Bad feeling, weak internals, confidence collapse, Nvidia breaking out | WAYT?

26:04Well, at 3 to 7, you have an alternative. You have to be disciplined about your capital, where it goes. And so investors might actually assign a higher multiple because the companies have to think. They can't speculate. They can't just, you know, they have, there's actual yields that you can compare to versus at zero. You know, you could go out and speculate all you want. Three to seven, investors are assigning a higher 4P because there's discipline involved.

26:32Downtown Josh Brown:The thing I want to leave people with as we switch out of this topic is that 5 % is not the breaking point. So, I mean, it's for somebody that's been in the markets for 30 years, you wouldn't have to say that out loud, but for somebody that started investing sometime after 2020, and they've never seen rates really do this outside of 21 and 22, when the Fed was aggressively fighting inflation, like 5 % on a 10-year Treasury is not a breaking point for multiples or for the stock market. And I understand, like, if you haven't really seen this, you know, you can kind of be like, whoa, rates were just three and now they're five.

27:17Downtown Josh Brown:It's really not historically not that abnormal. Right. Right. All right. Let's let's do this thing from Alliance Bernstein. So Alliance Bernstein has a guy named Inigo Fraser Jenkins, who confession I've reached out to. He doesn't seem to be at all interested in talking to me, but that's okay. I don't agree with a lot of stuff that he does. Like, I think he was one of the guys saying index investing is Marxism. But every time he drops something, well, not every time, a lot of times he drops a piece that grabbed a lot of people's attention. He's very thoughtful, very well written. And last week he put this thing out called the everything trade.

28:00Downtown Josh Brown:And I just want to give people the conclusion because we're not going to go through everything in there. And then Matt pulled some stuff out of here that's worth spending a second on. The big idea here is that, and this is not a bearish note, and this is not a sell everything note. The core argument is that AI's appetite for capital has now gotten so large that it is tying together equities, credit, the dollar, and foreign flows, and it's basically made everything into all one big bet or one big trade. And what he's saying is that makes it harder for an investor to diversify away from AI risk.

28:37Downtown Josh Brown:So they're keeping their equity overweight and they're overweight on the US intact. And they actually said calling the top is pointless. But the point of the note is that portfolios urgently need to hold up in case this whole AI freight train stalls, whether that happens through choppy returns going forward or a big crash. And it's increasingly harder to do that. And, you know, a lot of this is we talked about this. Big tech was paying for their investments out of free cash flow. Free cash flow is now zero in their borrowing, which is not necessarily negative. I mean, it might be. But that debt is flooding the bond market.

29:18Downtown Josh Brown:So if you want to own a plain vanilla bond fund, you're quietly buying yourself more AI exposure, whether you mean to or not. Foreign investors are pouring money into U.S. stocks. So if you are investing in foreign currencies or foreign markets or foreign companies, you're putting on that shadow exposure to USAI. The buyback angle. Corporations were the biggest buyers of U.S. stocks for 20 years via share repurchases. Now AI is eating up a lot of that cash. Some companies are still doing both. But it's another factor that removes a layer of support from stocks and adds to potential volatility.

29:58Downtown Josh Brown:So they conclude by saying healthcare and energy are two sectors that investors have abandoned. Plus gold, maybe value stocks, maybe the Japanese yen, and maybe some actively managed bonds versus passive. Those could be the portfolio hedges for the modern era. And I just thought it was really thoughtful. What were your takeaways? I thought it was very thoughtful. It took me a minute to get through. honestly. It's dense, but it was very thoughtful. It made sense. If we could throw up the first chart here, I pulled two from the piece. If I could show you two as a summary, it would be these two. Okay.

30:40So here we're looking at expected sources of funding for the AI CapEx buildout between 2026 and 2028. So where's the money coming from for all of this? Okay. This is not a pie chart. You're seeing the absolute levels here. The$1.5 trillion is coming from equity capital. that's the biggest segment of funding. And then there's everything else.

31:01Downtown Josh Brown:It's basically companies taking their cash and plowing it into AI plus maybe selling additional stock in the form of a secondary. Yeah. And it's money the company theoretically has, right? And then, so 45%, this is not a pie chart, but imagine, okay? 45 % is from equity capital and the rest is everything else. So private credit, investment grade, bonds, ABS, CMBS, high yield in loans. I have a question for you, Josh. When you look at a breakdown of 45 % equity capital and the rest being from private credit and debt, is that a prudent level of debt versus equity? Or is that too much debt? I can't answer that because I don't think we've ever seen an opportunity set this large.

31:55Downtown Josh Brown:Like, it might be the right amount. It may turn out that people are underinvesting. Like, I'm looking at the news that OpenAI just made today with their Dots product, which is going to be like an enterprise version of Muse. So they're actually going to sell this to their premium business customers before they're going to release this on regular ChatGPT. but it's like an incredible increase in capability for AI agents. And I guess they're calling them dots and they're saying like, these things can reason on their own. They don't need to check in with you every second. They'll ask you permission to access things when they need to, but like completing multi-step projects in the background, like what will corporate customers be willing to pay for that?

32:48Downtown Josh Brown:not just this year, but for the next 30 years. I don't know. Theoretically, it could be unlimited. So when we're looking at product launches like that, I don't know what the right amount of debt for companies to take on in order to invest in this technology is. We'll know in five years, I guess. Well, the good thing for the debt holders, and John, let's skip one of these charts and go to the next one. The good thing for the debt holders is that if you look at the credit default swaps on the different bonds, for these hyperscalers, they are not blowing out. They are flat. In some cases, they are actually trading below the 10-year...

33:26Downtown Josh Brown:Higher is worse. This is like golf. Yeah. Higher is bad. Okay. You don't want to see it blow out. You can see Meta tried, but it's kind of stabilizing. We can chart off. And so I think overall, the takeaway of the piece is that investors outside of equities are getting exposure to AI, even though they might not realize it. And as you're thinking about your exposure, be aware of that. Okay. We're going to talk about stock market breadth. This is one of the other big topics of the week. People are going crazy on this. Breadth is interesting. Most of the time, it doesn't matter because it's not an extreme in either direction.

34:04Downtown Josh Brown:And obviously, people always feel good when the market is at a high and breadth is at or near a high. You'll hear people cite the advanced decline line, or they'll trot out the equal weight S &P to show that it's not just the MAG-7, but like a lot of stocks are making highs. Like there's all different ways to look at breadth. And Matt, I know this is your topic, but I actually want to set you up. So Barron's got everybody talking about breadth this weekend and Monday, even the non-technicians. They did a piece citing that five stocks have contributed 93 % of the S &P 500's gains since July. That's like sort of notable.

34:46Downtown Josh Brown:You can guess what they are. Microsoft is 181 points of the benchmark's 330-point advance since the end of July. Meta, Apple, Alphabet, NVIDIA, no shit. the percentage of constituents trading above their 200-day moving average has now fallen from 73 % to 51%, which is a notable deterioration, while the index is like 1 % or 2 % off the highs. I sort of agree with that. And just anecdotally, all of you guys, if you look at your brokerage accounts, you would probably guess that breadth has fallen off to that degree, just by like the number of stocks you have that feel like they were green all summer and now they're red.

35:32Downtown Josh Brown:And what happened to the great, what were they calling it? The great broadening, which was the theme of the summer. It seems to look like that. Yeah, I was calling it that. Yeah. All right. Matt, take over. Tell us what's going on. Okay. Well, okay. Before we get into it, and also, by the way, I'm not here to poo-poo the breath, right? Like I get it. Breath has fallen and I acknowledge that, but I'm trying to find the nuance in the numbers presents to the audience. Show them the things that they're not seeing as they're seeing. You're doing exactly what Michael would do if he were on the show tonight.

36:04Downtown Josh Brown:All right. I love it. We need this. Okay. That's big shoes to fill. All right. So let's first throw up this, speaking of Michael, this quote from Michael. So Michael slacked me this this morning. He said, hey, chart kid, throw this on the show. I want people to know my thought here. So he says, I love the breath washout. The bearish case for an S &P catchdown is obvious and intuitive, but almost every time we've seen something like this in the last decade, it's been a great buying opportunity. That's the one. He's right. So, all right. So Michael is exactly right. And I made a joke on, on our internal Slack.

36:36Downtown Josh Brown:I said, I used to care about bread, but then I realized I like money. This is like, I laughed at that. Yeah. Well, because this is like one of the things, one of the most prominent ways the bears have tricked you out of your holdings, out of your portfolio is they, put up these periodically this happens where five stocks are making highs and everything else is falling they say you see and the like the assumption is or what they're trying to convince you is about to happen is a catch down that the index is gonna fall to match what the majority of its constituents are doing but the thing is in the last ten years it's been the opposite resolution pretty much every time to catch up.

37:25Downtown Josh Brown:So the breadth metrics fall and everyone gets nervous. And then all of a sudden, boom, like you get a broadening trade and they catch back up to the AI trade. And it's like, oh, I can't believe I sold stocks because of market internals again. So it doesn't mean every single time it works this way forever. But Michael is right. This has been the history. Right. And I'm kind of asking this like rhetorically, but if you think about what you constantly bring up is like the money has to come from somewhere. So if Muse launches in the Mag 7 rally, the money has to come from somewhere. So what are people selling?

38:04They're selling staples. Why would I want to own Kraft Heinz company when I could own NVIDIA after a$150 billion buyback?

38:12Downtown Josh Brown:They're clearly selling treasuries. Right. And so to verify Michael's exuberance, we have a tweet from Tom McClellan. Okay. And so Michael's right. You're looking at new lows in the NYSE on the bottom and new lows surge. New lows surging tends to correspond with S &P 500 bottoms. It's just, it's there in the data. And this has been the case. It's the opposite right now. And it doesn't make sense. Right. It's like the beauty of indexing. We can talk about it at Nausea. People know. But it's the beauty of indexing. The weightings change. Finds the flows. It's really a beautiful thing for investors.

39:00Downtown Josh Brown:Put that chart back up. I mean, this is starting to look scary, though. I mean, the chart is showing three years. It's like going back to 2024. for, but it's a big, it is a big spike in New York Stock Exchange new lows. And we're going to, I know we're going to get into like, what's in that, what are the, what are the stocks or what are the sectors? We'll do that in a second. But like, it's sort of is starting to become notable. Yes, absolutely. You cannot just pass it off. I agree. I agree. You cannot just pass it off. People need to be aware of this. Okay. Let's talk about where the breath is actually coming from, the negative breath.

39:37And so, John, if you want to throw up our large cap breath dashboard, okay, here you're seeing all of the S &P 500 sectors based on their breath score, okay? It's something that we made in-house internally. And so we're showing things like percentages of stocks above different moving averages, the percentage of stocks making new highs, new lows, et cetera, et cetera, by sector, okay? But where I want you to focus, because there's a lot of data here, okay where I want you to focus is at the bottom here utilities okay so utilities three like I did that I like he did that three percent of utilities are trading above the 50-day moving average all right let's throw up next one is staples 27 % of stocks within staples are above the 50-day these are horrible metrics breath in these defensive areas is terrible and understand these are defensive sectors right now let's go to the top and let's look at tech okay this is arguably the most important sector to the market maybe financials a close second you need financials in bull market but tech has 66 percent of stocks trading above the 50-day moving average 73 percent are above the 200-day 10 percent of these stocks just made new four-week lows so again i'm not and we could chart off uh i'm not poo-pooing this i just think that if you dig in it is nuanced

40:59Downtown Josh Brown:well it is and chart back on staples and utilities are are not just considered defensive they're also interest rate sensitive the primary allure of these stocks at least historically has been their dividend yields And so we talk about higher Treasury bond yields representing competition for the stock market. This is the area of the stock market they're competing with. And people who say, I'm making these numbers up, should I take a 3 % dividend from Johnson & Johnson? That's a pharma. Should I take a 3 % dividend from a company that sells ketchup and mustard? Right. Or should I take a 5 % interest rate from the federal government?

41:48Downtown Josh Brown:And so unless you have reason to believe that you're going to get a good total return because the ketchup and mustard company stock is going to go up 15%, fuck it. Give me the 5 % on the bonds. And so I think that partly explains the weakness in staples and utilities. And you didn't show this, but the third worst sector is real estate. So, you know, also 0 % of real estate stocks are above their 50-day. This is competition from treasury bonds because real estate is interest rate sensitive and yield sensitive sector. That's the buyers of those stocks historically have been looking for like the return of capital in the form of an interest rate or a dividend.

42:40Absolutely. Let's look at this differently. Let's look at over time since September 2025, the S &P 500 expansion of new 52-week lows. So this is the percentage of stocks within the S &P 500, all 11 sectors. And what percent of those stocks are making new 52-week lows? So again, this is not nothing. There's a recent expansion here. But now I want to show you the next chart, which is two of the most offensive sectors in the market. And you only have, and it's tech and financials. And you only have 1 % of tech stocks making new 52-week lows. You have literally zero financials making new 52-week close.

43:15All right.

43:16Downtown Josh Brown:This is so important. I'm not like a sector obsessive where I view the market through the prism of, because it's gotten so hard to categorize a lot of really big and important companies. What sector does Tesla belong in? I don't really know anymore. It was a car company that's now making robots. Where do you put SpaceX? Is it industrial? Is it tech? Is it communications? It could be all of those things or none of them. Like, I don't get crazy with sector classification because of how muddled things have gotten. But Matt's point here is key. If I told you that financials and tech have no stocks making 52-week lows, which is what we just showed, that should make you feel a lot better about the headline number of the overall number of stocks making new lows or the percentage forget about that which stocks we're showing you like the most sensitive important companies to the growth story for the economy financials and tech there were no lows in sight it could change we're telling you this is a snapshot right now that's pretty much what you'd want to see if you want to be constructive and stay bullish right and we have one more here john that we could throw up and this is the new lows in utilities and staples.

44:38So utilities, 45 % of utilities stocks are making new 52-week lows and 15 % of the staples are making new 52-week lows. I don't have the names right now here, but the idea is if you wanted to get bearish on the market, you would probably want to see the stocks in these sectors actually catching some sort of a bid right now. And they're getting hammered. And so I'm not like investors are choosing what they want right now. And that's rotation, which is bullish.

45:08Downtown Josh Brown:Okay. Now, all right. So we did enough coping and explaining away the internals. And I agree with all that, but I do have to introduce a little bit of negativity here. And not that I'm believing in this, but this is what people are starting to say and notice and talk about. And, And, you know, I think the mark of intelligence is being able to balance two opposing thoughts in your mind at the same time. The conference board put out their consumer confidence survey, which has been falling for years and really is not a great signal for the stock market. But it's at extremes. Like it is something that people are going to start to take notice of.

45:50Downtown Josh Brown:Like I don't care about the monthly. I want you guys to observe the trend. We have just slammed down to a 12-year low. The overall index just fell 6.7 points to 81.9, which is the lowest level since 2014. That is reflecting – this is Axios – reflecting drops in both survey respondents' assessment of current conditions and their outlook for the future. They are referencing prices in the economy again, the high cost of goods and services, oil and gas in particular. which hit new highs. And then they start talking about politics and trade and employment. You know, they're talking about Palestine and all kinds of shit that has nothing to do with anything.

46:35Downtown Josh Brown:But the fact remains, this is a horrible moment for consumer confidence. And it could change. Maybe like the midterms come and go and all the political stuff calms down and people feel a little bit better. because the labor picture is great. I know that not everybody is happy, but for the most part, this long into an expansion, it's pretty good. So it's a lot of headline stuff that is not economic, but it's making people just feel pessimistic. And I mentioned we're at war. We don't have to do that whole thing again. But basically, the setup here, Matt, is you have narrowing breadth, which we just spent 20 minutes on.

47:17Downtown Josh Brown:You have an air pocket of a few weeks before earnings season. right we're not going to get those great reports from KLA and lamb research and all the stuff that we're looking forward to it's gonna be a minute not to mention you have the typical October surprise seasonality September is not a great month for stocks October can be a good month historically but like seasonally but it's also been a month where like crazy things have happened without rehashing the whole litany of 1929 and 1987 and the tarp votes during the financial crisis and Lehman Brothers and all this stuff like it's you know people have like a little bit of muscle memory around October being a wild time um I want to show you the uh breadth from the perspective of Barclays they have this quantitative team uh they call them the bets um guys and I thought this was interesting so they're showing similar to you cumulative nyse bread falling by 53 minus 5300 over the past 21 trading days they screened for instances in history since 2004 where this has happened and they point out that the s p on average has fallen 9.6 percent at the same time today the s p has done nothing the only precedent to today is october 2014 which saw a similar negative price spread divergence, and that resulted in the S &P falling by more than 5 % in the subsequent week.

48:47Downtown Josh Brown:Barclays is writing this research for people that are putting on trades that they are looking for immediate gratification for. So just giving you that context. The second chart, I'll have you react after this. They're showing the combined New York Stock Exchange and NASDAQ stocks trading at a 52-week high versus those trading at a 52-week low is at the same level as the nadir of the Iran war back in March. This is when there was like max fear about the attack on Iran. For context, it's 1990. SPX, the S &P, has currently fallen by an average of 670 basis points when this has been the case historically.

49:30Downtown Josh Brown:If we screen for instances where the S &P was unchanged with this number of stocks making a 52-week low, the average peak to trough drawdown over the next 21 days is minus 520 basis points. So historically, this does lead to an eventual drop in the market. What do you think about that? Yeah, I think that's the historical analog. We are also living through a period where this is the Teflon market. Truly, what is going to bring stocks down? And even this, there's literally, like you said, 90 % since what was it, June, have been contributed by the MAG7, the rally in the S &P 500. Yeah. That's crazy, that's nuts.

50:12Like I want to still pause on that for a second. That's crazy. But it truly is, like if you showed me just, if you showed me just the, should we throw it back up, John? Just the red line on this chart. So just the breadth. I would guess that the market is in a 20 % drawdown.

50:28Downtown Josh Brown:Yeah, that's what it's consistent. that's what it's consistent with a minimum of seven percent from the highs and usually worse and it's just it hasn't happened yet you asked me like what stocks are even going down or i mean like right off the top of my head these are like very specific stories mortgage stocks anything related to like um borrowing to buy a house of course mortgage rates were at seven percent on way to eight. Of course those stocks are down. Rideshare, again, very specific. Uber and Lyft look like shit. They're both down year to date. They're down over 12 months. These are pretty substantial drawdowns in these stocks.

51:12Downtown Josh Brown:I'm personally long Uber, so I'm feeling it myself. But when you look at what stocks were at the lows in addition to the staples and the utilities, it's explicable it's not like jp morgan and wells fargo are making 52 close like that's such a different story to me i'm looking at builder first source right now home builder down 45 percent year to date yeah it's like and also we were talking about lower rates before wash the entire narrative have has flipped right we're talking about there's going to be this pressure how many How many cuts? How many cuts? 100%. Yeah, but also now imagine if we had reality at that time and you knew that the picture was going to flip and it was now cuts, wouldn't you guess that the market would be down 15 %?

52:02I would have.

52:04Downtown Josh Brown:It's even with earnings. But so you're right. The correct interpretation is look how many things have gone wrong or flipped and look at how stocks are acting and the right move is to take your signal from the resilience of the market not extrapolate out all these negative stories like how much worse can they get but I am gonna throw one more on you or just postponed its IPO not to any specific not like oh we'll do it tomorrow like that I think there's 11 billion dollar evaluation or something and they were gonna go this week and I don't actually I don't even know what the valuation was yeah 11 billion was the last year's funding round so I guess they were hoping for at least somewhere over that like some premium to the last funding round here's the journal or is the black ring that people wear that reports like your health metrics back to your phone and I I don't like dislike the product I don't know anything about it.

53:08Downtown Josh Brown:You know, there's a higher likelihood of me wearing a fucking onion ring around my finger than an aura, personally. But don't take that to mean anything. I want to just say, first of all, rooting for it, I hope it goes public. I will not be buying this. I'm doing this a long time. I have never seen anyone make money from buying a health tech kind of gadget IPO. It just, it's like it just it's a especially when it's one product but um you have Peloton you have GoPro you have Fitbit SoulCycle I was here for all of it they all go to zero right like they like GoPro effectively went to zero actually so GoPro is a good case in point not that it's a direct comparison to aura but But it's like for outdoor, like physical activity enthusiasts.

54:07Downtown Josh Brown:Revenue peaked in 2015 at$1.6 billion. And it had gone public in 2013. It was a disaster from day one. It opened at a ridiculous premium at like a hundred. Went to basically zero. Revenue peaked in 2015, a year after it went public at$1.6 billion. Then it hit$651 million last year. Its stock price went from$50 or$60 in mid-2015 to$0.60. On September 1st this year, announced they're merging with an optical photonics company, of course. They're getting$1.14 in cash for that stock and a tiny amount of equity in the new company. That's how these things end. We're not going to talk about Peloton and Fitbit and all this bullshit.

54:56Downtown Josh Brown:I was at the exchange, though, yeah i guess we are i was at the exchange when fitbit went public they erected a giant trojan horse-sized um uh treadmill in front of the new york stock exchange on broad street and they had like 50 guys running on it with fitbits on zero like you know what i mean like it's down 95 since it ipo i don't understand uh town sports which was like new york sports club Philadelphia Sports Club, like, gone. Bally's Total Fitness, goodbye. SoulCycle is a joke that tells itself. Weight Watchers on its way to zero in the age of ChatGPT. Oh, let me show you this chart. Here's Planet Fitness.

55:43Downtown Josh Brown:I'm not going to say it's zero. I don't know anything about the company. I just know the better bets are Americans staying sedentary and fat. like the better long-term bet is mcdonald's and altria and uh netflix it's like like those to me like those are those are the better bets so yeah i don't know any any fitness related thoughts i mean i do see a lot of people wearing these rings i also saw a lot of people on the peloton bikes during covet and we saw that one sure so so like i think from a human perspective it's very easy to believe in the story but they're saying they're saying that in the chat lily is the better bet.

56:22Downtown Josh Brown:GLP-1 is the bet. Yep. Yeah. Yeah. I get behind that. 100%. Yeah. And I think what's stopping Apple from doing this? You know, Meta is going to have an amulet around your neck that you can talk into, whatever the Muse accessory is. What I'm saying is that people are thinking about hardware. They're thinking about wearables. Sorry. Think about wearables at these companies. and let's say that you know Peloton started having some success alpha would probably wipe them out right um I spent four hours looking at life 360 so we pay we pay for this in my I have two teenagers yeah yeah oh yeah I know where my kids are every second of the day like unless they're throwing their phone in the back of somebody's pickup truck and and then you know like in the movies like right and you know their speed right like what's the level do it I might be right I know how fast they're going in the car when their idiot friends pick them up um i know what time they get home i know if they're in a car or on a train like they uh i'll probably pay for that till they're 40 years old because that's just we're we're part of this helicopter parent generation yeah i spent all this time looking at the stock i just there's no escape from the idea that apple just says what is this bullshit we could do that like i can't i can't escape that that um conclusion so i i can't i can't afford it.

57:46Downtown Josh Brown:All right, let's do your desert island charts. I can't wait to see what these are. All right. Tell people what you mean by that, and then we'll talk about exhibit A in general. Okay. Yeah, let me explain what I mean by this. So if you put me into a cave on a remote island, okay, and you gave me a ticker tape, you said, I'm going to let you out in 20 years, you could look at five charts for the rest of your life. But what would you need the charts for if you're on a desert island? I need to be reminded every day. So you have control of your brokerage account where you are? I can hit sell. In this scenario.

58:21Downtown Josh Brown:Okay, got it. All right. I can hit sell and I can hit buy. I can get back in. Okay. So these are the charts that I would show to myself and constantly remind myself of. And we could talk about why that's important for clients to see in that perspective. But first, I just want to rip through these, John, because we have five here. So first, this is a chart that shows the S &P 500 price back to 1950. And I'm shading 20 % and 5 % drawdowns. When you look at this chart, almost the entire chart is shaded. So you are going through constant pain as an equity investor. It is nonstop. So if you feel it, it is normal.

58:5761 % of the time, the S &P 500 is in a 5 % drawdown.

59:03Downtown Josh Brown:wow say that one more say that one more time 61 percent of the time the s &p 500 is five percent or more off of its all-time highs and people when you're in that five percent drawdown number one they think it's about to be 10 and number two they act like it's abnormal like what's going on what's wrong and i think the last 15 years have conditioned us to be even worse in that regard because the market doesn't make a new high every month it's like something something's something's going wrong like something something's about to happen i i think there's a lot of that you can see it in the sentiment numbers and how they've changed like we're seeing aaa bears at levels consistent with like 2008 lows it's kind of broken all right next chart yep all right so this This is an idea from Michael and his point was ChartKid.

59:57He said, everyone wants to show the chart of how you extend your time horizon and how that leads to the odds of you gaining in the stock market. Making money. Yeah, making money. This flips it and says, okay, over five-year periods, what's the likelihood of you experiencing a bear market? and the odds of experiencing a bear market over all 15-year periods is 100%. So you have to set the precedent with your clients for yourself that we are going to experience pain.

1:00:29Downtown Josh Brown:I love this. Put it back up. So like in any given rolling three-year period back to 1950, the odds of experiencing a bear market, which we define as the market falling 20 % or more, was only 58%. It was like a coin flip. So for every three-year period for every five-year period it's 78 % every 10-year period you have a 95 % chance of experiencing a bear market so right this is such a great idea it flips the idea of extending your holding period extends the odds of you making money yes it does but it also extends the odds of you experiencing something really nasty get over it you're definitely gonna be an investor for more than 15 years.

1:01:15Downtown Josh Brown:If you're like most people, hopefully, if your health holds up, you could see five or six consequential bear markets in a lifetime. And it would not at all be abnormal. So yes, the longer you extend your time horizon, the more money you'll make, and also the more shit you have to put up with along the way. It's a great chart. You got another one? Okay, next chart. Yep, here we go. So Josh, I heard you on CNBC, you were talking about the relationships in finance and how there are almost no sure relationships. Call them iron laws of finance. There are iron laws of finance. There's almost none. And here's one that we can almost point to that breaks that law.

1:01:58And we're looking at on the x-axis, the 10-year starting yield. And on the y-axis, the actual 10-year forward annualized return from those given yields. If you have a high starting yield on a US treasury, there is almost certainty, not 100%, but almost certainty you are going to experience an actual return in the ballpark of that starting yield. Wow.

1:02:26Downtown Josh Brown:So, right. So this is, the point is like, you can't really set your watch by anything in the investment market. Like nothing works. P-U-A-T-O doesn't work like valuations in general you can't time the market on or guess at what your returns are going to be that doesn't work so much has changed over the years can't bet on winning mutual fund managers because there's no persistence of performance that doesn't work, nothing works this almost always works as a starting point for how much am I actually going to make if I allocate to bonds at today's prevailing interest rates. What other conclusion can you draw from this?

1:03:08I think what you could look at is you could look at 10-year yield today, and you could say, well, where do we land on the regression line, which is just pretty much a way of saying, like, what's probably going to happen?

1:03:18Downtown Josh Brown:That's your blue dot. Yeah, that's the blue dot there. And the blue dot there is saying, look, this is kind of where we are, and it's in the ballpark of 6%. Right, which, again, explains so much about which stocks are not working right now. in the market because this is your alternative. Right. John, can we fire the next one? Okay, here we go. So here we're looking at the relationship between the S &P 500 return year over year and the 12-month forward earnings growth year over year. And so what you see here is that stocks historically follow earnings. And it's not always perfect. And as you can see now, there is a little bit of divergence here.

1:03:58We can extract whatever conclusions we want. But the idea is that forward earnings have grown 36%, 36.7 % year over year, and the S &P 500 is up 17.9 % year over year. So forward earnings are more than doubling the actual stock market return over the past year, which is incredible.

1:04:17Downtown Josh Brown:That's incredible, because I think most people would guess it's the opposite. They would guess that it's the opposite. And then when they see the stat, they would say, well, the forward earnings are hypothetical. It's forward earnings. But I'm just, you know, if you go back, the forward earnings tend to be within 1 % of the actuals. It's the highest likelihood chance. I love that. So that's a good reminder if you're on a desert island. Like, what are we actually betting on here? We're betting that prices will rise because earnings will rise. And they go hand in hand. Okay. Good one. And then last one here.

1:04:50Downtown Josh Brown:You got one more. Yeah, last one, guys. So here we got the S &P 500 annualized return going back to 1950. and it's if you stay invested fully, you miss the best day of every year, the best five days of every year and the best 10 days of every year. I just want you to focus on the bar all the way to the right. If you miss the best 10 days of every year, obviously no one has perfect foresight, but just theoretically, your annualized return goes to negative 12%. If you annualize - From plus 8.4 to negative 12, just by missing the 10 best days of each year. That's sick. So people, these best. Yeah, sorry.

1:05:29Downtown Josh Brown:I was gonna say people have been using some version of this chart since I got into the business to convince clients to stay the course. I like your version of it because you're keeping it much more simple than a lot of it with, you know, 50 different bars and diamonds and trend lines. Like, you're just like, guys, this is it. This is why you can't afford to swing in and out of the markets. You could miss the whole point of taking risk to begin with. Something that I've learned in making charts, and it's probably the number one lesson that I've had to kind of come to the conclusion with, is that if you overcomplicate things, people get annoyed, they get frustrated.

1:06:12It's about simplifying the concept. It's not about looking smart. It's about getting someone to look at the chart and say, I actually get it. You connect the dots for them. You have taught them something that is going to hopefully, in the future, benefit them financially. And so it's about simplifying.

1:06:28Downtown Josh Brown:Matt, the crowd is going wild for you. I wish we could hear the sound of their applause because it would be rapturous. Let's tell people how they can follow you. There we go. Thank you, folks. Chart Kid Matt, ladies and gentlemen. I want to tell people before we get into it, we're going to do a mystery chart and then I'll make the case and we'll get out of here. But before we do that, I want to tell people how they can follow you personally and how financial advisors who are watching or listening can check out Exhibit A, which is your company. Yeah, so this is our landing page here, exhibita4advice.com.

1:07:05If you are an RAA with, let's say, one to ten advisors and you don't really have a research team, there's two or three CSAs there, you want to look extremely professional in front of clients and prospects, deliver an A-plus first impression, just give it a try. It's perfect. We're at the end of the quarter right now. You We have over 200 branded charts. They update every single day. Ben Carlson's doing eight monthly reports and four quarterly market and economic updates for our clients. It's completely ghost written. It's like literally having our content team and me as your analyst for a few hundred bucks a month.

1:07:42Downtown Josh Brown:It's unbelievable. Like most, there's 20 ,000 firms in the country. Most of them don't even have one research person. And their presentations to clients look like shit. no offense like they're doing what we used to do they're grabbing charts from 10 different firms and putting them in an email and hitting send like you're building these charts as templates where they can use their corporate colors their own logo um the compliance stuff is already baked into it so they don't have to worry about am i allowed to show a chart that says this and people can pick and choose they don't have to send 200 charts to a client right might just say i want to send this one chart because it'll resonate with my clients.

1:08:22Downtown Josh Brown:So it's an awesome product. And you're active on Twitter, LinkedIn. What do you do? Yeah, my blog is chartkidmatt.com. I take some of the in the weeds charts that are a little bit past what the advisor would show to clients. And I post them there. I talk about them. I write. I'm trying to be like you guys, honestly. So that's what I'm doing dude you absolutely crushing on the show tonight let's do uh make the case this'll this will be uh just a reminder about some of the stuff we said about utilities um put up the price chart this is a state street utility select sector spider etf or xlu it's sort of shorthand for how the sector is doing i'm going to tell you i will not buy this dip i don't like it i don't like what it represents.

1:09:12Downtown Josh Brown:I don't like how it acts. It's in no man's land. And I'll just point out a couple of things. So to make the case I'm making is not every dip is viable. I don't like this one. I think at best you have dead money. And at worst, this could get way worse. When you look at utilities right now, they've pulled back a lot this year. You might even call it cheap because it's a 17.3 PE ratio. And the five-year average has been almost 23. That would be short-sighted. If you zoom out to a true long-term 10-year historical average on the PE ratio for the utility sector, it's more like 12. So 17 is cheaper than 22, but historically not a meaningful discount.

1:09:56Downtown Josh Brown:We had like a structurally distorted multiple in the space because of AI data center narrative. And we were treating regulated utilities like they could be growth stocks. If you buy this dip, you're basically paying a 36 % premium over the historical long-term PE. But it really does not look like that story is intact or going to hold up. The other problem here is the trailing dividend yield is only 2.94%. Historically, people before AI data sent their power, people bought these stocks for the yield. And as we've said, 85 different ways. The 10-year Treasury note is now at 5.25%. So I think the smart money is going to opt for that rather than the risk of a utility delivering a capital return in excess of that.

1:10:45Downtown Josh Brown:So I think it's a dip that you want to avoid rather than take advantage of. Maybe if it gets much cheaper, we'll revisit that idea. I only have one utility name in the firm's Porterhouse concentrated momentum strategy. So out of the, I don't know, four dozen stocks in this industry, I have one. and it looks like it's about to get bounced out anyway on our next rebalance. Put this up. This is Entergy. Guys, did you hear what I said? This is the best looking utility in the market in order for it to make Porterhouse. And since it got into the strategy that we run, it's looked like shit ever since.

1:11:29Downtown Josh Brown:And I think we're about to kick it unless something radically changes. So if that's the best looking name in the group, it should tell you a little bit about how the rest of them look technically. So they're not cheap, and the charts are pointing down into the right. So that's me making that case. Any pushback there, or are you with me? What do you think? I'm with you. Yeah, you don't – I mean, with yields rising, you don't want to – We're not doing yields. Any of this. Yeah. All right. You got a mystery chart, I'm told? Huh? I do have a mystery chart. Can we throw it up? Here we go. Let's do it.

1:12:01All right.

1:12:02Downtown Josh Brown:All right. All right. Hold on. I can hint. One hint at least. Okay. It's going to be a good hint. This industry got destroyed in COVID. Destroyed in COVID. Okay. Hold on, hold on. We've talked about it before on the show. Tonight? Michael owns it. We've talked about it on the show. Michael owns it. Industry got destroyed in COVID. It's a stock or it's a... It's a stock. Should I do another one? One more hint. I have one. Okay. We had the CEO on the show. Oh, it's IMAX. There it is. This kid loves Michael Batnick. This is Michael's only long-term stock holding, personally. And all right. Good one.

1:12:54Downtown Josh Brown:I should have got, when you said got destroyed during COVID, I was thinking like after COVID when they beat up all the stay-at-home stocks. But you mean like during COVID? Yeah, I guess, yeah, I should have been more specific. Like, no one did this thing during COVID. I inferred incorrectly. All right. ChartKid, Matt, your question tonight. Thank you so much. Guys, I want to let you know, despite the fact Michael's away, there will absolutely be a new Animal Spirits tomorrow on all podcast platforms and right here on the Compound channel on YouTube. Make sure you check out Ask the Compound as well as an all-new episode, The Compound and Friends, dropping at the end of the week.

1:13:33Downtown Josh Brown:We are here for you. We are dropping bombs all day long on all channels. Keep it locked. We'll talk to you soon.

1:14:06I need a microwave