Too Early to Get Off the Wave with Ryan Detrick and Sonu Varghese

17:56Michael Batnick:Like we all could smell it. I can't even talk. it's so exciting wait put a pin it's not a pin put a pin in that what do you got there Indiana Jones hey what is that a rucksack what is that

18:10Downtown Josh Brown:a rucksack oh you guys we always cover this okay let me say let me say oh this is cute let me say oh what do you think what do you think I need one too

18:20Michael Batnick:I mean there's a Carson logo there but fine but fine I love it

18:23Downtown Josh Brown:facts versus feelings it's my favorite podcast the way you guys do it you guys are very close alright we'll wear it next time you guys come you guys are best let me bust this up for the camera

18:29Michael Batnick:love it All right. All right. So how quickly we forget. You know what was a bubble? What's that? 2021. So I'm glad that an email reminded us. It's like, guys, we just lived through a bubble. In 2021, Apple, the best of the bunch, fell 30%. Google, 44. Amazon, 56. NVIDIA, 66. Netflix, 75. 75, Meta, 77, Ark, the poster child, 80, still in a gigantic drawdown. We just had a bubble that popped and we like pretend that that didn't just happen. It was the whole cycle.

19:11Downtown Josh Brown:It was the whole bubble cycle, including the busted IPOs, including the really bad ideas about other asset classes. Like that happened. We had a whole thing. I just wrote a piece yesterday titled, Tongue in Cheek. Hang on, Nicole, put this in my Rolls Royce. I brought a couple of besides yours or Michael's I got mine I got mine okay here hold on to this and actually I have eight more in my bag for the whole team so yeah there you go feel free and use it as a pillow

19:40Michael Batnick:sorry what were you saying I don't know no I was saying I wrote this piece it was tongue in cheek saying how I learned to stop worrying and love the bubble yeah very good very Dr. Strangelovian

19:51Downtown Josh Brown:okay so so it's not strange for us to have made the amount of progress in stocks that we have because we had the whole boom bust cycle recently. People are anchored to 2009 as being the big one. And they, I guess they ignore all of the volatility along the way since then. And a full blown bear market in 2022 for mostly in tech, but elsewhere also. Okay. So your view is this could continue. And, but I know that there are all these things that you're watching for? And what would change your mind, I think, would be the big question. I'll go first. So more of a technical point of view, right? 2021, yes, everyone's making money.

20:33We all have money from the government, day trading, gambling, all that stuff. It felt a little crazy. And then in the fourth quarter, 2021, consumer staples started to rally a lot. They outperformed. Low volatility led by a lot in the fourth quarter. I remember this. And not what JC was talking about. A few technicians were talking about it. Most people were just having fun. making money. And then, yes, the war happened. And that, you know, obviously contributed to a lot of it. But still, I think the market was giving a warning sign that something was changing under the surface when you look at these trends and these technical things.

21:07And then you fast forward to right now. I mean, equal weight consumer staples relative to the S &P 500 just on Monday hit like the lowest number or lowest level in a long time. So we're not seeing that. We're not seeing low vol. I assume he's got a lot of thoughts on low vol.

21:21Downtown Josh Brown:Did the rally in Staples in 21 coincide with the beginning of the rise of interest rates? It was before that. It was before. It was before that. So the market sort of knew that the Fed was going to have to do something. I think inflation is a problem and the Fed was late. Right. Okay. All right. That's interesting. But there's no sign of anything like that. Let me offer one piece

21:46Michael Batnick:of evidence for why this might be a bubble. And I, for the record, I don't think this is a bubble. But if I were to point to one thing, maybe it would be this. So Micron reported yesterday. We'll get into the numbers, which were outstanding. Micron's market cap is about to pass meta. Does that sound right? Like, literally, they're both$1.3 billion. Well, this last quarter, they made more profits than NVIDIA made a year ago. It's good business. If you can get it, right? But I think it's actually, you know, I think this can continue. I think there's, unlike 2021, there's a real economy story here too, right?

22:23There's a macroeconomic story here. You look at even within the GDP data, you look at information technology equipment plus software, you know, that's almost 5 % of the economy, 5 % of GDP. A few years back, it was about 3%. That's a big increase for a relatively small piece of the economy.

22:41Downtown Josh Brown:Here's what the bears would say. We stopped talking about the circular financing schemes with NVIDIA because that didn't turn out to be a great bearish trade. However, things are only getting more circular with Amazon now doing deals with OpenAI. It's like this click of 10 or 12 companies. Meanwhile, those 10 or 12 companies are turning over not only all of their cash flow, but at this point, most of their revenue to two companies. One is in Taiwan and the other one is Micron. And basically - And a couple in South Korea. Right. So you have the 10 biggest companies in the world saying, here's all our fucking revenue for the next three years.

23:22Downtown Josh Brown:We're giving you guaranteed deal. We're just going to give it to two or three companies in the Far East for components that apparently are so critical that one of those companies is now the ninth largest stock in the world. But how is that a bear case? The bare case is Micron's incredible earnings and revenue growth are predominantly coming from them being a choke point and just raising prices. It's not volume. They're not making more. They can't. Yeah, it's inflation, right? Isn't that good? Well, 60 % plus growth in average selling price. Are they going to do that next year? They said today.

24:00Downtown Josh Brown:The year after?

24:01Michael Batnick:They said, we now expect supply demand conditions for both DRAM and NAND to remain tight beyond calendar 2027. So last night, they reported$41.5 billion of revenue, up 74 % quarter over quarter, 364 % year over year. Very bullish if you're Micron. So ChartKid showed since January 2025, the earnings, the 12-month forward earnings is up 1 ,440%. The stock is up 1 ,300%. That sounds like it's in line with what you would expect. Investors pay up for growth. They're not going to pay up for - And you're getting profit growth. And they're getting it. But the other side of the coin is inflation, right?

24:42The question is, is it sustainable?

24:48Downtown Josh Brown:Or will companies ultimately figure out a way to do this and not pay as much for memory or not pay price increases from here? Will companies use their technological ingenuity to get around these bottlenecks in the future.

25:02Michael Batnick:The market is saying no right now.

25:03Downtown Josh Brown:The market's saying they can't.

25:04Michael Batnick:The market might be wrong, but we'll say. Back to Greenspan, right? December 5th, 1996 was the famous irrational exuberance speech, which apparently he came up with the words irrational exuberance in his bathtub. That's what they said. But the S &P 500 went up more than 100 % the next three years. He was four years early. Exactly. NASDAQ went up over 300%. So I know people have heard this before, but it's good to remember that, yeah, the market was overvalued then because he said it was, and a lot of people thought it was. And that's right when I started. So I don't remember it exactly, but read a lot of the history books.

25:33And you look at the things now. I mean, again, we titled our outlook start of the year riding the wave. Our mid-year outlook comes out in a couple of weeks. It's still riding the wave. Creative, I know. But when we look at it, we still think it makes sense to have exposure. We're slightly overweight technology here. You know, to just say it's a bubble, maybe, but it's not bad. I don't think the issue is that it's a bubble.

25:53Downtown Josh Brown:So I don't think the issue is that it's a bubble. Micron's 9.5 times earnings not anymore it's way higher but keep going I don't think it is it is I don't think it is it is but either way if it's 10 it's 11 I don't think the issue is that it's a bubble I think the bigger question is think about how fast things are changing and we have short memories like one year ago there was a must own stock it wasn't Micron you remember what it was everybody had to own it it was the consensus Palantir? Palantir. Okay. How's that doing? It's down 50%. Right. It's down 100 points, 207, 0107 in nine months. And this happens all the time.

26:36Downtown Josh Brown:The good news is the rotations in the market are powerful enough that we get bailed out. Because just as one group loses favor, another group rises to take its place. So the software stocks had been a drag on the market. Financials are making up for it. And now they're all at 52-week highs. Can I show you boys a chart? Yeah.

26:57Michael Batnick:John, 19.2, please. All right. So since 2018, anytime the rest of the market outperformed the MAG7, the market was in a deep drawdown, right? Makes sense. Right now, over the last 27 days, the 493 are outperforming the MAG7 by 18%. That's a gigantic spread. In fact, it's the most that we've seen since 2018. and the market is basically at an all-time high. I cannot possibly think of a more bullish development that the Mag 7 are absolutely breaking down. Microsoft looks like death. Microsoft, relative to the spies, is where it was in 2019. All of the outperformance of the last seven years, goodbye.

27:39Michael Batnick:The fact that the market is remaining as healthy as it is with industrials ripping, with regional banks ripping, and the Mag 7 getting their you-know-what kicked in, I think it's fantastically bullish. You think rotations have been like the most important factor? I'd say momentum is actually doing really well, despite Mag7 is not momentum. Mag7 did, you know, so you are seeing a lot of dispersion. Microns, 12 % of the S &P 500 momentum index. But then this is where things could be stretched, right? You look at the excess performance of momentum, S &P 500 momentum over the S &P 500 last 12 months.

28:14You look at the last 40 years, it's at the 95th percent. That's stretched. Last three years, it's at the 100th percentile. Right. So momentum is definitely a stretch and that gets to, you know, now it can, you know, what stretch can continue staying stretched.

28:27Downtown Josh Brown:I wonder if we've ever seen momentum this stretched where there was an actual justification from earnings growth. Because I could picture other times when momentum was stretched, but the quality wasn't there. Like in this case, we're saying momentum is stretched. And then we have a company like Micron go from a billion dollars to$24 billion in quarterly earnings. And it's like, oh, yeah, momentum is stretched because this is what these companies are doing. But then it gets back to your question as to how long can that profit growth case continue?

29:02Michael Batnick:Josh is so right because I think when people hear the word momentum, it has a negative connotation. They think of junkie stocks. These dummies are just chasing. There's no fundamentals to justify it.

29:12Downtown Josh Brown:or they think of like Sam Altman launched a nuclear reactor company. That's what they think is momentum. And then you look and it's Corning, which has been in business for 150 years. And it's like it's Caterpillar, one of the top momentum stocks in the market. It's a hundred-year-old company, blue chip, Dow stock. So when people hear momentum, the immediate assumption is this is going to be some freaky biotech stuff or it's all semiconductors and it just isn't. It's large caps too, right? It's one thing for small caps to increase 100%, 200 % in a few months. Yeah. But now you're seeing that with your Microns and SanDisk and, you know, SK Hynek.

29:52Michael Batnick:By the way, I said Micron was 1.3 billion. I'm obviously, I meant trillion. It's a trillion. Yeah, trillion. It's a 1.3 trillion. Let me ask you guys this. So I want to show you. So just to sober up a little bit. Two charts. The first one from Warren Pies, chart 13. So Warren shows, he says, historically, semis were priced as a cyclical industry. As margins peaked, price-to-sales ratios would fall. Over the past year, though, semi-multiples have exploded as margins hit all-time highs. Either the industry has become less cyclical or it is a sign of exuberance. And it better well be the former because the next chart shows the evolution of the global fund manager survey that Bank of America does.

30:30Michael Batnick:And we've never seen anything like this. Oh, the top line. Everyone says, not everyone. The most people have said long global semis are the most crowded trade. There's nothing else on this list that's even close. I guess U.S. growth stocks in 2020. But everybody, everybody, everybody is all the way in on this trade. And it's not just semis. He's mentioned industrials. We looked at all the constituents of every single sector. And I think there's a chart in there. We looked at the weighted average. How many of them are correlated with tech? Right. And even for industrials, you know, more than 40%, 50 % have a large correlation with tech.

31:12Same thing with utilities.

31:14Downtown Josh Brown:Yeah, it's all one theme. Yeah, it's all. But then you get out into sectors like healthcare and there's zero. Right. And healthcare looks great. Yeah, right, right. That's the other, especially recently. Do you guys worry about crowded trades? Yes. I mean, I think, you know, I love looking at sentiment, right? If everybody's thinking alike, somebody isn't thinking journal patent. So there is something there, but I do want to rewind for a second. You're talking about rotation. On Tuesday, S &P was down 1.4%. You had 285 stocks in the S &P 500 who were higher on Tuesday. Only five times going back over 20 years have we seen a day where the S &P was down more than 1%, but more stocks were up than down.

31:50So we all understand why. That was a day tech was imploded, but other stuff did well. Just yesterday, we're recording this Thursday, just yesterday, Wednesday, market was flat-ish, down a tad. 315 stocks in the S &P 500 were higher, right? And today, I know we're not done doing this. The market's down a tad, at least S &P is, but there's still more stocks up. So I think it's encouraging, this rotation we're seeing. And I know everyone on TV says it. It's kind of boring. But for listeners, I think it's really a good thing because, yes, you get excited about the gains we've seen, the big IPOs, techs doing amazing, momentum's 99th percentile, this and that.

32:21But to still have a diversified portfolio and own things, like we've been saying for a while, and people didn't like it when we were saying it a month ago, but industrials, financials kind of have like a paired trade or a barbell trade. You got your tech over here, but own some other cyclical things over here. We have low volatility. Nobody wants that shit. Yeah, nobody wants that.

32:36Downtown Josh Brown:But giving you a correlation point, so I own tech, I own industrials, I own utilities. It's all tech. It's all I know. Hey, Mr. Kramer, am I diversified? No, I would argue. No, you're not, right? And that's why when we started the year, we were riding on momentum. We still are. But the more momentum gets stretched, we are more comfortable holding things like low vol.

32:58Michael Batnick:Well, I like that you're saying that because this is where we are in the market. And Josh, you're going to love this one. Listed options on the Roundhill T-Rex 2X long DRAM daily target ETF are now available. So let me stop that one more time. The boys at Roundhill launched the greatest ETF of all time, most successful launch of all time, maybe including IBIT. I don't know. Whatever. DRAM. Genius. Launched it at the perfect time. It's now 20 billion assets, maybe more credit to them. So then they launched RAM, which is if some DRAM is good, 2X is better. Why not? Okay. But now there's options on the 2X.

33:37Downtown Josh Brown:I could buy calls on the 2X? Yes. What am I talking to you guys for? This sounds like South Korea.

33:43Michael Batnick:Guys, you could buy calls on the 2X DRAM. If we are not near some sort of a local top, like I know this should last a lot longer. There's a lot of enthusiasm here. So I have a, you know, theory that if we do see rotation, sustained rotation, not just weekend or two weeks or anything. If we see a rotation for about six months, tech is not doing well. Let's say tech is flat for the rest of the year and your healthcare comes back. Healthcare is outperforming. Financials are outperforming. Maybe even comm services to a degree. I think then the AI trade is done. It's sort of like, even the same thing in - But what's the AI trade?

34:18This whole group of stocks? Yes, this whole momentum, basically. If you take momentum, it's basically an AI trade right now.

34:24Michael Batnick:But Nvidia's not working at all. Well, it's still up about, what, 10 %? It's not Micron. It's not working. I mean, it's sideways. But it's, you know, you have Micron in there. You look at the momentum index, it's Micron. Alphabet, you could argue Alphabet's not really working either. But then, you know, number five down the list is LAM Research. Right? And then you have SanDisk, you have AMD. Unless they didge. It's all those names. It's all those names. Yes. Parodyne, KLA. Application infrastructure. It's a very long list.

34:57Downtown Josh Brown:Where does the puck go then? If these stocks take a break, if these stocks cool off, and it's been a really long time since they have, but we're seeing the hyperscalers take a break now, and it's been about six months. So let's say these stocks take the second half of the year off. Where do people go? Small caps. I know you're watching the ratio. Yeah, they've already gone to small caps, I guess you could argue. I don't think most people realize. It could be early. Yeah, I mean, the Russell 2 is up 20 % for the year, give or take. It might close an all-time high. At least S &P 600 is going to close an all-time high, I think, today that they were doing this.

35:30Michael Batnick:Ryan, you're a technician. I'm going to hold up my computer. That's IWMSPY. Yeah. How's that looking? Yeah. On a relative basis, it's breaking out. Also, if you look at the S &P 600 advance decline line, so it's a cumulative base, I mean, stocks going up versus down every single day. Just yesterday, on Wednesday, that closed an all-time high, along with price. The way I learned it a long time ago, breath leads price. So we are seeing plenty of market breadth in small caps. Why is that? Well, community banks are breaking out, like Josh, you just said. Regional banks are strong. Biotech's going crazy.

35:56Those are big components to small caps. So I think, again, it's all part of this, let's say, the AI large cap takes a break. Yeah. I don't think that's crazy, you know? No. And I think it's important to remember. It would be weird if it doesn't take a break. It would be weird if it didn't. And you probably would want it to take a little bit of a break. But to see the leadership coming from these other areas, and again, it's more, I mean, if small caps are going up, again, call me old-fashioned, I think that's usually a good thing because we are a little more domestic by nature. There's a lot more small caps than there are large caps.

36:22That's why, again, with the portfolio, you should have a little bit of everything in there. Don't try to be a hero. We're still overweight equities. And overweight momentum to an extent. Overweight and overweight equities. How many financial advisors

36:34Downtown Josh Brown:work at Carson? We have over 600 financial advisors in, I believe, 44 states. How many are you guys able to talk markets with on a given, like, let's say, a monthly basis? Every Monday morning, we have a call with 150. So their clients… So the advisor's clients are doing very well right now. Yes. Most people are happy. What kinds of questions? Are you getting any nervous questions from clients relayed by the advisor? Like it's up so much. What do we do? The most recent question, the most popular one, like last week was, how do we get into SpaceX? Okay. Wow. That makes sense. Okay, are they still asking?

37:17Stack it. Stack it as much as you want. Well, wait till Anthropic can open the icon. It's not done yet. Yeah.

37:22Michael Batnick:But the questions are still skepticism. Well, it's not how much should I buy. Right. For the most part. Or what do you think? I know Lizanne Saunders has said this before, and I'm going to say it as well. But, you know, I get to travel and present for advisors and clients, a room full of people. You do your dog and pony show for 45 minutes, and it's 15 Q &A. I've never in the last couple of years been asked, hey, this is pretty good out there. How high is this going to go? It's always the dollar is going to lose reserve currency status. Oh, my goodness. Look at all the debt we have. We can talk about that stuff, too.

37:52The interest rates, all that. The standard stuff you think, because that's what you see on TV or you're reading about. Again, it just comes back to it doesn't feel like people are really enjoying it. But wait, hold on.

38:03Michael Batnick:But I think the point that you just made is really important. I don't think we're ever going back to that world where everybody is cheerleading. I think the way the media and social media and everything and attention works, it's never going to be everybody's all in. It's just never going to happen. So if that's what you're waiting for as your signal to, okay, now everybody's in, it's over. It doesn't work that way anymore. People will fight this the entire way. I think you get the other question like, oh, is the dollar losing reserve status? Should I buy gold? Right? So those are very common questions.

38:32Downtown Josh Brown:But you could have gotten those 15 years ago. Yeah, yeah. No. I think the bearishness comes, it manifests in that sort of way. What do you guys make of the gold and silver unwind?

38:42Michael Batnick:This has been like violent. Yeah. I think that's a sign of real yields going up. The Fed becoming or perceived to be more hawkish. You talk about whether they think they'll raise rates or not. But yeah, I think real yields going up, that's hit gold. And I would argue maybe even crypto for that matter. I know gold ran into the war, but since the war started officially, gold is down quite a bit. I think it was an inflation story. And when inflation picked up, suddenly everyone was like, they priced out no more two rate cuts. And now they're pricing in rate hikes. I think that's a headwind for gold.

39:13So in our tactical models we run, we added some gold allocation on this. I think it was March 31st, 2023, right after the regional bank crisis. We didn't look at it like gold will do better than bonds. That's kind of how we looked at it. So you've got a 60-40 bucket. We're probably 68 % to 69 % equities and 31%, 32 % other stuff. And we added some gold there. Obviously, it's worked really well. You took from the bond allocation to add to gold. Well, do you remember how we did it exactly? Yeah. We have a little bit of cash allocation. So technically, but we want a protection. We don't want to add duration.

39:46So long treasury. So we said, OK, what's another long duration asset that can protect the portfolio in a crisis? Gold. And I think we talked about this last year with you, just saying we thought rates would stay a little bit higher. We thought the economy did a little better. We've been saying this is an inflationary growth environment. Inflation might run 3, 3.5 % this year, but the economy is going to do well. I mean, some of this stuff is playing out. Now, we actually just sold some of our gold allocation in our tactical models for the first time. Again, since we added it way back a long time ago, and it's like going straight down every day.

40:14And Sonu was one pound on the table saying, look at real yields here going higher. You know, there's something going on here, and that gold's not going to like that. And that's clearly what has happened in a big way. Now I see gold, you know, I think it cracked 4 ,000. People are starting to dog it a little bit. Maybe there's something there. But it's still an area that makes sense from a strategic point of view to have a little bit. We do have it in our strategic portfolios a little bit, but we almost sold most of it out in our tactical portfolios.

40:40Downtown Josh Brown:I want to do one of your charts. John, can I have chart eight? You're showing IT equipment and software investment as a proportion of GDP is now larger than during the dot-com era peak. The charitable way of thinking about this is that the portion of digital activity in the economy is significantly larger. So we shouldn't be surprised to see equipment and software investments be much higher than back then. but maybe it's not in absolute terms. It's in a proportion of GDP terms. So I don't know. How would you think about whether or not this, because that in and of itself makes me want to sell Dell, which is one of the best stocks of the year.

41:23Downtown Josh Brown:I don't know. How would you think about this? But it's basically investment spending, right? Investment in information processing equipment, including things like chips, and then investment into software, right? So all this is investment. And then, so you've got, within GDP, you have two sorts of investment, broadly speaking. You have business investment, which is part of mostly the stuff. And then you have residential investment. During the housing bubble, you see that yellow line screaming all the way up to 6.5%. Look at it. It's like half a McDonald's logo. Okay. You hungry? Well, that's more extreme than both the tech bubbles.

41:57Yes, but it was a relative movement, the delta, right? How fast did it go up? And I think the green line going up as fast as it is right now, that's the key rather than the level of it. Okay, if we see… And I think it continues, going back to the point. Even connecting markets will just continue. I think once earnings season comes out, like July, these hyperscalers will tell us, oh, we're spending even more on this stuff.

42:22Downtown Josh Brown:Could this green line match the peak of that residential bubble, which was, it looks, 6.5 % of GDP was residential housing in, what is that? 2005? 2006? 2005. Yeah. Could this conceivably get there? Maybe. I mean, what's not included here is data centers. Construction related to data centers. That's not included. That's not even in this? That's not in this. So what is this? This is IT equipment, computers, things like that. Oh, this is just buying servers. Yeah. And then software too. So the construction of the data center is not in here. That's separate. You add that, we are starting to…

43:00Michael Batnick:Soto, don't you think it's remarkable that the economy has been as resilient as it is with the yellow line residential spending absolutely in an ice age. Like, what if we get a little bit of a comeback in housing? Well, that's the goal with, you know, keeping rates low. I guess Warsh talked about it, right? He says, you know, he thinks rates are tight if you look at the housing market. Yeah.

43:26Downtown Josh Brown:I mean, they're definitely restrictive. They're restrictive. Of at least transactions. I want to do another chart of yours. Chart 11. This is interesting. I imagine you guys have an emerging markets allocation, equity allocation. What you're showing here is emerging market earnings forecasts have risen even faster than in the United States. That's Bloomberg. So what's the tale of this chart? What are we learning from this? It's same memory chips. Just how global it is. CSMC. It's that AI trait. Are you surprised to see emerging market stocks doing what they're doing this year? No. Once you break it down, most of it is driven by South Korea and Taiwan.

44:11Downtown Josh Brown:Okay. India is struggling. We're getting a lot of lift from, again, the AI CapEx. Again, it's that dispersion, right? I'll say this. Like two years ago, I would be a little surprised because I used to think of emerging markets in the old days like a lot of commodity-based things. A lot of these done pretty well, but clearly it's been more of the AI trade. John, we kind of hinted this. I don't know the number, but the one about the June swoon, we sent that chart to you, the June swoon. It's incredible when you think about June historically isn't that great of a month. Okay, we all know that. During a midterm year, it's the worst month of the year.

44:45Okay, that's fine. And it's the second half of June when the trouble happens. And sure enough, right on cue, I mean, like right on cue, this is happening. And you guys should mention July. Sonya just mentioned July earnings. You know, Stock Traders' Almanac, Mr. Hirsch. There we go. Jeff Hirsch has been all over this. He says, you know, this June swoon is actually a good thing because you get some selling, you get some weakness out of the way, and then you get into July. Now, you can pick a reason why. I think it's because of earnings. The last 20 years, July has been by far the best month. I think it's higher either 12 or 13 of the past years or 13 of the 14 past years.

45:18Whatever it is, we get to earnings season in July. You get this little June swoon in late July. then you get your higher movement. Like Sonu said, and we've been thinking, we're probably going to get more good news on earnings. I mean, it just is what it is. I mean, I know the historic beats we just had three months ago. I love that you have to apologize. It is what it is. Yes, it's just like, you know, but those are - Record earnings, it is what it is. How dare you say earnings should be healthy. And then profit margins. I don't know if we mentioned the margins on Micron when we started this conversation, but it was 84 % or 85%.

45:50They said next quarter will be 84%. That's unheard of. Dude, the revenue - The revenue is$41 billion.

45:54Michael Batnick:The operating expenses are like$2 billion. Yeah. Yeah. But, yeah. But obviously, there's more expenses. But it's unbelievable what is happening with this business. We've never seen anything like this. A year ago. No, I'm sorry. Back in April, I asked ChartKid, hey, this is like wild shit. Show me Micron's earnings over the last 12 months. And in April of 2026, in March of the year prior, earnings were$9 a share. And then they were$86. and that was three months ago and now there are 132. Like we've never seen something. I've never seen anything like this.

46:27Downtown Josh Brown:It's a step function, right? Yeah. What did you make of how much stock they're going to buy back? And I think they retired a big chunk of debt. They had like 14 billion in debt. They bought back 5 billion of it. Retired. I mean, at least, I guess that the answer is not only are these companies seeing record results, they seem to be being somewhat responsible with it. I don't know if a buyback is the smartest thing to do.

46:50Michael Batnick:I don't think they did any buybacks recently, but they were asked on the call. They authorized a new one. Nvidia announced a dividend increase last time. So they were asked a lot about their capital program. Remember, I don't know if I just thought about this, but Commander Zero and Blood Diamond, I'm sure you guys are very familiar with that movie. He just had so many diamonds he didn't have to do with all of them. It's sort of like, what do these companies do with all the cash that they're producing? They have no idea what to do with it. It's almost ridiculous to buy back the stock. But one of the analysts was saying, just buy back 10 % of the float.

47:18Michael Batnick:Just do it now. Why not? It's only some of them, too. Most Most of them, actually, I had a chart in there showing equity supply. That's actually reverse. We're net equity supply is now positive. Let's talk about this. In Q1. Here we go. What are we looking at, Sona? This is from the Fed. Equity issuance. Is this a headwind? It's got to be. I don't know if it's a headwind, but you're increasing supply.

47:41Downtown Josh Brown:So for the first time in 26 years… Well, 2021 was positive. That was the IPO boom. Yes. All right, but we've basically been in a situation where floats have been shrinking. Companies have been buying back stock. For about two decades. They've been borrowing to buy back stock.

47:57Michael Batnick:So buybacks are dead. John, go to chart. My God, you boys, we got a lot of charts. And this is going to increase because Q2, you know, SpaceX and, you know.

48:07Downtown Josh Brown:This is a crazy visualization. It is. It's going to go higher.

48:09Michael Batnick:John, 26. Yeah, it's going to go higher. So Bloomberg did a chart. Big text, but disappearing buybacks. Alphabet, Meta, Microsoft, and Amazon. The only one that is buying back shares right now are Microsoft. And you got to figure that that's probably going to zero too. How is this not a headwind? They were buying back a lot of the stock. Guys, Microsoft is in a 35 % tryout. Of course, you can argue it already is. We've talked a lot about the Mag 7, how much is underperformed. I mean, Google just had, you know,$80 billion. That same week that SpaceX came and raised$75 billion. They raised$80 billion in equity.

48:42Downtown Josh Brown:SK Hynix is going to do a$29 billion, I guess, re-IPO here in the United States. Yes, right. So they have a publicly traded company in Korea. They're going to issue like$30 billion worth of stock here. So that – no, not ADRs. A listing here.

48:59Michael Batnick:Oh, really? Wow. Yeah. I can't wait to trade options on the double.

49:02Downtown Josh Brown:Because they already have – I think they already have ADRs. This is like we're listing – I forget if it's the New York Stock Street or the NASDAQ. but they are going to drop another 30 billion worth of memory stock on u.s investors like i think it's imminent um so we went from the stock market is shrinking everyone's grabbing for whatever equity exists out there now the flows have reversed that was a real growing the pie of available shares what do you think that was a real cash on the sidelines the cash on the sidelines was cash with corporations especially the big mega cap tech companies that was a cash on the sidelines.

49:37What did they do with the cash? Bought equity. Right. Now you think about that cash is no longer there. It's going to data centers. So there is a real economy thing happening. They're spending it. They're investing. That money is going to other companies. That's their profits. Right. But you're losing, you know.

49:53Downtown Josh Brown:Is that supply responsible in part? I know it's new. Responsible in part for what could be a continued shrink of the multiple that investors are willing to pay? Like, theoretically, there's more shares they could buy. they can invest in, why would they pay up for just a small handful of companies? Possibly. I mean, you know, then you think about like EPS, right? What happens to EPS? I mean, you know, if the number of shares are going up, you know, EPS should less earnings per share. Very good at math. Yeah, exactly.

50:24Michael Batnick:All right, let me show you guys this. So a couple of weeks ago, we showed a chart. The amount of market cap coming between SpaceX, OpenAI, and Anthropic is more than all of the combined from 97 to the top. And that was a true IPO mania. John, chart 23, if you will. So ChartKid looked at the aggregate IPO proceeds. So not market cap adjusted, but the amount of money that actually came to the market. Because we're talking about supply, right? So how much money do these companies actually raise as a percentage of the market cap at the beginning of the year? And we are not through, we have not seen OpenAI Anthropic, but we are like one 10th of where we were in the nineties mania.

51:10Michael Batnick:So 0.18 % of the S &P 500 market cap at the beginning of the year has come through new issuance. Now, if you look at the market cap adjusted, next chart, please. It looks a little bit more like what you would suspect, right? It looks a little bit higher. And if we get open an anthropic, it's, it is going to approach the nineties. Like, let's just be real. Then you see 99 ,000 in there with the highest bars. So it's good to approach it. But I think you do have to adjust. Or normalize it. That's what we call denominator blindness, right? If I talk about the numerator, let's talk about the denominator.

51:45But that's the question.

51:45Downtown Josh Brown:Can the market support it? So you don't seem to be particularly concerned about the growth in issuance. It sounds like you see it as, you guys, it sounds as though you see it as, okay, fine. but the money being raised from all of this is going right into the real economy. That's the positive way to think about it. And profits, yeah. Okay. And it goes back to, you know, we've sort of thrown the towel in on timing it. It could be a bubble maybe five years from now, who knows? We may look back at the spirit and say it's a bubble. But right now, investing, it's like that's meaningless. Also, a lot of the people that are negative about this are the same people who said, I don't like financial engineering.

52:27Downtown Josh Brown:True. Well, this is the opposite. now we're robbing from the stock market to create jobs.

52:35Michael Batnick:You don't like this either? You know what's so maddening about this? Right now, we're living through history as investors, and it's really fun and exciting. And it feels like we should know what's going to happen next, doesn't it? Like, doesn't it feel like, wait, how do you four guys not know that this is a bubble? Morgan Stanley just said that Tesla's revenue can hit$3.4 trillion by 2040. How do you guys not know it's a bubble? and I'm sorry, future listener, but I don't know. Yeah, no, we've thrown the towel in. Like, we can't time it. So then that's why we're like, we want to ride that wave with momentum.

53:09But also the more momentum keeps going up like this, we want to increase the size of our diversifiers too.

53:15Downtown Josh Brown:Do you worry about inflation? Yes. Flattening yield curve? Always. He's always standing up worried about inflation. I don't mean generally if you worry about it. I mean, right now, do you see that? If you're not worried about issuance of equity, which I totally get the argument, is this the real thing to be focused on, do you think? We do. At the start of the year, we were thinking inflation was broadening out. Sony looks at 178 core components or components of the core PCE. This is before the war started. And we were seeing things broaden out. And then the war obviously started and inflation did what it did.

53:49But you still look at core PCE and it's still trending higher, right? It's not just about services. It's not just about goods. There's an AI bottleneck that's also pushing things higher. Let's do that chart, John. It's 29. That's like Micron's margin expansion is Apple's inflation. Yeah. All right.

54:05Downtown Josh Brown:So Apple had a horrendous day today. Right there. Yes, it did. Yeah. Apple fell 6%, 7%, right? 6 % or 7 %? 6%. Yeah. Apple fell 6%. It's one of the biggest stocks in the world. It fell 6%. That's a lot of market cap. That's directly related to them. Keep this chart up. as directly related to them telling the public, hey, prices are going up for consumer technology.

54:29Michael Batnick:Wouldn't you think that the price would rise on that?

54:31Downtown Josh Brown:So what is this exactly? This is the personal consumption expenditures index for computer software accessories. Things like your tokens and stuff would be represented here. So this is the growing profit margin of the companies that are selling chips. It's the same coin. It's just the other side of that coin. And Apple's customers are going to pay for it. Yeah. But that's inflation. That's inflation. I mean, as real as inflation gets. It's like one company's margin expansion and somebody else's inflation. Okay. Is it alarmist to look at that and say, oh boy, or look at what Apple said? Or is there a mitigating factor?

55:04Downtown Josh Brown:What do you think? To me, there's mitigating factors. I mean, it strikes you when you look at that. I mean, I'm kind of a simple person. I like to look at two things at the end of the day that I think will help me understand what's going on in the market. First is advanced decline lines. Second are the credits markets. right? Advanced decline lines are literally like hitting all-time highs time we're doing this on small caps, on mid caps. S &P 500 is close. The New York Stock Exchange, common stock only, is very close at an all-time high. You tend to hit new highs in market breadth, and the market peaks on average about 11 months later.

55:35Now, listen, it's average. I can give you a time it was shorter. I can give you time it was longer. So we have that. And you look at credit spreads. I mean, credit spreads on BBB spreads and investment-grade corporate spreads. There's not a lot of fear. I say there's a monster under the bed. The credit market's going to know it. That doesn't mean some of these industries aren't going to get over the top and have big implosions. But big picture, those are the things I think we need to focus on. And to me, those matter more. And at the start of the year, I mean, again, getting back to kind of we talk about this stuff, we create content, but we also manage money.

56:01At the start of the year, we positioned our portfolios for a higher inflationary world. We added managed futures. That's been a very dirty word for a couple of years because they haven't worked at all. Managed futures done really well in this environment. I know gold's come back, but we had gold for a while. We did sell gold before it really started to break down. You know, we had less bond exposures we talked about. And, you know, what does well in inflation is kind of high? Stocks. And I get it. We can pick some years that hasn't happened. But historically, stocks do okay in a higher inflationary world.

56:26So those are where we are. But then, Sonu, like, kind of build on this. We don't think the Fed is going to cut. I know everybody kind of jumped on that bandwagon. Start of the year, we said we didn't think the Fed – I meant to say hike. At the start of the year, we didn't think the Fed was going to cut. Because the question was, how many times is the Fed going to cut? It wasn't like when. It was how many times. Everyone kind of had that baked in. And it was one or two. And we went against that. We said, well, they might come. It's going to be harder than the market thinks. Unfortunately, that's played out.

56:52Now we're the, I'd say 180 of that, where now it's like, how many times are they going to hike? And again, Sonu's saying they probably aren't going to. And why is that again? I know the dot plot shows the hawkish pivot, but count the votes, not the dots.

57:06Downtown Josh Brown:Crude oil just fell from 120 to 70. So if that was the urgent reason to hike, you don't have to worry about that anymore. No, I think core services, excluding housing, is running hot, right? I was looking at the numbers today. It was up in May 0.5%, which is 6 % annualized. Last three months, core services outside of housing is running at 4 % annualized. I think the Fed has an inflation problem, to be clear. I think they have an inflation problem, but I don't think they're going to cut, which means policy—or I don't think they're going to hike, sorry— which means policy is actually getting easier.

57:38They're basically going to run it hot. That's good for the economy. I think that's good for now. Put this chart up. Guys, 33.

57:47Downtown Josh Brown:An inflationary period is not necessarily bad for stocks unless the Fed gets really hawkish in a hurry. So the point that you're making, the pace. Yes. We could survive a hike every few months and a few meetings without one. We can't do another 50-50. Oh my God, now they're doing 75. Now they do 75 again. Obviously, we ran that experiment. It doesn't go well. You don't think that that push is going to come to shove and we're going to have to do that? At some point, it could. the further they fall behind the curve, if inflation stays elevated, then I think when they're trying to catch up, then we have a problem.

58:21Like 2022. Right now, if they went, let's say 25, 25, let's say they hike 25 in July, I think the market has a little bit of a, you know, turbulence. But I think market gets over it because all the hyperscalers say, we are still going to spend 2.5 % of GDP on this stuff. That's what matters for profits. I think it's okay. But let's say you get into 2027, and inflation is still elevated, suddenly they're like, uh-oh, we've had 3 % inflation for seven years now. We got a hike. I think then it becomes a problem. I think then the Fed could potentially kill the bull market.

58:56Downtown Josh Brown:Okay. We've done a lot of charts. Now we're scraping the bottom of the barrel.

59:00Michael Batnick:Let's just hang out. What do you guys want to talk about?

59:02Downtown Josh Brown:John, if you please. Soccer? No, no, no. Can I scrape the bottom of the barrel? I want to see this. That's good stuff. 34, sir. Fire. Can you tell a story of what just happened here with Bitcoin? All right, I'm showing you Bitcoin versus regional banks. Regional banks, the hottest trade in the market right now. That's not memory, right? Aside from memory, these stocks are breaking out. We wrote about this today. This, to me, there's signal in regional banks. These companies are extremely reliant on people paying their bills, regular people. There's no capital markets in these stocks. these companies are doing home equity lines of credit, doing credit cards, doing auto loans.

59:46Downtown Josh Brown:They're doing small business loans, middle market credit. But like the lifeblood of the economy, when these stocks are breaking out, it's very hard to make a macro doom case. Okay. I'm juxtaposing that with whatever the hell is going on in Bitcoin, not because there's any real relationship other than they both purport to be the financial system. All of a sudden, Bitcoin just like fell through a trap door in January. Nobody seems to have a great reason why. I do. You have a good one? Yeah. Okay. Well, I'd love to hear what it is. It's this. Was that Bitcoin Gold? It's software. Oh, Bitcoin software.

1:00:29Michael Batnick:Bitcoin is trading like software. Bitcoin is software?

1:00:31Downtown Josh Brown:Yeah. All right. The other one I heard is people needed to liquidate digital assets to buy SpaceX and eventually enter.

1:00:39Michael Batnick:No, but I know it's not maybe the most satisfying answer. It's software. It's code. It's trading like the biggest, like a gigantic software stock. Good enough for you? Yeah, I think. I don't think you have real eels going up. Same reason gold has come down. Well, there's that too. The whole debasement trade, right?

1:00:56Downtown Josh Brown:So Bitcoin was gold. Now it's not gold. Now it's software. It was both. Like that, it changed us both. All right. Well, I'll change you on a regional bank. Community banks, so even smaller. Yeah. They're breaking out. I'm going to talk about this a little bit. I looked at that today. But it's like, you know, I'm with you, Josh. I mean, I like to look at the big macro picture to tell stories. We're storytellers at the end of the day to a degree. And when community banks are doing what they're doing, regional banks do what they're doing, and the large caps are probably, larger banks are probably going to follow now is what it looks like.

1:01:22I know Bank of America has done it. Some other ones have struggled, yes. But those are just bigger picture positives. It's just what it is. I mean, we remember, older listeners, you know, 2006, 2007, financials were breaking down. They were weak. Yes, the market was hitting new highs. The advance of Kleinland had already peaked and rolled over. And then everything fell apart with the GFC. Well, we're not seeing financials breaking down. We're seeing smaller financial stocks do well. So it doesn't mean you can't have a 8%. JP Morgan made an all-time record high today. Yeah, and he got a tour of the office.

1:01:53I know you guys have probably seen it. It's an amazing office. You went over to the new JP Morgan. Yeah, JP Morgan. What did you think? It was great. Yeah, it's pretty cool. I think I'll take my kids there tomorrow. Guys, look, one more.

1:02:01Michael Batnick:Microsoft and Bitcoin. Yeah, there you go. They're very, very similar. Or just do IGV. Yeah, exactly. But to your point about community banks, I think part of that is you mentioned consumers. It's a labor market. The labor market is doing okay. Yeah. I would argue it's doing—I was arguing at the start of the year that it was better than headline payrolls are suggesting. And now here we are over the last three months. It's doing well. One number for you. Today, we got personal consumption data. Last three months, nominal consumption, 8.5 % annualized pace. 8.5 % annualized pace. Last three months.

1:02:34We live in a nominal world. And even real. spending. Even real, that's high. Real is most of it is inflation. Real is 2.1%. Oh, never mind. A lot of it is inflation, but people are still spending.

1:02:44Michael Batnick:But how bad can the economy be, to Josh's point, if regional banks are breaking out?

1:02:48Downtown Josh Brown:And industrials. It's a very tough environment to say. And small caps. We're at the end of something. You know, I'm going to change gears for a second. I don't know if we have to statute of limitations, but congrats to you, Nix. I was watching you. I was living through you because I was a Bengal fan. We're terrible. and I know it's a different sport. I get it, but it was really cool to watch that. You guys got Dexter Lawrence. Yeah, that's true. We'll see. We'll talk football next time, but I mean, maybe better. But anyway, but congrats. It was fun to see that. Thank you. I don't like – Who's your favorite, Nick?

1:03:16Downtown Josh Brown:Oh, gee. Gotta like Jalen Brunson. Yeah, I mean, as a Xavier guy, the Big East connection, yes, I guess you have to say – I was going to say, as a lover of sports, he does not give anyone any reason that I can think of. He's got to have near universal approval. What was – I mean, you remember it. The quote they said, how did you drop to being a second round player?

1:03:35Michael Batnick:Oh, what did they miss about you? He said everything. Everything. That was the coolest. That was so cool. That was really cool. And he's right. I mean, he's the champ. But congrats, guys. We'll take that. There's a connection. Netherlands and the Knicks, the Orange. The Orange came from the House of Orange, Netherlands. No shit. Oh, the Knickerbockers. New York. Oh, oh, oh. Knickerbockers, yeah. Oh, wow.

1:03:55Downtown Josh Brown:You know what a Knickerbocker is? We did this already. I still forget. Do you? You told me last time. You don't know, still. All right. You know what your problem is? Nate, your problem is. Guys, I will say, you know, this is the third one I've done. Thank you. I mean, every time we come on, our Facts vs. Feelings podcast gets a huge bump. We really appreciate it, Josh. We love having you. It's an honor to do this again. And you know what? You guys are pros. I love running into you on the speaking circuit. I love listening to your shows. And we just really appreciate you guys coming by and doing ours.

1:04:24Downtown Josh Brown:So thank you so much for being here. Let's tell people about the podcast. So you guys are, what's your cadence of Facts vs. Feelings? Facts vs. Feelings comes out every Wednesday morning. There's another podcast that comes out Wednesday morning. Listen to that one first. Listen to us second. Animal Spirits. I think we just follow what you guys do. It seems to work. But yeah, we talk about all the stuff we just talked about, Facts vs. Feelings. And it's a lot of fun to do all this stuff. We have guests once in a while. Usually it's just Sonu and I talking about everything going on out there. You guys are enough.

1:04:52Downtown Josh Brown:Just like Animal Spirits, Michael and Ben are enough. Exactly. All right. We really appreciate you guys. Thank you for having us. So much love and respect. Congratulations on all your success at Carson. Thank you for being here. And hey, everybody, thank you for watching. Thank you for listening. We'll see you next week. Thank you, guys.

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