Why the Knockout Punch Never Comes With Brian Levitt

Summary

Podcast Summary: The Compound and Friends

Episode: "Why the Knockout Punch Never Comes With Brian Levitt"

Date: June 12, 2026
Host: Downtown Josh Brown, Michael Batnick
Guest: Brian Levitt (Chief Global Market Strategist, Invesco)

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Overview

This episode dives into the recent dynamics in the stock market, focusing on the dominance of AI-driven growth, concentration risks, market sentiment, and the perennial investor expectation for a dramatic "knockout punch" event to topple bull markets. The group discusses why such dramatic downturns rarely play out as expected, the lessons of market history, and how the economy and investors adapt to new realities such as AI and mega-IPOs. Special guest Brian Levitt offers his perspective on market participation, risk, policy drivers, and the broader economic backdrop.

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Key Discussion Points & Insights

1. Market Concentration & the “AI or Nothing” Trade

[13:27 – 15:21]

• The first half of 2026 is marked by extreme earnings and performance concentration in AI-linked companies, even reaching into non-tech sectors (e.g., utilities, materials).
• Many S&P 500 stocks are negative YTD, despite the index being up overall.
  • Josh: “If you find a stock up 20% on the year… it’s probably AI related.”
  • Michael: “It’s so obviously the AI or nothing bull market.”
• Brian Levitt: Sees broadening earnings growth in other sectors starting; policy shock (Iran war) disrupted this trend two years in a row.
  • “We were at a point where we expected markets to broaden out ... a policy decision disrupted it.”

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2. Policy Shocks, Inflation, and the Fed

[16:20 – 21:07]

• Oil price spikes (from Iran conflict) and ensuing inflation expectations derailed market broadening and led to renewed Fed caution.
• Brian: Believes oil and interest rates have peaked, inflation expectations are stabilizing, and the Fed could return to easing when risks subside.
  • “I’ve never been concerned about the headline number. I’m far more concerned about what the bond market is telling us about inflation.”

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3. Volatility Drivers: Policy vs. Earnings

[24:00 – 25:26]

• Market volatility typically arises from policy uncertainty, not sudden earnings shocks.
  • Brian: “Isn’t it always the result of policy uncertainty? ... It’s not the earnings side … you adjust the discount rate, at some point you’re going to have volatility.”
• Panel agrees: investors should prefer geopolitical/policy noise over negative earnings surprises.

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4. The “Knockout Punch” Myth & Investor Psychology

[29:27 – 33:54]

• Most investors expect a dramatic event (Lehman-type failure) to spark a bear market, misunderstanding how cycles really work.
  • Josh: “The average investor is looking for a knockout punch … they think some news event is going to punch the market in the face.”
  • Brian: “They think … such and such thing is going to happen, which is then going to put us in a bear market. But the reality is we are much more susceptible to a real knockout punch once we’re already in a bear market.”
• Recessions and crises are typically the culmination, not the origin, of declines.

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5. Are Investors Taking Too Much Risk?

[26:04 – 28:13]

• Contrary to common fears, neither professional nor retail investors are “too exposed”; equity allocations are reasonable versus historical norms.
  • Margin debt is high, but largely due to strategy (borrowing against appreciated portfolios) and overall market levels.
  • Brian: “You have to recognize that basically what you’re signaling here, it’s not a timing tool … margin debt would be at a high with the market at a high.”

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6. Value Rotation & Comparisons to the Dot Comm Bubble

[36:16 – 41:40]

• The group debates Savita Subramanian’s (BofA) call for profit-taking in tech and moving toward value/cyclicals, drawing comparisons to 2000’s tech bubble.
  • Brian: Rotation arguments were valid, but policy and global shocks (e.g., Iran war) keep interrupting.
  • Market breadth and sectoral dispersions match dot-com peak extremes, but structural/economic conditions differ (i.e., policy easing now rather than late-stage tightening).
  • “What you had in 2000, you had a rate tightening cycle. ... The positive coming into this year was stimulus.”

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7. Consumer, Wealth Effects, and Economic Resilience

[42:13 – 46:45]

• Despite macro headwinds (inflation, energy, housing freeze), household net worth is at all-time highs, household liabilities are low, and high-income earners keep fueling growth.
  • Brian: “The fundamentals of US households are far better than people think.”
• Panel agrees: $4.50 gas pinches the bottom, but doesn’t dent major S&P 500 earnings.
  • Josh: “The bottom 20%, a lot of their spending is government subsidized ... the S&P is unfazed by that.”

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8. IPOs, Liquidity, and Bubble Signs

[48:39 – 56:56]

• SpaceX’s IPO and similar mega-offerings spark discussion of market froth, “crowding out,” and systemic risks.
  • Populist narratives (“AI bubble is coming for your retirement account”) are dismissed as overblown.
  • Josh (re: oversubscription): “The oversubscribed s—t is fake.”
  • ETF/index effects likely muted as new large listings will be capped by float-adjusted methodologies.
  • Brian: “This is not the level of IPO activity that you would normally deem to be speculative.”

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9. What Really Matters For The Cycle

[59:55 – 61:35]

• Brian’s recession/cycle checklist:
  • Credit spreads
  • Bank lending standards
  • Strength of the dollar
  • Inflation expectations
  • Leverage
• PE ratios and strategist targets are not useful for cycle timing.
  • Brian: “Where I would use a PE ratio is if I was making a 5 to 10 year return expectation.”

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10. The Real AI Opportunity: End-User ROI

[61:35 – 66:51]

• Panel discusses the real value of AI: end-user companies (e.g., Travelers Insurance) seeing margin/earnings gains from deploying AI, not just the “picks and shovels” suppliers.
  • “What if the real trade all along was investing in the most talented consumers of AI as they out distanced their competitors in earnings growth?”
  • Brian: “Corporate profitability, number of employees is historically high and that’s only gonna get better … we’re starting at this from an environment where … it’s only going to improve.”

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Notable Quotes & Moments

• Brian Levitt on investors’ bearish impulses:

  “There’s just too much of a news flow. ... If you took a step back and said: Earnings are good, credit spreads are tight, inflation expectations are contained, … there’s not a lot in here that would suggest we’re in a danger zone.” (29:27)

• Josh on how bear markets really start:

  “Lehman went under because of the bear market. … The knockout punch comes as a consequence of the terrible environment that we have already found ourselves in for quite some time.” (30:02)

• Brian Levitt on cycle indicators:

  “I look at leverage, inflation expectations, Fed policy, credit spreads, bank lending standards. That’s my cycle analysis.” (60:04)

• Josh, on AI as a true economic shift:

  “Right now, for most people, their experience with AI is prompting and asking for something. … You’re talking about waking up and seeing the results of what your AI did for you overnight.” (66:29)

• Michael Batnick, on retail risk-taking:

  “Somebody that’s made a thousand percent in AMD is, is hearing me say that they’ve been lulled into complacency, like, ‘Hey asshole, I’m up a thousand percent.’” (35:21)

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Timestamps for Key Sections

• [13:27]: AI Breadth, S&P Concentration Discussion
• [16:20]: Oil, Fed, inflation effects
• [24:00]: Volatility: Policy vs Earnings
• [29:27]: Knockout punch myth, investor psychology
• [36:16]: Market rotation & dot-com analogies
• [42:13]: Consumer & household wealth
• [48:39]: IPOs, market “froth,” & ETF ramifications
• [59:55]: Recession/cycle indicators that matter
• [61:35]: “Consumer-AI” as the next market phase

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Tone & Language

The episode maintains the signature Compound and Friends spirit: casual, candid, and sharp, blending market expertise with familiar banter and analogies. Speakers poke fun at market tropes, bring in personal stories, reference sports and pop culture, but remain rooted in deep market analysis.

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Closing Moments

• Personal highlight: Brian shares excitement for his daughter’s high school graduation (67:17).
• Podcast plug: Check out Brian’s “Greater Possibilities” podcast.

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Summary for Non-Listeners:
This conversation offers a timely reality check for investors—urging less focus on headline drama and more attention to enduring market signals. The team dispels common myths about how market cycles turn, warns against interpreting every big IPO as a bubble signal, and highlights the profound but measured shift AI is bringing to the economy. Their mix of humor, history, and actionable analysis makes the episode both illuminating and approachable.

Transcript

[A]

I yelled at the guy at the bakery today. Downstairs.

[B]

Here.

[A]

Yeah. I go. I'm in there every week on Thursday, I have no time for lunch, so I get a stupid blueberry muffin and a black coffee. To wake up. They have. They ring me up. They have no blueberry muffins. Okay, fine. What do you have? Lemon poppy. Of course you do.

[B]

Who wants lemon poppy?

[A]

Who would buy that?

[C]

Fine.

[A]

I don't care. I get upstairs. I realize the coffee is ice cold. Like, undrinkably cold.

[B]

All right, so you microwave it.

[A]

I emailed. I never do this. I email a guy. I'm like, yes, he does. No, I don't. Here's. No, I don't. I just let it go. I'll just never go back. I'll never go back. But I'm like, what do you want? What do you want to do here? You know what I mean? Like, well, I'm in there every week. What are you emailing the owner? I found the owner. I found the owner's email address.

[B]

I was telling. I was telling Josh. I was speaking an hour ago about how I'm trying to be nicer.

[A]

Lemon poppy muffin. Can you imagine?

[B]

Just in life, just generally speaking, you know, like, just give people and not assume the worst.

[C]

Always feels good to be nice.

[B]

Trying to be nice, and Josh going the other way.

[A]

So the gloves are off.

[B]

Brian. But, Brian, it's hard because last night, for example, I was at the Knicks game.

[C]

So jealous, by the way.

[B]

Well, I left. This is my redemption. I left game one of the Cav series when we were down 22.

[C]

No, you didn't.

[B]

I did.

[C]

Okay?

[B]

I did. Um, and last night. And listen, I. I think that people are trying to be nice. They're trying to, like, be in on the action, right? It's fun. Like, oh, Michael's at the game. I'm. He's. I know he's a big Knicks fan. Uh, are you at the game? But, like, I had a few people text me, like, acquaintances. Are you at the game? This is when we were down 25. Are you at the game? Yes. Yikes. Yikes, dude. Right? Like, why would you do that?

[C]

I don't feel bad enough already.

[B]

Why would you. Why would you say that to me?

[C]

Right.

[B]

So, anyway, I appreciate all. What do we.

[A]

What do you think they think the reaction's going to be?

[B]

I gen. I don't know.

[A]

I think anyone wants that text.

[B]

No, I. I don't think. I don't think that they're thinking that. Oh, like, maybe, like, Michael is a genuinely Die Hard. He's probably not having a great time right now and. Or the people that are texting you like during the game are probably not thinking like maybe just let him enjoy the game. His phone is probably blowing up. So I do. It's nice. Like people are trying to be nice. So I do appreciate that they're trying

[C]

to connect with somebody at the game.

[B]

I'm trying to not be like, you know, be nice. But I really appreciate all the people that didn't text me. Right, right. That just like, let me be.

[C]

Yeah. Don't. Don't contact me. I'm miserable.

[B]

Anyway, so last night was, it was like my wedding night. Best night in the sense that it was. No, let me, let me, let me go on.

[A]

So nothing happened.

[B]

It was, it was just a euphoric blur that I woke up and I was like, what the. Like, so I need to, I need to record the game. I, I recorded the game. I'm going to watch it when I get home tonight, the fourth quarter, because it happened so fast that in the moment I just completely. It was an out of body experience.

[C]

Of course, of course. I was just doing math the whole night. Right. Like how, how much are we down? How much are we, how do we get there?

[B]

So here's what happened. I heard Will Bond say this this morning in terms of like. Cuz literally, how did that happen? Right. They were up 29 points. How did they blow the lead?

[A]

They hit eight fields in the second half.

[B]

That's how it happened. No, here's how it happened. Specifically. They took 12 threes in the second half with more than 10 seconds on the clock, which is coaching malpractice.

[C]

Right.

[B]

And you're on 20 points. You cannot take threes with 10 plus seconds of the shot clock. And they made one of those shots.

[C]

One of those shots and they. De' Aaron Fox went for the layoff with 11 seconds. I mean that's just, it's. Yeah, it's malpractice.

[B]

Boner of the decade.

[C]

Malpractice.

[A]

What's weird is that they're not a poorly coached team. Like the spurs are not. Up until, up until what we saw last night.

[C]

Right.

[A]

I wouldn't say that they're expertly coached, but that's, that's like a very weird series of things that most teams would never do.

[C]

I think they were trying to step on the throat.

[B]

They weren't.

[A]

They went for it.

[C]

Right? They went for it. They weren't resting. Wemby, just step on the throat. Let's, let's get this done and get on to Game 5.

[B]

And they missed a lot of open shots.

[C]

They did well. They were lights out in the first half.

[A]

They played every minute of the game except for one minute one. They rested them one minute. Right.

[C]

But you could tell by the end

[B]

they were, they were. They were missing open shots. So they were good looks. But the other thing is, and I didn't watch the game, rewatch the game yet. I think they only called one time out in the fourth, which is crazy. Like, how do you not stop?

[C]

You've got to stop the momentum immediately, immediately, immediately.

[B]

We hit another three. Timeout. Josh Hart's three at the top of the key to put it down 15, I think. Timeout. And they did it once. It was inexplicable. Anyway, so Knicks fans are psychos. I was telling Brian. So I got my tickets to OKC and San Antonio a month ago, just in case. And so they ran out of direct flights. Now it's like the one or two stops to San Antonio. You go through Orlando or Atlanta, whatever, then that gets sold out. Then people are flying into Austin. Jonathan Boyard texted me this morning, he's going into Houston. I said, why are you going to Houston? It's a three hour drive. Go to Austin. It's like, dude, there's no fights. There's more flights to Austin.

[C]

Yeah, yeah.

[A]

I would, I would imagine that that arena will be 30% Knicks fans.

[C]

Mike was saying higher.

[B]

Well, I said no last night.

[C]

Oh, last night was.

[B]

Last night I saw that 40% of the sales on tick pick or 30, it was 37% were from new Yorkers.

[A]

Excuse me. On what tick pitch. So I, I was at, I was at one of the Philly games. I would say 40% Knicks. Conservatively. Like my entire section was Knicks. People that live in Philadelphia that are originally from New York, people that came from New York, people that came from other places that are Knicks fans to Philadelphia. San Antonio is further than Philadelphia. I honestly don't even think it's going to matter.

[C]

It's not going to matter. And if you think Knicks fans or New Yorkers were insufferable before this, just wait.

[A]

Yeah. Now, do they sell, do they sell Timothee Chalamet front row seats?

[C]

Probably not.

[A]

I don't know.

[C]

They pushed. They put him back a row. Right.

[A]

Who are the San Antonio celebrities? Like Yosemite Sam? Like, I don't even know who the would be in that front row. Oh, honestly, like, I'm trying to. I'm trying to.

[C]

J.R. ewing.

[A]

No. Davy Crockett.

[C]

Davy Crockett.

[A]

Like, literally the Alamo.

[C]

The Alamo, yeah.

[B]

Last night there was. I saw.

[A]

Oh, Tim Duncan.

[C]

There you go.

[B]

No, he sits up top with Pop. I saw. And I was one of them. There was a lot of people crying. Like, it was even this emotional this morning. My wife is like, you're crying again.

[A]

Again.

[B]

It's just. It was. It's a lot. It's a lot to process.

[C]

Well, it's like his wedding night.

[B]

Yeah. Yeah.

[A]

Cried on your wedding night, too. I've been told I did. All right, round of applause for Michael Batik. His dreams are coming true right before our eyes. I'm a Knicks fan, but Michael is a Knicks fan. You're like, almost. You are a Knick. It's at that level. All right, miss the call. Get a good one of me this week. Wait, wait. Come back, come back, come back. Let's do. Let's be.

[B]

That was a failed intro. I don't think we've had that before.

[A]

Let's be deliberate. Let's be deliberate.

[B]

That was a coaching malpractice.

[A]

All right, come on. I want to get a good picture because I'm always looking to the side. Everyone always says you still are. Yeah, you're getting, like, these profile shots of me. Like these Alfred Hitchcock esque profile shots. I'm much better. Head on.

[B]

Let's go. Let's go.

[A]

All right, let's do the show, John. Click it up. Let's go.

[B]

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[A]

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[B]

Try Fidelity's most powerful trading platform [e-mail] TraderPlus, Fidelity Investments and the Compound are not affiliated. Views, opinions, products, services and strategies discussed are not endorsed or promoted by Fidelity Investments, but Brokerage Services, LLC member NYSE SIPC.

[A]

This episode is sponsored by ClearBridge Investments. Amid Rising geopolitical tensions and continued market uncertainty, investors are looking for stability even before recent developments in the Middle East. Stocks backed by Real assets were gaining momentum and can offer more predictable cash flows as volatility increases. Position your investment portfolio for wider equity participation with fundamentally driven Clearbridge active equity strategies. Clearbridge, a Franklin Templeton company. Go to clearbridge.com to learn more. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael

[B]

Batnik and their castmates are solely their

[A]

own opinions and do not reflect the opinion of Ritholtz Wealth Management.

[B]

This podcast is for informational purposes only

[A]

and should not be relied upon for any investment decisions.

[C]

Clients of Ritholtz Wealth Management may maintain

[B]

positions in the securities discussed in this podcast.

[A]

246. Go New York. Go New York. Go you guys. We have an. We have a brand new guest with us this week. First time listeners, first time viewers. My name is Downtown Josh Brown. My co Host as always, Mr. Michael Batnik.

[B]

Hello. Hello.

[A]

The whole Compound team is here. John's here, Nicole's here, Duncan's here. And we are blessed. We have Brian Levitt in the house. Brian is the chief Global market strategist and head of strategy and insights at Invesco. Welcome to the show, Brian.

[C]

My pleasure. Thank you for having me.

[B]

Hell yeah.

[A]

Brian joined Invesco when the firm combined with Oppenheimer funds in 2019. He started at Oppenheimer Funds in fixed income product Management in the year 2000 and then moved to the Macro and Investment Strategy Group in 2005. He also attended in person the 1970 Knicks Finals. Is that what you told me before?

[C]

I think my father. All right, dude.

[A]

It's a pleasure to have you.

[C]

It's my pleasure to be here. Thank you.

[A]

It occurred to me, I don't like, Invesco is such a huge brand in our business. Everybody knows the cues. Everybody, of course. But like just in a nutshell, what is the Invesco superpower? Like, what do you guys. Besides just the cues? What do you think you guys stand for? And what do you think is the thing that sets you apart in the asset management world?

[C]

We offer a significant array of great products. We're one of the largest ETF shops in the industry. Private market business, Active Fundamental Equity, a large fixed income business with a big municipal bond shop. So we, we offer products that serve our clients. I mean, we. If. If you're looking for it, we likely have it.

[A]

Okay, and you have been there since almost the beginning. Like, what's the origin of the firm prior to its current incarnation?

[C]

So I was with Oppenheimer Funds. I was with Oppenheimer funds for almost 20 years. And we were acquired by Invesco in 2019. And if Invesco is. There's some pretty big names that are now part of Invesco. Whether that was aim, whether that was Van Kampen, you know, some names that investors know for, you know, a variety for a long amount of time is under the Invesco umbrella.

[A]

I think I can reveal this without getting anyone in trouble at this point. Certainly the statute of limitations has run out. The funny thing about Oppenheimer funds, from my own personal experience, and you probably know this, is that there was a brokerage firm totally related, correct?

[C]

Oppenheimer and Company. Yes.

[A]

Okay, good guys. But I knew a lot of Oppenheimer brokers who would pitch Oppenheimer funds and give the client the impression like that, oh, that's funny. These are our funds.

[C]

So we had a difference. So you remember when Meredith Whitney made the big call on the banks? She was Oppenheimer and Company.

[A]

When it was like cibc, Oppenheimer or whatever.

[C]

And people would call us looking for Meredith Whitney.

[A]

Right.

[C]

And we would say, well, she doesn't work here.

[A]

She doesn't work.

[C]

She doesn't work here.

[A]

Yeah. Can you believe it? There's two different Oppenheimer companies on Wall Street. Right. Okay. All right.

[C]

Everyone's confused.

[B]

One of them were to change their name, which one would it have been? Which was the real one?

[C]

We were the funds. Was the real one, Right? Totally the real one.

[A]

All right.

[C]

The right way to invest.

[A]

Shout to shout to Oppenheimer.

[C]

Just. Just a blessed memory.

[A]

Yeah, Just. Well, you are Oppenheimer, but the other one's still here. All right, let's start with this. The most crowded trade in the market. Michael, take it away.

[B]

So, you know, I just want to say, people see me typing on my computer sometimes while Josh is talking. What is he doing? Is he texting? He's no.

[A]

Doing well, screw up on. Right.

[B]

So I was just looking at Apple, probably really of nothing that we're about to speak to, but one of your. One of the suites of ETFs that I love to look at are the equal to ones, not just rsp, but, like, all of the other ones. So I was taking a screenshot. I asked Claude how much. How much money is in these funds total? And it says about seven and a half billion dollars. I don't know if that's higher or lower than I would have, like, the equal weight technology, the. The staples. Because we look at RSPS all of the time, Right? All of the time. Because XLY is a hugely flawed product, I think.

[C]

Yeah. And you Want to get a sense breadth of the market. Right. You're following it. How, how is it performing relative to the market cap? I'm watching it all the time also.

[B]

Yeah, so anyway, we're fans of that. Okay. So not that this is news to anybody, but this is so obviously the AI or nothing bull market. And I don't just mean the stocks and their prices, if you look at the actual earnings. So this is from Jim. Jim Paulson. Char down please. John. The S&P 500 new era sectors trailing 12 month EPS. And we could understand, you know, we all know what's in there versus the old sector trailing month EPS. And this goes back to 2022. So. So he said many investors suggest the bull is doing fine because S&P 500 earnings continue to rise. While this is true, earnings for most companies are actually below where they were at the start of this bull market. So I would ask you, I think probably the interpretation is that this is bearish because it's only one area doing all of the heavy lifting. What if the red line forget about, catches up, but what if that gets, gets a lift from all the AI productivity?

[A]

Right.

[C]

And I think it's starting to happen. If you actually look at the first quarter of this year, you had earnings across most sectors posting very strong gains. So it was 7 of the 11 sectors posting double digit earnings, 9 of 11 positive earnings growth, or maybe even 10 of 11 positive earnings growth. So it is broadening out. The interesting thing, for the second year in a row, we really were at a point where we expected the markets to broaden out and it was starting to work two years in a row, a policy decision disrupted it. So you've seen other parts of the market, you've seen small cap earnings start to pick up and the markets have responded. But yeah, I mean it's a, it's an environment where the world is adjusting to a very substantial structural change that I think even goes beyond what investors had anticipated in the beginning of the year with regards to the AI build.

[A]

The S&P is up 11% year to date. Ish. The Mag 7 are negative on the year as a group. If you equal weight them. Very strange. And then I, I read 40%. I didn't double check it. I should have. 40% of S& P stocks were negative on the year. So to Michael's point, there's extreme concentration happening in this AI CapEx story and it does touch a lot of sectors. Think about it, like utilities are in there, materials are in there. Like materials are in there. So it's not just tech, but it's one story. Like if you find, if you find a stock up 20% on the year, if it's not a biotech that just got approval for something, it's probably AI related. And I think that's the. When we say like the most crowded trade, well, why is everyone crowding in there? It's literally where the earnings growth is and it's where the revenue growth is. And why wouldn't they want to own those stocks? So that's the story to me of the first half of this year. What do you take issue with any of that or.

[C]

I don't, although I would say there's really been two stories that have unfolded since the beginning of the year. You had the first one. And if we look at our leading economic indicators, the global economy moving into an expansion while the Federal Reserve is going to lower interest rates. So that's quite bullish. And that suggests broader market participation. If you think of the first few months of the year, we had a nice feel of that. You had a pretty decent environment going on. The war in Iran stopped it. Yeah, the beginning of March, similar to the way Liberation Day stopped it in 2025. So when I say two years in a row, we made a policy decision that disrupted it. What do other parts of the market need? Like if you're going to be in a slow growth world, everyone's going to keep bidding up growth where they could find it. If you can get in an environment where you have fiscal stimulus, Fed cutting interest rates, global economy picking up, that's when more companies can participate. So we stalled it here for certainly parts of the S&P 500. But I wouldn't underestimate small caps doing well this year. Emerging markets, of course, emerging markets.

[A]

What do they, what do they need?

[C]

What do small caps need?

[A]

What we're going to talk about some. You wrote about bear market narratives and we're going to touch on that later. So I don't want to step on that. But what do we need to see in the second half? The resumption of what you just pointed out. We had this broadening trade two years in a row. Something weird happened in the spring out of nowhere, stopped it dead in its tracks. And we went back to a AI

[C]

it went to slow growth.

[A]

What do we need to reverse that so that we're not looking at 40% of the market negative on the year? Like what has to happen?

[C]

Oil prices peaking, which I believe they have, interest rates peaking, which I believe they have. Inflation expectations. Peaking and a Federal Reserve that can get back on its easing stance. So a lot of that has to do with the straight up removes what's going on with Iran and can we get past that? So the good news from a, from a market perspective is the market's moving on if we think about each of those things peaking, but you need the real economy to get support from that. So the market is believing we're gonna get to a better place. When you think of oil inflation expectations rates coming down, but the broad macro backdrop is weak as a result and the Fed's on hold as a result.

[A]

So there's two interesting things happening at once. I'd love to get both of you guys what you think. The oil price spike from the Iran war, it's like it really threw a monkey wrench into everything because it did two things. The first is obviously it screwed up the broadening trade.

[C]

Correct.

[A]

And it took a whole chunk of the market down. And these were stocks that were starting, we were starting to see the 52 week high list expand and that totally went into reverse. So it did do that. And then simultaneously it raised inflation expectations. Even though oil is one input, it kind of brought like CPI back into the focus again. Correct. It knocked the Fed rhetoric on its heels. And so the whole housing component of the stock market, throw it out, forget it.

[C]

Financials, you're going to flatten the deals.

[A]

Financials got kneecapped. Real estate, like real estate up until recently. There's some weird reasons why insurance, like all of these different categories of stocks and they're huge categories of stocks got blown up by this oil price spike. And so I feel like if that

[C]

goes into reverse, that goes into reverse,

[A]

it would make sense to see people say okay, great, it's game back on

[B]

what's happening right now. Look at this chart. So this is Russell 2000 divided by the S&P 500. And this thing is, looks like it's cooking. It looks like a major, major breakout is coming.

[C]

Correct. And that's the peak in oil prices, that's the peak in inflation expectations. I mean the reality is you get a CPI report a few days ago and investors worry because it's what, 4% or so? I mean where did we think it was? We knew that's where it was going. I've never been concerned about the headline number. I'm far more concerned about what the bond market is telling us about inflation. And coming into the year you had a five year break even probably around 215. Right. That's, I like That I can sleep very well at night with a two year, with a 215 break even, you move to 265 or so. That starts to get a little bit worrisome. We're back at 250. And so the bond market's telling you you have price stability, which means you're not going to get rate hikes.

[A]

Right. We don't have wage growth as a component of the inflation. No, that's not what's happening.

[C]

Not what's happening. You have a price shock.

[A]

That was the problem we had four years ago. We don't have that today. No, we have the price shock. Right, okay. Right.

[C]

And if you think about when the problem became more critical five years ago or in 2022 was when the five year break even broke above 5%. Yeah, that's, I mean, I'm sorry, 3%. That's the five year goes above 3%. That's the problem. You have to start tightening interest rates. We know when you tighten interest rates, bankers tighten lending standards, credit spreads blow out. That's how end of cycles happen. That's not what is.

[A]

If we were, if we were to end the year today and somebody would would say, use one word to describe what worked in the markets in 2026, what word would you use?

[B]

AI.

[A]

What would you use?

[B]

Memory.

[C]

Growth.

[A]

Momentum. Momentum.

[C]

Yeah.

[B]

Ah, yeah.

[A]

Which brings, which brings us to chart 2.

[B]

It's anonymous. All of the momentum is AI. But go on.

[A]

It's, it's synonymous, right? It's, it is, it is.

[B]

It's all AI. So this is from. There's a, there's a, there's a guy called the Daily Chartbook. That's not his name, but he happens to write a research piece called the Daily Chart Book. And every day he puts out 30 or so great charts and this is one of them. So we're looking at the momentum crowding score. I don't know how Barclays exactly calculated this, but whatever. It's at the 90th percentile. And so on Friday we got a very quick unwind of this. By the way, the unwind has now rewinded like DRAM. The ETF is up 12% today. So chart kid, we have a chart kid, he's an artist. Chart 3. He made a chart. I said, hey, you know what? I think this is a great way to visualize what just happened when he'll

[A]

become a chart on Friday through, on

[B]

Friday through Wednesday, the stocks, I said, take a look at the stocks that were the furthest distance above their 200 day moving average and plot that against what happened over the last four day period. And it's a very clear story. The stocks that were the most extended, so on the Y axis you see how far they are away from their 200 day moving average. So micron was 150% away from its 200 above its 200 day moving average. Yeah, people were a little bit drunk and they needed to sober up and they got a little bit of a slap on the wrist. So I thought that the sell off last week was long overdue. Very much needed. I don't think that, I mean, I definitely didn't think that we would bounce in two days. I thought it would maybe last a week, two weeks, but we needed it.

[A]

May I?

[B]

Yeah, go ahead, Cook.

[A]

Okay. Not everything is AI this is Casey's General Store, which is an outlier because it had an amazing earnings report. No AI Literally selling pizza in gas stations in the Midwest. Okay, so not everything, but.

[B]

No, no, no. But that is the exception. Like you said. Look at all of the bubbles. Those have, those have one thing in common.

[A]

Wdc, Dell, intel, sd, Those are all

[C]

AI but let's make it, let's make an important point to investors. I mean, investors are always asking me when I think volatility is coming or when I think a drawdown is coming.

[A]

Yeah, I think it comes up on that too.

[C]

Well, it's almost. Josh, isn't it always the result of policy uncertainty? I mean, isn't that when it always comes back in. So you, what happened on Friday? I mean, I guess we're going to, you know, we don't have a deal with Iran. All right, so there's some policy uncertainty there, but we've been doing that for weeks now. But we got 175,000 non farm payroll number which by the way gets revised 57,000 in either direction. So the last thing I want to do is freak out about a payroll number. But all of a sudden the market wants to raise expectations of one or two Fed rate hikes. So you start to get some of that uncertainty into the market and you get a sell off. I mean, it's not the earnings side. We talked about that, right? Earnings have been great. So you adjust the discount rate, at some point you're going to have some volatility in these markets. But I'm still in the camp and I've said it already, I don't believe that we're in a persistent inflation environment. And I don't believe the Fed's raising interest rates.

[A]

I think what you raise is Such an important point because if not that we get a choice but if, if you, if you were to get a choice, what is going to be the source of the market volatility? Door A, Nvidia just pre announced to the downside. Okay, any other door Door B is Donald Trump versus Iran goes in a weird direction. Like you would take door B every single time.

[C]

Correct.

[A]

Nobody wants door A. And the good news is we don't have door A right now.

[C]

We don't. Or if there's a door C, I would think it would be some hint of stagflation which I always think is silly. This is not stagflation. This isn't stag or flation. Sounds like Linda Richmond on Saturday Night Live.

[A]

Right, Discuss, discuss, talk amongst yourselves.

[C]

But yeah, it's not stag or flation. But that's, I mean I probably talk about inflation breakevens too much right now but every cycle there's something new I'm laser focused on. Right. We all are in 08 interbank lending spreads, 2020 vaccination rates. To me that's the story right now with oil where it is. As long as we have price stability, this cycle is going to keep on going.

[A]

Are investors taking too much risk?

[C]

No, I don't think investors are taking

[A]

too much risk as a group. I know it's hard to lump everybody. You don't think so?

[C]

No. And I.

[B]

Which investors is the question.

[C]

Yeah, I mean.

[A]

All right, let's start. I don't think professionals are taking too much risk right now.

[C]

I don't start with.

[A]

Let's start with that.

[C]

Yeah, I don't think so. And I think individual investors are still very concerned about this I hear, you know, at least anecdotally or if you look at the bulls minus bears indices, I mean you have people who you know, get quite bearish very quickly when these types of events come around. So I don't think we're over exposed to equities. Actually if you break down US households equities, fixed cash, you're pretty much in line with, you know, you're pretty reasonable in terms of what percentage you have in each.

[A]

Let's do the margin debt chart. So this is friend of the show Liz Thomas, huge fan of Liz's. I don't agree with the conclusion though that she's said I remain bullish but not with my head buried in the sand. Margin debt looks high at the moment. Investors don't seem afraid of heights. She's showing she's doing it right. She's not showing she's it. At least she's not doing the dollar amount of margin debt, which drives me crazy. She's doing it right. A percentage of money supply. M2. I would just say, like, of course margin debt would be at a high with the market at a high.

[C]

Correct.

[A]

It always is correct.

[B]

Wait a minute, hold on. There's two things here. Because she did adjust. Right.

[A]

But she's adjusting by the wrong thing.

[B]

Okay, so, but here's, here's. I think there's another thing that's driving this that people don't talk about. We do. It's rich people using margin debt to borrow. Like, so there's so much of that. There's so much of advisors driving that where it's not the indicator that it used to be. It's not people taking excess risk. It's people borrowing against highly appreciated portfolios to put it to work back into the real economy.

[C]

Right. I agree with that completely. And when people look at charts like these, they have to recognize that basically what you're signaling here, it's not a timing tool. Right. You're suggesting that if this unravels at some point, there could be some vulnerabilities here. But you certainly shouldn't use this as a timing tool because to your point, you should expect it to be higher given where the market is.

[A]

The market pulls back 10% and stays down. No V, just 10% pullback. And then three months in a drawdown, that margin balance comes down.

[C]

Correct.

[A]

Naturally correct. It's not a nuclear bomb going off.

[C]

It's not a nuclear.

[A]

People just get less bullish and stop taking as much risk.

[C]

That's the challenge. I think that when I speak to investors, I get the sense that people think something terrible is lurking. And the reality is they've been thinking something's terrible, been lurking forever. Right. And so, you know, try. And I always try to make sure that they're putting events into the proper context. Right. If you, you know, the. The war in Iran starts, I mean, that's gonna be the big moment. People are afraid. If you look at almost every time you have one of these geopolitical risks, market's positive 12 months later. Almost every time you have a 20% spike in oil prices, the market's higher 12 months later. And so, you know, investors, I think there's just too much of a news flow. There's just so many concerns and so many scare pieces out there where if they took a step back and they said earnings are good, credit spreads are tight, inflation expectations are contained, the dollar hasn't rallied to unnecessary levels. There's not a lot in here that would suggest we're in a danger zone.

[A]

So you're doing this as long as I am. You and I are roughly the same age.

[C]

Yeah.

[A]

I'm a little bit smarter than you.

[C]

And I'm a little bit older than you. Fair.

[A]

No, no, no. But, like, you and I know this, but the average investor doesn't. And it's not their fault. I think you and I are now older than the average investor.

[C]

Close. Yeah.

[A]

Ish.

[C]

Ish.

[A]

The average investor is looking for a knockout punch. Correct in the headlines. They think a news event is gonna happen and it's gonna punch the market in the face. Don't knock it over and knock us into a bear market.

[B]

Yeah, you're right.

[A]

What they don't understand is that knockout punch comes at the bottom. So a great example is Lehman Brothers. We're already in a 25 or 30% drawdown by the time Lehman goes under. They went under because of the bear market.

[C]

Right.

[A]

They didn't go under. And then. And then that necessitates us having a bear market. Right, right. Okay. So that. But they think, like, such and such thing. Terrible thing is going to happen, which is then going to put us in a bear market. But the reality is we are much more susceptible to a real knockout punch once we're already in a bear market. And that happens. The knockout punch comes as a consequence of the terrible environment that we have already found ourselves in for quite some time.

[C]

Correct. And it usually.

[A]

But they don't. They don't understand it. They think it's like. They almost think it's like Looney Tunes, where like a anvil, like somebody drops a piano on Wile E. Coyote, right? And then a lump grows out of his head. They think it's like this cause and effect. It's not cause and effect. It's what environment are you in? The environment we're in right now. Why would you be looking for a knockout punch? There's no debt problems, no credit issues. Private. There's not private credit issues. There's lack of investor interest in credit. That is not. That is not 2008.

[B]

It's just human nature.

[A]

No, that I totally get. Because we've been wired that way to look for signs that there's danger, protect the nest.

[B]

I mean, like, dram is. I'm looking at. It's on my screen. It's up 13% right now.

[A]

I finished my point. To finish my point. We're 18 years since the last actual recession. I'm throwing Covid out.

[C]

Yeah, throw Covid out.

[A]

Okay. We're 18 years from the last recession. So for 18 years, people are looking for this knockout punch that's going to put us in a bear market and recession. What if you spent that time not doing that? Right? Like, you know, imagine.

[C]

And you, and we, and you and I, we had a. All of us, we had to respond to the European debt crisis. We had to respond to Brexit. We had every single thing that happened along the way. We had to make sure that we were holding hands and guiding people through these environments. You even saw it last week. I'm reading through my social feed and people are talking about, oh, the 30 year above 5%. This is the U.S. debt problem that we've been worried about.

[A]

That's the trigger.

[C]

That's it. Yeah. We're going to collapse on our debt or, oh, inflation's here. And valuations have to adjust meaningfully. And it's just not. It's just not a reality. You're not grounded.

[A]

The cadence will be this. The top will look like this. There'll be great news and stocks won't react well to it. And then we'll all shake it off and we'll put out all these tweets about, here's some context. And then the market will rally back to a high, but not the old high. And we won't think much of it. It's just the ebb and flow of markets. And then like six months will go by since we've had a new high, and people will start getting a little bit less enthusiastic because I don't understand. I keep putting money in, but it's not going up. Right. And then. So that is sort of how it happens. And then if that goes on long enough, we're in a 10% drawdown, which then becomes 12 or 10. And then you start to see the City Economic surprise Index roll over and all the surprises start coming in worse, negative. And then the knockout punch comes. We will already. We will already be in a. In a bad situation right now. I mean, you want to play this game. Today's the top. No, wait, wait, wait. I didn't mean today. Tomorrow's the top. You want to do that. You can do that. Right.

[C]

And people are saying, you know, this isn't grounded in fundamentals. This is too far, too fast.

[B]

Wrong.

[C]

Totally wrong. Right. I mean, that's what I'm hearing.

[A]

It's too far, too fast. Since 2009.

[C]

2009, exactly.

[B]

Because they hyper focus on. They look at Micron and they say the stock's up 10x in the last year and a half. This is a bubble. Doesn't make sense.

[C]

Right.

[B]

And they look at that and they don't look at the earnings growth. But I think the longer this goes on without a real recession, I think the more emboldened or confident people get that it has to end badly at some point. Like it's been too long. But it's.

[A]

Well, that's, that's the Minsky moment where people become so complacent that that becomes the risk, the lack of, the lack of fear itself becomes the biggest risk in the market.

[C]

Yeah, let's think about what's happened this year. So you come into this year, people are talking about an AI bubble, right? That was probably the biggest question we got last year. And I think a lot of that was more on demand side. Are people actually going to use this? Are we going to engage with chatbots? Are businesses going to make use of this? X? Percentage of businesses say they have no idea what to do with this. To the market having to catch up in a five month period to the fact that artificial intelligence is going to be ubiquitous. It's going to be in everything that we do in perpetuity. It's not going to be us engaging with a chatbot occasionally. It's going to be persistent engagement with artificial intelligence. And that's a level of growth and a shift in the economy that the market had to really get its head around. And the market wasn't there in the beginning of the year. And you look at what the earnings have been, the valuations haven't increased because they've come down. They've come down because the market funds the earnings.

[B]

What a concept. So one area of Josh asked, are investors too bullish or are they taking too much risk? I think there's probably a cohort of. Not probably, there is a cohort of retail investors that have been, I hate to say lulled to complacency. It sounds so condescending. Somebody that's made a thousand percent in AMD is, is hearing me say that they've been loaded into complacency, like, hey asshole, I'm up a thousand percent. What are you talking about? It sounds rude. So I don't mean it that way.

[A]

Complacent all the way to the bank. Yeah, exactly, exactly.

[B]

So I don't mean it that way, but retail investors. This is from Vander Research. Biggest single stock selling this was last week. Since November 2023, $47 million led by semiconductor names such as Micron and SanDisk. So eventually they were taking too much risk. And. Okay, so they sold a little bit, but they're, they've done extraordinarily well.

[C]

They have.

[A]

Selling stocks to the point that we made in the earlier chart. Selling stocks that have doubled or more.

[B]

Yeah, it was too crowded.

[A]

Year to date.

[B]

Yeah.

[A]

All right, Savita Subramanian, bank of America Equity Quant Strategy Group. Time to take profits. This is, I think the biggest research piece of the week. I want to share some of what she said and get your reaction to it. And we hate her. So you could say whatever you want.

[B]

No, we do not.

[A]

The S&P 500 is up 11% year to date. Multiples compressed to 21 from 22 times at the start of the year. An earnings revision that trumped returns, especially in energy and tech, the two best performing sectors. But financials, healthcare and discretionary have seen losses year to date despite positive revisions. She doesn't like that setup where expectations are ratcheted up but multiples are not reacting positive, are not reacting positively. And she has a point because that's sort of one of her bear market signposts. She's got like these 10 things that are red flags and seven of them have now triggered 70% of her bear market, which is the average that they've observed at prior market peaks. So she's. The comparison that she's harping on is February of 2000, which for you and I, very ominous, very ominous. We know what, what went on then. Last, last thing from her before I get your reaction. So she is saying high PE stocks led low PE stocks by a wide margin, which is a sign of excessive speculation. That's one of her triggers. Another trigger, lofty long term growth expectations breaching levels consistent with equities being more vulnerable to disappointment. So that's that last point I made. The sell side indicator hasn't been triggered yet. That's where the strategists get all bulled up. But that has gotten worse because they're chasing the market, quite frankly with their targets. But she's talking about this dispersion tech versus everything else. And then inside of tech, like AI tech versus software or every other. And that is reminiscent of the peak of the market in February 2000. There's obviously a lot of differences here and she knows that and we know that. But I'd just love to get your take on this idea of time to take profits just based on how eerie some of the similarities are.

[C]

I guess the question would be if it's Time to take markets, time to take profits. What are we doing with the profits? And is that going to cash and sitting this out for a while?

[A]

No, she's calling for a value rotation.

[C]

Yeah. So it's about a diversification story and a rotation.

[A]

Take profits in tech.

[C]

Take profits in tech. Move into more other cyclical parts of the market or move into non US dollar assets. Yeah, look, that was our view two years in a row and that view got disrupted two years in a row. So what would, what would you need for that? Well, you have good starting valuations, but you need catalysts for it. Usually the catalysts come. Yeah, from Fed easing. So the rate differentials come down between the US and the rest of the world. Lower rates helps, you know, more higher indebted parts of the market. So you could get there. And I think that we will get there. I do think that we will get back. If you think about the second half of 2025, things broadened out a bit once we got past Liberation Day, so.

[A]

Oh yeah, we had international stock rally in 25. It was awesome.

[C]

I think we can get back to that place. But yeah, we're going to need to see some type of reasonable outcome out of the straight or it's going to be difficult for more cyclical parts of the market.

[A]

I'll show you some charts. So this is what she's talking about. The spread between the top and bottom performers inside of tech looks exactly like the dot com bubble. If you were a tech stock in the year 2000 and not building the Internet or mobile phones, nobody had any interest whatsoever. We had a similar phenomenon this year. A lot of tech stocks not up, but just that one theme. Do this quickly. Chart 7. And the dispersion was a result of outsized gains from the top performers. And that also happened In February of 2000, right at the peak of the tech bubble. It was just this runaway group of stocks. Like you remember Cisco, of course Intel, Microsoft. Okay, chart eight, we'll do these together. These are the red flags. So the spread between the best and worst S&P 500 performers is near Covid levels. Not a great situation. Hopefully it's being fixed. We're in the process of that being fixed right now. And then the widest dispersion within infotech. So you can, you can kind of mentally understand that that similarity just mark like the concentration of winners within one sector, even to the exclusion of other companies in that sector. This is not like when energy rallies and they all go up. Right. This is like, I don't know 800 publicly traded tech stocks at this point and 300 of them are up huge. That's the scenario. So that doesn't have to fix itself with a crash.

[C]

No, it does not.

[A]

It could fix itself the other way, which is what you're arguing, which is

[C]

with the broadening of the market now, what you had in 2000, you had a rate tightening cycle. Right. I mean, that's how these things end. These things end with higher rates and the economy that rolls over. The positive coming into this year was stimulus. Not just in the US with the one big beautiful.

[A]

We're talking about insurance cuts. Yeah.

[C]

And insurance costs. Right. We were gonna lower the funds rate to 3%. So that's the big difference between 99, 2000 and today. And I think that's why you get the sell off on Friday. Is this the beginning of the rate tightening cycle that ultimately ends it? Because you're not gonna get a narrowing of that dispersion if you're not in an easier policy environment.

[B]

I wanna get your take on the consumer and the economy because there's been so much thrown at us starting in 2022 with inflation and then interest rates and a commercial real estate crash, which was going to take the economy down. It didn't. Now we're dealing with a frozen housing market, which is kind of a big part of the economy. We dealt with tariffs, the Strait of Hormuz is closed. We have higher oil prices and yet the labor market seems to be accelerating. At least in the last three months we've, we've been okay. What is it going to take to slow us down?

[C]

Well, household net worth right now is about $175 trillion. That's an all time high. And if you look at households, their liabilities to their net worth is historically low.

[B]

Dwarfed.

[C]

Yeah. So the fundamentals of US households are far better than people think. You remember a few years ago when we were coming out of COVID they were talking about credit card delinquencies and $6,000 balances and all turns out that was all just Taylor SW tickets. So it wasn't a problem. No, that was all inflation related. So the household's in good shape. We know we have a K shaped economy. Right. Because a lot of the household net worth gains have accrued to the top part of the K. When you have spending that persists at the top income quintile or the second income quintile, the economy's going to be just fine. It's when those quintiles really tighten their belt that you Go into something more like a recession if the bottom income quintile slow. Not to be flippant about it, but that's more of a SL slowdown in activity. So what we're having here, $4.50 nationally on gasoline hurts. People in LA hate when I say that because what do you mean $4.50?

[A]

But it doesn't hurt the stock market.

[C]

But it doesn't hurt the stock market because this is not a very. This isn't an economy that's overly energy intensive.

[A]

Well, take la. Take la. Take Malibu, Calabasas, whatever. Like whatever tony area within la. Yeah. They know, of course the gas price is stupid, but not one of them is changing their lifestyle based on it. And those are the consumers that show up in The S&P 500's earnings. The bottom 20%. A lot of their spending frankly is government subsidized spending anyway. And the earnings impact of that, it's de minimis. I'm not saying that's good or it's bad. I'm just making.

[C]

That's just the reality of it.

[A]

It's just the reality of it.

[C]

In the world that we exist in,

[A]

it's horrible to have 20% of US households living paycheck to paycheck and have like high gas prices stop them from being able to take their kids back to school shopping. It sucks.

[C]

Yeah.

[A]

But it's also the reality that the S and P is unfazed by that. Right.

[C]

And that's when it becomes more calls about industry or sector or more specific names and discretionary gets hurt when you see gasoline prices go to where they are. But in terms of the broad market, the way that we're structured, it's not a very, you know, a near term spike in gasoline prices is not going

[A]

to deliver one indicator like if you were to just say this is the only indicator I'm paying attention to as a call on when the top of that K is in trouble. Michael and I have been talking about hotel stocks and some people would say like airline stocks, but maybe less pure because they have that gasoline problem. A jet fuel cost problem.

[C]

Yeah.

[A]

So hotel stocks.

[C]

Hotel stocks seem like a great one.

[A]

Perfect.

[C]

Right. Perfect way. And even works at Hilton all time highs.

[B]

All those stocks.

[C]

Yeah. Doing quite well.

[B]

So let me ask you this. There's obviously a couple of different takes you could have on this. We know that this economy and the consumer is heavily levered to the stock market. Obviously speak about the borrowing and the margin debt chart that I showed earlier. So at the peak in the tech bubble. John, chart 11, please. The household equity allocation to stocks and mutual funds as a percentage of GDP was 116%. And today it's 191%. So it's significantly larger today the amount of money that we have in stocks relative to the overall size of the economy. So you could say, oh, if the stock market comes down, the economy's gonna come down with it. And I don't mean like the stock market getting cutting half. I, the stock market gets cut in half because the economy's doing terribly. Right, okay. But I think that you can make the case that. All right, so 191%. If this pulls back to 170%, as I'm talking about the wealth effect, this pulls back to 170%. Does the consumer stop spending money? Like, where, where, where would this line have to go?

[A]

Right. How bad does this have to get? So the stock market falls over into

[B]

the real world, falls 30% and stays there. Like what would have to happen to the stock market to change the uppercase spending habits? Because that is what's driving the stock market. And I know it's like sort of a circular conversation.

[C]

It's a circular conversation. It doesn't have to end just because you're in the circular momentum of it. It ends under similar conditions, which is there's too much leverage and excess in the economy, there's too much inflation, the Fed kills it. So at some point we'll get there. Right? It just. At some point you will have an environment. Well, this will become too excessive. Not necessarily where our stock market ownership is, but you'll have an overheating economy and this will roll over. And if it's a minor recession, you'll be down 20, 25%. It'll take a couple of years to get back to where you were. If it's a more significant recession, if you're way over levered and you're coming at it from a very vulnerable position, you could see it markets come down 40, 50% and it takes 10 years to get back to where you are. It really depends on the starting point. And Josh had mentioned earlier, it's not a particularly over levered economy. We talked about the household being in good shape. Businesses are generally in good shape. Last I checked, net interest payments of businesses are historically well below where they were going into Covid. So I look for it as a. Not just because that number is elevated, where are the vulnerabilities? And it does not appear to be nearly as vulnerable as I think some people suspect it might Be on the

[B]

economic side, I would agree with you, but on the stock market supply side. So you wrote a piece about narratives following the stock market sell off and that's almost always the case, right, like the stock market falls and we're looking for reasons as to why it did what it did. And I, I'm 99% with you. I think in this particular recent sell off, I think the narratives were pretty clean and actually shouldn't be swept under the rugs. Okay, so for example, Broadcom's revenue.

[A]

Miss.

[B]

Yeah, whatever. I mean Micron had a massive beat in March. The stock sold off 30% and then it rallied 300%.

[A]

Right, right.

[B]

So like there's a lot of short term noise in here, but the, I think the strong job numbers and the rerating of expectations for rate hikes I think is real.

[A]

I think the real in terms of it's having a real impact on psychology.

[B]

It's having a real impact and it's in the market. People are expecting the Fed to raise rates. They just are. And I think that matters. I think the SpaceX IPO. We're going to talk about that in a second. Certainly noteworthy with others coming down the pike is a pike or pipe.

[C]

It's either actually.

[B]

Oh, is it?

[C]

I think it is.

[B]

Oh shit. Okay.

[A]

It could be either.

[C]

I think it could be either.

[B]

Okay.

[A]

But also if you're in England, it's

[C]

the pipe and a U in flavor

[B]

but coinciding with the insane crowding into the momentum factor. And also the Google equity issuance. And it was, there was chatter of wait, are more companies going to issue equity? Like I think the stories are legitimate.

[C]

I thought that was a pretty big story with the Google equity issuance.

[A]

Pretty much a non event, but it's a narrative change.

[C]

Berkshire Hathaway comes in and invests in it. I mean that's not usually what you would expect from a long term value investor if this was, was a significant challenge where they take like 10% of it. So yeah, I actually thought I looked at the Google event as a pretty promising event from that perspective.

[B]

Promising on the bullish side.

[C]

Yeah, promising on the bullish side. I mean you have, I mean the market was able to digest that without incident. And you had a Berkshire Hathaway stepping in, wanting to own it.

[A]

That's like the second deal he's ever done since taking over Greg Abel. Like he did an acquisition and he did that within one week. And it's a financing deal. He's not. Berkshire's not building data centers. It's Financial.

[B]

Yeah, on the SpaceX thing, Josh and I were joking the other day. I think Morgan Stanley said that their revenue could reach $3 trillion by I think it was 2040 or something. Like these are the type of things that if you look back and I'm not suggesting that this is the top, but that's the quote. That's like the thing you're like wait a minute, how are we so stupid?

[A]

Right?

[B]

Like it's, they said $3 trillion in revenue in 2040 and we were just like okay, okay. So the other question is how much liquidity is really available from investors pockets to finance all of this happening. Demand for SpaceX from Barron's. Demand for SpaceX's $75 billion IPO stock has reached $250 billion, making it 3.3 times oversubscribed. So it appears like we're gonna swallow

[A]

it's a fake number.

[B]

What? Go ahead.

[A]

The oversubscribed shit is fake. So do you remember Cerebras went public in the middle of May. I'm on TV next to people who are saying it's 20 times oversubscribed. Well, what the did that mean? It went down 100 points over the next three weeks. Like that. You could just make up a number and say it to a reporter and they will go on the air and say the SpaceX deal is 12x over subscribe. First of all, where do you get that number from? Oh, an investment banker told me nobody like actually knows what the demand is because indications of interest. So you call up a retail investor, in this case 30% retail. Say if we could get you, if we can get you 100 shares of SpaceX at $135 a share, do you want it? Yes. You don't know if they're going to pay for it? Nobody. If it goes up, they'll pay for it. If it goes down, they're not going to pay for it. And therefore I don't care how oversubscribe. I did the indication of interest myself. I was a branch manager. I promise you it's bullshit. But on my scale these were tiny deals. You would raise $8 million for a company at this scale I would bet the bullshit factor is 10x. Because everybody wants stock. Everybody wants to be the lead placement person on this indicate of stock. Like people are just calling in orders that are completely fictional to make sure that the real orders are covered. And that's the other aspect of this. If you, if you have legitimate demand for 2 million shares of SpaceX at a investment firm, 2 million you put in for 10 million because all you're hearing about is how oversubscribed it is. So if I want the two, I better say I want 10.

[B]

All right, well, let me say I want two.

[A]

I might get one.

[B]

So retail. Will retail investors be left holding the SpaceX bag?

[A]

They don't think it's a bag. They. They, they.

[B]

I didn't ask you. Will they be. Will they hold Elon's bag?

[A]

What does that mean? Are they.

[B]

Are they exit liquidity? Is the. Is the IPO going to fall apart?

[A]

I know retail people who are being offered stock that are able to sell a minute later. Nobody's telling them they have to hold it.

[B]

All right, will. Will this fall 50% like a lot of other big IPOs in the first three months?

[A]

I think a lot of that is. So my personal opinion is a lot of that is pending. What are the market conditions? Will this hold up in a. In a correction? Definitely not.

[B]

Okay, let's assume. Let's just assume a normal market. I know I'm asking to make a prediction. Will this thing fall 40%? Because it is hyped like I. My dad asked me.

[A]

Okay, I think it will open. I think it will open 30 to 40% above the offering price. That's my. That's my opinion. I do not think it'll hold that gain, and I don't think it'll build on that gain.

[B]

So they're coming to market. I think the price is 130. So you expect it to open whatever. 170, 180.

[A]

Okay. The price is 135. Do you know why? Because Elon told the banks the price is 135.

[B]

So what?

[A]

So what? A real IPO. A traditional. I shouldn't say real. This will be very real. A traditional ipo. It's a process. It's a roadshow. There's feedback from institutional investors, not retail investors, but, like, people managing $80 billion, $200 billion. Tell the underwriters we wouldn't pay 20, but we would probably be very comfortable paying 16. And then all of that gets factored in. And then, of course, it's all made up because Elon is.

[B]

Elon is different.

[A]

He said 135. So that's the price. And everyone's just like, yeah, that's. That sounds right. Let me pay 20% above that. That's what's about to happen. I think they'll get the pop. I can't imagine them not getting it. Your real question is, does it hold the pop?

[B]

No, my question Is all right, so you said it pops from 135 to 170. Whatever. Will it be at 90 at some point in the next six months?

[A]

I think. I think you'll get another crack at it at 135.

[C]

I think the bigger question is, is this just an idiosyncratic event happening in the market or is what are what we discussing here something, you know.

[A]

Well, there's more of these right behind it.

[C]

Right. And is this something larger than that that investors need to be worried about? I'm not ready to get there. In my opinion that this is something.

[A]

Oh, like is it so much money to be raised that it's going to take a bite out of the rest of the stock market?

[C]

It's either going to take a bite out of the rest of the stock market or it's indicative of a market top. And if you actually look at the IPO activity. Yeah, we've got a couple of high profile ones coming to market, but this is not the level of IPO activity that you would normally deem to be speculative. The size of the big three are quite large, but it's not as if we've got speculative levels of IPO activity in these markets.

[A]

These will be heavily, all three of these will be heavily involved in the big ETFs. And that's the thing that people are talking about.

[C]

That's what people are worried about. And you see these headlines that the AI bubble's coming for your retirement account. Right. That's nonsense.

[A]

That's journalists. And that's what I want. Investment people are not saying that.

[B]

Yeah.

[C]

And that's what I wanted to make sure that we were covering here as we debate this. Is it just something idiosyncratic that we're going to be watching? It's going to be a stock story that we're going to be watching.

[A]

All right, wait, so 2 trillion? This is market caps, not dollars being raised, but just hypothetically for index construction purposes. Two trillion for SpaceX, a trillion for Anthropic, a trillion for OpenAI, it's $4 trillion. I mean that's meaningful amount of market cap. That is going to require some space in the QS eventually in the S and P eventually. Right.

[B]

But wait, but they are being adjusted for the float. Dramatically adjusted for the float.

[A]

Well, they would have to be, otherwise it would make no sense.

[B]

SpaceX will not be a $1.8 trillion position in the NASDAQ 100.

[C]

Correct.

[B]

They wouldn't go.

[C]

It'll be free float based or it'd Be less.

[A]

Won't have the proportion of a 1.8.

[B]

So Elon's. What does Elon own? 40%. So his. So take that out. Take that out.

[A]

Right. Okay. So you're not worried about that?

[C]

I'm not worried.

[A]

You don't think that's a real wind for the market?

[C]

I don't.

[A]

How about the converse of that, which is these IPOs, or at least SpaceX comes, goes off without a hitch, everybody's happy. Is that a bullish catalyst?

[B]

Yes. Well, what are the bears going to say if this, if these IPOs don't crash the market?

[C]

What's the next?

[A]

The bears want this to be an asteroid.

[B]

It has to be for them, right?

[C]

They do.

[A]

So what if it's not? Is that, what does that do? Does that galvanize the investing public that all, like, all is well, this big bad thing that everyone's told you to worry about is over? And look at the risk appetite. It's very healthy.

[C]

I think it does. I think it does. And I think it helps the financials.

[A]

Okay, well, it's definitely going to help the. Maybe not the spread financials, but the fee financials.

[C]

The fee financials.

[B]

By the way, to your point, I know you guys have a relationship with nasdaq. Like NASDAQ stock is not doing awesome. You would think that if it was like a super frothy, elevated, excessive IPO market that NASDAQ would be. And I know you can't comment on the stock, but like, it's. Whatever. It's going sideways. It's not. There's no froth here.

[C]

No.

[A]

Okay, so not a wealth destruction event.

[C]

No, not a wealth destruction event.

[A]

The largest IPO in history will not be. Didn't they talk this way about Alibaba 12 years ago?

[B]

Yes, they did.

[A]

They said it's too big for the New York Stock Exchange.

[C]

I think we did this with Saudi Aramco too.

[A]

Yeah, I remember 2014 being an okay year in stocks. 2015 too.

[B]

Hold on. Let me just say if this is a top, you are going to act like it was so obvious.

[A]

No, I'm not.

[C]

Isn't that what we do? Yeah, it's so obvious.

[A]

No, I'm really not. But I. But I won't like, be completely shocked. I don't. So I don't. Here's the question. Are the bears saying it's a top because it's going to cause a top by virtue of sucking all this capital away from other. Or the bear is saying it's a top because it's a Sign of excessive enthusiasm or are they saying both things? I've heard both.

[C]

I've heard both. But I think it is that sign of excessive enthusiasm.

[A]

You know, like your parents tell you when somebody gives you two reasons for something, both are not true. Yeah, like that's how you know, they're like, I call Michael and I say, hey, you want to go hit golf balls at the driving range? She's like, like I'm not feeling well. And also my wife needs me to help her.

[C]

Neither is right.

[A]

So neither is true.

[C]

Neither is true.

[A]

You have plans with somebody else, right?

[C]

Exactly.

[A]

I'm sick of listening to the sound of my voice. And I totally get that.

[C]

I think it's a valuation story. I think that investors just, there's plenty of investors who would think of valuations as a timing tool, think that, you know, if things are getting frothy, if the, if the Shiller PE is too elevated, if the margin levels are. This all can't be true. And so there's the big bang moment coming. And when it wasn't Silicon Valley bank, then it was tariffs. When it wasn't tariffs, then it was the war in Iran. When it wasn't the war in Iran, now it's going to be SpaceX. And I love this so much.

[B]

So there's like this thing where 17 of 20 indicators are flashing red. Well, if they've been flashing red for three years, maybe they're the wrong indicators.

[C]

Maybe they're the wrong indicators. I mean, I try to keep it simple and are credit spreads widening? No. No.

[A]

So what are the things that matter?

[B]

Credit spreads, they tell you what you need to know.

[C]

So, So I look at leverage, inflation expectations, fed policy, credit spreads, bank lending standards. That's my cycle analysis.

[A]

So I noticed that you don't have anything in there about chief strategist, price targets.

[C]

No, I don't have chief strategist.

[A]

You also don't have anything in there about PE ratios?

[C]

No, no, because PE ratios, I mean if I, where I would use a PE ratio is if I was making a 5 to 10 year return, maybe more like a 10 year return expectation, you would need to have some reversion to the mean on valuations over a 10 year period because there's a high correlation there. But there's nothing with 1 in 3.

[A]

Say your list again. Say your list again. All right, let's start with credit spreads.

[C]

Credit spreads, bank lending standards, the strength of the dollar, inflation expectations, leverage.

[A]

What does the strength of the dollar tell you about the forward outlook for stocks?

[C]

Well, it's interesting that the dollar has not rallied substantially. So if we think about in 2015, in a very weak growth deflationary environment, the Fed was going to raise rates, the dollar soared. That's not what this is. I mean, the dollar was likely to weaken this year until the war in Iran started. And so the dollars had a reprice basically from expecting an easing cycle to no cuts, to maybe a rate hike. So the dollar gets a bit of a bid there, but it's not skyrocketing. It's not going to levels that would make you think there's this huge flight to quality and that the cycle's rolling over.

[A]

What do you think is the most underrated thing going on in the economy or the markets or both? That should augur well. So we talked about all the bear stuff. What are the things that not enough people are excited about for me, Let me, let me set this up. So we did a segment today on CNBC about one of the names on my best stocks in the market list. And we talk about Travelers. Travelers is like not an exciting company. It's a couple of bucks away from an all time high. Why? They're one of the first companies that's got tangible evidence that their AI investments are. So if you think about all the areas where AI should help companies, risk risk management and insurance underwriting should be the top of your list. This is like the most obvious thing in the world. We have algorithms. Let's let the AI loose on those algorithms and see if we can improve how much money we end up surrendering from bad underwriting. So they announced a 21% year over year jump in underwriting. Profit it. And on the conference call they told Wall street this is the AI like this. That's what's going on. It's not a, it's not a magical thing.

[C]

No.

[A]

Okay, so if the rest of the market becomes littered with stories like that about stocks where nobody is associating them with an AI but the AI customers start to surprise on earnings to the upside. A, you'll get your broadening. B, it would be a really interesting juxtaposition versus the last three years where we all have been myopically obsessed with the 100 picks and shovels companies selling us AI. Wait, what if the real trade all along was investing in the most talented consumers of AI as they out distanced their competitors in earnings growth thanks to those investments. Wouldn't that be such a cool story and great for investors?

[C]

Oh, absolutely.

[A]

So what do you.

[C]

Absolutely. And we're.

[A]

So you think that's likely.

[C]

Yeah, I do think it's likely. I mean, I think it's already starting to happen in many ways. I mean, we're in the early innings of this. So you're right. We started with the chips and we moved to memory and the infrastructure build. But what about all the benefits? I mean, we're starting at this from an environment where corporate profitability, the number of employees is historically high and that's only gonna get better in the coming years. And you think about sectors that have not done well, like financials or like healthcare. I mean those are places of the market where you would expect to see substantial gains as a result of incorporating artificial intelligence into that business, particularly healthcare. Thinking about all of the challenges of life that we're going to unlock with

[A]

new solutions, one of the problems, and we could end on this. One of the problems with the picks and shovels analogy is people forget that analogy during the Internet boom era. The first one, it was sardonic. They were saying because in the actual gold rush, the 1849 gold rush in San Francisco, there wasn't any gold. Like people ruined their lives chasing up into San Francisco to look for gold that was never there. Like a few people found gold and it was, it, it was like it was a catastrophe for the people. But like the idea was like, well, at least the picks and shovels salespeople made money. Actually, the company that made the most money was Levi Strauss. Selling, selling denim workwear.

[C]

Yeah.

[A]

But fine, we better hope this isn't picks and shovels and this isn't a failed gold rush. I don't think it's going to be. We're using AI inside of our business right now. Probably 1% of what we'll be using five, five years from now. And I think, and we're, you know, considered I guess a small business, mid sized businesses and publicly traded, large size businesses. It's not a gold rush. They're literally improving their companies. So the picks and shovels analogy is like, look, it's almost too smart assy. This is like, this is real. So if we're gonna have a continued bull market, I think it'd be really cool if it were powered by ROI from all the spending that we're doing in 2026.

[C]

I agree with you completely.

[A]

And you think it's likely?

[C]

I do think it's likely, absolutely. I don't see how this movement, this restructuring of the economy and this restructuring of how businesses are run, I don't see how that doesn't improve efficiencies. I Don't see how that doesn't improve. Prof. Do it at a level where you're. I mean, you're going to be doing it in a way that's going to be likely lowering the costs of business.

[A]

You said something early on about the ubiquity of AI. Right now, for most people, their experience with AI is prompting and asking for something.

[C]

It's like a search engine.

[A]

You're talking about waking up and seeing the results of what your AI did for you overnight.

[C]

Yes.

[A]

That's where we're okay. This is a very different mentality, Very different. And most people haven't gotten there yet.

[C]

Well, and quite frankly, like I said, the market had to catch up. To me, it this year.

[A]

I agree with you. Agent. The market wasn't ready for agentic. Correct. The market was still thinking in prompting terms.

[C]

Yeah.

[A]

All right, Brian, you're the man. You have fun on the show today.

[C]

I had a great time. Thank you.

[A]

What was your favorite part?

[C]

Probably talking about the Knicks.

[A]

All right, Brian. We always try to end the show when we remember asking people what they're most looking forward to. What do you got? Personal business, anything?

[C]

I'm looking forward to next week when my oldest daughter graduates high school.

[A]

Look at you. Look at you.

[C]

Yeah. Hard to believe.

[A]

Yeah. Did you find her. Did you find her an internship for her junior year of college yet? You have three years.

[C]

Well, she wants to be Erin Andrews. So, you know, we're, I guess we're sort of in the media business. If, if you know anyone that could get her a sideline reporting job, let me know.

[A]

All right, we'll try to figure that out. All right, guys, thank you so much for watching. Thank you for listening. I want to let you know you can follow Brian Levitt of Invesco on LinkedIn. We doing anything else on social or. Not really.

[C]

I have a podcast.

[A]

Okay, tell us about it. Where do we find it?

[C]

Greater Possibilities podcast anywhere you find podcasts.

[A]

The Greater Possibilities Podcast with Brian Levitt anywhere find podcasts are played. Make sure you check that out. Thank you so much for this. Great to see you. Great job, everybody. See you next week. Thank you. You want to do that one more time or you feel like we got it? What do you think?