Does the Stock Market Know Something We Don’t?

Summary

Podcast Summary: The Compound and Friends – "Does the Stock Market Know Something We Don’t?"

Podcast Information:

• Title: The Compound and Friends
• Host/Author: The Compound (Downtown Josh Brown, Michael Batnick, and rotation of friends)
• Description: Join Downtown Josh Brown, Michael Batnick, and a rotation of their friends every Tuesday and Friday for expert insight and hot takes on the latest in business and investing.
• Episode: Does the Stock Market Know Something We Don’t?
• Release Date: August 15, 2025

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Introduction: Setting the Stage

The episode kicks off with light-hearted banter among the hosts, Michael Batnick, Todd Sohn, and Shannon Sokosha, as they exchange humorous anecdotes and personal updates. This casual start sets a welcoming tone before delving into more substantive discussions about the current state of the stock market.

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1. Understanding the Stock Market Surge

Michael Batnick initiates the core discussion by referencing an article from The Atlantic with the provocative headline, "Does the Stock Market Know Something We Don’t?" He posits that despite global uncertainties, a deeper analysis reveals that the stock market’s rise is driven by fundamental factors rather than obscure insider knowledge.

Key Points:

• Tariff Uncertainty: Most tariff-related uncertainties have been resolved, reducing volatility from trade policies.
• Earnings Performance: Companies have consistently outperformed earnings expectations, indicating robust financial health.
• Rate Cuts and Inflation: Anticipation of Federal Reserve rate cuts and manageable inflation levels support market growth.

Notable Quote:

Michael Batnick [09:01]: "But I don't think it's that complicated if we zoom out."

Shannon Sokosha echoes this sentiment, emphasizing corporate resilience and adaptability amidst previous economic challenges, such as the Global Financial Crisis (GFC) and the COVID-19 pandemic.

Notable Quote:

Shannon Sokosha [12:40]: "We were underappreciating corporate America's ability to figure stuff out."

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2. Market Sentiment and Diverse Participants

The conversation shifts to understanding market sentiment and the diversity of market participants. Todd Sohn highlights the surge in equity ETF inflows, noting that large-cap equity ETFs are attracting significant daily investments, hinting at sustained bullish sentiment.

Key Points:

• Retail vs. Institutional Investors: The market comprises various participants, from speculative retail traders to more conservative institutional investors.
• Sentiment Indicators: Data from platforms like Schwab indicate a tempered sentiment among institutional investors, contrasting with the exuberance seen in retail trading activities.

Notable Quote:

Todd Sohn [14:17]: "And so if you are fully invested or where you want to be, you're right. Who cares? Go live your life. Enjoy the gains."

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3. The Crypto Conundrum and ETF Dynamics

The hosts delve into the state of cryptocurrency within investment portfolios. Michael Batnick expresses skepticism about widespread crypto adoption, noting that true ownership remains limited despite price surges.

Key Points:

• Limited Adoption: Crypto remains primarily with early adopters, with institutional adoption still nascent.
• Leveraged and Inverse ETFs: The explosive growth of leveraged ETFs, such as those tracking Nvidia, poses risks due to their high leverage and volatility.

Notable Quote:

Shannon Sokosha [23:07]: "But we hear this all the time. And I think that's why the work that Todd does is really important."

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4. Market Breadth and Index Concentration

A significant portion of the discussion addresses the concentration of the S&P 500 index in a few top tech stocks. Todd Sohn points out that sectors traditionally considered defensive, like healthcare and utilities, now constitute a smaller portion of the index, with giants like Nvidia and Microsoft dominating.

Key Points:

• Narrow Market Breadth: Fewer than half of the NASDAQ 100 members are trading above their 50-day moving average, indicating limited participation in market rallies.
• Index Concentration Risks: Heavy reliance on a handful of tech giants increases vulnerability to sector-specific downturns.

Notable Quote:

Todd Sohn [41:39]: "The S&P 500 is our investing diet, right? You think about your diet. You have protein, carbs, whatever. That's the S&P 500. The diet of it is becoming more and more of less stocks."

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5. Labor Market Dynamics and AI Impact

The hosts examine the interplay between labor market trends and technological advancements, particularly AI. Shannon Sokosha discusses rising unemployment among younger workers and the potential inflationary pressures due to a shrinking pool of foreign-born workers.

Key Points:

• Youth Unemployment: Unemployment rates among individuals aged 16-25 have surged, impacting consumption and economic growth.
• AI as a Double-Edged Sword: While AI can enhance productivity, it also threatens to replace entry-level jobs, exacerbating unemployment issues.
• Immigration Trends: Reduced immigration inflicts additional strain on the labor market, potentially fueling wage inflation.

Notable Quote:

Shannon Sokosha [66:09]: "I look at this as an inflation issue and a labor supply issue and we're continuing to see that."

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6. IPOs, Mergers & Acquisitions (M&A), and Market Speculation

The episode touches upon the resurgence of IPO activity and ongoing M&A transactions. Todd Sohn expresses caution regarding recent IPOs, suggesting that some may be driven more by tax strategies than genuine market sentiment.

Key Points:

• IPO Backlog: A backlog from previous years has led to a surge in companies going public, but not all are sustaining their valuations.
• Speculative ETF Movements: Certain ETFs experience short-term inflows followed by rapid outflows, raising questions about their sustainability.

Notable Quote:

Todd Sohn [55:25]: "This is what you can do in ETFs. You bring money in, money goes out. It's a heartbeat trade."

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7. Technical Indicators and Future Market Outlook

Michael Batnick and Todd Sohn explore technical indicators and their implications for the stock market’s future trajectory. They discuss charts illustrating price momentum, sentiment metrics, and the potential for future market pullbacks.

Key Points:

• Price Momentum: Recent three-month rate of change charts show one of the best performances in 15 years, supporting continued market strength.
• Sentiment Extremes: Extreme optimism indicators, such as those highlighted by Warren Pius, suggest that the market might be overextended, potentially leading to lower future returns.

Notable Quote:

Michael Batnick [32:15]: "But it's also the. Don't be too surprised if you get a pause or consolidation."

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8. Strategic Investment Advice Amid Market Volatility

The hosts offer guidance for investors navigating a possibly volatile market. Michael Batnick advises those who are fully invested to maintain their positions and enjoy their gains, while those feeling under-invested might consider waiting for better entry points.

Key Points:

• Stay Invested: For investors already in the market, continuing to stay invested is recommended, as short-term volatility is not uncommon.
• Wait for Entry Points: New investors or those looking to increase their positions might benefit from waiting for market pullbacks to enter more strategically.

Notable Quote:

Michael Batnick [35:18]: "If you are feeling like if you are under invested and you're feeling like fear, this market will not let me in. I can't believe I'm missing all those gains. If you're feeling those feelings and how could you not if you're under invested, then I would say just wait."

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Conclusion: Preparing for Market Shifts

As the episode wraps up, the hosts reflect on personal updates and look forward to future discussions. They emphasize the importance of understanding market fundamentals, staying informed about technical indicators, and maintaining a strategic approach to investing amidst evolving economic landscapes.

Notable Quote:

Shannon Sokosha [71:37]: "I feel like there's an opportunity to square some of those or overcome some of those objections with mirroring it with some of the technical data."

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Final Thoughts

This episode of The Compound and Friends offers a comprehensive analysis of the current stock market dynamics, blending fundamental insights with technical assessments. The hosts provide valuable perspectives on market sentiment, sector concentration, the impact of AI on the labor market, and strategic investment approaches, making it a must-listen for investors seeking a nuanced understanding of today's financial landscape.

Transcript

[Michael Batnick]

My dad sent me this this morning. He said you were always destined for greatness or something like that.

[Todd Sohn]

You are.

[Michael Batnick]

Look at this.

[Todd Sohn]

And that shirt. You always are.

[Shannon Sokosha]

That's actually great. That's actually pretty. That's not bad. It's not a bad picture.

[Todd Sohn]

You should bring that back if you're able to.

[Michael Batnick]

Yeah, I wish.

[Todd Sohn]

I'm gonna get you a wig.

[Michael Batnick]

I wish. No, that ship sailed.

[Todd Sohn]

Maybe I can just use before or after? When?

[Michael Batnick]

You want this right now?

[Todd Sohn]

You want it now?

[Michael Batnick]

Yeah.

[Todd Sohn]

One's for Josh.

[Michael Batnick]

One for Josh?

[Todd Sohn]

Yeah.

[Michael Batnick]

Oh, a physical book.

[Todd Sohn]

I like giving them books.

[Michael Batnick]

I finally, like, gave up on this idea that I would ever read again. Like, not ever, but, like right now.

[Todd Sohn]

If not make Matt and Sean read.

[Michael Batnick]

I went to audiobooks.

[Shannon Sokosha]

Did you? So I do a combination of audio or. Like, I have stuff on my Kindle because I feel like it's like I always have my Kindle with me. So if I'm feeling like I want to read something that's really meaty, like, I at least have, like, I don't have to remember a physical book with me.

[Todd Sohn]

I'm a Kindle person.

[Shannon Sokosha]

I just. I switched to the Kindle about a year and a half ago because I was. I was finding that I was trying to read at different times and even with, like, my husband would be sleeping and I want to read and I'm like, annoyed.

[Todd Sohn]

Yeah.

[Shannon Sokosha]

So I was like, so you.

[Michael Batnick]

Oh, shit.

[Todd Sohn]

Sorry. If you want it, I won't be offended. If you need to, like, return it, I'll give you the receipt if you need them.

[Michael Batnick]

It's a great looking cover.

[Todd Sohn]

The cover's worth it.

[Michael Batnick]

Yeah. I buy this book for the COVID Thank you, Todd.

[Todd Sohn]

Hey, my pleasure.

[Michael Batnick]

Mike Tyson. Oh, wait, Mike didn't sign it.

[Todd Sohn]

Tried. I tried. He wasn't at the Barnes and Noble doing a signing.

[Michael Batnick]

Was there a period of time, in fact, there probably was. Where Mike Tyson was one of the top 10 most famous people in the world. Maybe top five.

[Shannon Sokosha]

Yeah. Especially around the time when he was married to Robin Givens. And I think they had that, like, I don't know in the world, but certainly in the U.S. hulk Hogan.

[Michael Batnick]

We were just talking about this. One of the most. So he was like, people that are, like, globally famous, where everybody in the world, in every country, doesn't matter where you are, knew Hulk Hogan.

[Todd Sohn]

Tyson and Hogan, definitely.

[Michael Batnick]

And there's probably over the last 50 years, there's probably like 20 people on the list that were like the most famous people in the world. Like, it's not a Long list.

[Todd Sohn]

Jordan, Tyson, Ali.

[Michael Batnick]

Like there's not Hogan, Ali, Tiger Woods. There's not like a big. Mother Teresa.

[Todd Sohn]

The president.

[Shannon Sokosha]

Taylor Swift.

[Michael Batnick]

Taylor Swift. Like there's not. It's not a long list.

[Shannon Sokosha]

So the Beatles.

[Michael Batnick]

The Beatles.

[Shannon Sokosha]

But only two of the four Beatles.

[Todd Sohn]

The hoaxer, you know, pour one out. We could have went to SummerSlam, by the way.

[Michael Batnick]

Where. It was at the Garden.

[Todd Sohn]

It was at MetLife.

[Michael Batnick]

I've never been to a wrestling event.

[Todd Sohn]

Should we go or bring Shannon?

[Michael Batnick]

I think that trip sailed.

[Shannon Sokosha]

I have not been to a wrestling event either. Interesting.

[Michael Batnick]

Have you?

[Todd Sohn]

It's been 20 years. It's been a long time. They're fun. Why not?

[Michael Batnick]

Are you a PPI gal? Do you care about producer prices?

[Shannon Sokosha]

Yeah, I definitely do. Especially when it's all services like it was today.

[Michael Batnick]

So I was thinking about that. What are services within producer prices? That sounds weird.

[Shannon Sokosha]

Yeah, it's like inputs into what ends up being like some of the stuff that came through in cpi, like motor vehicle and. And that sort of stuff. So service, like the. The kind of the goods to produce service that are going to go into services delivery.

[Michael Batnick]

I saw the big one was fruits and vegetables or dried vegetables was up 38%.

[Shannon Sokosha]

The food stuff is like. So it moves around a lot. Like you shouldn't put a lot of emphasis on anything food related.

[Michael Batnick]

Well, the market doesn't seem super bothered.

[Shannon Sokosha]

Well, it did at first and then it decided but I don't know why they were. Why they were expecting 50. I mean that seemed like such a pipe drink.

[Michael Batnick]

What do expected?

[Shannon Sokosha]

Oh, like for. For a ray cut. That seems like completely unnecessary.

[Michael Batnick]

S and p is down seven basis points. Equal weight's down 70. That's nothing.

[Todd Sohn]

That's the.

[Michael Batnick]

It's nothing.

[Todd Sohn]

Defensives. Mega caps.

[Michael Batnick]

Nothing.

[Todd Sohn]

Where's. Where's the big guy? Vacation.

[Michael Batnick]

Josh is moving his daughter back to college.

[Todd Sohn]

To Miami.

[Michael Batnick]

Yeah, right. How old are your kids?

[Todd Sohn]

Six and a half and three.

[Michael Batnick]

Okay, we got a ways to go.

[Todd Sohn]

We got a ways to go.

[Shannon Sokosha]

You guys got some time.

[Michael Batnick]

All right, Sean, you ready? Ready to pod. Oh, oh, oh, oh, oh.

[Todd Sohn]

Can I do my Josh impressions? Welcome. Welcome to the compound and friends, ladies and gentlemen.

[Michael Batnick]

All right, time to up the energy. I'm feeling low energy, people, and it's starting from this side of the table. So it's time to turn it up. Let's go.

[Shannon Sokosha]

We're turning it up.

[Michael Batnick]

Thank you, Nicole.

[Shannon Sokosha]

The Compound and Friends Episode 204 Whoa, whoa, whoa.

[Michael Batnick]

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[Shannon Sokosha]

Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

[Michael Batnick]

Here we go. When did we start talking with the music? Let's go. All right. Excited, Excited. Shouting at the it's been too long.

[Shannon Sokosha]

It has been too long.

[Michael Batnick]

March of 23 I think I was.

[Shannon Sokosha]

On in like January of 23. Okay, because I was on before.

[Michael Batnick]

Been too long. Welcome back. Welcome back. And Todd, have you been on too much? Are we like over exposing Todd Sohn?

[Todd Sohn]

You might be overexposing me Might be too much.

[Michael Batnick]

All right, this is it for you. We'll see you in 2027.

[Todd Sohn]

I want the next Olympics.

[Michael Batnick]

Okay.

[Shannon Sokosha]

All right.

[Michael Batnick]

Welcome back to the Competent Friends. My name is Michael Badnick, and I am excited to have my friends back with me. Shannon Sokosha and is the managing Director and CIO of wealth for Neuberger Berman. Prior to Neuberger Berman. Eh, that's okay. We won't go there.

[Shannon Sokosha]

We know it's always up. It's always up for discussion.

[Michael Batnick]

She's been on Wall street for a while. All right. And Todd, of course, is an ETF and technical strategist at Strategus securities and Strategus Asset Management, an institutional research and asset management platform. Prior to Strategic. Excuse me. Todd has had several roles at both J.P. morgan and SAC Capital Advisors. All right, so it seems to be that one of the narratives around the market, and there's like, a lot of different narratives, but one of the ones that keeps popping up is what's happening? Like, why is the stock market up? Does anybody know why the stock market is up? There was an article in the Atlantic this week, and this was the headline. Does the stock market know something we don't? And here, this is one of the paragraphs. As the stock market soars ever higher, the theories of why it rises have suffered the opposite fate. One by one, every favorite explanation of what could be going on has been undermined by world events. The uncomfortable fact about the historic stock market run is that no one really knows why it's happening or what could bring it to an end. Well, that part is true. Nobody knows what could bring it to an end. But I was thinking about this, like, just taking a step back, zooming out, as they say. Why is the stock market up? And even though it feels like things are funky out there in the world, certainly there is some shenanigans going on that you don't like to see. But I don't think it's that complicated if we zoom out. All right, you guys ready to zoom with me?

[Shannon Sokosha]

Definitely.

[Todd Sohn]

Let's zoom.

[Michael Batnick]

All right. There's three reasons. Number one, most of the tariff uncertainty is behind us. The vicsplosion that we saw in the spring, Liberation Day, like, it's not great, but it is. Right. At least we have, like, a better understanding of the range is not as wide as we previously thought. That's 1A and 1B would be earnings. Now, whichever way you slice that, if you're looking about actual earnings, which is what drives this market, if you're looking about earnings expectations for the future, which is also what drives the market. And then most recently the gap between estimated earnings. John, chart on, please. And what we saw in the first quarter. So we've got a gap that is as wide as we've had for the last 10 years in terms of what the analysts were expecting and what the market delivered. Okay, so that's the earnings part of it. Then we've got. Rate cuts are coming, right? The President is not too fond of the current head of the Federal Reserve. When he's out there will be somebody else, rates will be lowered. And then number three, and maybe today threw a monkey wrench in the ppi, but inflation is generally all right. And so if you had those three things, earnings and Shannon's ready to jump out of her skin, earnings at all time highs, inflation sort of on the right track and rate cuts coming, why would you expect the stock market to be. Oh, I haven't mentioned the tailwind of the hyperscales and the AI bubble. Where would you expect the stock market to be? So Shannon, please.

[Shannon Sokosha]

Well, I want to start with the tariff point because I do think that we don't have any further clarity or we have minimal clarity in terms of what the end game in terms of tariffs is. What I think we understand is that the implementation of that is going to be inelegant or inconsistent at best. And so I think if you were looking at all of the numbers everyone's re ratings in terms of GDP and inflation coming out of April 2, between April 2 and the end of April, everyone was anticipating that whatever that top rate of tariffs would be across the board, that there would be very few exceptions to that, to those tariffs, but more importantly that we as that companies would be unable to actually deal with and digest those tariffs. And that's the thing that I think. And we're going to. I think this actually bleeds into some of the earnings conversation. If you think about what management teams have had to grapple with over the course of the last 10 years coming out of the GFC, very low growth rate, environment, sovereign debt crisis in Europe. And then you get to the point where we had tariffs that came on in 2019 following what should have been a pretty stimulative tax legislation. And then Covid management teams have figured out how to protect their margins and grow their earnings against a hugely difficult backdrop. So I think that there was part of that we didn't get the same type of direct implementation and transmission that perhaps we were factoring in as that worst case scenario. But but we also, I think, very much understated companies ability to figure out how to pass on some of these tariffs or shift things on the fly that, you know, we're, we're essentially helping to soften the blow. Now will we continue to see that? I think so. But I think the important piece of this is, is that I just think that we were underappreciating corporate America's ability to figure stuff out.

[Michael Batnick]

Chart six, please. Daniel. So I remember this line stuck with me. Savita said, I think this was during 2022. Like never underestimate corporate America's ability to protect their margins. They are really, really good at that. And once again, we underestimated them because this chart from Goldman shows the frequency of S&P 500 earnings surprises. So what the analysts were expecting and what companies actually delivered. And this was by far, by far the highest in terms of one standard deviation above consensus estimates. Like the gap was huge. As big as what we saw during the COVID years where we're like, what's happening now? Like, it's, it's that much of a surprise. So again, and I didn't mention deregulation and the wild west nature of the IPO market open. It's all happening. Where would you expect the stock market to be trading?

[Todd Sohn]

It's hard to me. Listen, I think this was largely a sentiment rebound too, right? So Shannon eloquently put everything on the fundamental backdrop. And then in our work, it came into the year with the super aggressive sentiment backdrop that happens after back to back 25% years. Tariffs blew that up. And the recovery has been remarkable since from the technical landscape too. Breadth and momentum. And even today the sentiment data is not uber aggressive. That's the sense I get, at least from the survey data. Some of the quantitative data like options and VIX maybe skew a little bit complacent, but that's okay for now.

[Michael Batnick]

I think one of the things that's confusing market prognosticators or pundits is there's a lot of different market participants. And we've been talking about.

[Shannon Sokosha]

What do you mean by that word?

[Michael Batnick]

I'll tell you. Oh, pundits.

[Shannon Sokosha]

No, I meant market participants. But pundits will stick to.

[Michael Batnick]

So here's what I mean. If you look at retail traders, if you look at people that are speculating and they're having a great time and they're making a lot of money and there's a lot of silliness, you would say euphoria, right? Like, absolutely. You would say euphoria. This was a tweet yesterday that was just a 10 out of 10. Mike Bird. The Wall Street Journal tweeted, shares of cryptocurrency exchange Bullish soared more than 150% in its initial public offering Wednesday, highlighting the challenge of pricing and IPO in today's exuberant market. To which Mike, quote, tweeted and said, and Mike's a journalist, he said, I'm not saying this at the top, but if you were writing a novel about financial exuberance and you invented a company called Bullish, ipoing and rising 150% on day one, your editor would take it out as an unnecessarily theatrical flourish.

[Todd Sohn]

Yep.

[Michael Batnick]

Don't gild the lily, I believe, is this phrase in literary parlance. So you have that part of the market, right, which is like, obviously, balls to the wall, everything goes, whatever, whatever, whatever. Crypto, the Treasuries ark, which we'll talk about later. So you have that cohort of investors. However, you also have older investors who are very confused, who don't seem to understand why the market is rallying. And I do think the sentiment is a huge rebound, a huge reason why. But Schwab publishes their quantitative report on their investors. And Schwab is the largest or the second largest platform in the entire galaxy. And their investors for like six months in a row have been dumping technology stocks. Nvidia has been the number one net seller up until July. They finally bought. Apple was the largest last month. They're not aggressively buying it. They have a sentiment measure themselves, which is quantitative. There's nothing squishy about it. And it is nowhere near, nowhere near where it was in 2021. So which investors are we talking about? It's really hard to gauge. Everyone's bullish. I don't think so.

[Todd Sohn]

I've had this struggle of what is retail today? I feel like years, decades ago, maybe it was a certain type of person. Now it feels like it's 10 different things. Does that make sense?

[Michael Batnick]

It does.

[Todd Sohn]

I'm trying to figure out how to parse that data, and I haven't quite figured it out yet.

[Michael Batnick]

You speak to investors all day and investors, are they feeling exuberant?

[Shannon Sokosha]

No, but I. So I think two things have changed, and I don't disagree with your point in terms of what does retail mean? Because I think if we go back a couple of years, we talked about the birth of the rebirth of the retail investor, and that was really game gamification of our industry. You know, how much are we spending too Much time online trading stocks versus being out in the world during COVID I think actually what's happened is that there just has developed into sort of three buckets which is it used to be just retail and institutional and now what I think is institutional is there are portions of institutional that aren't big pools of capital, that are run by pensions, that are run by schools, that are sovereign wealth funds. I actually think institutional is that increasingly advisors such as us pointing to you because you guys are in the same boat as I am, we've developed institutional frameworks and mindset that we're applying to the challenges for what have been traditionally retail investors. And what that implies is that there's been created some additional guidance around making good decisions. The thing that you're actually not hitting on though is is that what I think has changed a lot in the last two years is basically if you look at a, a portfolio and people are feeling like I want to invest in something that I feel can continue to grow their earnings, you can be in a position where I feel like a lot more sure about corporate balance sheets than I do about the US treasury right now. I think that people are feeling more comfortable investing in equities because they believe that there is a, there's the potential for those companies to continue to be much more disciplined than the US Government. And so I think it's actually what we're seeing is that we're seeing investors increasingly comfortable with maintaining larger equity allocations over time because they feel uncomfortable with the lack of discipline in things like Washington. In the federal government. They feel more comfortable with corporate balance sheets and corporate management than they do with what's happening in Washington today. And so I do think that what you're getting is you're getting this creep of higher equity allocations that I think is going to continue to support buying in the equity market.

[Michael Batnick]

The Journal just wrote a piece today highlighting exactly that. At every age cohort, from young INS to the Xers to the boomers, everybody's allocation TO equities within 401k is at an all time high. And why, why wouldn't it be? Why shouldn't it be?

[Shannon Sokosha]

There's also longer time horizons. I mean, we're not, we're not going to live less, you know, we're not going to live fewer years than our parents did. And that's going to continue with our kids and our grandkids. Right. And so just that, that the longevity of that the time horizon has been pushed out and so you're going to hold EQUITIES for longer and you're probably going to hold equities, more of them. So despite these periods where we see this pressure, why wouldn't I continue to buy if I'm in my early 60s and late 60s and early 70s, I have 30 more years.

[Michael Batnick]

Are you seeing anything in flows that support that or dispute it or.

[Todd Sohn]

No, not dispute. Equity ETFs $2 to $3 billion a day now.

[Michael Batnick]

Equity what?

[Todd Sohn]

Equity ETFs just in general. Large cap Equity ETFs do 2 to 3 billion ETFs in general are going to hit trillion dollar in inflows. There's no stopping that. I get more interested when I start to see certain categories get kind of hot. And the only one that really screams like maybe put the brakes on is crypto. But the other side of that, the thing with crypto, is it mass enthusiasm or is it mass adoption?

[Michael Batnick]

The thing that's weird about crypto to me and that I think pisses people off is like, still nobody owns it, which is it's this weird thing where the price is going parabolic. And certainly any rational person would say, like, all right, maybe like it's time to pump the brakes on going all in on crypto. If you've never owned it. But who owns crypto? It is still largely owned by the early adopters. And you're just starting to see institutional adoption in a real way. Harvard revealed what was their investment?

[Todd Sohn]

It was a silly amount. Not silly, it was a bad idea. But it was a chunky.

[Michael Batnick]

Was it 150 million?

[Todd Sohn]

Yeah, it was definitely a one something.

[Michael Batnick]

But I would say that investors in general, like air quote, nobody owns crypto. I know it's not actually true, but it's very under adopted.

[Shannon Sokosha]

I think the challenge too is that if you have been an early adopter in crypto or digital assets or whatever moniker you want to apply right, to what we're talking about here. You now are pointing at those ETFs as being a really inelegant way to access the enthusiasm and opportunity in that. And so what you're getting is you're getting this, this kind of barbell of, you know, people who have been in the community, in the industry investing for a long time and they've already moved on to other ways to potentially invest in that. They're looking at tokenization, for instance, as being like the next way that this is going to continue to grow kind of digital assets as a true asset to be included in your portfolio. And so what you're getting is you're getting this and you're also. It's compared and contrasted with. From an advisor perspective, the Vol on on crypto still continues to be really high. So how do you factor that into a traditional portfolio construction asset allocation? Well, you have to put the risk really high and so you end up with a small position in the portfolio. And so even if you get the type of gains that we've experienced over the last couple of years, is that really going to make a difference? And do you want to have that conversation every time you meet with your client? And I think that that's the challenge is we've moved from a period where I think advisors were very hesitant about this going to zero to is this something I really want to have a conversation about every quarter? And I still think that they are feeling like at the sizes that these positions would be in, probably not going to move the needle and they'd like to spend more of their time in that conversation on other parts of the allocation.

[Michael Batnick]

So it sounds like your advisors and their clients are not like banging down their door for crypto because over here they're not. And like my friends aren't asking me about it. It seems to be like most people, even at all time highs don't really.

[Shannon Sokosha]

Care, I think what we hear, and I'm curious to hear if this is what you hear. For those that are in that former category of people who've been immersed in the community and have a meaningful slug of some sort of digital asset exposure, they would like us to incorporate that and be thoughtful about that in their allocation. But no, I don't. It's not something. And it's actually less than I would I've experienced during other periods where bitcoin has gone up a lot. I'm hearing less interest now than I did in those previous years.

[Michael Batnick]

100%.

[Todd Sohn]

That's an interesting observation. I agree with that. Yeah, I haven't thought about it that.

[Shannon Sokosha]

Way, but I don't know if you see that in the flows too, because it does feel like we should see, honestly, like more speculation, more flows into the asset class. I mean, especially around ether and the moves there.

[Todd Sohn]

The flows are definitely hot, but the conversations are far less, which is a strange. You'd think it would be hand in hand, whereas 2021, let's call it, you couldn't really have access to Bitcoin spot ETFs. But everyone wanted to talk about it.

[Michael Batnick]

All right, moving back inside the market because I could sort of feel people saying, all right, enough with crypto already.

[Shannon Sokosha]

Nobody cares we just said that. And yeah, we allocated like how many minutes to it?

[Todd Sohn]

I'll take the blame on that one. I kind of swerve there.

[Michael Batnick]

All right. So inside the market, I think that by definition you're never going to have, especially not never again with retail participation. And I think that people get distracted by this a lot. There will never be another bull market where you don't see insane behavior. Would you agree with that?

[Todd Sohn]

As in you always see insane behavior?

[Michael Batnick]

Yes.

[Todd Sohn]

Yeah. Oh yeah.

[Shannon Sokosha]

The way that like irrational existence, you.

[Michael Batnick]

Will always see pockets of things that make you say, oh, this is the top.

[Todd Sohn]

That's the information age. Right. We're in a 24, 7 news cycle. And then I can go reflect that with basically any sort of exchange traded product now with leverage.

[Michael Batnick]

I'm wearing a Dan Ives shirt, for God's sake. All right. But I think that a lot of the silliness and I love this shirt, shout out to Dan. A lot of the silliness is a distraction to like what is actually happening inside the market. So Todd, you have a great chart. Chart A please fellas. Talking about cyclicals versus defensives and what we're seeing here on. Todd, I'll give you the mic in a second. This is the underpinnings of a bull market that if you're talking about continuation and expansion, this is exactly what you need to see. So Todd, what is this chart that we're looking at?

[Todd Sohn]

This top panel here is just your simple cyclical sectors. Industrials, financials, discretionary tech relative to the staples, healthcare, utilities of the market. On the bottom panel is a simple three month rate of change. And we've had the best three month rate of change coming off of that April low in the last 15 years. This is what Shannon said earlier about the fundamental backdrop. Corporate America figuring it out in a very bullish stance, of course. Can I make the case for a September pullback? Yeah. But the fact of the matter is big momentum is risk on for this. You're in pretty good shape. This happens at every significant low. These types of surges for offenses versus defense.

[Michael Batnick]

We're also seeing. It's funny, the market like as soon as we talk about narrow breadth.

[Todd Sohn]

Yeah.

[Michael Batnick]

And there is some narrow breath. And we'll talk about this SEC and concentration. Yesterday Frank Capillari tweeted the S&P 500 just logged back to back 80% breath days for the first time since. Since April. Even more telling. And it's one day, but whatever. Tech had the lowest amount of advance in stocks at 69%. And the equal weight outperformed by more than 1%. So maybe this is like the catch up trade that happens every single time. We seem to mention breath weakening.

[Todd Sohn]

Yeah, yeah. I think a lot of it's coming from discretionary too to be honest. Corners of discretionary have been off the field for a while. Durables how home builders.

[Michael Batnick]

Home builders back?

[Todd Sohn]

No, they got hit today because rates popped again. But that's been a pretty important cyclical group that's coming back on the field. Some of the autos, they've been a pain trade starting to come back. Retail's are right now, the restaurants are taking a hit but like discretionary is working tech, semiconductors, industrials, machinery. So that's that breath right there. It's the non Nvidia Microsoft type stuff that's still pretty good. Equally S and P is a day off of a new all time high.

[Michael Batnick]

All right, we'll zoom out to zoom in. Shannon, you brought a chart. Chart 11. So all time highs are bullish.

[Shannon Sokosha]

They are.

[Michael Batnick]

Talk about it.

[Shannon Sokosha]

So I mean I think this is the challenge is that you generally tend to see in particular when the momentum factor is behind as a tailwind. And I am not a technician, I'm just going to say that right now. I listen to folks but I think why I pointed this out is that the question I get the most is have I missed, have I missed it? Right. And so every time we crest one of these all time highs, what I continue to look at is if you actually break this down and I didn't bring this in terms of all of the different periods where we have continued to set all time highs, what you'll find is that there is a persistence in the performance. What's the outlier here is sort of that 18 month period and that's really what has been happening over the course of the last couple of years. So that's much higher than it was if we had drawn the same graph prior to, prior to Covid. And what you're seeing is that you know, in terms of this average gain after, you know, an all time high, what we've seen is that the concentration that we're experiencing over the last five years is, is moving this average gain higher. So if you take out this previous period where we've had some really strong performance that's been concentrated in tech, these numbers are a bit more modest in terms of the percentage gain but the persistence is pretty similar. And so I think that's an important point is that we're not necessarily saying that we're going to replicate this type of performance after an all time high. What we're saying is that it tends to be a persistence in that performance after an all time high. And you are set in that bull market run because if you think about what happens when we get a big pullback, you know, you get sort of that spike back up too. And what's happened over the course since the GFC is that those, you know, those lows have been higher and we've just continued to, we're cushioning the bottom now. So it's likely that this number in terms of the average gain is going to continue to grow over time because we're not seeing the sharpness of those bottoms. We're not seeing the depth in those bottoms because of the cushioning of all of these other factors that we've talked about.

[Michael Batnick]

I was about to say, do we think that this is like a permanent feature of the market which is the sharp declines and the sharp rallies? But I keep having to re reminding myself that 2022 was a thing and it wasn't that long ago. And the stock market topped on January, was it 21 or 22? 22. Right.

[Todd Sohn]

January 3rd, 2022.

[Michael Batnick]

Okay. And it didn't bottom until October.

[Todd Sohn]

October, October 12th.

[Michael Batnick]

And tech stocks bottom on December 31st. So that was a legitimate. It was a two year bear market. And people act like that never happened.

[Todd Sohn]

As much as I worry about we'll get to the concentration stuff, the MAG7 as an index went down 50% that year.

[Michael Batnick]

Yeah. We're just acting like it didn't happen.

[Todd Sohn]

It's a generational decline.

[Michael Batnick]

It just happened. Meta. I keep saying it sounds like a broken record, but Meta was down 2/3, like literally.

[Todd Sohn]

Oh yeah. I remember saying to some of my teammates, meta's never going back to a new high. It's it, it's done. And I was clearly wrong.

[Michael Batnick]

All right, so this is not a thing that people like to hear, but a pause or a pullback is coming and I think that pauses and pullbacks are healthy. A stock market that goes straight up is not healthy. So, Todd, you have a chart that shows the best 65 day change since 1950. Is there anything special about 65 days or that's how long ago the low?

[Todd Sohn]

Three months. Three months? Quarter.

[Michael Batnick]

So the best three month change and we got this chart, chart template. So talk us through this. What are we looking at?

[Todd Sohn]

So now we're a little bit past it. Right. April 8th was the low. And then second, third week of July was three months off of that low. So we just wanted to take stock of where we were and that percentage change just on the index level, the s and P500, we were up 25.8%. That's one of the best three month percentage changes in the history of the S and P. What does that mean? Right. Every major market low has seen a surge off the low the next one to three months. The probabilities are kind of a coin toss. You don't know. And so far they've been a good coin toss. But it's also the. Don't be too surprised if you get a pause or consolidation. We were just talking about. The more important point was the next six to 12 months, similar to Shannon's chart about new all time highs. If we get there is that the returns and the positive hit rates skew very much in your favor. So this is price momentum. Price momentum is extremely good for the long run. Of course things overheat in the near term. It's not a shock to see things pull back. So the recovery off the April low was great on a price level and internally the Bretzkies were good too.

[Michael Batnick]

Warren Pius did similar work. Chart 12 please, where he shows what happens when you get the daily sentiment break above 70. I think there's a proprietary indicator. I don't know if this is RSI or if it's something different. But anyway, he shows the path and once you get that extended extreme optimism, naturally, I mean obviously this shouldn't shock anybody. It tends to weigh in returns and he's got one that goes a little bit further back going back to 1980. And once we get these extreme readings, the compound annual growth rate above 60 drops to 1.1% versus 9% for buy and hold. So we are, we are a bit extended and if we go sideways, should be nothing at all to worry about.

[Todd Sohn]

Wouldn't be a shock.

[Michael Batnick]

No.

[Todd Sohn]

Right. It's not a hero call, I think to say the market would consolidate.

[Michael Batnick]

No, it's definitely not. It's definitely not. Definitely doesn't take courage to say that.

[Shannon Sokosha]

I guess, I guess like my, my question with whenever, whenever we say that, and I've been guilty of saying that for like three weeks now too. So I'm going to put myself in this camp is like, well, so what, like what are you going to do about it? Oh no, I mean, but this is, what I'm saying is like I actually think that that is more critical and what the August, September timeframe over the last number of years. I mean how much do we complain about, like we Used to be able to just take a vacation in August and that's completely off the table now in terms of what's happening from a volatility standpoint in the market. But if you think about, you know, what does that period mean and how am I going to react to that August, September time period? The challenge with this year is that we've got a flurry of readings that are going to be really important from an economic perspective here in the US We've got Jackson Hole and after the last couple of press conferences, I don't know how much confidence you have in the messaging that's going to come out of Jackson Hole, but I'm all the way, I'm a little concerned. And then we've got the Fed meeting and then we really roll into, I think in the fourth quarter. I think that investors are going to start to look at something like the big beautiful bill and the deregulation that you talked about earlier. And they're like, okay, so when is this, like we're going to start seeing this transmit, right? And so this timing of this period of this normal seasonality that we experienced coincident with all of this really market moving data, I mean we look at last summer, we obviously had the unwind at the yen carry trade, but those, you know, that was sort of the, you know, the push into August and some of the volatility that we experienced. I'm a little bit concerned that perhaps investors will not feel quite, quite as constructive in investing in September. So I think we could see this as a little bit longer a period. Maybe it lasts six or eight weeks where we get some squishiness in the equity market where we feel like that sentiment is not quite there. And I just wonder how that could potentially manifest into like the fourth quarter when we're really looking for people to be reallocating and likely increasing their allocations to some of the laggards that, that we talked about earlier.

[Michael Batnick]

So this is a good point. It's like, all right, so what works and who cares? What's your point? So what? We should expect a short term pullback in the next couple of weeks and.

[Shannon Sokosha]

What do I do about it? Like, what am I supposed to do then?

[Michael Batnick]

Right? All right, so here's what I would say. If you are fully invested or where you want to be. Yeah, you're right. Who cares? Go live your life. Enjoy, Enjoy the gains. Say thank you. Market can't fall for more than a day. Even today we had a gnarly PPI reading in the morning. Yields shot up stocks fell at the open. Stocks are now flat. S&P's flat, equal weights down. Who cares? Nobody cares. But here's what I would say. If you are feeling like if you are under invested and you're feeling like fear, this market will not let me in. I can't believe I'm missing all those gains. If you're feeling those feelings and how could you not if you're under invested, then I would say just wait. Just wait. And you might have to wait a week, two weeks, three weeks, a month, two months. You will get a. You will get a better entry. Probably. Maybe. Is that fair?

[Shannon Sokosha]

I think that's fair. I mean, that's what I think. I mean, that's my view, is that, you know, we're looking down the potential for an entry point for people that feel like they've missed it.

[Michael Batnick]

You'll get one.

[Shannon Sokosha]

But we get. But we hear this all the time. And I think that's why, you know, the work that Todd does is like really important to thinking about.

[Todd Sohn]

It's kind of you.

[Shannon Sokosha]

No, but thinking about how do we square that longer. I'm a fun partner here to be a.

[Michael Batnick]

That's a. Seth Roge should bring out Seth Roge.

[Shannon Sokosha]

So. So I feel like there is a. I feel like there's an opportunity to square some of those or overcome some of those objections with mirroring it with some of the technical data. Because I think that there are times when this is going to feel very uncomfortable. Especially after the PPI reading. Do we get another, you know, really lackluster non farm payroll support? Then we start to hear about recession concerns and considerations and that's not our camp. But I think being able to combine it with that technical work and that look, I think that that's where you can really push and catalyze that investment for people who are like, I've been waiting and I've been missing it.

[Todd Sohn]

My teammate with Shannon, I think you know Dan Clifton, he's one of the best policy analysts on the street. He's the best policy on the street.

[Michael Batnick]

I've heard. We should have him on the show multiple times.

[Todd Sohn]

You should. He's amazing. I can't speak for his work, but he's big on this kind of September to remember because there's just a lot going on here and there's a wild card in the White House that has a cell phone which has access to social media.

[Michael Batnick]

Isn't it December? Is that a Lexus commercial?

[Shannon Sokosha]

It is a Lexus commercial. Yeah.

[Todd Sohn]

Okay.

[Shannon Sokosha]

September for all those people that Buy cars.

[Todd Sohn]

So Dan is big on that. Tariffs, the bills, everything. I can't speak for his work, but that's his thing right now that.

[Michael Batnick]

All right, let's speak for your work, Todd. All right, so let's maybe something more tangible in terms of what the short term can bring. So you have a chart that shows levered long versus inverse ETFs. AUM and to me this is one of the best charts in terms of showing where we are in terms of people's feelings. And when you're sort of like in the middle, who cares. But we are basically at all time highs. So what are we looking at?

[Todd Sohn]

This is just so. So levered assets, they're getting big within ETFs because they're just, they're easy. They're access points for anyone. Right. You don't need margin. You can just open up a brokerage account and buy 2x or 3x whatever. Tesla Semiconductors S and P. So we like to track the assets in these products. There's 130 some odd billion in levered.

[Michael Batnick]

Long and that's an all time high.

[Todd Sohn]

Yeah, yeah, 100 and probably, probably closer to 135 billion today. And then inverse ETF assets have about $13 billion. So we take the ratio of them that's at about 10 to 1 today. We started the year at 12 to 1. I think the more this is a new sentiment data point to me in the data set these products really exploded in 2020. So they're becoming more important. If you're trying to get a feel about how aggressive investors are traders rather I should say this is the go to chart. So again sentiment not anywhere near where it was at the start of 2025. But if I'm putting together a list, this is at the top of the. Hmm, maybe we should worry about that.

[Shannon Sokosha]

Isn't this just a like to your point, is it just cheap leverage? Like does you know is it is is the existence of an opportunity to have cheap leverage in an environment where leverage is more expensive. Like is this is. You know, is there some like spurious correlation there?

[Todd Sohn]

I think that's spot on. Right? This is access.

[Michael Batnick]

All right. So do you think that 10 to 1 is a ceiling or is this going to go to 20 to 1?

[Todd Sohn]

I'd be shocked if it stopped here now. It depends. If the market all of a sudden pulls back 10% that's going to clear. But I'd be shocked if this was the ceiling.

[Michael Batnick]

So we speak about this one a lot. Nvdl. This is the granite shares 2x long Nvidia. This peaked in assets 5 and a.

[Todd Sohn]

Half, 6 billion, something like that.

[Michael Batnick]

This peaked at 6 and a half billion dollars in November 2024. So the total AUM in this thing and Nvidia is sort of the poster child of this recovery of this bull market. Not sort of, it is the poster child. Total assets are down a third. So I don't know, take that for what it's worth.

[Todd Sohn]

The interesting thing for me is you're seeing these issuers come out with much smaller underlying now. So Bullish is going to have two X. Those filings are already out there. The quantum computing name. Soundhound DraftKings all right, listen, this is it.

[Michael Batnick]

We're not coming back.

[Todd Sohn]

They're going.

[Michael Batnick]

We're not coming back.

[Todd Sohn]

Yeah.

[Michael Batnick]

All right, so Jason Getfort on Thursday and Friday. This is last week. The NASDAQ 100 hit record highs with fewer than half its members trading above their 50 day moving average. Thursday's reading was the weakest in history. Chart 15 please. Friday's was the sixth weakest out of 751 days when this, oh, I love a good distribution when this happened. So in English, all time highs, not a lot of participation. It's not new. This is nothing that we don't know. This is nothing that we haven't been speaking about for a long, long time. Maybe let's skip ahead a little bit. Chart 20 guys. So Todd, you describe this as the chart that keeps you up at night.

[Todd Sohn]

Oh, it's my favorite.

[Michael Batnick]

All right, this is.

[Shannon Sokosha]

That's a lot coming from a chart guy. This is my favorite chart.

[Michael Batnick]

I'm all the way in on the US stock market. I'm bullish to infinity, but. And I'm not trying to be like sour glass at full, but just. We need to just take a beat and understand what the hell is happening. Todd, what are we looking at?

[Todd Sohn]

So listen, I'm a broken record with this charts. We've talked about it, you've shown it. I feel bad, but I think so. The S&P 500 is our investing diet, right? You think about your diet. You have protein, carbs, whatever. That's the S&P 500. The diet of it is becoming more and more of less stocks. Right? I guess that's anonymous. More. Less of more. More of less defensives have disappeared in the S&P 500. Healthcare, staples, utilities, energy. They're down to about 19% of the index. Nvidia's 8%. It's almost larger than healthcare and industrials, two massive sectors. In the American economy. And then if you add in Microsoft, which is 15%, they're almost larger than all four of those combined. So there's just this wackiness going on with the index and what you're, you're investing every day.

[Michael Batnick]

So Nvidia and Microsoft. Yeah, and there's a lot inside of Microsoft, right?

[Todd Sohn]

Yeah, that's the argument that these are.

[Michael Batnick]

Multiple companies, there's Slack and there's a million other things in there.

[Shannon Sokosha]

But nevertheless, that about financials too.

[Todd Sohn]

Okay, I like that. That's a good point.

[Michael Batnick]

But nevertheless, Nvidia and Microsoft are almost as large, not quite, but getting there as every staple, every energy stock, every, every healthcare and every utility. Shannon, what do you do with this chart?

[Shannon Sokosha]

So I also, I think it points to the concerns about index investing in general. I don't, I'm not going to disagree with you that the index is constructed this way. And so I feel like if you're, if you're really looking at this from a perspective of like, how do I diversify my risk, how do I think about how my portfolio is built? Well, I think you need to figure out where all these defensives, where they lie and how you can construct a portfolio, getting more access to them. Because you're telling me that none of these fours, that none of these four sectors, staples energy, health care and utilities, are going to continue to produce growing earnings and that they're not opportunities there. You look at utilities and energy alone and you think about the shift that we're seeing in terms of electrification and, and urbanization and a growing middle class globally. You need both of those things. Healthcare, I mean, it's been a dog, it's been such a difficult road. Investing in healthcare.

[Michael Batnick]

Were you about to say effing?

[Shannon Sokosha]

No, I wasn't. I know better than to do that. It's been such a difficult road. But I guess my challenge here is that this argument that there are these underlying exposures in these companies and that we need to be, you know, less concerned about them because of their kind of conglomerate status. I just caution people on that because we have seen conglomerates in the past. You fill in the blank of those names, those eventually get broken up, that value becomes dissipated. But what I view this as is like this should be the catalyst for you to look at how do the products that these companies are making, how do those become monetized outside of the tech sector? And that is where you saw the growth. For instance, from 2001 through the Financial crisis. Right. You saw technology being integrated into everyday businesses. And that shift coming out of the GFC in 2010 and what we saw in terms of the growth of technology stocks, it was based on that fundamental shift where regular companies were incorporating technology to increase productivity and do their work better. The AI tailwind is much longer, but it's much, it's going to be much more pronounced in terms of its impact in this breadth trade. So that's why I argue that breadth is going to occur because it's the broadening out of the AI trade that is one of the major tailwinds for that to occur.

[Michael Batnick]

So that's the optimistic take. And that's where I am. I think, I don't think investors are dumb. I don't think that the index is dumb. Nvidia and Microsoft and all of the Mag 7 and the hyperscalers are responsible for so much of the earnings of the index. There's not a giant disconnect between the earnings, their contribution to growth and where they are in the index. It makes sense. The optimistic take is that this AI industrial revolution is real and the productivity will advance other sectors and you will see productivity expansion, margin expansion. Obviously utilities are powering the data centers. And so you could see this nightmare scenario for the doomers who say that it's going to end badly where you see a catch up trade where the s and P493 starts to benefit from all the advancements in AI.

[Shannon Sokosha]

Can I ask Todd, I'd have a question for you. I'd love for you to say. I'd love for you to describe that pain point that's going to occur though as the earnings growth decelerates for those top names and you maybe don't have the re acceleration to the same extent of the other 493.

[Todd Sohn]

That would be an index issue then. Right?

[Shannon Sokosha]

Right.

[Todd Sohn]

Because you're so overloaded to those names that maybe are not meeting expectations anymore and then the rest of the index is not going to be able to hold up the boat. So that would be the painful part. That's almost like a 2000 type scenario. Ideally you don't want that to happen. I just think it's super fascinating how these names are just overtaking entire sectors. It almost feels like the market is intent on breaking the 40 act structure.

[Michael Batnick]

Oh in terms of the limits.

[Todd Sohn]

Yeah. Because you already see it in sectors. These sector ETFs can't track the, the tech discretionary type stuff anymore because of the Rick rules, regulate investment company rules and it's not going to happen for the S and P. But it's almost heading in that direction of we're going to break this thing because it's almost 100 years old.

[Shannon Sokosha]

You saw that, you saw Russell getting in front of that by changing their index construction. So, I mean, I think this is, I think this is really where the challenge is. And I think that this concentration that we're seeing, that we experienced, admittedly we've seen index concentration historically, but we didn't have as much money tied to index investing. And I think that that is, that's going to create this tension and this stress. And I think that's why you see the potential for like some pretty market drawdowns, because there's so much tied to these indexes that, you know, it's, it's no longer an environment where you had prior to the GFC where you had a lot of active allocation. Now it's very much index tied.

[Michael Batnick]

But this idea that there's going to be like some sort of hard reset where the behavior investors, it's a slow bleed. But we.

[Shannon Sokosha]

Oh, you mean on the index, active versus passive.

[Michael Batnick]

Just that investors are going to start allocating differently. We've, we've experienced several challenges. In the first quarter of this year, Nvidia fell 37% again, going back to 2022. What happened? Like, we did all that. So I guess the obvious bear case, the real bear case, it's all in terms of will all of this spending translate into revenue and revenue that can be protected and expanded. So this chart, this looks like a soc gen chart. I'm sorry, I don't have credit for where this came from, but one of the bull cases for these tech companies is how capital light they were. The margins were so incredible. We haven't seen businesses growing at 20% with gross margins of 60%, 70% and higher in some cases. So this chart shows that the big seven, it's showing capex as a percentage of cash flow has, as we've known, gone straight up. So in 2015, it was 25% and now it's almost 45%, whereas the rest of the index, it is pretty capital intensive. Is the clock ticking? Like, at what point are investors going to ask, hey, where's the money, Lebowski?

[Shannon Sokosha]

I think we have this period where we're experiencing just like, you know, in Silicon Valley, where you just, you want to, you want to stay pre revenue. You don't actually want to have to start reporting how much money that you're making on these investments, because right now you're still, you know, you're still investing for the future, you're still investing for growth. And so I think the longer that these companies who've spent this much money are able to push out, that they're continuing to just build the foundation for growth and they're not being pressed by investors who, you know, we've, we've talked about the rationale by why those stocks get bought when they do, if they're not being pressed by their shareholders to articulate fully how this is being monetized. I think this can go on for a longer period of time because I don't think shareholders, I don't think investors are asking the questions. I think they are still in this. As soon as they start reporting, however, that this is, that this is translating. You've seen that in firms like Oracle, right? In terms of, you know, how is our AI, how are, you know, is our AI spending being incorporated into sales and are we getting that land and expand approach and we're getting more revenue dollars per customer. The hyperscalers don't have to answer those questions right now. Yeah, the companies that, the companies that are using AI are, are having to answer those questions.

[Todd Sohn]

I still use it to make cartoons.

[Michael Batnick]

So the largest AI firms are now spending 1.3 times earnings on capex. That is a lot. And at some point they're going to have to answer for this. And you're right, the longer the street gives them the benefit of the doubt, you don't want to disappoint. So it's a long way down.

[Todd Sohn]

That to me would be the catalyst for something to go wrong when they just stop meeting expectations and the costs don't make the ends meet.

[Shannon Sokosha]

All right, there have been questions though. I mean, Meta's seen some periods where there's been questioning on their spending and how that was going to translate to their particular business model. I think the other thing with this is that I just recall those periods where these same companies were under a significant amount of investor scrutiny for not doing enough with their capital, for sitting with cash on the balance sheet for extended periods of time before they paid dividends, when they weren't reinvesting, when they were talking about doing everything internally from an accelerator perspective. So I don't disagree with you, but I just, I think that there is, there's also the, the opposite, which is they're just sitting with this cash on the balance sheet. And I don't think that was tenable for investors either.

[Michael Batnick]

Is this yours?

[Shannon Sokosha]

Yeah, this is mine.

[Michael Batnick]

Yeah. So this, I mean, this is the point that you're just making.

[Shannon Sokosha]

Yeah, I Mean, I think, you know, when you go back into the 2010s and they were just taking out, you know, big tech, was taking out low interest rate debt and they were doing buybacks, I mean there was a lot of questions about why they weren't investing, why they weren't putting that money to work. And this is AI CapEx proxy. So I mean, obviously we weren't talking about AI in the 1990s, but if you think about the, the companies that are investing in AI now, this shows you kind of the growth rate of that spend. And you could argue that the 1990s you saw tech companies really benefit from that. Capex coming into the dot com bubble that went way down in the 2000s, but it was picked up by the rest of the market. So maybe again we're setting ourselves up for the spend has been done in the 2020s by these large tech companies and then the translation of value of that sort of happens in the following decade, which I think is what our, our thesis is and why the broadening out trade has longer legs.

[Michael Batnick]

So the boom in the bust, the boom in the 90s, the bust in the 2000s and then 2010, sluggish spending and now here we're all the way back. Remember it was like, I guess in 2013, 2014, it was all just like financial engineering talk. These companies just weren't spending, weren't reinvesting. I guess there was still a lot of PTSD from the, from the crisis.

[Shannon Sokosha]

But I think that continued for tech and well into 2014 and 15. I mean there was a, there was high bar in terms of, of tech company spending on innovation and, and what was really happening then? You think about, you know, what was doing well during those periods. It was a lot of the consumer, right? It was ad spend, it was iPhones, you know, so it was consumer related, which frankly probably doesn't require the same amount of spend as the, the innovation that we're trying to put into place today.

[Michael Batnick]

Here's something USCF filing.

[Todd Sohn]

Oil plus bitcoin. Yep. That made me.

[Michael Batnick]

Okay, this is like a backstory at a whole wheel of cheese. I mean, what in the world? So, all right, just to reiterate, there's an ETF out there that is launching and why not launch it? Who cares? Yeah, 100% exposure to crude oil and 100% exposure to Bitcoin. But who said, hey, wait a minute, you know what, I really need this.

[Todd Sohn]

This is the point, this is where energy is at and I'm going to put the bottom of energy Here, it's irrelevant.

[Shannon Sokosha]

Right on the table on that, Todd. I want to hear it. I want to hear it. I agree with you.

[Todd Sohn]

I can make a case for energy, but it's opportunity cost. So this is where we're at. We're just saying, all right, let's do oil and Bitcoin plus.

[Michael Batnick]

Bitcoin.

[Todd Sohn]

Yeah. I don't know. Maybe that's the bottom.

[Shannon Sokosha]

I think this is like. This is a geopolitical doomsday trade.

[Michael Batnick]

What do you mean?

[Shannon Sokosha]

Like Middle East, Russia, Ukraine, you. You. You know, just concern, like, you know, bitcoin store of value. Plus oil prices are going to shoot through the roof because of. Continue. I view this as, like, I could see some of my. I could see clients who are like, this world's going to hell in a handbasket. I can say hell, right? That's allowed.

[Michael Batnick]

Well, you know, you're right. If that's your outlook, that's.

[Shannon Sokosha]

That. That's sort of what I think this is. I actually think that that feels. And I don't disagree with you on the energy thing, but this, to me feels like somebody was like, we've got the bunker people. This is for them.

[Todd Sohn]

This +NVDL.

[Michael Batnick]

Here's another one from Baltunas where he gives you a hat. Tiptoed arc.

[Todd Sohn]

Oh, yeah, yeah. Do you want me to do the. Do you want me to recite the tweet?

[Michael Batnick]

Yeah. What's.

[Todd Sohn]

So. I love bantering, pestering Eric. He's one of the best. Ark the other week took in about $800 million in a day. And we were all like, huh, that's interesting. But then it turned out to be a tax rebalance. The money came out the following days. This is what you can do in ETFs. You bring money in, money goes out. It's a heartbeat trade. It's all for tax purposes. You don't generate capital gains. The last couple days, they've really taken in a lot of money. And Eric and I are both like, this feels like they're rebalancing again. They're doing a bigger creation unit, and it's just going to come out in a redemption unit the following days. Because think about ark. It's on a huge run. Outside of Tesla, a lot of the stocks in there have massive gains. Roku Roblox. Maybe not Roku Roblox, Coinbase, Palantir, Robinhood, they got it on circle. So I think what's happening is there's money that's going in, but this is going to come right back out because of Tax purposes. So it's not sentiment. I think this is more them using the ETF wrapper to avoid capital gains.

[Michael Batnick]

You know what happens all the time. You think about like stocks that have just had a monster run and we talk about them on the way up and then when they fizzle out, it's like, who cares? So I just checked Circle, for example. Circle is down another 8% today.

[Todd Sohn]

The circle of life.

[Michael Batnick]

It was. That's right. That's right, Todd. It was a high of $299. It's now at 140. Cut in half very quickly. Remember Figma a couple of weeks ago? And they're like, oh, they got. These bankers got the IPO wrong. They're ripping off their clients to enrich their other clients. Which never made any sense to me. It popped to $143. It is now at a pre IPO low of $76. So maybe whoever the bankers were actually got them as much money as they possibly could have.

[Todd Sohn]

Did you know Roblox is bigger than Apollo in market cap? Do your kids play Roblox?

[Michael Batnick]

Not yet.

[Todd Sohn]

Yeah.

[Michael Batnick]

Yours?

[Shannon Sokosha]

Never.

[Michael Batnick]

No. Good for you.

[Shannon Sokosha]

I held. I held firm on that. So.

[Michael Batnick]

Good for you.

[Shannon Sokosha]

It probably saved me a lot of money based on how successful Roblox is.

[Todd Sohn]

Just relating it back to the ark stuff like there's a big holding in Circle and whatnot.

[Shannon Sokosha]

Can we talk about. But do you think that is. That's IPO specific? I mean, I could give you my take, but I would love you guys take on. There's been this excitement around. We're seeing IPOs again and they're coming off and they're successful and then we're losing part of that narrative. Do you think that. Do you think that the most recent IPOs have been successful enough to create this re. Acceleration of public market listing? Or do you think that it's still. We're still further away from that?

[Michael Batnick]

I think there's been a backlog. Not. I think there has been an absolute backlog for the past couple of years. The window was jam tight. And anybody that's been waiting to go, now is the time.

[Shannon Sokosha]

And they've been waiting for a while, these ones. And I think. I don't know if investors, all investors realize that these companies that have gone public more recently have been waiting for years to do it.

[Michael Batnick]

It's not just. But it's not just IPOs. It's M& A. You brought some stuff. There's a lot of M and A activity going on as well.

[Shannon Sokosha]

There is. And I Mean, there's, there's probably more discussion of M and A than we're actually seeing, you know, closed deals, at least in the last couple of months. But if you, if you look at, for instance, like Goldman Sachs announced that they weren't going to do their second round of layoffs because activity has picked up from an I banking perspective. So, you know, you're seeing this tick and this is M and A announced transaction, so obviously not closures yet. But I think it's an important graph. The challenge is, is that I think we're in an environment where some of this is going to be impacted by rates as well. So I think some of this tick up is also in anticipation of a lower interest rate environment. So I feel like a lot of these cross currents that you started the show talking about this one, you know, this one could be impacted. Although I do think a lot of the M and A at this point is going to be large companies with, you know, plenty of, you know, capital market access and cash stores to be able to do these acquisitions. I think that's going to pick up faster than some of the smaller companies.

[Todd Sohn]

Listen, I hear you talking about M and A, we're talking about IPOs. And if I'm looking to diversify away from big tech, just financials. Makes sense. Makes sense to me.

[Michael Batnick]

They're working cap.

[Todd Sohn]

Capital market names up and down the cap scale have been great.

[Michael Batnick]

Nasdaq, ice, which I own.

[Todd Sohn]

Oh, the exchanges, too? Yeah, yeah, the exchanges are interesting because they're, they're data and they're getting into crypto. So it's another part of that, that segment. So if the financials are acting well, then the economy should be in pretty good shape, too. Big picture.

[Michael Batnick]

Does the, does it does give me a look here.

[Shannon Sokosha]

No, I'm not giving you a look. I'm going to let. Oh, go ahead.

[Michael Batnick]

No, you, no, no, no, you go. All right. How much does the labor market matter to investors today? Like, there seems to be like a minute a couple of weeks ago where claims were picking up and then sort of people stopped caring because they stopped going up, which is, which is a good thing. Can the stock market survive? What is a slowing, albeit whatever economy? Like, the economy is pretty man right now. It's not, it's not great.

[Shannon Sokosha]

I actually think that the, this is, this is sort of just what I've been trying to grapple with as I'm looking at payroll data. I think July was so bad and it was such a huge revision that I think investors are kind of taking a Step back and saying, and really saying okay, this is probably not like these are probably not the final numbers. Like there's gotta be. There's just so much noise in these numbers that I'm not going to base my decision making from an investment perspective perspective on this particular print because I'm going to need to see more data because this is so counter to the data that we had already received. I don't think it's about data accuracy or there was manipulation of that data. I think it's, it just comes down to the data that we're getting is, is based on smaller, smaller sample sizes. It's extrapolated out. It's just not as quality data on a month, on month month basis that we used to have in terms of consumers. However, you know, one of the things that we continue to look at is we look at the cohort between 16 and 25 and that unemployment rate is almost at double digits at this point. And so you can ask me what I think Will, if investors are concerned about the labor market, I think that companies that have more exposure to a younger demographic I think should be more concerned because that's where we're really seeing the impact of a slowing labor market is in you know, sort of pre 30 year old hiring.

[Michael Batnick]

Well you saw a lot of the fast food restaurants or the quick service restaurants get killed this week. Kava Sweetgreen. So the market is working like the companies that are missing trade desk is being disrupted in a serious way by Amazon and others. The companies that are under pressure where their business model is under pressure are getting annihilated. So it's not like everything's going up, it's the opposite is true.

[Todd Sohn]

Except for Cheesecake Factory.

[Michael Batnick]

Well Bespoke had a great chart earlier in the week showing that for whatever reason like dine in restaurants, even like the cheesecakes of the world versus the quick service. And I think that has a lot to do with people coming into the office or lack thereof.

[Shannon Sokosha]

I also, I think that there, I think that there are some really interesting demographic trends that are. And I think quick service is, is a great example. I think some of some travel will be disrupted based on kind of lower younger cohorts, you know, not being able to find jobs. I think that the type of retail from an apparel perspective, I think that certain stores will do better than others based on that, you know, Target. Is it fast fat? You know, I would be a little bit concerned about fast fashion.

[Michael Batnick]

What's fast fashion? Like Lulu?

[Shannon Sokosha]

No, like, like the Dan Ives, the H&S line. No, no, no. Like very, very, you know, seasonal kind of churn and burn. Low, low cost pieces that you buy from a seasonal wardrobe perspective. And then you, you don't care about the quality because you're not going to wear them again next season.

[Todd Sohn]

Party City, so. Or the Halloween. What if those Halloween stores are.

[Shannon Sokosha]

No, I mean, I think, but I, but I do think, I do think that that's where the labor market concerns are likely. The other thing though, and I would be interested to hear your view on this, is that I, if I look at the labor market and we've looked at this, I think that what investors are looking at is they're anticipating that A or they're attributing this weakness in the labor market to AI that people aren't hiring because they're substituting those jobs for AI. I actually don't know that that's probably the cause of this, but I can see where that attribution would come. And I think it speaks to some of the things we talked about earlier in terms of the tale of AI. Because if you think companies are changing their hiring practices because they're becoming so efficient at implementing AI, why wouldn't you continue to invest in that? But I think that's probably not the rationale around younger hiring not happening. I think there's probably some other factors, just like businesses being more conservative and discerning in this environment.

[Todd Sohn]

I think conservative's the right word. It's a politically volatile environment. Right. There's all sorts of stuff going on and I guess there's some fringe AI use cases. Right. You can get a robot to make your salad at Sweetgreen. So maybe that's also part of it. Just looking way out in the future. But I go back to the political volatility. I think it's just too much for certain companies to handle and they're just going to say, you know, let's just dial it back for a few years.

[Michael Batnick]

I think companies are using AI as cover to slow down their hiring. And I also think that it's real. I do buy it. I had a, I got a heartbreaking email earlier this week from a 25 year old financial professional who is sitting for the second level of his CFA. He has a one year old and he got laid off. He's an analyst and he said it was 100% because of AI. And the employers didn't say explicitly that, but they said, you know, with the tools that we have today, blah, blah, blah. I really don't like, I hate being Alarmist. But I do worry about the entry level rules because that is entry level jobs are grunt work. And grunt work is the first thing that's being replaced by a lot of these tools.

[Shannon Sokosha]

And there's already challenges whether it's student loans or the cost of housing in terms of household formation of those individuals. And so we're exacerbating that problem potentially by having a bunch of people come into the workforce that were geared for these types of jobs. These types of jobs aren't there. That doesn't fix itself in two to three years. People don't go to trade school. You know, all of a sudden it's going to take five to 10 years. And for a shift in some of these other trends that we're talking about, such as manufacturing, reshoring or automation, that's going to change. That doesn't happen overnight.

[Michael Batnick]

Isn't a lot of the work that you do being outsourced now to AI stuff?

[Todd Sohn]

Me? No. I don't think it takes a human to look at ETFs and what the heck is going on in them.

[Michael Batnick]

Oh yeah, anything.

[Shannon Sokosha]

I think that's funny because I actually, I think all of us, you can't be replaced. I think that I can though. Thanks a lot. No, I think some of the things that would take up time for me take up less time for me because I'm utilizing AI. But I think the. But I think everybody is going to sit here and say my job can't be disrupted by AI. I really feel like we should all. I agree with you on that point that we need to be introspective about what do we do that provides value that cannot be replaced. I think that is a. Is a conversation both individuals need to have with themselves. But also companies are going to have over time to think about how do we. Because companies would also argue that they're looking to incorporate AI in order to maximize the value added pieces of people's jobs. It's hard to bad value when you're 22 years old and you don't know anything about the industry you're entering.

[Michael Batnick]

Shannon, you have a chart showing us employment. This is a big part of the story, foreign versus native workers. And I have to ask, what are these charts? Where do you make these charts? What are we looking at here? I've never seen this before. Like yellow Are these. This is Excel.

[Shannon Sokosha]

What is this? No, this is our, our branding. So I make them. I make them at MB Private Wealth. We make them. I should say it's not just, it's not Me. So if it's our team, what's the story here? So, so one of the, we're, one of the long term things that we're watching is this shift in immigration and how it could potentially be inflationary over time. It got a lot of, there was a lot about this in November, December, January, that there was going to be this big shift in immigration policy and then tariffs hit and everyone's like, oh yeah, immigration on the back burner. Even though we continue to see obviously pretty meaningful shifts in immigration, I look at this primarily from an inflation standpoint. Longer term in terms of foreign born workers decreasing as a percentage of the population, native born workers increasing and the potential wage impact on that. I mean we have heard from industries, we hear from farmers who, you know, we hear specifically. I mean, I don't know if you saw some of the news coming out of like Nebraska.

[Michael Batnick]

I did see weapons. Oh, sorry.

[Shannon Sokosha]

So I think that one of the things that we need to think about is that if services inflation is truly what the Fed is most concerned about and you think about areas like medical care services, which was hotter in the CPI report that we just received, there's a lot of foreign born workers in that and ostensibly they have accepted lower wages over the course of the last number of years, particularly in the last, you know, as you see this chart here, you know, seven, eight years where this has really increased in terms of those workers. I look at this as an inflation issue and a labor supply issue and we're continuing to see that. So I think this is something where again, going back to specific industries, going back to specific sectors, companies, how, you know, how many entry level employees did they employ? How much of this could potentially be disrupted by AI which you know, could offset some of this decline. But I think this is important when you think about are we in a higher inflationary environment going forward? And I think that this is part of it because wage inflation is likely to continue to persist if we're hiring more and more native born workers.

[Michael Batnick]

So since Trump presidency, foreign born workers shrank by 3% and of course their cheaper labor, native born workers grew by 2%. So yeah, maybe some pressure on prices.

[Shannon Sokosha]

That's a pretty short time period to see that type of decline.

[Michael Batnick]

Yeah. What was the Nebraska story that you referenced?

[Shannon Sokosha]

Oh, you know, the inability to have enough workers to harvest and the fact that, that it's impacting state revenue collection because volumes are down. So. And the Nebraska governor I think came out saying that it was because, you know, there's a shortage of workers from A farm perspective.

[Michael Batnick]

Okay, Todd, you have anything to add on Nebraska?

[Todd Sohn]

Well, our guest, Sam.

[Shannon Sokosha]

Nobody cares about Nebraska. It was just an example.

[Todd Sohn]

My teammate who's joining us in the room here, Samantha, she covers Nebraska, so she's got firsthand boots on the ground type experience here. All right.

[Shannon Sokosha]

And I'm not wrong, right? No. No.

[Michael Batnick]

Todd and Shannon, thank you for hanging with us today. Before we get out of here, the new thing that we do is what are you most looking forward to? Shannon, what's up? What do you got going on?

[Shannon Sokosha]

Like, for the rest of the day.

[Michael Batnick]

Or life or just anything? What's up?

[Todd Sohn]

What are you looking forward to leaving here?

[Michael Batnick]

All right, Ty, what are you looking forward to?

[Todd Sohn]

I'm going on a family trip next week.

[Michael Batnick]

Where are you going?

[Todd Sohn]

Utah and Colorado.

[Michael Batnick]

Oh, hell, yeah.

[Todd Sohn]

Wife, My two boys. Then future Proof.

[Michael Batnick]

That's right.

[Todd Sohn]

And then the new Tron movie.

[Michael Batnick]

Oh, you're into that stuff.

[Todd Sohn]

Oh, I love that.

[Michael Batnick]

Jared Leto's in it.

[Todd Sohn]

Well, yeah, that part I don't know, but Jeff Bridges.

[Michael Batnick]

Jeff Bridges is back.

[Todd Sohn]

Yeah, it's Tron.

[Michael Batnick]

And are you excited for Blue's Traveler opening for Bush?

[Todd Sohn]

I will be. Have left by then. Oh, sorry.

[Michael Batnick]

Where are you going?

[Todd Sohn]

I gotta go back to Vancouver.

[Michael Batnick]

Get.

[Todd Sohn]

I'm not joking. I'll be in Vancouver twice in a month.

[Michael Batnick]

Unbelievable. Leaving Canuck. All right, Shannon, what are you looking forward to?

[Shannon Sokosha]

I'm excited to, as I always do, eat at Land Ho in Orleans on Labor Day weekend.

[Michael Batnick]

Why do you always do that?

[Shannon Sokosha]

It's just a thing we do. That's what we do. We spend our weekend down there. And my son starts high school in a couple of weeks, so I'm really excited for him and him taking on that new challenge. And I'm gonna try to figure out what he should be studying so that when he graduates, he can enter into this increasingly difficult job market.

[Todd Sohn]

Is he athletic?

[Shannon Sokosha]

He is athletic.

[Todd Sohn]

Maybe that's it.

[Shannon Sokosha]

He plays golf and baseball.

[Todd Sohn]

Yeah. I can't replace athletes.

[Michael Batnick]

Not yet. All right. This was fun. Thank you so much, listeners. Thank you for listening. Josh will be back with us next week. We have a very special guest next week. It's not Dan Knives, but it's, let's say it's Dan Knives adjacent. Thank you for listening. We'll see you next time.