like the treasury is ripping in response to this like insurmountable inflation problem that we can't get control over and
Yes, it's true like oil prices are elevated. I don't know people realize we're like in month four of a war overseas And literally the war is now over the passage of oil. We don't subsist on Iranian oil, but like it isn't a relevant Getting oil from the Arabian Peninsula through the Strait of Formuz is relevant to the global prices which how read through into WTI crude etc etc So like yeah, there's like an inflation issue, but it's based on a war and not like saying we're gonna get a real ceasefire But oil is flowing through the Strait of Formuz again. It's not it's not ideal, but it's not as bad as it was And you're saying that it's inevitably temporary Theoretically Show me this last time you're this last this last chart on this so what I'm doing here is I'm taking the tenure yield the nominal You'll then I'm subtracting the tenure break even inflation rate This is hitting highs going back all the way to 2008 so there is a legitimate alternative to four investors when they're looking at okay
Let's say they're we get chart off. Let's say theoretically they are withdrawing four percent of their portfolio their retirement their financial advisor says hey look You know you can get a legitimate 2.85 percent real yield after inflation. That's an alternative and this is filtering in At least at some point to evaluations in the stock market. So if we want to flash the next chart jump So Josh you gotta make this this is different buckets of the 10 year treasure yield and then the median of 4p for both S&P 500 and the NASDAQ and as you said the breaking point is 7% What is the another words? What is the breaking point for stocks where the yields get so high?
That people's next $50,000 they deposit into their account like more of that is going into bonds and less into stocks and we feel that on mass Like that's the that's the question that we're trying to answer and I saw somebody do this with the S&P So I asked Matt show me that with the NASDAQ which increasingly is becoming like the focal point of the stock market and Frankly the driver of almost everything all right now. Let's put that chart that go up So tell us what your conclusions are the conclusions here All right, you have to focus on are the two bars all the way to the right and you see them above 7% So above 7% yields the S&P 500 median for P is 13.6 times the NASDAQ 100 is 12.6 times That is the lowest among any other bucket from 0% all the way through 7% You know, it's interesting you would think given the medius hysteria about rate hikes that like the best PE ratios We get for socks are at a zero are at a zero percent or close to 0% yield for bonds But that's not actually how it works chart back up
When we have zero to three percent on the ten year like not always but it's usually because we're responding to some sort of like economic problem Like zero to three percent became normal for 15 years after the great financial crisis But it's not actually normal and that is not actually where you get the best multiples for stocks necessarily It looks like three to seven is a better sweet spot for the NASDAQ at least Just eyeballing it then zero percent to three percent well at three to seven You're actually you have an alternative you have to be disciplined about your capital where it goes And so investors might actually assign a higher multiple because the companies have to think they can't speculate They can't just you know They have there's actual yields that you can compare to versus at zero, you know, you could go out and speculate all you want Three to seven investors are assigning a higher four P because it's discipline involved The thing I want to leave people with as we switch out of this topic is that five percent is not the breaking point I mean, it's yeah Somebody that's been in the markets for 30 years you wouldn't have to say that out loud
But for somebody that started investing sometime after 2020 and they've never seen rates really do this outside of 21 and 22 when the Fed was aggressively fighting inflation like five percent on a ten-year treasury It's not a breaking point for multiples or for the stock market and I understand like there if you haven't really seen this You know, you can kind of be like whoa rates, which is three another five. It's really not historically not that abnormal All right, let's let's do this thing from Alliance Bernstein So Alliance Bernstein has a guy named Inigo Fraser Jenkins who confession I've reached out to He doesn't seem to be at all interested in talking to me, but that's okay I don't agree with a lot of stuff that he does. I think he was one of the guys saying index investing is us is Marxism But every time he drops something we're not every time a lot of times he drops a piece that grab a lot of people's attention he's very thoughtful very well written and Last week he put this thing out called the everything trade and I just want to give people the conclusion because we're not
Gonna go through everything in there and then Matt pulled some stuff out of here That's worth spending a second on the big idea here is that and this is not a bearish note And this is not a celebrity note the core argument is that a eyes appetite for capital has now gotten so large that it is tying together equities credit the dollar and foreign flows and it's basically made everything into all one big bet or one big trade and He's what he's saying is that makes it harder for an investor to diversify away from AI risk So they're keeping their equity overweight and they're overweight on the US Intact and they actually said calling the top is pointless But the point of the note is that portfolios urgently need to hold up in case this whole AI freight train stalls Whether that happens to choppy returns going forward or a big crash and it's increasingly harder to do that And you know a lot of this is we talked about this Big tech was paying for their investments out of free cash flow free cash flows now zero and they're borrowing which is not necessarily negative I might be but that debt is flooding the bond market
So if you want to own a plane vanilla bond fund you're quietly buying yourself more AI exposure whether you mean to or not Foreign investors are pouring money into us stocks So if you are investing in foreign currencies or foreign markets or foreign companies you are putting on that shadow exposure to us AI The buyback angle corporations were the biggest buyers of US stocks for 20 years via share repurchases now AI is eating up a lot of that cash Some companies are still doing both but it's another factor that removes a layer of support from stocks and adds to potential volatility So they conclude by saying healthcare and energy or two sectors that investors have abandoned plus gold Maybe value stocks maybe the Japanese yen And maybe some actively managed bonds versus passive those could be the portfolio hedges for the modern era And I just thought it was really thoughtful. What were your what were your takeaways?
I thought it was very thoughtful. It took me a minute to get through honestly It's dense, but it was very thoughtful. That was it made sense if we could throw up the first chart here I pulled two from the piece if I could show you two as a summary it would be these two guys So we're looking at expected sources of funding for the AI CapEx build out between 2026 and 2028 So where's the money coming from for all this guy? This is not a pie chart. You're seeing the absolute levels here the $1.5 trillion is coming from equity capital That's the biggest segment of funding and then there's companies take companies taking their cash and plowing it into AI Plus, maybe selling additional stock in the form of a secondary and it's money the company theoretically has right and then So 45% this is not a pie chart But imagine okay 45% is from equity capital and the rest is everything else so private credit investment grade bonds ABS MBS high-yielding loans I have a question for you Josh like when you look at a breakdown of 45% equity capital and the rest being from you know Product credit and debt like is that like a prudent level of debt versus equity, you know is that is that too much debt?
We I can't so I can't answer that because I don't think we've ever seen an opportunity set this large Like it might be the right amount it might turn out that people are under investing like I'm looking at the news that Open AI just made today with their dot product, which is it's gonna be like an enterprise version of Muse So they're actually gonna sell this to their premium business customers before they're gonna release this on regular chat GPT But it's like an incredible increase in capability for AI agents And I guess they're calling them dots and they're saying like these things can reason on their own They don't need to check in with you every second. They'll ask you permission to access things when they need to but like completing multi-step projects in the background Like what what will corporate customers be willing to pay for that not just this year, but for the next 30 years?
I don't know like theoretically could be unlimited So like when we're looking at product lunches like that I don't know what the right amount of debt for companies to take on in order to invest in this technology is What like will mow in five years? I guess well the good thing for the debt holders and John let's get one of these charts and go to the next one The good for the debt holders is that if you look at the credit default swaps on the different bonds for these hyper scalars They are not blowing out. They are flat in some cases. They are actually trading below Hire is worse. This is like golf. Yeah, hi is bad. Okay. You don't want to see a blood
You can see metatry, but it's kind of stabilizing we can turn off And so I think overall the take away of the piece is that investors in outside of equities are getting Exposure to AI even though they might not realize it and as you're thinking about your exposure be aware of that Okay, we're gonna talk about stock market breadth. This is one of the other big topics of the week people are going crazy on this Bread is interesting like most of the time it doesn't matter because it's not an extreme in other direction And obviously people always feel good when the market is at a high and breadth is at or near high Like you'll hear people cite the advanced decline line where they'll try out the equal weight S&P to show that it's not just the max Seven but like a lot of stocks are making highs like there's all different ways to look at breadth and that I know this is your topic, but I actually want to set you up so barons got everybody talking about breadth this weekend and Monday even the non-tech missions they did a piece citing that five stocks have contributed 93% of the S&P 500 gains since July. That's like sort of notable. You can guess what they are
Microsoft is 181 points of the benchmarks 330 point advance since since the end of July meta Apple alphabet and video no shit The percentage of constituents trading above their 200 Average has now fallen from 73% to 51% which is a notable deterioration While the index is like one or two percent off the highs I sort of agree with that and just anecdotally all of you guys if you look at your brokerage accounts You would probably guess that breadth has fallen off to that degree Just by like the number of stocks you have that felt feel like they were green all summer and now they're red and what happened to the great What were they calling it the great broadening which was the theme of the summer? It seems to I was calling it that yeah All right, Matt take take over tell us what's going on. Okay. Well, okay before we get into it and also by the way I'm not here. It's a poo poo the breath right like I get it It's breath has fallen and I acknowledge that but I'm trying to find the nuance in the numbers presents to the audience Show me things that they're not seeing as you're doing what Michael you're doing exactly what Michael would do if he were on the Show tonight. All right. I love it. We need this. Okay. That's big shoes to fill
Alright, so let's first throw up this big new Michael this quote from Michael. So Michael slack me this is when he said hey Jarcid throw this on the show. I want people to know my thought here as we says I love the breath wash outs the bearish case for an S&P catch down is obvious and intuitive but almost every time we've seen Something like this in the last decade. It's been a great buying opportunity. That's the one that's about about it So alright, so Michael is exactly right and I made a joke on our internal slack I said I used to care about bread, but then I realized I like money This is like I like that. Yeah
Well because this is like one of the things one of the most prominent ways the bears have tricked you out of your holdings out of your portfolio Is they've put up these periodically? This happens where five stocks are making highs and everything else is falling and they say you say and the like the Assumption is or what they're trying to convince you is about to happen is it catch down that the index is gonna fall to match What the majority of its constituents are doing but the thing is in the last ten years? It's been the opposite resolution pretty much every time to catch up So the bread metrics fall and everyone gets nervous And then all of a sudden boom like you got a broadening trade and they catch back up to the AI trade and it's like I can't believe I sold stocks because of market internals again So it doesn't mean every single time it works this way forever, but Michael is right this has been history Right, and I'm kind of asking this like rhetorically But if you if you think about what you constantly bring up is like the money has to come from somewhere So if muse launches in the mag 7 rally the money has to come from somewhere
So what are people selling they're selling staples? Why would I want to own Craft Heinz company when I could own Nvidia after a hundred fifty billion dollar buyback selling selling treasuries Right and so to verify Michaels Exuberance we have a tweet from Tom McClellan Okay, and so Michael's right you're looking at new lows in the New York stock in the NIC on the bottom and new lows surge New low surging tends to correspond with S&P 500 bottoms. It's just it's there in the data And that's the opposite right now. It doesn't make sense right?
It's like the beauty of indexing we can talk about it and all show people know It's a bit of indexing the waiting exchange finds a flows. It's uh, it's a really a beautiful thing for investors Back up. I mean this is starting to look scary though I mean the chart is showing three years right or two years like going back to 2024 But it's a big it is a big spike in New York stock exchange new lows and we're gonna I know we get into like what's in that what are this what are the stocks or what are the sectors? We'll do that in a second, but like it's sort of is starting to become notable. Yes, absolutely You can't pass it off. I go it. You can't pass it off people need to be aware of this
Okay, let's talk about where the breath is actually coming from the negative breath And so John if you want to throw up our large cap breath dashboard, okay Here you're seeing all the S&P 500 sectors based on their breath score Okay, this is something that we made in-house internally and so we're showing things like percentages of stocks above different moving averages The percent of percentage of stocks making new highs new lows, etc, etc Bisexual, okay, but where I want you to focus because there's a lot of data here Okay, where I want you to focus is at the bottom here utilities, okay, so utilities three percent like I did that 3% of utilities are trading above the 50 day moving average, all right? Let's throw up next one is staples 27% of stocks within staples are above the 50 day These are horrible metrics breath in these defensive areas is terrible and understand these are defensive sectors, right?
Now, let's go to the top and let's look at tech Okay, this is arguably the most important sector to the market Maybe financials a close second need financials in bull market, but tech has 66% of stocks turning above the 50 day moving average 73% are above the 200 day 10% of these stocks just made new four-week lows So again, I'm not and we get the chart off. I'm not pooping this. I just think that if you dig in it is nuanced Well, it is and chart back on Staples and utilities are not just considered defensive. They're also interest rate sensitive the primary Allure of these stocks at least historically has been their dividend yields and so we talk about higher treasury bond yields representing competition For the stock market. This is the area of the stock market They're competing with the people who say should I I'm making these numbers up?
Should I take a 3% dividend from Johnson and Johnson from that's a pharma should I take a 3% dividend from from a company that sells Catch-up and mustard, right? Or should I take a 5% interest rate from the federal government and so unless you you have reason to believe that you're gonna get a good Total return because you know the the catcher and catch-up and mustard company stock is gonna go up 15% Fuck it. Give me the 5% on the bonds And so I think that partly explains the weakness in Staples and utilities and you didn't show this but the third worst sector is real estate So, you know also zero percent of real estate stocks are above their 50 day This is competition from treasury bonds because real estate is interest rate sensitive and yield Sensitive sector that's the buyers of those stocks historically have been looking for like the return return of capital in the form of interest rate Absolutely, let's look at this differently. Let's look at it over time since September 2025 the S&P 500 expansion of new 52 week
Close, so this is the percentage of stocks within the S&P 500 all 11 sectors and how what percent of those stocks are making new 52 We close so again, this is not nothing There's a recent expansion here But now I want to show you the next chart Which is two of the most offensive sectors in the market and you only have and it's tech and financials and you only have 1% of tech stocks making New 52 week lows you have literally zero financials making new 52 Close, all right, this is so important I'm not like a sector obsessive where like I view the market through the prism of like because It's gotten so hard to categorize a lot of really big and important companies what sectors Tesla belong in I don't really know anymore It was a car company. That's now making robots What like where do you put SpaceX is an industrial is it tech is the communications?
It could be all those things were none of them like so I don't get crazy with sector classification because of how Muddled things have gotten but Matt's point here is key if I told you that That financials and tech have no stocks making 52 week lows Which is what we just showed that should make you feel a lot better about the headline number of the person the overall number of stocks making New lows or the percentage forget about that which stocks we're showing you like the most sensitive important companies to the Growth story for the economy financials and tech there were no like lows in sight it could change We're telling you this is a snapshot right now That's pretty much what you'd want to see if you want to be constructed and stable issue right and we have one more here John can throw up and this is the new lows and utilities and staples so utilities 45% of utilities Docs are making new 52 week lows and 15% of the staples are making new 52 We close I have the names right now here But the idea is if you wanted to get bearish on the market you would probably want to see the stocks in these sectors actually catching Some sort of a bid right now and they're getting hammered and so I'm not like investors are choosing what they want right now
And that's rotation which is bullish Okay, now all right So we did enough coping and explaining away the internals and I agree with all that But I do have to introduce a little bit of negativity here and not that I'm believing in this but this is what people are starting to say and notice and talk about and You know, I think the market intelligence is being able to balance two opposing thoughts in your mind at the same time The conference board put out their consumer confidence survey Which has been falling for years and really is not a great signal for the stock market But it's at extremes like it is something that people are gonna start to take notice of like I don't care about the monthly I want you guys to observe the trend we have just slammed down to a 12 year low the overall index just fell 6.7 points to 81.9 which is the lowest level since 2014 that is reflecting drop This is Axios reflecting drops in both survey respondents assessment of current conditions and they're outlook for the future They are referencing prices in the economy again the high cost of goods and services oil and gas in particular
Which which hit new highs and There you know, then they start talking about politics and trade and employment, you know, they're talking about Palestine and all kind of shit That's nothing to do with anything but the fact remains. This is a horrible moment for consumer confidence And it could change maybe like the midterms come and go and all the political stuff comes down and people feel a little bit better Because the labor picture is great. It really I know that not everybody is happy, but like for the most part this long into an expansion It's pretty good So it's it's a lot of headline stuff that is not economic But it's making people just feel pessimistic and I mentioned where or we don't have to do that whole thing again But basically the setup here Matt is you have narrowing breadth which we just spent 20 minutes on You have an air pocket of a few weeks before earning season, right?
We're gonna get those great reports from KLA and lamb research and all the stuff that we're looking forward to it's gonna be a minute Not to mention you have the typical October surprise seasonality September is not a great month for stocks October can be a good month Historically, but like seasonally, but it's also been a month where like crazy things have happened without rehashing the whole litany of 1929 and 1987 And the TARP votes during the financial crisis and Lehman Brothers and all this stuff Like it's you know people have like a little bit of muscle memory around October being a wild time I want to show you the breadth from the perspective of Barclays. They have this quantitative team They call them the bets guys and I thought this was interesting So they're showing similar to you cumulary of NYSE bread falling by fifty three hundred minus fifty three hundred over the past 21 trading days They screened for instances in history since 2004 where this has happened and they point out that the S&P on average has fallen 9.6% at the same time today the S&P has done nothing the only precedent to today is October 2014
Which saw a similar negative price breadth divergence and that resulted in the S&P falling by more than 5% in the subsequent week Barclays is writing this research for people that are putting on trades that they are looking for immediate gratification for so just giving you that context The second chart I'll have you react after this They're showing the combined New York Stock Exchange and NASDAQ stocks trading at a 52 high versus those trading at a 52 week low Is at the same level as the Nadir of the Iran war back in March This is when there was like Max Fier about the in the attack on Iran for context. It's 1990 SPX the S&P has currently fallen by an average of 670 basis points when this has been the case historically if we screen for instances Where the S&P was unchanged with this number of stocks making a 52 week low the average peak to trough to an hour over the next 21 days is Minus 520 basis points. So historically this does lead to an eventual drop in the market. What do you think about that?
Yeah, I think that's it's a historical analog. We are also living through a period where this is the Teflon market But truly what is gonna bring stocks down and you know like even this there's literally like you said 90% Since what was it June have been contributed by the mag 7th the rally and the S&P 500. Yeah, that's crazy That's nuts like I want to call them that first second. That's crazy But it truly is like if you show me just if you show me just throw back up John just the red line on this chart So just the breath I would guess that the market is in a 20% drawdown. Yeah, and it's what it's consistent That's what it's consistent with a minimum of seven percent from the highs and usually worse and it's just it hasn't happened yet You asked me like what stocks are even going down or I mean like right off the top of my head These are like very specific stories mortgage stocks anything related to like borrowing to buy a house of course Mortgage weight to it seven percent on their way to eight. Well, of course those stocks are down
Right share again very specific uber and lift look like shit. They're both down year to date They're down over 12 months. These are pretty substantial drawdowns in these stocks. I'm personally long uber So I'm feeling it myself But like when you look at like what stocks are at the lows in addition to the staples and utilities It's explicable. It's not like JP Morgan and Wells Fargo are making 52 week lows like that's such a different story to me I'm looking at builder first source right now home builder down 45% year to date. Yeah, it's like it also
We were talking about lower rates before wash the entire narrative has flipped right we're talking about there's gonna be this pressure How many cuts straight how many cuts? Yeah, but also now imagine if we had reality at that time and you knew that the picture was gonna flip and it was now cuts You wouldn't you guess that the market would be down 15% I would have it's okay even with earnings Yeah, so you're right the correct interpretation is Look how many things have gone wrong or flipped and look at how stocks are acting and the right move is to take your signal from the resilience The market not extrapolate out all these negative stories like how much worse can they get but I'm gonna throw one more on you Or just postpone this IPO not to any specific not like I will do it tomorrow like that I think it's a $11 billion evaluation or something and they were gonna go this week and I don't actually even know what the valuation was. Yeah, 11 billion was last year's funding round So I guess they were hoping for at least somewhere over that like some premium to the last funding round Here's the journal or is the black ring that people wear that reports like your health metrics back to your phone and I
Don't like dislike the product. I don't know anything about it I you know is it so high likelihood of me wearing a fucking onion ring around my finger than an aura Personally, but don't don't take that to mean anything. I want to I want to just say first of all rooting for it I hope it goes public. I will not be buying this. I'm doing this a long time I have never seen anyone make money from buying a health tech Kind of gadget IPO. It just it's just like it just it's a especially when it's one product, but um
You have Peloton. You have GoPro. You have Fit Soul cycle I was here for all of it. They all go to zero right big like GoPro effectively went to zero actually So it go pros a good case in point not that it's a direct comparison to aura But it's like for outdoor like physical activity enthusiasts revenue peaked in 2015 at 1.6 billion and it got in public in 2013 it was a disaster from day one open that it opened that a ridiculous premium at like a hundred went to basically zero Revenue peaked in 2015 a year after it went public at 1.6 billion then it hits 651 million last year its stock price went from 50 or 60 in mid 2015 to 60 cents on September 1st this year Announced they're merging with an optical photonics company of course They're getting a dollar 14 in cash for that stock and a tiny amount of equity in the new company Like that's how these things end. We're not gonna talk about Peloton and Fitbit and all this bullshit
I was at the exchange though. Yeah, I guess we are I was at the exchange when Fitbit went public they erected a giant Trojan horse sized treadmill in front of the New York Stock Exchange on Broad Street and they had like 50 guys running on it with Fitbits on zero But you know I mean like it's now 95% since it IP out I don't see a town sports, which was like New York sports club Philadelphia sports club like gone Bally's total fitness. Goodbye. Soul cycle is a joke that tells itself weight watchers on its weight is zero in the age of chat GPT Let me show you this chart. Here's planet fitness. I'm not gonna say it's zero
I don't know anything about the company. I just know the better bets are Americans staying Sedentary and fat like the better long-term bet is McDonald's and Altria and Netflix To me like those are those are the better bets. So any any finished believe thoughts I mean I do see a lot of people wearing these rings I also saw a lot of people on the Peloton bikes during COVID and we saw that one sure so so like I think from a human perspective It's very easy to believe in the story, but they're saying that they're saying that in the chat Lily is the better bet GLP one is the better. Yep. Yeah, yeah, I get by that Yeah, and I think what's stopping Apple from doing this, you know meta Is gonna have a is gonna have an amulet on your on around your neck that you can talk into whatever the muse accessory is What I'm saying is that people are thinking about hardware and thinking about wearables Sorry think about wearables at these companies and let's say that you know Peloton started having some success alpha would probably wipe them out Right. I spent four hours looking at life we 60 so we pay we pay for this in mind. I have to do it
Yeah, yeah Yeah, I know my kids are every second of the day like unless they're throwing their phone in the back of somebody's pickup truck And then you know like in the movies like right and you know their speed right like what's the level do it? I might be right. I know how fast they're going in the car when their idiot friends pick them up I know what time they get home. I know if they're in a car or on a train like that I'll probably pay for that till they're 40 years old because that's just we're part of this helicopter repairt generation Yeah, I spent all this time looking at the stock I just there's no escape from the idea that Apple just says what is bullshit we can do that like I can't escape that Conclusions so I can't I can't afford all right. Let's do your desert island charts I can't wait to see what these are tell people tell people what you mean by that and then yeah Yeah, let me explain that exhibit a in general in general. Okay. Yeah, let me explain what I mean by this
So if you put me into a cave on a remote island, okay, and you gave me a ticker tape He said I'm gonna let you out in 20 years. You could look at five charts for the rest of your life What would you need the charts for you on a desert island like what I need to be reminded every day when the So you have control of your bro, but you can't where you are I can just send it in this area Okay, I got it. I can tell and I can hit by and get back in Okay, so these are the charts that I would show to myself and constantly remind myself Okay, and you know we can talk about why that's important for clients to see in that perspective But first I just want to rip through these John because we have five here so first This is a chart that shows the S&P 500 price back to 1950 and I'm shading 20% and 5% drawdowns when you look at this chart Almost the entire chart is shaded so you are going through constant pain or the tax an equity investor It is non-stop. So if you feel it it is normal 61% of the time the S&P 500 is in a 5% drawdown But I'll say that one more time Other time the S&P 500 is 5% or more off of its all-time eyes and people when you're in that 5% drawdown number one
They think it's about to be 10 and number two. They act like it's abnormal like what's going on? What's wrong? And I mean the last 15 years have conditioned us to be even worse in that regard because the market doesn't make a new high Every month it's like something something's something's going wrong like something's about to happen I think there's a lot of that you can see it in the sentiment numbers and how they've changed like we're seeing AII bears at levels consistent with like 2008 lows. It's kind of broken. All right next chart. Yep
All right, so this this is an idea from Michael and his point was chart yet he said everyone wants to show the chart of how you extend your time horizon and how that leads to the The like the odds of you gaining and money. Yeah, making money this flips it and says okay over five year periods What's the likelihood of you experiencing a bear market and the odds of experiencing a bear market over all 15 year periods is a hundred percent? So you have to set the precedent with your clients for yourself that we are going to experience pain. I love this put it back up So like in any given rolling three year period back to 1950 the odds of experiencing a bear market Which we define as the market falling 20% or more was only 58% was like a coin flip So for every three year period for every five year period at 78% every ten year period you have a 95% Chance of experiencing a bear market. So right. This is such a great idea
It flips the idea of extending your holding period extends the odds of you making money. Yes, it does But it also extends the odds of you experiencing something really nasty get over it You're definitely gonna be an investor for more than 15 15 years if you're like most people hopefully if your health holds up You could see five or six consequential bear markets in a lifetime and it would not at all be abnormal So yes, the longer you extend your time horizon the more money you'll make and also the more shit you have to put up with along the way It's great chart. Right. You got another one. Okay next chart. Yep. Here we go. So Josh
I heard you on CNBC. You were talking about the relationships in finance and how they're almost no short relationships called iron iron laws of finance there are iron laws of finance there's almost none and Here's one that we can almost point to that breaks that law and we're looking at on the x-axis the 10 year starting yield and on the y-axis The actual 10 year forward annualized return from those given yields if you have a high starting yield on a u.s. Treasury There is almost certainty not 100 percent, but almost certainty you are going to experience an actual return in the ballpark of that starting yield Wow, so right so this is the point is like you can't really set your watch by anything in the investment mark like nothing works P. We should it doesn't work like valuations in general you can't time the market on or guess at what your turn is gonna Be that doesn't work. It's like so much has changed over the years Can't bet on like winning mutual fund managers because there's no persistence of performance that doesn't work with nothing works This like almost always works
Just like as a starting point for well how much am I actually gonna make if I allocate if I allocate to bonds at today's prevailing interest rates What other conclusion can you do from this? I think what you could look at is you could look at 10 year yield today And you could say well, where do we land on the regression line? Which is just pretty much away of saying like that's your blue dot? Yeah, that's the blue dot there and the blue dot there is saying look This is kind of where we are and it's in the ball part of 6% Right, which again explains so much about which stocks are not working right now in the market because this is your this is your alternative Right, I'm gonna fly the next one. Okay, here we go. So here we're looking at
The relationship between the S&P 500 return year over year and the 12 month forward earnings growth year over year And so what you see here is that stocks historically follow earnings and it's not always perfect And as you can see now, there is a little bit of divergence here We can extract whatever conclusions we want the idea is that forward earnings have grown 36% 36.7% year over year and the S&P 500 is up 17.9% year over year So forward earnings are more than doubling the actual stock market return over the past year, which is incredible because I think most people would guess It's the opposite They would guess that it's the opposite and then when they see the stat they would say well the forward earnings are hypothetical They're you know, it's forward earnings, but I'm just you know if you go back It the forward earnings tend to be within 1% of the actuals. It's the highest likelihood chance I love that so that's a good reminder if you want a desert island like what are we actually betting on here?
We're betting that prices will rise because earnings will rise and they go hand in hand right good We got one more yeah last one guys So here we got the S&P 500 annualized return going back to 1950 And it's if you stay invested fully you miss the best day of every year the best five days of every year in the best ten days of every Year I just want you to focus on the bar all the way to the right if you miss the best ten days of every year obviously No, it has perfect foresight, but just theoretically your annualized return goes to negative 12% if you annual From plus a from plus 8.4 to negative 12 just by missing the ten best days of each year. That's sick So people these best yes, sorry I was to say people have been using some version of this chart since I got into the business to convince clients to stay the course I like your version of it because you're keeping it much more simple than a lot of it with you know 50 different bars and diamonds and trend lines like you're just like guys. This is it This is why you can't afford to swing in and out of the markets You could miss the whole point of taking risks to begin with
Something that I've learned in making charts And it's probably the number one lesson that I've had to kind of come to the conclusion with is that if you if you Overcomplicate things people get annoyed they get frustrated. It's about simplifying the concept It's not about looking smart. It's about getting someone to look at the chart and say I actually get it You connect the dots for them. You have taught them something that is going to hopefully in the future benefit them financially And so it's about simplifying Matt the crowd is going wild for you I wish we could hear the sound of their applause because it would be rapturous. Let's tell people how they can follow you There we go. Thank you folks sure kid Matt ladies and gentlemen
I want to tell people before we get into we're gonna do a mystery chart and then I'll make the case and we'll get out of here But before we do that I want to tell people how they can follow you personally and How financial advisors who are watching or listening can check out exhibit a which is your company? Yeah, so this is our our landing page here exhibit a forward vice calm if you are an RA with let's say one to ten advisors And you don't really have a research team. There's two or three CSAs there You want to look extremely professional in front of clients and prospects delivering a plus first impression? Just give it a try. It's perfect. We're at the end of the quarter right now. You can come in we have over 200 branded charts
They update every single day Ben Carlson's doing eight monthly reports and four quarterly market and economic updates for our clients Completely ghost ran. It's like literally having our content team and me as your analyst for a few hundred bucks a month It's unbelievable like most most there's 20,000 firms in the country most of them Don't even have one research person and their presentations to the clients look like shit No offense like they're doing what we used to do They're grabbing charts from ten different firms and putting them in an email and hitting send like you're building these charts as templates Where they can use their corporate colors their own logo? The compliance stuff is already baked into it So they don't have to worry about am I allowed to show a chart that says this and people can pick and choose I don't to send 200 charts the client might just say I want to send this one chart because it'll resonate with my clients So it's an awesome product and you're active on Twitter LinkedIn. What do you do? Yeah, my blog is chart kid Matt calm I take some of the in the weeds charts that are a little bit past the advice what the advisor would show to clients And I post them there. I talk about them. I write I'm trying to be like you guys honestly
So that's what I'm doing. Dude you absolutely question on the show tonight. Let's do Make the case this will this will be just a reminder about some of the stuff we said about utilities Put up the price chart. This is the state street utility select sector spider ETF or XLU It's sort of shorthand for how the sector is doing. I'm gonna tell you I will not buy this dip I don't like it. I don't like what it represents. I don't like how it acts
It's in no man's land and I'll just point out a couple of things But so so to make the case I'm making is not every dip is viable I don't like this one I think it best you have dead money and at worst this could get way worse when you look at utilities right now They've pulled back a lot this year You might even call it cheap because it's a 17.3 PE ratio and the five-year average has been almost 23 That would be short-sighted if you zoom out to a true long-term 10-year historical average on the PE ratio for the utility sector It's more like 12 so 17 is cheaper than 22, but historically not a meaningful discount We had like a structurally distorted multiple in the space because of AI data center narrative and We were treating regulated utilities like they could be growth stocks If you buy this dip you're basically paying a 36% premium over the historical long-term PE But it really does not look like that story isn't tapped or going to hold up The other problem here is the trailing dividend yield is only 2.94% Historically people before AI data center power people bought these stocks for the yield and as we've said 85 different ways the 10-year
Treasuries note is now at five and a quarter percent So I think the smart money is gonna opt for that rather than the risk of a utility delivering the capital return access to that So I think it's a it's a it's a dip that you want to avoid rather than take advantage of maybe if it gets much cheaper We visit that idea. I only have one utility name in the firm's Porterhouse concentrated momentum strategy So out of the I don't know four dollars in stocks in this in this industry I have one and it looks like it's about to get bounced out anyway on our next we balance put this off This is energy guys. Did you know what I said? This is the best looking? Tell me in the market for in order for it to make Porterhouse and since it got into the end that Into the strategy that we run it's look like shit ever since and I think we're about to kick it unless something radically changes So if that's the best looking name in the group it should tell you a little bit about how the rest of them look technically So they're not she even the charts are pointing down into the right. So that's that's me making that case
Any push back there or you with me? What do you think? I'm with you? Yeah, you don't I mean with heels rising You don't want to you don't want to do it use this. Yeah, all right. You got a mystery chart. I'm told I do have a mystery chart
I throw it up. All right. All right. All right. All right. Hold on. I can get one hit at least
Okay, it's gonna be a good hint. This industry got destroyed in COVID Okay, is it hold on hold on we've talked about it before on the show tonight Michael owns it we've taught them on the show Michael owns it industry got destroyed in COVID. It's a stock or it's a stock I have one okay. We had to see on the show. Oh, it's I'm Max. There it is. It's kid loves Michael Bannock
This is Michael's only long-term stock holding personally and all right good one I should have got when you said that destroyed during COVID I was thinking like after COVID when they beat up all the the stay-at-home stocks, but you're you mean like during COVID like yeah I guess yeah, I should have been more specific like no one to stay there in COVID right? I inferred incorrectly all right Truck it Matt you question tonight. Thank you so much guys. I want to let you know Despite the fact Michael's away. There will absolutely be a new animal spirits tomorrow on all podcast platforms and right here on the compound channel on YouTube Make sure you check out ask the compound as well as an all-new episode the compound and friends dropping at the end of the week We are here for you. We are dropping bombs all day long on all channels. Keep it locked. We'll talk to you soon
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