Tom Lee Sees Upside, Apple’s New CEO

21:10Michael Batnick:SK Telecom is the public proxy. It's SKM. And it's still going higher. Yeah.

21:16Downtown Josh Brown:I think that's like a concern that's coming off the table. Anthropic is too important and too powerful and can't actually yank its use away from people that are sitting in these seats because there's just a level of – there's just like a level of technological power there that we need. So that was good news. Did you see the Tom Lee clip? I think this was yesterday, the middle of the afternoon.

21:46Michael Batnick:Tom is saying, what, are we playing this? Yeah, let's do it. Whether it's in tech, healthcare, or financial services, or fintech, that's really U.S. companies. And I think there was an argument the USPE should derate, but the war has exposed that the U.S. multiples should be going up. Really? So that could be accounting? We could get both earnings and multiple expansion this year? Yes, I think once we're through, you know, this is still going to be a very tricky year because we have a new Fed chair coming in the market. it's going to test that Fed chair. But once we get through that subsequent turbulence, we are probably entering an 18 to 24-month period that might be one of the best we've ever seen in our life.

22:28He's saying, hear me out. What if this market rallies furiously? He's basically saying, not only have multiples contracted,

22:39Downtown Josh Brown:they actually should be expanding. retail investors have not come all the way back into the market yet and international investors still want the growth that they can only really get in the s &p 500 therefore and earnings are accelerating earnings are accelerating multiples at the same time should be expanding i think he means if wash is more is more of a lower the rates fed chair and or um oil prices come down Why would multiples expand?

23:10Michael Batnick:We are going to look back maybe in six months, maybe right now, at the time that the tech premium disappeared and said, I can't believe we didn't pull the trigger there. Well, I mean. Yeah, I do. Some people did.

23:26I do. I mean, some people pulled the trigger. But yeah, a lot of people were just like, I don't know.

23:34Downtown Josh Brown:No, the MAG7, it's so big. These companies are so notable and everybody is so familiar with them that the price action is really the thing that changes people's minds about them more than the fundamentals. Yes, because when we were saying a couple of weeks ago, Meta is trading at 16 times forward earnings.

23:57Michael Batnick:And guess what? If that multiple stayed, if over the next few years, the giants have a market multiple, the narrative will be, well, yeah. I mean, at$5 trillion for NVIDIA, why would it have a premium? How big do you think it could be relative to the stock market? or if the multiple on meta shoots higher because it gets re-rated higher and same with Nvidia, the narrative will be, obviously, these are the best companies in the world at the forefront of an evolution. Why wouldn't they trade at a market premium? So we just follow the price. We just do. Right, everybody does. It's like, what is the price doing?

24:39That'll shape how I color my views because I can't help it. what did you think about that last statement we could be looking at

24:47Downtown Josh Brown:what did he say the best period over the over the next 18 to 24 months one of the best periods in history

24:55Michael Batnick:yeah I could see S &P 10 ,000

24:57Downtown Josh Brown:holy shit

24:59Michael Batnick:why not we're at 7 S &P 10 ,000 within 18 to 24 months yeah oh my god people are going to be losing their minds I mean I don't think it's like I'm not saying that's going to happen but it's 30 % higher We can't rally 30 % in two years? Are you kidding me? We've been doing that. We've been doing that. So it's consistent. It's just I don't think it's on a lot of people's radars that that would even be possible. I don't think so. All right, let's talk about what's happened inside of the stock market rally. So Warren Pius has a chart. Warren did some great stuff here. He says one year out from a 10 % 10-day rally, the S &P 500 was higher by 20%, 19 % on average.

25:38Michael Batnick:And in 16 of the 21 cases, the S &P rose by 10%. The market was negative in only three cases. And this was all in the early 2000s by the dot-com bubble. And a lot of the – I don't have the dates, but I'm just guessing that – chart-off, please. A lot of those 10 % 10-day rallies came around the Russian currency crisis, LTCM. So like 1998 levels and maybe a little bit later. But I thought this was really interesting. So there's a lot of talk about what was really unusual about this market is that normally the market takes the stairs up and the elevator down. This time, it was the opposite. The market really did take the stairs down.

26:23Michael Batnick:And it was just like, why won't the market freak out already? Normally when you start to roll over, you have a whoosh. There was no whoosh. There was no 2 % down day, not even. So the market took the stairs lower and it took the elevator back higher and it did so from not deeply discounted levels. And most of the time when you have the type of rally that we've seen recently, you're in a bear market. So look at this chart that Matt made. What we're looking at here is the light blue line of the S &P 500 drawdowns, okay? Yeah. The orange line is the average of the red dots. and the red dots are all of the times where you see a 12 % rally in 13 days, which is what we just happened.

27:02Michael Batnick:It's happened 38 times. And notably, you see it in bear markets. So the average drawdown when this type of rally happens is 26%.

27:12Downtown Josh Brown:What were we down max?

27:15Michael Batnick:Nine. And unfortunately, the only other time when this happened that just says what it is, or was the top in 2000?

27:23Downtown Josh Brown:Yeah, there's just so much more FOMO than there is fear in this market. Like the chemical balance between those two things, there is just so much more fear of, oh my God, it's gonna take off without me again. I just think that no matter how high the VIX goes on any given day, and no matter how scary like the geopolitical headlines get, people are just so much more worried about, oh my God, if this thing runs to 7 ,700 and I'm in cash, like that, that's really what's, that's really the feeling that's taken over. And with good reason, every single sale looks dumb for years and years and years and years, every single sale looks stupid.

28:10Downtown Josh Brown:And people just, they, they cannot tolerate the possibility of that happening. so they come in quicker and quicker and quicker. And I don't know what changes that. I don't know what changes that paradigm that we're in, but who could deny that that is the predominant mentality in the market these days?

28:30Michael Batnick:That is. What breaks that, at least temporarily, would be -

28:34Downtown Josh Brown:A failed new high.

28:37Michael Batnick:Yes, and that would happen because you are entering a weakening economic period, weaker profits, weaker margins. That's not happening. So you have this perfect storm of people that were underinvested, too bearish, all-time highs in the earnings, and then the prices followed. Making this rally more remarkable is that we're in a buyback blackout, Josh. So this is from Goldman Sachs via the Daily Chartbook. We currently estimate 98 % of corporates are in a blackout as of now. April tends to be a light month on our desk given the blackout. So they're doing this without the help of corporate buybacks.

29:10Michael Batnick:And furthermore, we know that retail buying tends to be slow in the first half of April before inflecting higher because of taxes. Now, there was some funky stuff with taxes being a little bit lighter this season, refunds being a little bit higher. But nevertheless, this part of the year is not super supportive of retail investors or corporations buying a lot of stock. And yet, we still had one of the strongest rallies that we've seen.

29:38Downtown Josh Brown:do you do you remember do you remember we did this on the show i don't know how long ago it was but i was talking about tax season having like a real impact like the run-up into april 15th having a real impact on um investors and flows it's a fact it's a no it's a fact but a lot of people or somebody said, yeah, but everyone knows that. It's every year. And I'm like, yeah, I know, but still.

30:09Michael Batnick:So you're right in that comment is right. You would think that if everybody knows that the market should adjust, but and yet - It doesn't. Every March sucks. Every March in the stock market sucks, dude. Over the last 35 years, April 15th has been, try on them, please, has been the worst day of the year. So the median daily return for the S &P, look at April 15th. Next chart. Two charts forward, please. Look at this chart. April 15th is the worst day. Perfect.

30:43Downtown Josh Brown:And I think that over the last few years, I think about March as being an annoying month where annoying shit happens. and granted this year there was a obviously a war which you know is not what you have every year but like people do actively pull money out of their brokerage accounts in the run-up to tax day and i understand that everyone knows it and i understand that it's every year but it still has a visible and visceral impact that can be both seen and felt it's just it's just one of those things that, yeah, we all get it. And still, there's a evident change in behavior when the calendar shifts from February to March.

31:27Downtown Josh Brown:I don't have the data, but I have the life experience, and you can take my word for it.

31:32Michael Batnick:Let's keep going.

31:36What's this next one? Retail flows.

31:39Michael Batnick:We could skip it. Okay. You want to do the NDX streak? It's longer than 11 days. I think it went 13 or 14. So we have how many times? It looks like a dozen times or so of the NASDAQ going up 11 consecutive days, and it's higher one year later every single time. So not a sample of 100, but it is what it is.

32:04Downtown Josh Brown:I want to talk about something weird that happened. I want to talk about something weird that happened last week where JP Morgan was talking about it's like AI cash management product or something that seemed like so banal on the surface, but it had a real impact. This is from Barron's. On Charles Schwab's Thursday earnings call, CEO Rick Worcester, friend of the show, not to brag, talked at length about how artificial intelligence can improve efficiency and boost growth. Investors, however, were more focused on AI's potential to disrupt Schwab's reliance on low-yielding sweep cash for a significant chunk of its revenue.

32:53Downtown Josh Brown:And I know we're going to look at Schwab's earnings later, so let's not step on that. The stock fell almost 8 % on Thursday. And Barron says investors weighed Schwab's strong first quarter earnings report against news that JPMorgan Chase was developing an AI cash management tool, which raised the specter of new competitive pressures on clients' cash holdings. Other wealth management stocks also tumbled. Raymond James, LPL, both fell a lot.

33:27Michael Batnick:You know why this is nonsense? Sorry.

33:30Downtown Josh Brown:All right. So that's what I wanted to get to. Do you believe that investors sold shares of Schwab because they think AI cash management is going to hurt their profit margins?

33:40Michael Batnick:I do not. Now, here's why I don't think that. So I listened to the JP Morgan call, and they mentioned the AI cash thing. And I asked the quarter AI thing. I said, what does this stand for? And it was their cash AI product. The reason why I don't think this impacted Schwab is because JP Morgan reported on Monday, April 13th. Schwab stock ripped on Monday and it ripped on Tuesday and it ripped on Wednesday. Okay. And then Schwab reported earnings and the stock got hammered. Now, I, like many other people, were left wondering why did the stock fall 8 % to whatever it did? Because it was not a bad quarter and they were asked about it on the call.

34:23Michael Batnick:and uh is that part of the reason why the stock is down i'm sure it is because schwab is a bank and half or more of their revenue is from net interest income the difference of what they pay you versus what they keep so yeah it matters i just don't think there's a 3.1 billion in in the

34:44Downtown Josh Brown:q1 report um was net interest revenue and that's about half yeah of the total revenue of six and a half billion. So half of Schwab's revenue is coming from directly from cash sweep.

34:55Michael Batnick:And, and, um, is it possible that the market had a delayed reaction to the news? I suppose, but it was three days later that Schwab was ripping after the analyst that Piper Sandler

35:07Downtown Josh Brown:agrees with you doesn't think JP Morgan's AI cash tool will have an impact on sweep cash in the short term. But then here, speaking on JP Morgan's Tuesday earnings call, Diamond was optimistic about this disruptive potential for his bank's forthcoming AI cash tool. This is Diamond, he says, quote, Jeff Bezos always says your margin is my opportunity. And I kind of agree with that. We're trying to look at the blah, blah, blah, blah. All right. So the thing doesn't exist. So it's a moot point until it actually comes out. Correct. That's the important thing. But the stock market doesn't work that way.

35:52Downtown Josh Brown:True. The stock market sees a new potential threat and adjusts immediately. True. And it wasn't just Schwab. Again, LPL fell. Raymond James fell. I don't know if people are afraid. jp morgan will have this thing where utilizing ai it for some reason is able to siphon client assets from these places by telling people you're not getting enough interest on your cash balance

36:17Michael Batnick:is that the way it'll work no chance so the idea is that interest interest comes to be low for jp morgan people are going to go move their accounts i mean give me a break give me a break and maybe jp morgan is going to do this for some of their select clientele yeah they'll roll it out to everybody. It's just nonsense. I don't buy it. All right. You're up. All right. So let's do some earnings stuff. So Netflix reported another, what I thought was a very good quarter. We said - Biggest quarter ever. I said last week that I think Netflix is going to an all-time high and wouldn't it be funny if the stock got killed?

36:51Michael Batnick:And yes, ha ha, LOL. It did get killed. So the stock fell 9 % after earnings and it has had no bounce. And I got to be honest, so I bought Netflix not as a trade, okay? The stock is acting really shitty. It fell 9 % after earnings, no bounce, followed through selling the next day, followed through selling today. The market does not like what's happening. I think it's a combination of a lot of things. Just the competition is super intense. And YouTube is obviously the big one. But let's throw up the chart. So record revenue. You saw a couple of years of stagnant revenue and massive acceleration.

37:31Michael Batnick:Alex Morris has, so here we go. This is what we call. Q1 revenue grew 14%. We continue to project 2026 revenue of whatever it was. So guidance didn't change. Their ad revenue platform is at a$3 billion run rate up from basically zero, not bad. Alex Morris, but here's a chart. But throw this up. Share if you are streaming TV. So Netflix is going down just on the TV, the share, and YouTube is going up. And this is it. This is the big thing. Right. This is the fight. It's YouTube versus Netflix. There's no more streaming wars with Disney and Hulu and all that other shit.

38:14Downtown Josh Brown:The growth rates hit most. Now, Paramount, Warner Brothers will be formidable as they get all those things packed into the same app. And you have much more aggressive people running things like HBO. But they're frenemies.

38:30Michael Batnick:They do business together.

38:32Downtown Josh Brown:Of course. It's an ecosystem. But that could be a bigger competitive threat. But I agree with that chart. Right now, those are the two lines to watch. It's YouTube versus Netflix. And YouTube is not obviously – forget about the sheer size of it and the financial wherewithal they have to compete like none of the other streamers can. They're getting into a lot of lanes that Netflix is in and then vice versa.

39:00Michael Batnick:I think Netflix investors are spooked. Reed Hastings left the board similar to Steve Jobs. But they are saying, hey, wait a minute. You guys tried to buy Warner. That was weird. We didn't like it. yeah, you got the big$3 billion cash infusion, which is cool. But what's going on? How concerned are you? And the market is just not buying what they're selling right now. But I do want to point this out. This is interesting. Alex said to frame just how far Netflix has come over the past 10 to 15 years, because there was a time 10 years ago where Netflix was spending, I remember the number, like$7 billion in content.

39:32Michael Batnick:And they were hemorrhaging money. And it was just like, How are investors buying this stock? It makes no sense. Well, they won. That$16.2 billion of fiscal year 26 EBIT exceeds the total adjusted operating income of all of Walt Disney. Streaming, theatrical, linear, theme parks, experiences.

39:57Downtown Josh Brown:Merchandise.

39:57Michael Batnick:Netflix is earning more money than Disney. Yes.

40:02Downtown Josh Brown:and that's why it's a half trillion dollar market cap. But they didn't look, the street did not like the street. People did not like the guidance because the guidance was weak and the stock had run up from 70 back to like 106, 107. So now it's back in the 90s. I'm actually, I had buy limit orders in at 94 and at 92. I think I got hit on the 94 one. Um, so I, I own it under a hundred and in the low nineties, I'll, I'll lower my average cost. I haven't decided what I'm going to do with the position. It's not a big one for me. Neither have I.

40:40Michael Batnick:The stock, the stock is broken right now, but I am, uh, I am, I think investing in this one, but we'll see.

40:45Downtown Josh Brown:Um, all right. Um, I think, I think, uh, the last thing I want to say on this, nobody downgraded it. So analysts were bullish to neutral, but nobody cut it, which I thought was interesting. Here's a couple of selected quotes from some of the big analysts covering it. Mark Mahaney titled his note, Lights, Camera, Quality Compounder. Maintained his rating. No change to the long thesis. Quote, a high-quality asset and global leader in video streaming. He highlighted the fact that management is not using macro trends to sandbag on ads or subscriptions. So they're at least maintaining guidance. They're just not raising it.

41:32William Blair outperform, talked about the lack of a full year raise was the problem.

41:39Downtown Josh Brown:Yeah, no shit. Wedbush acknowledged Q2 guidance was softer but maintained full year guidance, suggests strong second half, always about the second half. Last one.

41:49Michael Batnick:No, but you know what? I love the guidance because now the expectations have come way down. Nobody's expecting a big second back half. The World Baseball Classic was their biggest single day of signups for Japan. Like they're doing more stuff in live sports. They're going to do more with the NFL. They're going to be earning a lot more money in the next three years than they are this year.

42:04Downtown Josh Brown:Two price target raises after the quarter. So you don't normally see a stock fall 10 % and two analysts actually raise their targets. But that's what happened. Justin Patterson at KeyBank went from 115 – went to 115 from 108. or he did that right before the earnings report. Oops. Piper Sandler raised their target. They went from 103 to 115 after and maintained their overweight, but I don't have those comments. All right, let's do Morgan Stanley.

42:36Michael Batnick:Let's do Morgan. So Morgan Stanley, we've mentioned a million times over the last couple of years as being the monster winner and I never bought this stock. I feel like an idiot. This is the last year of Morgan versus the XLF. Holy shit. Up 80 % versus 14. This is weird. They're running away with the ball. So, and it's not all wealth, but it is where the majority is of their winmanship is coming from. The net new assets of$118 billion in the quarter, $54 billion of that is fee-based. They were asked about private credit, of course. They said that Alta only 5 % of the AUM. Private credit is just 1%.

43:16So credit to them. um look at this chart talk to a talk to a morgan stanley advisor well it's average i know i know they are stuffing as much of these things into their clients i'm guessing i'm guessing i promise you yeah i know well these are i promise you in the ultra high net worth segment the entire day is spent on private credit and private equity the entire day i talked to i talked to senior advisors there. The clients want it. They want to sell it. It's a match made in heaven. These are people who don't need access to their capital tomorrow.

43:52Michael Batnick:I agree with you. I'm not saying that it's not happening, but dude, it is 5 % of their AUM. That's a fact. They're not lying. Okay. Look at the dark blue line. Look at that growth. The red line or the orange line is showing a wealth management's percentage of the total revenue. It is about 45%. They're jamming. They're kicking ass.

44:14Downtown Josh Brown:This is the greatest, chart off, this is the greatest wealth management funnel ever built on God's green earth. Effectively, what James Gorman began and now Ted Pick is continuing is just this thing where they acquire businesses like E-Trade and like the collection of things that's become Morgan Stanley at work, which is like how you understand your stock options. You log in. You can see what you're vested, et cetera, et cetera. They've bought a lot of businesses like that, and they always find a way to funnel the clients who are using those services toward their financial advisors, toward their wealth channel.

45:03Downtown Josh Brown:They're the best in the world at it, and they've done it to the largest extent. they've far outpaced anybody. I don't even know who you would say is their rival in that, maybe Wells Fargo. I think. But nobody is better at this than Morgan Stanley is my point. And I think they said the wealth channel at Morgan Stanley took in 20 billion in assets in the quarter. Did you read that? Did I share that with you? 118. I don't know where I got. What's that?

45:30Michael Batnick:118. Oh, what was the 20 billion though? It was, I don't know. It was 54. So to your point, $118 billion of total assets, 54 of it fee-based. So the other 50-some or whatever it is, or 60, I guess, is company stock, for example, that will ultimately find its way into a fee-based account. Yeah.

45:51Downtown Josh Brown:No, listen. They're killing it. They realized when they bought the rest of Smith Barney, that they had a joint venture coming out of the great financial crisis because Citi needed to offload assets. So they offloaded Smith Barney, which was their wealth business, into a joint venture with Morgan Stanley. Morgan Stanley had the opportunity in tranches to buy more of it, then more of it, then they just swallowed the whole thing. Because Morgan Stanley understood 15 years ago, 18 years ago now, that wealth is literally the steadiest, best business on Wall Street. They were early to see the potential, and they're the best executors there.

46:32Downtown Josh Brown:And as a result, they are literally making it rain. And they take all these other activities, investment banking, trading, servicing hedge funds, like whatever they do, they find a way to funnel people into the wealth channel. It's very impressive. So I'm not surprised that stock has worked.

46:50Michael Batnick:Schwab total client assets increased 19 % year over year to$11.77 trillion, not bad. $140 billion in the first quarter core net new assets, 1.3 million new brokerage accounts. I mean, just unbelievable. This stood out to me. Margin loan balances increased 13%, including$21 billion. So 21 of the 126 of marginal imbalances were related to longshore strategies implemented by our REA clients like us. Yep.

47:25Downtown Josh Brown:Well, this is an area now where Schwab is going to advance because Fidelity is sort of paused. They've pulled the throttle back and into that void, you're going to see Goldman, you're going to see Schwab, you're going to see all of these other brokerage custodians want to facilitate this business. It's highly lucrative. There's a lot of trading activity and there's a ton of client interest. There's a ton of REA interest. The margin loan balances overall being at$126 billion, up 13 % versus year-end 25. On 12 trillion?

48:01Michael Batnick:That sounds like nothing.

48:03Downtown Josh Brown:A billion. Isn't that – No. Isn't that – Oh, on the base of a trillion. Isn't that somewhat market-related anyway? Like margin balances grow in line with the growth of the nominal value of the stock market. Yes, yes, yes. It seems obvious to me.

48:18Michael Batnick:So there was a chart in their report showing the amount of revenue per dollar of client assets. And they're like a fraction of Morgan Stanley, to which I thought, yeah, this is why Schwab stock is doing what it's doing. And Morgan Stanley stock is doing what it's doing. And it sort of reminded me of – it was analogous to in Netflix's report, they spoke about the price increase. And no churn there, not surprisingly. and they were bragging that per minute of watch time, they are by far the best value. And investors are like, yeah, we don't like that. Like it's not good. It's not great. You're actually sort of like, you don't want to be the lowest cost provider, the best value.

49:04Michael Batnick:So they have to say that politically.

49:06Downtown Josh Brown:So they have to say, yes, we raised prices, but consumers are watching so much Netflix that the increase works out to pennies per hour of TV watched, which is true. And that's their justification for why they should be raising prices. It's very clever, but you're right. That's landing on two different audiences. Correct. It lands very well on the consumer audience. The street is like, raise prices again then.

49:35Michael Batnick:Right.

49:37Downtown Josh Brown:This was the best quarter in Schwab's history. Do you know that? They're doing great.

49:42Michael Batnick:I feel like every quarter is another record. 1.3 million new brokerage accounts for the quarter. So where do they keep finding millions of people to open their first brokerage account?

49:53Downtown Josh Brown:That's impressive. For your guidance, they raised it. They raised it. Not good enough. Launching crypto. Does anyone give a shit anymore? I don't even hear teenage boys talking about crypto anymore. Is that going to be a big business at Schwab or is it just like, yeah, we have to have this because everyone else does?

50:13Michael Batnick:I think they got around to it. But like, yay.

50:17Downtown Josh Brown:Now what?

50:20Michael Batnick:Just providing more value to their customers for those that want it.

50:23Downtown Josh Brown:Yeah, lots of value. All right. 15 times forward earnings.

50:30Michael Batnick:Yeah, it's a below market multiple. It's probably as it should be. It's a great company. You think it should be? Yeah, great company. Growing 5%. What did they say they were growing? I don't want to misquote them. Whatever. It's a great company.

50:44Downtown Josh Brown:I think people just don't like how they – I think there's overhang with the cash management business. I think there's just – people don't love that that's such a big part of how they make money.

50:56Michael Batnick:Okay. That's why it's 15 times. An annualized growth rate of 5.4%. What should I trade? It's a bank. It's a great company. Right. Right. Okay. All right. I'm going to make the case. First, before I make the case for small caps, every time we get a sell-off and a subsequent recovery, it's a great opportunity for you to reassess what type of investor you are, what type of trader you are, what type of market participant you are. You like everybody. Yeah. And it's okay to be doing something different in your taxable brokerage fund money like I do with Netflix and sell on the bottom on Blackstone, whatever.

51:35Michael Batnick:I've had some winners in here, but that's okay. But with your real money, make sure that if you did something stupid or something that you regret or that looks dumb in hindsight, don't put yourself in that position. You only know your risk tolerance after the fact, unfortunately. Everybody has a line and sometimes you don't know if you're too close to one until you get a bear market or a sell-off. But good opportunity to remind yourself what risk looks like. I didn't mean to ring a bell on that comment, but it was very apropos. Okay. So I want to make the case for small cap stocks. First, I'm bringing you a weekly chart.

52:11Michael Batnick:I don't love the look of the chart, but a weekly chart of the Russell 1000, 2000, excuse me. And this was in a bear market for a couple of years. We don't really spend a lot of time talking about it. Look at this move. But it peaked in the winter of 21, and it didn't take out new highs until recently. So the bigger the base, look at the daily move. I mean, this looks super duper healthy. Look at these guys. And within the Russell 2000 specifically, I think it's important to know what you own. There are a lot of industrials. That's the biggest piece of the pie. there's a lot of healthcare. There's a lot of financials.

52:53Michael Batnick:This is actually a pretty diversified index. Now, I know a lot of people dunk on the Russell 2 because a lot of it is unprofitable. So fair enough. I just wanted to show you the composition of it. But if you zoom out... Oh, actually. So let's look at the relative performance. Next chart, please. This is the Russell 2000 versus the S &P 500. And dude, this looks clean. You would want to be long this. It actually looks like it's snapping a downtrend. Like it really does. And if you look at other areas, I'm not saying that the Russell 2000 is an end all beyond. In fact, I'm probably saying it's not.

53:33Michael Batnick:I want to share one on the chart for you. Look at the S &P. This is the Invesco S &P Small Cap Tech Fund. versus the XLK. Look at this bottom, dude. This is ripping.

53:47Downtown Josh Brown:You know what this is to me? This is the handoff from the AI hyperscaler CapEx theme to the beneficiary theme. The stocks in the Russell 2000 or the S &P small cap 600 or however you want to slice and dice it, These are the companies that are the customers for all this AI shit, and they're spending all the money on all this compute and the tokens and the services and the AI software models.

54:23Michael Batnick:And you know what else?

54:24Downtown Josh Brown:They should be the buy here because they should be benefiting from all the money that they're now diverting toward AI in their tech budgets.

54:33Michael Batnick:And I think we all know this, but sometimes it gets lost. When we're talking about stocks and the prices and the moves, naturally, we're talking about it in the context of what's happening today. Yes? Of course. Always. OK. What? But we also know that the market is forward-looking. And I think part of the reason why the handoff has happened is because the market is looking forward to eventual rate cuts. And the small names are way more exposed, way more punished by higher rates than the large names. and I think that's a large part of the story of why they're working. And we'll start to read those stories next year.

55:09Downtown Josh Brown:Well, if you like small caps, how about micro caps?

55:11Michael Batnick:Dude, they're on fire.

55:13Downtown Josh Brown:Are they up 80 % or something? So I shared this with you guys.

55:18Michael Batnick:From the... I couldn't believe this. So the Russell micro cap index, I think it's index. If you think the Russell 2 isn't great in terms of profitability, wait till you see the micro. But micros over last year, and I understand we're coming off the bottom, but nevertheless, I'm measuring one year. Over the last year, the S &P is up 36%. The micro is up 75. 75 versus 36. Just for fun, I took a look at the top 10 market cap weights in the IWC. This is the iShares micro cap ETF.

55:58Downtown Josh Brown:Tell me if you've ever heard of any of these. applied digital praxis energy fuels cypher mining that sounds illegal yeah it sounds bad centrist energy terror wolf terror wolf distance cell cuity that's that that's actually a value stock tutor perini corp no all right three of those are crypto miners okay so i don't maybe microcap um who's our front the microcap guy our friend ian ian castle ian castle we're gonna i know we're gonna have him back on at some point and maybe he could tell us about this furious microcap rally which i would hope he's uh benefiting from it's pretty crazy they're going they're going they're going so i'd love to i'd love to check back in with in with him at some point this year all right uh i have a mystery chart then we'll get out of here put me up all right Dow component I should know this I can't like I can't I don't want to tell you the sector because in the Dow there's like two for every sector it's like Noah's Ark

57:05Michael Batnick:and I'm just going to be

57:07Downtown Josh Brown:handing it to you okay

57:08Michael Batnick:oh man

57:09Downtown Josh Brown:I gave you the price

57:10Michael Batnick:oh is this Goldman no no no Goldman's not an$800 stock oh come on you dumb bald idiot oh

57:20Michael Batnick:man Man, I should know this. I just don't. What is it? It's one of the biggest names in the Dow. What is it? Reveal.

57:32Caterpillar. It's a great looking chart. Wow. Look at this. Look at this chart. Man. Holy shit. Is this a beautiful? Right?

57:39Michael Batnick:Yep.

57:39Downtown Josh Brown:Sean and I wrote this up last week as an impending breakout that obviously happened. Impending. It's up 4x in the last couple of years. Gone. It's been on the best stocks in the markets list since last July. Has never fallen off. Even during the recent unpleasantness around like straight of Hormuz shit. The stock never even got close to its 200 day. So it's been on the list the entire time. And Sean and I have referenced it. But we write these like spotlight columns on individual companies every Thursday. just never got around to it. We wrote up deer instead. Deer was up like 13%. This thing was up 80%.

58:23Michael Batnick:Never got around to what, buying it?

58:25Downtown Josh Brown:No, writing about it for the column, I'm saying. Gotcha, gotcha, gotcha. Because we're like spotlighting companies. So it was like deer or Caterpillar. Screw it. Let's write up deer. So both are on the list. Deer has been on and off the list. Caterpillar is just absolutely perfect. I have a couple of more Caterpillar charts. Let me just put them up and then we'll get out of here. This is the technical. Look at that 50-day. It tussled with the 50-day for like 10 days, and the buyers just took control immediately. Look at the distance from the 200. Like it never scared you at any point since it got on the list in July.

59:04Michael Batnick:That's like the dream. That's the dream.

59:06Downtown Josh Brown:It's a dream uptrend, and it's continuing today. But you know what? This was a$400 stock last year.

59:13Michael Batnick:Dude, these are always easier in 100. because there's plenty of parents. You know what I mean?

59:19Downtown Josh Brown:I have one more. Yeah.

59:22Michael Batnick:I don't even know.

59:22Downtown Josh Brown:What am I showing you here? Oh, this is like back to 2017. It's a five-year. This is monthly. This is monthly. Monthly. Just a rocket. All right. Is that all I have? That's it? That's great. This is price chart. Very long-term. Parabolic. Can't really buy it here without a stop. No. If you buy it here without a safety net, You're not actually an investor. You're a maniac. So, but worth pointing out nonetheless. All right, guys, that's it from us. Thank you so much for joining us. We appreciate you. For those of you who came to the live premiere on YouTube tonight, you guys are the very best. We appreciate all our founders.

1:00:03Downtown Josh Brown:Make sure you tune in tomorrow. All new edition of Animal Spirits with Michael and Ben. We'll do a new Ask the Compound where Duncan and Ben take your questions live. Live. And then at the end of the week, we'll have an all new edition of the compound and friends and two very special guests coming on together. It's going to be an absolute frat house. I can't wait for you to listen. Thank you guys so much for joining us. We love you. We'll see you soon.

1:00:42Michael Batnick:Ritholtz Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. Nothing 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.