Leveraged ETF Casino, Apple Breaks Out, Sentiment Plunges, Government Stake in OpenAI?

9:15Let's put up earnings per share.

9:19Downtown Josh Brown:Consensus has Apple earnings per share up 17.4 % year over year in 2026. And then another 9.8 % gain in 27, which I'm going to tell you right now, I think gets revised higher. This was the comeback year for the Apple growth story because of the new phone that came out late last year. They didn't need to have the best AI native product. They just needed to be able to communicate that that was coming. And you had a lot of people who were long overdue to upgrade their phone, and they decided to last time.

9:57Michael Batnick:Do you believe it's coming, the AI upgrades? Oh, I know it is. What do you think is going to happen?

10:01Downtown Josh Brown:I'm going to tell you in a minute. Here's annual revenue. Obviously, on the current revenue base, you're not going to see as dramatic an improvement. But I have to tell you, if they can do 15 % year-over-year growth this year and then another 8.8 % next year, which is now the new consensus, we're not talking about Apple anymore as a non-growth story. I mean, these are double-digit growth rates on a massive revenue base.

10:29Michael Batnick:So look at the last blue, the five blue bars. Obviously, this doesn't tell the whole story, not even close, because they're buying back a ton of stock. So the earnings per share has been going up and the revenue might have not been growing, but the economics of the business have been dramatically improving on the top line because, or bottom line, excuse me, because the shift of where the money is coming from with services leading the charge, that's the high margin area.

10:55Downtown Josh Brown:Yes, 100%. And that's the number that everyone cared about. it's about the services about the services no now it's about the phone and the services and the phone is the hot story with apple for apple once again and this is really important so i want to walk you through but my my take here is i think apple can get to 400 that is the equivalent where to close today 311 so it's a 25 again this is me telling you a 31 stock can go to 40 happens every day. I think Apple's going to do it. And I think it's breaking out right now, not today, but just generally speaking. And I want to lay out the case for why I think this is the mega cap to watch in the second half of the year.

11:38Downtown Josh Brown:So again, hit an all-time record high at 317 on June 8th. Stock is up about 15, 16 % year to date, which is even with the NASDAQ, although better than the other mega cap stocks, which so far this year have been net negative and detracting from the index. Your market cap is$4.6 trillion, which sounds like a lot until you realize we're in the age of trillion dollar market caps and it's no longer all that novel. The next big catalyst here is the third quarter print, which will be on July 30th. So in less than a month, we're going to hear whether or not that iPhone momentum has carried through into the spring and summer.

12:19Downtown Josh Brown:The fundamental setup is this. The last time they reported, revenue hit$111.2 billion for the quarter, which was a 17 % jump over the same quarter last year, the second quarter of the year. Earnings hit$201 versus$1.95 expected. iPhone revenue, which again, that's the story, $57 billion thanks to iPhone 17 being a hit. Services simultaneously hit an all-time high, 31 billion. So you got 57 billion coming from the iPhone. We're not talking about all the other hardware, just the iPhone product and services breaking a record. Greater China, which had been an anchor holding this stock down, actually rebounded and surprise to the upside, 20 and a half billion.

13:10Downtown Josh Brown:And I think that'll continue because of a new deal with Alibaba, which we'll get to. The guidance they gave for this quarter, 14 to 17 % growth. The street was saying nine. So they materially raised guidance for this quarter, which explains why the stock is above 300 already. Over the next four quarters, now the question is margin. No one's worried about revenue anymore because they gave great guidance. So now it's margin. It's what's gross margin on the hardware. Is it gonna go materially lower than high 30s? Is it gonna be above 40? They're worried about memory chips. So we're gonna see what the reality is there, but I think they'll raise prices enough to offset it.

13:59Downtown Josh Brown:What are we talking about offsetting? DRAM and NAND costs are up 98 % in a single quarter.

14:07Michael Batnick:Wow.

14:07Downtown Josh Brown:It's just like very, very difficult. Tim Cook talked about it last week. He called it a 100-year flood and price increases being unavoidable. The estimates that are out there is that the iPhone 18 Pro, which they'll come out with in Q4, could be$200 more than the 17 Pro. I get it. people are like up in arms. I just don't think that's going to stop somebody from upgrading their phone. I just don't. I'm sorry. Now here's what's really exciting. Forget about the July 30th print. September is a double event. The new CEO takes over on September 1st, John Ternus. People are very excited about him becoming the CEO.

14:51Downtown Josh Brown:This is a product guy, a hardware guy through and through. His first keynote is probably going to be to launch the foldable the apple foldable um it's they're either going to call it the iphone ultra or the iphone fold depending on which rumors you believe it's going to be like a book fold it in half um five and a half inch outer display 7.8 inch inner display under five millimeters thick unfolded i know you're gonna get it um it's also built on their own silicon this is the a20 pro chip that's made by Taiwan Semi, but designed by Apple. So if that is a$2 ,000 to$2 ,499, like a$2 ,500 phone, it'll be the most expensive phone ever.

15:38Downtown Josh Brown:But the thing is, they're going to sell it out because supply is brutally constrained. So the latest survey that was out there is that the most they would be able to make is seven to eight million units of this phone and probably only shipping half a million to a million units in Q3 when it launches. So this is not a situation where they're going to do this massive launch and people are going to be talking about, oh, the phone is sitting on the shelves in the stores. I think that there is enough demand, people that just want this thing or want to try it. I think they'll be able to say it's a sellout product this year.

16:17Downtown Josh Brown:How many units is half a million to a million, they sold 20 to 22 million iPhone, they were going to sell 20 to 22 million iPhone 18 Pros and Pro Maxes in the same quarter. So this is a tiny sliver of the phones that they'll be able to produce. I want to say a couple of more things and get your reaction. The other half of the story is Siri. So in June, they unveiled the AI overhaul, which is built on Apple's own foundational models working with Google and Gemini. And it's going to be a two-phased rollout. On-screen context features are already out. You've seen them. Full conversational Siri, which is multi-turn dialogue.

17:02Downtown Josh Brown:Ask it a question. It answers. Ask it a follow-up as part of the same conversation. It still can't do talk to text. It's going. And most important, the thing that I've been most bullish on, cross-app task execution. Tell your bank to pay a bill on another app and have that happen. This is where we're going, and I think it comes out at the end of this year. And if it works, the entire conversation around Apple, where they started out saying they're behind in AI, is going to switch to this conversation. Wait a minute. And Apple has 2.5 billion active devices to distribute AI on. And what'll happen is, is that me or you?

17:48Downtown Josh Brown:No, it's me. What'll happen is, I think Apple's going to pursue this bring your own LLM model where they'll say, you want to use Claude? Great. You want to use OpenAI, ChatGPT? Awesome. We don't care. Siri will layer on top of those and you choose which one you want to use. The only thing that matters here to the Apple shareholder is that Apple is the toll booth. They're going to get paid coming and going regardless of which AI the consumer wants to use. And that is the checkmate. That is the trap that Apple has sprung on all of these companies that are spending hundreds of billions in CapEx. It ain't going to matter to Apple.

18:31Downtown Josh Brown:They're going to get paid no matter what. Let me pause there. And what are your thoughts?

18:36Michael Batnick:My first thought is I reminded myself never to do math on a live podcast because$300 to$400 is not 25%.

18:43Downtown Josh Brown:What is it? 31%. Close. 33. 33%.

18:51Michael Batnick:I don't know. I honestly don't even know what moves the stock anymore because there's so many different storylines. I think the only thing that can materially move it is whatever they do on the AI side because the hardware is great. They're not getting a higher multiple because of the new phones. It's got to be a contract with one of the Frontier models.

19:11Downtown Josh Brown:No, they'll have contracts with all the Frontier models. Fine. It's irrelevant. Apple is turning the LLM business into clients. That's what I just said.

19:24Michael Batnick:So if they have$20 and$30 billion deals from these companies, that can move the needle. A new flip phone, which I'm very excited about, is not going to do it. And I am skeptical that they're all of a sudden going to unleash a Siri that works. So I would love to be wrong because it's a shitty product.

19:41Downtown Josh Brown:Well, it already does work. It's just not agentic. And now it will be. That's what's coming. But it works currently. It's one of the most used chatbots in the world, if not the most used. It just is not interoperable with all of the apps in the app store. That is what's changing. And that is game changing for the consumer who right now does not have that. I don't care how much you love Claude. Claude's ability to work with other apps on your phone is zero. It just, it doesn't. Having a Gentic Siri quarterbacking all of the, all of the, all of the Gentic stuff with all of your apps and forcing that as a condition for apps to be in the iOS app store, that they must be interoperable with Siri.

20:29Downtown Josh Brown:This is the checkmate.

20:31Michael Batnick:So I would love this. Let's say that you have a credit card and you get a new credit card and you have to set up to your bank account to start to pay it. If you could say, hey, Siri, connect my Capital One account, my new Capital One card with my JP Morgan bank account. That's awesome.

20:48Downtown Josh Brown:Yeah. Dan Ives has a$400 target. This is back in May when the stock was in the two nineties. And the way he framed it is it's a sum of the parts story. So he took his target from three 50 to 400 two months ago. And basically his thesis is this. The core bet is a$15 billion annual revenue opportunity in AI services, not from Apple building its own frontier model, but from monetizing everyone else's and distributing it across, again, 2.5 billion iOS users. Nobody can make an end run around it. I've said services could add 75 AI monetization plus services could add 75 to$100 per share of value, which is the math that gets you to 400.

21:44Downtown Josh Brown:He thinks 20 % of the world's population will eventually access AI through an Apple device. So it's, it's the installed base and the ability for Apple to collect fees from every product, let the consumer choose. iOS 27 is central to the idea because that's where users can set a preferred AI model as the system default for Apple intelligence, just like we all set a search default and most people default to Google. And so that is how Apple basically takes over the consumer AI story. Not by building the best LLM, not by spending a trillion dollars on data centers, but by positioning itself between the consumer who trusts Apple and everyone else who's going to make software and frontier models.

22:38Downtown Josh Brown:And that, to me, that's the story. That's what I'm bullish about. It's not a cheap stock. Quite frankly, it almost never is.

22:46Michael Batnick:Well, they say it trades at 33 times forward estimates, 26. I mean, that's for a stock that's not growing a lot. But maybe this is the next -

22:53Downtown Josh Brown:But the thing is, it is growing a lot. It's 15 % revenue growth last quarter, 17 % earnings growth. It is growing a lot. All right, fair enough. And growing faster than any other company at size that's not named NVIDIA, quite frankly. You think about what it takes to grow at this size. No one but NVIDIA is doing that. So that's my bull case on Apple. Full disclosure, in case you couldn't tell, I own the stock. Most of you guys own the stock too, whether you own it directly or it's in your index. We're all very long Apple.

23:29Michael Batnick:All right, let's talk about the mini AI unwind. Let's start here. So Yardini has a chart that shows, and we've spoken a lot about this, It shows the forward profit margin for semiconductors, and it shows the forward PE. And one is going up to the right, and the other is not. And you would think that investors would reward the margin expansion with multiple expansion, but they're not. They're just not. So Ed says, the bubble this time might be in analysts' expectations for the forward profit margin of the S &P semiconductor industry. The aggregate forward profit margin rose to a record 50 % last week.

24:13Michael Batnick:Investors certainly have their doubts, given that they are paying a forward PE of only 18.4 currently. And I love the doubts. I think this is keeping a bubble in check. I think this is keeping the market from really getting ahead of itself in a way that would make me and other investors uncomfortable. I love all this. So there was a bit of an unwind today. Not just today, over the last couple of sessions. Western Digital is in a, well, Sandus is in a 30 % drawdown. Western Dig is in a 28 % drawdown. The losses are real. Yeah, Micron 22%. Seagate 24%.

24:47Downtown Josh Brown:If you bought these stocks after Micron reported its unbelievable quarter, it was great, like an amazing earnings report. If you were a buyer of these stocks, you're down double digits in all of them.

25:02Michael Batnick:Let's look at this chart on from ChartKid. So we're looking at names that are at least 10 % from their 52-week highs. and also 20 % above their 200-day moving average. So Sandisk, for example, this stock is in a 30 % drawdown, as I mentioned. It's still 130 % above its 200-day moving average.

25:25Downtown Josh Brown:Crazy. Even with the pullback, that's how much they're up.

25:29Michael Batnick:These stocks were so unbelievably extended. Maybe today was the bottom. Maybe it wasn't. I have no idea. But what sparked this was, and again, today's sell-off, because these names have been chopping around, going low for the last 10 sessions or so. But today was on the back of Samsung. So Samsung reported that their profits surged 19-fold. 19-fold.

25:51Downtown Josh Brown:Yeah.

25:52Michael Batnick:An increase that still wasn't enough for investors. That's according to Bloomberg.

25:56Downtown Josh Brown:And the stock fell 6%.

25:57Michael Batnick:Stock was down as much as 10 % at one point, closed down 7%. Operating profit of around$58 billion. That would top the previous quarter's record of$37 billion. Again, I said this right. 19-fold compared to a year earlier, just unbelievable.

26:13Downtown Josh Brown:They can't do it again. Everybody understands this. Look at this. They can't do this a year from now when we're lapping this quarter. They're not going to have earnings up 19-fold again when we're reporting this same quarter a year from now. They may be in great shape and have an amazing business, but the growth rate mathematically has to slow down because all of this gain that they're reporting is in their I'm raising prices. What are they going to quadruple prices again? Like it's just, it's impossible for these companies now, I think, to please their shareholder base given where expectations have gone.

26:54Michael Batnick:So David Morrison, an analyst at Trade Nation said, as is often the case, it can be better to travel than to arrive. So the unfortunate reality is that stocks usually top on good news. So for the memory names, is this a top or the top?

27:18Downtown Josh Brown:Let's do these Samsung charts real quick. I want to see them.

27:21Michael Batnick:We just did this.

27:23Downtown Josh Brown:If you were paying attention, I was... I'm with you, babe. Right. So I'm trying to see what the increase is. So sequential increase from Q1 to Q2. Look how bananas that is. Nuts. Like from Q4 to Q1, and then Q1 to Q2. This is a double and then a double again. Throw the next chart up. This is the problem.

27:43Michael Batnick:You can't do it. All right. So if I were forced to guess, and I will guess because that's what we're doing, I would say despite what I just said about stocks topping on good news, I think it's going to take a little bit more than this to break the backs of buyers. I think there's a lot of dip buyers ready to come in. What if? I don't know if the next wave fizzles out, But I'm not ready to say that this was the ultimate top. Yeah.

28:09Downtown Josh Brown:What if the problem here is the nature of the buyers? What if only 50%, let's say, of the shareholder base were fundamentally driven investors and the other 50 % were people buying 2X ETFs who really don't care that much? They're not married to these stories. And if the stock stopped going up, they don't come in and buy the dip because they're buying the next stock that's going up.

28:32Michael Batnick:Glad you mentioned that. So I think there's definitely a lot of truth in there. So David Tepper killed it last quarter. He was buying all these names. I would imagine that he's a lot lighter in these names now than he was six months ago. And you're right. Who is he selling to? I have no idea. Is it the double levered ETF buyers?

28:53Downtown Josh Brown:He's selling it to Korean day traders and to people buying 2X ETFs. Like that's the buyer. But those people are not buying right now.

29:06Michael Batnick:Two more charts. All right. I think this is great news. Dean Christians has a chart that shows that over half of tech stocks are in a bear market. Not awesome if you bought the top. But Grant Hawkridge has a chart that shows the S &P 500 advanced decline line. So the fact that you are getting a pretty decent pullback in the largest sector, and yet the advanced decline line, the rest of the market is broadening out. I think that we've been saying this for years. The rotation inside of this bull market continues to impress, and you got to give investors the benefit of the doubt. It's pretty amazing.

29:46Downtown Josh Brown:Can we go back to the scattered plot that Matt did? Yeah. Yeah. The only other thing that I would add to this topic is, I guess I would ask you a question. At what percentage above the 200-day moving average would you never buy a stock? Like, would you ever buy a stock that's over 100 % above its 200-day moving average? No. So I was on TV the day after Micron reported, so on the reaction day, and I'm not naming names. One of the people sitting on the desk was enthusiastically buying Micron right at the high. We didn't know it was at the high at the time. So some of this is Monday morning. But the only comment I made was, I'm not gonna tell you that's not the greatest earnings report I've ever read because it probably is, right?

30:46Downtown Josh Brown:Like I'm not going to say that. I'm just going to say historically, I don't believe investors are typically rewarded when they buy a stock that's 200 % above its 200-day moving average. Yeah, I'm sure. I don't – this is a fresh position. This is not somebody adding. I don't think that that's the way to start a position in a portfolio. But where is the line? Is it 50 % above the 200-day? What are your thoughts?

31:16Michael Batnick:I don't know. I'm sure that there are quant back tests that would say, hey, listen, actually, actually, buying stocks that are 50 % above their 200 moving average is an awesome strategy.

31:25Downtown Josh Brown:Wow. Depending on the exit. Not in the absence of an exit.

31:29Michael Batnick:If you do it systematically over time and you have an exit strategy, that might be an awesome strategy. I don't know.

31:33Downtown Josh Brown:You think the quants would say that? I bet you they wouldn't.

31:35Michael Batnick:I have no idea. Well, I'm guessing. But is 200 % too much? I think 50 % is probably fine.

31:44Downtown Josh Brown:Okay. Okay, a triple in price above a 200-day moving average is probably not an ideal entry for a new position. No, I don't think so. That's my comment. Of course. I'm on the record. I'm on the record. If there's a quant that wants to show me a back test that says I'm wrong, I want to see it. I want to learn. Teach me. Teach me. All right. Sentiment versus stocks. I posted this on LinkedIn, one half of what we're going to say. And it sort of blew up. So I think it's at 1 ,000 comments. And it's not my chart. It's Dr. David Kelly, J.P. Morgan, included this in his Guide to Markets, which I never miss.

32:28Downtown Josh Brown:And what you're looking at here, the S &P 500 in red at basically an all-time high and consumer sentiment basically at an all-time low and going lower all the time. The blue line is fake. This goes back, well, It's the real data. You don't have to agree with what people are saying, but that's consumer sentiment. And this is a 10-year chart. So back to 2014, it's just pretty incredible that this is the way sentiment works now. And by works, I mean doesn't work. And so let's look at the next chart. This is Dr. David Kelly showing us consumer sentiment index and the subsequent 12-month returns for the S &P 500.

33:17Downtown Josh Brown:And historically, before the modern era, it's been a pretty good idea to buy the lows in sentiment, in consumer sentiment. And those have often coincided with – Recessions. But you've had great returns coming out of those things. Now, you could throw this out because there's no way it's going to work or there's no way it's going to work to the same extent because the stock market and consumer sentiment are almost completely divorced from each other. What do you think about this?

33:52Michael Batnick:Throw the previous chart back up. All right. Something happened to the blue line. I can't put my finger on it. Oh, yeah, COVID. And then inflation and everything else. So I'm not dismissing like it's not totally, totally, totally unconnected from everything. But that blue line will never recover. It will never, you will never.

34:11Downtown Josh Brown:We are permanent low sentiment.

34:12Michael Batnick:Correct. In today's day and age of the modern social media age, the way that we consume information, the way that you answer these questions, the people that are answering these questions, that blue line will never recover.

34:28Downtown Josh Brown:I'd like to solve the puzzle. here's why it'll never recover and you're right and here's what changed it's not covet itself it's two things that happened in in in that era that i think have just permanently destroyed consumer sentiment but three things one you're right is inflation which despite the fact that were closer to 2 % than 6%, doesn't matter.

34:58Michael Batnick:It's cumulative inflation.

34:59Downtown Josh Brown:It's cumulative and people are still mad and they will never not be mad. And it'll take an entirely new generation to come of age to sort of forget about it, okay? So that's thing one. Thing two is Elon took over Twitter and Instagram launched algorithmically driven reels. So let me just unpack those two things because I think they're super important. Instagram, we'll do that first Instagram used to be a place Where you would log in To see your friends on vacation Your neighbor's dog And People doing funny stuff And you knew who the people were And you laughed along with them In August of 2020 Facing a, quite frankly An existential threat from TikTok Mark Zuckerberg pivoted Instagram and Reels in particular to being algorithmically driven.

35:55Downtown Josh Brown:And for the first time ever, they began to shove other content into your feed and everyone just got used to it. And ultimately that content started out with people dancing because it was fighting off TikTok. And then ultimately it ends up where it always ends up. Darning flags. Politics, teen takeovers, racist content, Charlie Kirk, clips of people arguing about Gaza, protests, buildings on fire, department stores being robbed, you name it, catalytic converters being stolen out of people's driveways. That is what Instagram basically turned into. And it's not because they wanted that to happen.

36:40Downtown Josh Brown:People spend more time on that content. They're more engaged. And the algorithm is programmed to show them more of what keeps them engaged. and nothing keeps people engaged on Instagram like sex and violence because we're human. And so the algorithm is just holding up a mirror to what we all are and what we all are, chimpanzees who are incensed by the things that we see, rattle the cages, and that brings in more advertising dollars. So that's Instagram. And this is a product, I don't know, three billion people use it. Okay, so that's part of the consumer sentiment plunge. Things were better when we were just looking at pictures of birthday parties.

37:18Michael Batnick:Can I say one more thing on this?

37:19Downtown Josh Brown:Yeah.

37:20Michael Batnick:So I saw a tweet over the weekend that really bummed me out. A friend of mine tweeted something that they never would have otherwise, but ostensibly they're getting paid by the Elon bucks. And that's just what Twitter is now. So that's where I'm going next. And it was such a f***ing bummer.

37:41Downtown Josh Brown:So that's where I'm going next. So not long after Zuckerberg turned reels into TikTok, Elon Musk took over Twitter, renamed it X, took off most if not all of the constraints about what kind of content could be seen and read there. I know there's a lot of free speech people in our audience, and they appreciate that, and that's fine. I'm not saying it's all bad, but any sort of constraints about what people should be saying in civil society or what we should allow anonymous people to do on the internet, it's all gone. And now the entirety of Twitter is basically one raging debate about which race is more prone to raping women and which religion should the country be based on and which people don't belong in this country and what's happening to Europe and immigration.

38:39Downtown Josh Brown:And it's just pitch black. And this is one of the top four most widely used social platforms. So now you basically have the situation where Instagram, which used to be for friends and family, is driving us crazy. There's no respite from that. When you go on Twitter, it's even worse. And people are going to be mad for the rest of their lives about how much more expensive things are today than they were in 2019.

39:07Michael Batnick:Yeah. Anyway, how are you feeling?

39:09Downtown Josh Brown:Well, I'm fine. I actually have never been doing – look at my hair right now. so if you want to judge how i me josh brown first of all i now go by joshua and this is my this is my new hairstyle and i've turned over a new leaf and everything's

39:27Michael Batnick:everything's okay for me anyway the consumer sentiment line is bullshit because people

39:31Downtown Josh Brown:people are not put that chart last time we're gonna move on from this just give me the sentiment this so this is this is the mood versus the prices but it's not even the mood it's the fake mood

39:42Michael Batnick:it's the social media mood people in real life are not like this point that we're making yeah

39:47Downtown Josh Brown:people are not like this because the reality is we have chart off in the last five years as this consumer sentiment has been plunging we have been creating more millionaire households penta millionaire households and deca millionaire households than ever in the history of the country. 401k balances are at record highs. IRA balances too. Unemployment is still at or close to all-time lows, not for everyone, but in general. And this is the consumer sentiment. So for me, it's people making themselves crazy on social media with the shit that they're consuming and the prices not reverting back to what they remember from a few years ago.

40:33Downtown Josh Brown:And nothing the stock market does is going to change any of that. No, you're right. And seen.

40:39Michael Batnick:Well done. Okay, let's just do this real quick. Oh, value had an incredible first half. Oh, yeah, really? Depends which value. If Micron was 24 % of your value index, it had a great first half. So throw this chart on. This is iShares MSCI. So let's not forget about iShares. This is MSCI USA value factor, ticker is VLUE. It was up 42%. I made this chart yesterday, year to date. The Vanguard value, which is a crisp data set, is up 16 % year-to-date. And the S &P value was up 9%. So even today, Josh, the top one was down 1%. Chart off, please. The MSCI value was down 1%. The other two were flat. Why?

41:20Michael Batnick:Let's look at the holdings. Next chart, please. So the MSCI one, 25 % micron. Are you kidding me?

41:28Downtown Josh Brown:How often does that index rebalance? I'm guessing it's an annual. Every six months or annual?

41:34Michael Batnick:Honestly, I don't know why I guess. You could just freaking Google it. I don't know what the answer is. But big differences. So it's not like the value factor is kicking ass. I mean, it's doing just fine. But it's not just the value stuff. The semiconductor, the AI stuff is making a couple of the indexes go bananas. And you really used to not have to pay attention to this stuff. It was like, all right, I want to own EM. Do I want iShares, IEMG? Do I want VWO? It's a little bit cheaper. Ah, who gives a shit? They're both EM.

42:07Downtown Josh Brown:It was semantics.

42:09Michael Batnick:Yeah, so Vanguard, is it FTSE? They don't classify Korea as an emerging market because -

42:15Downtown Josh Brown:Right, that was the big controversy. So who cares? Korea is developed or emerging.

42:18Michael Batnick:Well, now you care. Look at this. So IEMG was up 35 % year to date. VWO was up 21%. Both great returns, but that's a gigantic spread. Try not, please. 35 versus 21. So you used to really not have to think too, too hard about these decisions.

42:35Downtown Josh Brown:Wait, wait, stop. That's Korea? That's it.

42:37Michael Batnick:That's it.

42:37Downtown Josh Brown:That's it.

42:42Downtown Josh Brown:So this has got to be the most extreme example of what you're talking about of all time, right?

42:47Michael Batnick:I mean, the value one was pretty good too. But I can't imagine this has ever happened to this degree.

42:52Downtown Josh Brown:Yeah, that's what I mean. Between the value thing, the emerging markets thing, this has got to – I mean, this is going to be in so many investment presentation decks going forward, like advisors explaining like why they use iShares or why they use Vanguard or State Street, like because the index methodology could have such an outsized effect on like, oh, also if you're a value investor and you want to make the case for why people should, you know, invest in value oriented strategy, you already know which benchmark they're using in their presentation. I think it's the one that had 24 % micron in it.

43:31Downtown Josh Brown:Right.

43:32Michael Batnick:Anyway, let's keep moving. We're going long.

43:34Downtown Josh Brown:That's wild. Okay. What do we have left though?

43:38Michael Batnick:So you want to show a chart and I have a counter chart.

43:41Downtown Josh Brown:Here's a Goldman Sachs chart.

43:48Downtown Josh Brown:This is very simple to me. Don't get used to this. The red line is the current bull market back to the end of 2022. So basically three and a half years of, I don't know, is this the greatest bull market of all time? Like compressed into a three and a half year period? It's got to be up there with some of the great ones. And what you're seeing here in shaded blue, top decile, top quartile, median return. It's literally off the chart. And that could end tomorrow and it wouldn't change the fact that what we have just gone through over the last three and a half years is one for the record books. It may not be the all-time record, but it's pretty exceptional.

44:30So it is.

44:32Michael Batnick:Hard stop, but and also, this chart blew my face off. So we stole this chart from Bespoke. Credit to them. We ripped this off. Chart on, please. So they showed where does this bull market rank when you look at a roll in one year, two year, five-year, 10-year, 20-year. And three years is in here that actually might be in the 95th percentile, Josh. I don't know. But this made me feel a little bit better. The five-year, for example, five-year returns is in the 60th percentile. 10 years, 77th. The 20 years deserves a humongous asterisk because the GFC is about to roll off. And when that does, it's going to shoot way up.

45:13Michael Batnick:But these made me feel pretty good. I'm not going to lie.

45:16Downtown Josh Brown:Yeah. Well, so we're just using this three and a half year because it was like 2022 was a bear market year. So like in this bull market, that's where the three and a half, it's not that it's cherry picked. It's that we're

45:29Michael Batnick:trying to contextualize this moment in time. It's been an awesome market. I think the AI rally,

45:36Downtown Josh Brown:that's what it is.

45:37Michael Batnick:The bigger point is wherever this goes, hopefully not a lot lower. We just experience a hell of a run.

45:44Downtown Josh Brown:Yeah, right. No matter where you want to start it from, like it's, it's pretty epic. Um, as an addendum to this, we know that a lot of the justification for what's gone on so far and what people hope will continue is earnings growth. We know that this is a one of a kind period for earnings growth. Thanks to this memory. You can call it a memory boom or a memory bubble, depending on how skeptical you are, but undeniable. And it's not just memory. Memory is the most extreme example of what happens when AI CapEx demand takes over the whole economy. Adam Parker, our friend Adam Parker at Trivariate says, the market has not fallen during a two-year double-digit earnings expansion since 1994.

46:36Downtown Josh Brown:It's actually only fallen five times over the last 100 years when the stock market was doing double digit on double digit earnings growth in consecutive years.

46:46Michael Batnick:Wait, what is he saying here? I think I missed that.

46:49Downtown Josh Brown:All right. Let me read it in his words, not my own. We looked back at 98 years of S &P 500 earnings growth and returns. and in particular, we focused on the S &P 500 stock performance the first year when earnings grow double digits the current year and the next year. So the expectation for earnings growth is double digits for next year too. Are you following me? Yes. So this would be year one. Adam says only five times and not since 1994 has the market acted poorly when the current and next year had such strong earnings growth. So I think what he's saying is you can feed a bull market, but you don't want to feed a bull market when we're in year one of a two-year stretch of double-digit annual earnings growth because the market has never acted poorly over the last 30 years when that's your setup.

47:43Downtown Josh Brown:And only five times in 100 years has the market acted poorly while earnings were growing to that extent. Does that make sense to you?

47:52Michael Batnick:It does make sense to me. And the chart that we showed last week, I can't remember what show it was, where all of these different industry and sectors and market cap groups, all of the ones that you want to see leading the market higher from transports to semis to small caps, industrials, financials. What are you bearish about? Yeah.

48:12Downtown Josh Brown:Yeah, what do you want? Now, the last piece of the puzzle is how involved are leveraged ETFs in this outsized rally that we're describing? And I have to be honest and say very. It doesn't contradict the fact that this is an earnings growth driven bull market. It doesn't mean the bulls didn't make money. No, they are.

48:36Michael Batnick:We said last week it's half a trillion dollars of notional exposure to these companies. It's a lot of money.

48:41Downtown Josh Brown:Here's Todd Sone's chart from Strategas. He has a huge report on these leveraged exchange traded products. There it is.

48:49Michael Batnick:Yeah.

48:49Downtown Josh Brown:Okay. U.S. listed leveraged ETPs are pushing 700 funds across$200 billion in assets under management. In AUM alone. In AUM and$500 billion in notional exposure.

49:05Michael Batnick:Man.

49:06Downtown Josh Brown:He says this is an important change in market structure and their growing usage reflects this. And I have one more from him. What are we doing with all these leveraged funds? Mostly we're buying tech.

49:19Michael Batnick:Yeah.

49:20Downtown Josh Brown:So what you can see here on the left, these are the most popular products by AUM. QQQ, semis, single semiconductor stock ETFs, Tesla, and the S &P 500.

49:33Michael Batnick:Well, I think you're seeing this. I think you're seeing the tail wag the dog when you look at all of these memory names and all these semi names. Because for the last 10 sessions, Micron and SanDisk and all the names we kept mentioning, they've been up 10%, down 8%, up 7%, down 5%.

49:47Downtown Josh Brown:Those whipsaws are this. Yeah, 100%. That's exactly right. And interestingly, there are 400 levered single stock ETFs. The levered single stock ETFs alone are$40 billion. And then the last point here, it's a 13 to one ratio of leverage long versus inverse. So almost not, you might have people come along and say, well, maybe it's hedging activity. No, it's not. It's speculation. It's pure crack cocaine. It's good. None of this is hedging. None of it. 13 to one, none of it. All right. Last thing, let's do Halo for the second half. Would you like to congratulate me on having identified the trading theme of the year so early in the year and just seeing the legs of this theme and people continuing to talk about it here in July?

50:47Downtown Josh Brown:Are there any words of congratulation that you would like to express here?

50:55Michael Batnick:Your hair looks amazing. It does.

50:57Downtown Josh Brown:But like seriously, trade of the year.

50:59Michael Batnick:Keep going.

51:00Downtown Josh Brown:Trade of the year. There's a MarketWatch story. I'm going to quote from it. It's Barbara Kohlmeyer. She's terrific. I like her even better now than I did yesterday. Earlier this year, when artificial intelligence disruption worries started to run high, Josh Brown, CEO of Ritholtz, declared that the halo trade, heavy assets, low obsolescence, would be the most important one of the year. Well, Goldman Sachs strategists agree. They say pairing capital-intensive stocks with a short position in capital-like companies, such as software and services, has delivered a 20 % year-to-date gain, even after a small initial sell-off in stocks exposed to manufacturing and global trade amid the Mideast conflict.

51:48Downtown Josh Brown:So the heavy assets companies came back really fast. Goldman says that Halo Trade is not out of fuel.

51:53Michael Batnick:What is the heavy asset stock in your mind? Like for people that could really JV Hunt, Delta, any utility.

52:06Downtown Josh Brown:Delta is a good one. Most consumer packaged goods, products, all of the – Things that can't be disrupted. Yeah, and where it gets confusing is a lot of AI stocks are also Halo. Like if you're the company that's providing electrification – Yeah, GE Venova is a great example. It's turbines. Right. So it's Halo, but it's also feeding into AI. That's the pinnacle. That's the Venn diagram. Yeah, that's Dell. Those are the best Halo stocks. Micron is Halo. Memory, very obviously, fabricators of semiconductors, companies with wafer production capacity. Anyway, there's a whole long story there. I just wanted to show the whole chart.

52:54Downtown Josh Brown:Read all of it.

52:55Michael Batnick:Read every single word, please.

52:56Downtown Josh Brown:I won't. Put up this capital intensive versus capital light. This is Goldman's chart, not mine.

53:01Michael Batnick:That's very good.

53:02Downtown Josh Brown:Trade of the year.

53:03Michael Batnick:Yeah.

53:04Downtown Josh Brown:What more can I say, quite frankly? I don't know, but we'll find out next week. Yeah, because I will say more.

53:10Michael Batnick:Okay. I'm going to make, you know what? I had a journey on my make the case today, Josh. Originally -

53:18Downtown Josh Brown:You were going to be long something and now you're short?

53:22Michael Batnick:I was going to do mags. I was going to do the Mag7. I feel like they got, they're getting pretty disrespected. What do you think about that?

53:30Downtown Josh Brown:I think they're separating as they should. I like Apple. I like Apple the best. I like Amazon's second best. Alphabet is more complicated because now they are selling stock. And I know Amazon just did a debt financing. Maybe they'll sell stock too, but not yet. And believe it or not, I like Tesla. I think it's 400. I think it goes 500. And I think they're talking about SpaceX buying it by year end. Like I think there's a lot happening at Tesla on the robot side and I'm pretty interested in it.

54:07Michael Batnick:So anyway, I thought to myself, I'm not doing Max. It's so lame. We don't have this Max 7 stuff. So then I said, you know what? I'm going to give my boy Chartkit some love. So Chartkit has been pounding the table on HST, which is host hotels and resorts. stock looks very good i did some digging hey what tell me about the stock host hotels and resorts is the reit that owns the land that partners with the marriott hotels for the most part yeah and some high properties and i said well why would i i mean this seems like a worse business than just owning the equity right like all like marriott is a much better business than being the

54:45Downtown Josh Brown:toll collector marriott marriott doesn't own shit they're in the points business right it's a royalty

54:50Michael Batnick:business. It's a much better business. It's a marketing company.

54:52Downtown Josh Brown:The stock trades at a 20-time

54:53Michael Batnick:multiple. This trades at 12. The stock has destroyed it. And then I said, all right, you know what? I kind of like this thread. Let me pull in a little bit more. I do like hotels, but I want to stay at the upper end of the CAG for this. So where did that land me, Josh? I'm going to make the case for Hyatt.

55:07Downtown Josh Brown:Let's do it.

55:08Michael Batnick:So according to a Moody's report from sometime, I think, in 2025, the top 10 % of earners drive nearly half of all US consumer spending. People are trying to debunk it. I don't care if it's a third or a half. It's a lot, okay? Directionally, it's a lot. It's a lot. Highest share since the data began in 1989, up from 36 % three decades ago, however they are measuring it, okay? So Hyatt, interestingly, spent the last decade rebuilding itself into servicing really the top end of the K. They're going all in. So their luxury rooms are now 47 % of their portfolio, up from 30 -

55:44Downtown Josh Brown:Hyatt Regency.

55:46Michael Batnick:Up from 32 % in 2017. And they now own the world's largest portfolio of luxury branded resort rooms with a 17 % global share. Marriott said that their luxury rooms grew 6 % for their revenue per available room in the most recent quarter. The rest of the inventory was flat. And Hyatt basically said the same thing. I think they grew 8 % and the rest of the inventory was flat. And the stock looks good. It's working. I mean, all of these hotels are working, but chart on. So this is similar to Delta, similar customer, similar consumer. And I don't know if it's stretched here, but whatever. I think the stock is going higher.

56:24Downtown Josh Brown:It's also global, which is increasingly important. And I think it's more skewed toward vacation as opposed to business travel, whereas Marriott is maybe a little bit more balanced. I like it. I think you're going to be right on this.

56:40Michael Batnick:Their luxury run rate room is$400 compared to$100 for the standard rooms. And people are buying the$400 version.

56:49Downtown Josh Brown:100%. And a lot of companies get in trouble where they try to cater to every consumer. And the companies that figured this out earlier are the ones that become the leaders. Delta being a great example. United now following Delta's lead. United wants to make the whole cap in first class.

57:08Michael Batnick:Stock looks awesome.

57:09Downtown Josh Brown:Yeah, like United is like trying to go like make this like on the border of the whole cabin is first class and we don't need to worry about economy tickets anymore. And that's – I hate to say that that's like a social commentary about where we are in this economy. But what else do you want me to say? Like this is what it is.

57:30Michael Batnick:This is what it is.

57:31Downtown Josh Brown:This is why Spirit Airlines goes bankrupt while at the same time there's a line of 900 people waiting to get into the Amex lounge. Right. At whatever airport you go to. Like, this is what it is. So I like it. I think it's a great call. Let's do mystery chart and we'll get out of here. Again, I have Hillstone reservations and it's very important to me. All right. These are indexes. They're not ETFs. Is this Yardeni? It's a Yardeni chart. Very good. But that wasn't what you had to guess. and this is something that would probably matter to people like jc so i want you to tell me what investing concept is being illustrated here and name the two uh lines um the chart the broadening is it the mid caps and the small caps

58:25Michael Batnick:i'm sorry that's incorrect that's a shame would you like to take another shot at it

58:29Downtown Josh Brown:Are these not sectors? Indexes.

58:33Michael Batnick:Okay.

58:33Downtown Josh Brown:The All-Country World Index? No, I'm sorry. Would you like to take a third and final guess? Nope, I'm out. And I did not mean to stump you, but this was a good one, right? Yes, I love it. Okay. The reveal, please.

58:50Downtown Josh Brown:Oh, I love it. Love it, right?

58:53Michael Batnick:Yeah, this is bullish.

58:53Downtown Josh Brown:Super bullish. So we're not going to do a whole 20-minute thing because we're at 6 o 'clock already on Dow Theory. But Charlie Dow originally created the Dow Jones Index. Actually, the first Dow Jones Index, I think, was 13 stocks. 1896. Yeah, I think it was 13 stocks and all but two were trains. Like, they were all railroads and then there were two other non-railroads.

59:17Michael Batnick:Union Pacific and the like.

59:18Downtown Josh Brown:Right. So, ultimately, he ended up redoing the Dow Jones Industrial Average, took the railroads out and put them in their own index, which then became the Dow Transportation Index. And Dow Theory is basically this idea that if you want confirmation that the Dow Jones Industrial Average making new highs is supported by the real economy, then you would also want to see the transportation average moving up into the right and ratifying that high in the industrial.

59:59Michael Batnick:Josh, you astutely debunked this in 2015 when you said 70s of the new transports or 2017. I don't know what year that was. Whatever. It was a long time ago.

1:00:09Downtown Josh Brown:Yes, but it doesn't matter. I still do think that it's nice to have. I wouldn't sell.

1:00:16Michael Batnick:It's not a need to have.

1:00:17Downtown Josh Brown:I wouldn't sell the market if the transports didn't look good. They happen to look exceptionally good right now, right alongside the Dow Jones Industrial Average. We'll take it. And I am a fan. I like it. All right. That's it for us tonight. Guys, thank you so much for joining us in the live. We really appreciate it. It's great to see everybody. We miss you when we're not here. Tomorrow is Wednesday, which means an all new edition of Animal Spirits with Michael and Ben will have an Ask the Compound this week, and we will finish strong with an all-new episode of The Compound and Friends. Also want to point out for financial advisors who are in our general audience, we do a specific show for the advice industry.

1:00:59Downtown Josh Brown:It's called Talking Wealth. It's got its own YouTube channel and its own podcast feed. Look for an all-new edition of The Talking Wealth Show on Thursday. It'll be live on Spotify, Apple Podcasts, and of course, right here on YouTube. That's it from us. Thank you so much. We'll talk to you soon.

1:01:38Michael Batnick:on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or investment product. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.