B (3:55)

Yeah, I think that's a great point because a lot of the, let's say the selling it hasn't necessarily left the market because the equal weight S and P is still doing pretty solid. It's about flat for the year but it's beating the market cap weight. Right. And it's not being dragged down by these big tech stocks. Is this, let's say this rotation story, it sounds like you're paying attention pretty close to it. Is this just going to be the thing that carries the market this year? Like how are you thinking through. Okay, great rotation, top heavy mag 7. Like how are you thinking about that?

C (4:30)

I, I'm thinking about it in terms of how long would this last? Will this last four? Is there a big shock around the corner? And every time we kind of sense as if it might be there, private credit kind of being one of the many examples as of late that kind of made a lot of white knuckling for investors kind of here into the close the last few weeks, even that seems to be relatively short lived. Not that we're out of the woods by, by any means on that, but at least in terms of this year, I come back to the midterm election cycle. I think of the Stock Traders Almanac from Yale Hirsch now written by, by Jeff Hirsch. That kind of shows this is historically the choppiest, the most difficult part of the four year cycle because investors and really the American people just have no sense exactly on how the midterm elections will go. But then that does set up the sweet spot to the four year cycle which is once the dust settles after a very difficult midterm election cycle, that sort of puts the writing on the wall for the next two years between now and the next general election. And that can be a very, very good time for stocks. So obviously it's anyone's guess if it continues to be the mega cap tech that does the heavy lifting or if it's more of a rotating play, or if financials which have been really beaten down, the banks come roaring back to life and they start to take the lead. But outside of some anomalous crisis or something not on our radar right now, it's hard to imagine it doesn't continue. I'm not saying another 20% year in the S&P 500, but I think it's still modestly bullish. Most of the calls on Wall street to see maybe another 8% or so off these current levels.

B (6:05)

So I think on average a midterm year sees about a 4% gain in the S&P 500, which is lower than about the 10% regular year. What other, let's say political obstacles or political tailwinds, headwinds are you looking at right now?

C (6:24)

Good question. Well, this is from my years of covering of politics. I was a White House reporter and a Capitol Hill reporter. There is something uniquely, uniquely challenging about a Trump presidency and that I watched the other party, in this case the Democrats be really, really not willing to work with him. Whereas Usually when I've covered other presidencies like Obama or Biden, et cetera, there's some willingness for the other party to, from time to time put, put disagreements to the side. That may still happen. You know, I think there are some good faith, bipartisan, believe it or not, efforts to be done. But obviously on the lens of politics, the White House right now is putting a timeline to say, okay, we'll wrap up the Iran conflict in a couple of weeks. That's a great projection, that's a great hope. But this could be a far more long running challenge that, God forbid, could go on for years. Like we've seen previous geopolitical. I mean that's a, that would be a significant headwind and a significant challenge. Yeah. And then, you know, there's a lot of optimism over, over in D.C. that like they'll, they'll, people are, it's just sort of taken for, for granted like, oh, we'll pass the Clarity act, you know, in a midterm election year. Or the President wants to pass something called the Save America act, which is a fundamental difference to how we vote in our federal elections. And he just kind of wants to get it done overnight. And you just never know for a president like this how he may react if he doesn't get his way, you know, and issuing blanket tariffs and other things that could roil the market. So it's the unpredictability that I think up till now investors have done a nice job kind of sidestepping, but really anything could happen at any given time and, and really serves a significant challenge to everyone.

B (8:14)

Well, my, my general sense, and not just under President Trump, but any election or President gridlock is good for markets generally. I think it's, if you know there's going to be pushback politically, then less can get done. So it's more certainty for markets. Is that like, am I kind of thinking through that the right way under this president?

C (8:39)

Yeah, I think so for sure. You know, the overwhelming consensus, I'm not even talking about the prediction markets. I just think in general it's sort of assumed at this point Democrats will win back the House. The Senate's a more difficult map for November because even though Republicans are playing defense in more of the states, in the Senate, the toss up races tend to slightly favor the gop. But even if Democrats take back the House, that means there's much less of a chance for both sides of Pennsylvania Avenue to work together to pass new onerous regulations, etc. That's kind of the old school thought on it, which I think is oftentimes why that sets up to go back to the Stock Traders Almanac, the sweet spot of the four year cycles, because typically after a midterm election, the incumbent gets shellacked. That was the famous word that President Obama used after I think it was the 2010 midterms, like we got shellacked out there. And so you have the. The pendulum swings back and forth with the American electorate and that gridlock means that it's much less likely that things will get done. That works against the interest in the market and the status quo can stay for a while. And that gives at least investors that sense of calm and confidence. That might not be the exact arrangement in politics that they want, but at least they know what they're dealing with until the next general election.

A (9:54)

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B (11:01)

So, okay, let me ask you about the AI trade here. We touched on it a bit with the negative mag seven start the year, but right now we've seen this pretty severe software sell off and a lot of that has come with fears about AI not being a bubble, but AI being so good that maybe it starts taking out entire industries. You're talking to a lot of investors every day. What's your read on this outlook here?

C (11:29)

Yeah, it was amazing that these are so many of the same conversations that brought us to the all time highs. And it's like, no, wait a minute, maybe this is actually not a good thing. Maybe it's so good that now we have to question what other parts of the market are significantly weaker relative to AI. I think everyone's just, you know, I think for the most part, much like you people, I talk with analysts, experts say, you know, this could be short term pain. We really have to wait and see. And we don't want to make knee jerk reactions in the short term or disproportionately make all these wild changes to our holdings or our portfolio or be dramatic because you don't want to miss out on that next potential run. It's been a fascinating story though to cover and it's been sort of rolling, right. I remember the phrase like rolling recession we were talking about a few years ago. This kind of feels like a version of that to me where it's like private credit got hit and then it was this sector and then it was that sector. It's like, which part? What's going to be the flavor of the day where the narrative is AI is absolutely throttling this basket of stocks right now and it's been indiscriminate selling across the board and then you kind of wait and see kind of as the dust settles if the damage was really that bad. So it has felt like deep seek with teeth has been the phrase that I've used. Remember that now infamous deep sea sell off which so roiled the markets, but in the scheme of things was pretty short lived. It was like one really bad day. Maybe it transferred over into, you know, a few days over a week. But this is now really had that deep seek feel, but now has really roiled on for the better part of I guess now over a month, at least six weeks or so.

B (13:00)

So I guess this means the AI bubble talk is dead, right?

C (13:04)

Is AI a bubble that, that talk? Yeah, I guess so. I, I mean, I don't know if it's dead dead. You know, just wait a few more weeks and then we'll be back to what's old. What old narratives we used to talk about. We'll be back with in, in full force. But yeah, it's been, it's been a really fascinating one though to, to watch play itself out. And I mean I, you know, I'm not so into the weeds of every little new AI development that's not my foremost beats. But every time we took around, you know, and you look at the latest iterations on Twitter or social media like, oh wow, that is an incredibly impressive new suite. That AI tool just rolled out. I didn't know, I don't know if I, if I'm supposed to be impressed or be horrified for what the new AI LED future looks like, huh?

B (13:46)

I mean, I, I will say I've been using a lot of these tools. I try to test the new ones as they come out, figure out what I could actually implement and what might be, let's say, outside my lane.

C (13:58)

Yeah.

B (13:59)

I have yet to try one that hasn't blown me away, honestly.

C (14:03)

Like, that hasn't blown you away.

B (14:05)

Everything that you see go viral on Twitter, that is people talking about, okay, this thing is going to take jobs because it's so effective. You know, a new rollout in Claude, let's say I've been trying to keep up as best I can. Everything is works like that. That's my broad takeaway. Everything works so well. And some days I even think, wow, I think I'm about to be automated into oblivion here in the next six months. Because everything like a podcast, you can create an AI generated podcast. You know, you can create all these different media properties and media verticals. It's so difficult to imagine this slowing down. And also the people that say, oh, it hallucinates or it's making mistakes, this is the worst it'll ever be. So these tools are only get better and like in three years, you don't think that the mistakes will shrink.

C (15:00)

Sure.

B (15:01)

Like, so that, that's sort of. I've been not on the AI bubble debate for a while. Like I've been very much on the record saying this is not a bubble because these tools are real, these companies are extremely profitable. Swivel pushed back on a lot of people over the last year or so. But now we've really swung into more people coming to terms with AI might actually eat everything, bro.

C (15:30)

It's going to be crazy one year from now when the AI agent versions of Phil Rosen and JD Durkin sit down here to have the same conversation. And it's not you and me. And also they do it instantaneously in like 50 languages. And then it goes out across social media and people are like, damn. Wow, that was really good Mandarin, you guys. I didn't know Phil and jd you guys are super savvy with Mandarin. But you know, I've wondered to what degree not, not to get too like, you know, self introspective here. But I wonder. I'm like, oh yeah, I think my job is recently insulated from AI takeover. And then the more I think about it or I see these other developments, like, oh no, is it is like on air broadcast journalism, content creation, you know, because on the one hand, we've got the arguments not to make it too much about ourselves, but everyone's sort of a content creator in the game. So on the one hand there's, well, well, people crave authenticity and they want the actual human storytelling. They're always going to crave that as AI takes over. But on the other hand, it's kind of like AI has already kind of shown it's much more of a disruptive force in a lot of ways than people had previously expected. So I'm sort of still on the fence about whether or not it's too wildly disruptive. Time will tell for you and me.

B (16:37)

Okay, so let me, let me ask you about this then. Josh Brown had this new word for. It's called Halo. Have you heard of this? No, it's. I see. I'm bringing it up and I'm going to butcher it. Something about companies that cannot be disrupted. I think one thing would be like Walmart or Costco that has a low obsolescence. The first half of the acronym is. It's not, it's escaping me right now, but essentially he's pointing to these physical companies that have high physical presence and like a lot of real estate and property and things that cannot be disrupted. Have you had conversations about this? I mean, I'm surprised that this word hasn't come up.

C (17:24)

Yeah. Now that you're saying it, I could picture it on like a CNBC pro headline as of late. The Halo acronym attributed to Josh. But I, but I, I can't say I, I dug into. I mean, it sounds to me like, I don't, I never want to say a stock is recession proof, but it sounds to me like you're describing very defensive, maybe dividend plane safe stocks like a Walmart, a Coca Cola. What are the names you look for to outperform during your risk off days when money is fleeing consumer discretionary and it's fleeing the technology names and it's fleeing the AI names for a session or a few sessions on Wall Street. Sounds to me like maybe those are some of those, some of those companies. But I always love that idea of, of something being a company being recession proof. I don't really know that such a thing exists. But at the top of that list, as I've had this conversation for many years, people tend to go wmt. They tend to go Walmart. Given its geographic footprint, given the fact that it's the biggest employer in the United States outside of the federal government. I mean, what an absolute beast.

B (18:26)

I used to know that A Walmart,

C (18:28)

oh yeah, outside of the federal government employs the most Americans. Walmart's number two and then number three on that list is like a far, far cry from Walmart. Also something like 90% of Americans live within 10 miles of a Walmart distribution center. That's wild.

B (18:42)

Pretty recession that it has.

C (18:43)

I would think so. So maybe that, that's kind of so the halo phenomenon.

B (18:47)

I think the one way to look at this in sector terms would be consumer staples have done very well this year. I think the sector is up about 10%. It's one of the best performing sectors and that's you know, the Walmart, the Costco, Coca Cola, Pepsi, I I think is in there. What other corners of the market are you looking at as let's say an opportunity?

C (19:10)

I mean one sector of stocks, kind of like a basket that I've looked at and it's not just in 2026 but I first started noticing their outperformance maybe six to eight months ago. I call them the dollar discounters. And these are stocks like Dollar Tree, Dollar General, Ollie's Bargain, Casey's General five and below. A lot of them are household names, some that are a little bit more regionalized. But this is back before we struck Iran. The US got involved with Iran, which I think is like the most dominating narrative. But this kind of goes back to we were talking a lot about K shaped consumer pullback and discretionary spending. As the average American consumer begins to feel a lot more uncertain about his or her economic situation, where are the places they are most willing to value shop? Are they willing to value shop down right in a place like Walmart says, excuse me, Walmart says we've got more six figure income earning American shopping for their essentials at Walmart day to day than the company's ever seen in history. And we've seen a lot of the same effect happen for a lot of these dollar discounters. So they have knocked the absolute cover off the ball in terms of year to date and 52 week performance in terms of their stocks, some of them are over over a hundred percent. And so, you know, all things not quite being equal, you take everything with a grain of salt. But put up your average basket of tech stocks, 52 week performance. I don't mean like the sand discs and the lamb, I mean that's their, that's their way on, you know, vertical. But put up your average basket of tech stocks up against these household dollar discounters and it's not even close in terms of the outperformance. And that to me is like, even though we're talking a lot more about geopolitics in the midterms, and we kind of, you know, we tend to have focus for like only a handful of narratives or storylines at a time, I don't want to ever forget a distressed US consumer. How does the average American feel about their ability to put food on their table, to confidently get a new job if they needed to get a new job and take care of their essentials? I don't feel like we're talking as much right now about it as we were. But to me, those dollar discounter stocks really tell that story.

A (21:17)

Real quick. We'll get right back to the interview. Just wanted to pop in and say if you like this content, I write a newsletter every single morning called Opening Bell Daily. I cover macro, the stock market, asset prices, why things are going up, why they're going down. And if you want to get that

B (21:33)

for free, you can sign up at

A (21:34)

the link in the description.

B (21:36)

Let's get back to the interview. Yeah, I don't hear too much about that basket, honestly, or even I don't know if it's a custom basket or one that you just pay attention to. Is that, that, I mean, that's probably the expression in the market of a worsening K shaped economy. Is that, is that right?

C (21:54)

Worse than a K shaped economy?

B (21:55)

Worsening.

C (21:56)

Oh, a worsening K shaped economy, yeah. Oh yeah, I would think so. I mean, you can't forget we're still in a relatively elevated interest rate environment as well. So we still have a relative continuation of the storyline of the difference between the haves and the have nots, where if you own asset accruing or interest accruing assets, you're, you're still crushing it. But if you are on the flip side of that equation and you're feeling the weight of those borrowing costs, that only is going to make things that much more difficult. And we know on the macro side, we don't have the job seekers market today that we had two, three years ago where if you want a job, you felt like you could reasonably get one, you could hold out for better, better benefits, for higher pay, et cetera. And that equation has kind of flipped. So just how distressed the average American family or far too many American families have. You know, it's one part of Wall street we, you know, because, because here in Wall street and here in New York, we tend to talk about what's high flying, what's making money, rightfully so. But Wall street is not Main Street. And the US Economy is not the stock market. There are correlations. But one thing I'm always trying to do in my career, Phil, is just always sort of come back and always type of, kind of remember what this means for the average person who's out there and not necessarily here in New York City.

B (23:19)

Well, I think AI is probably the best example we have of that today. AI is going to make earnings go up probably, and all these companies are getting more and more profitable. But a big piece of that story is that they're going to shrink their labor forces, most likely. Right. So that everyday American might be losing their job even as corporate America is getting bigger and bigger as far as their balance sheets, their margins, things like that. So, yeah, this AI, the social fabric angle of the AI story is something that we certainly don't talk about enough. So, J.D. if I had to put you on the spot here, I think you're bullish for the rest of the year. But if I had to make you make the bear case, what has to break this year for, let's say, markets

C (24:06)

to go down, man, biggest thing on my radar right now, $200 oil. I mean, it's a lot more speculative right now, but if you look at these big spikes we've had where in the past we have had oil go north of 100 for a sustained period of time, oil hitting 147, we're talking about the possibility of $200 oil if Iran digs in its heels and prevents passage through the Strait of Hormuz, thereby really limiting the export power of Saudi Arabia, of Kuwait, of Iraq, of Bahrain, of Qatar, of all of those nations. And this becomes a much more protracted challenge. You're talking about a national potential, national average gallon of gasoline back over $5 a barrel for a sustained period of time around, which would really only be the second time in history that we've had that at that level. And that's the national. So you go to states like California, they're already paying that. Plus that to me would be like the. One of the biggest forms of like sticker shock, inflationary or attacks on the US consumer that I think could really be like the biggest headwind. And I think actually has a. I don't know what percentage odds it has of happening, but has maybe a better than feared chance of happening. And then ultimately I think on the AI trade, does the durability of the AI, all the data center spend, do cracks in that foundation continue to show that we're not trickling down to utilities, that the real estate thesis did not hold the way that people had wanted to. And now suddenly you have a broken down market that's in search of new leadership.

B (25:41)

Huh? Those are, I mean, yeah, I think those are two great, I don't know, risk situations to be monitoring. JD where can people find, find and

C (25:51)

follow your work cross social medias? Durkin I always feel so goofy doing the handle thing, but that's the reality we're in. I'm also hosting the daily closing bell show at the New York Stock Exchange every day called Taking Stock. It's a high flying, totally chaotic 30 minutes down on the trading floor of the big board. The great Phil Rosen, one of our great weekly guests. And I'm really proud of it, man. I'm really proud of that show because the New York Stock Exchange has never done anything quite like it. And it's in many ways the most difficult thing I've done in my broadcast career. But I love doing it, so I hope people check it out.

B (26:26)

They absolutely will. It is a fantastic show and so I'm honored to have you on full signal today, but we'll have to do it again soon. Thank you so much.

C (26:34)

Of course. Thanks, Phil.