The Federal Reserve held interest rates steady, but the bigger story may be happening beneath the surface of the market.
For much of the past several years, a small group of mega-cap technology companies has driven the majority of stock market gains. That dynamic appears to be changing.
Chris and Noah highlight that while many well-known technology names have experienced significant pullbacks, value stocks have surged ahead. The Russell 1000 Value Index is up roughly 20% for the year, while growth stocks have lagged behind. Small-cap and mid-cap companies have also delivered impressive performance, continuing a trend that has developed throughout 2026.
Rather than viewing this rotation as a negative, the hosts see it as a sign of a healthier market. Broader participation means gains are being driven by a wider range of industries instead of relying on only a handful of companies. For long-term investors, that reinforces the value of maintaining diversified portfolios rather than chasing whichever sector has recently outperformed.
Artificial intelligence remains one of the biggest investment themes in today’s market, but the conversation is beginning to evolve.
Major technology companies continue investing enormous amounts of capital into AI infrastructure, with billions being spent on chips, data centers, and computing power. While those investments could create significant long-term opportunities, investors have recently become more cautious about the pace of spending and whether future earnings will justify today’s capital expenditures.
Meanwhile, companies outside of the traditional AI leaders are beginning to benefit from implementing artificial intelligence into their own businesses. Chris and Noah discuss how improving efficiency, productivity, and profitability across many industries may be contributing to the market’s broader leadership.
The discussion highlights an important reminder: innovation often creates opportunities beyond the companies building the technology itself.
Earnings remain one of the strongest fundamental supports for the market.
Although several technology companies have seen their share prices decline, Chris and Noah point out that many businesses continue producing healthy profits. The challenge is that investor expectations have become extremely high, particularly for companies tied to artificial intelligence.
Even strong earnings reports can disappoint if they fail to exceed ambitious forecasts. As a result, markets are placing greater emphasis on sustainable long-term earnings growth rather than simply rewarding companies for meeting expectations.
The hosts note that this environment may create opportunities for investors willing to look beyond the market’s most popular names.
The Federal Reserve once again left interest rates unchanged, continuing a pause that has now lasted several months.
While the policy decision itself was largely expected, Chris and Noah explain that investors remain focused on inflation and energy prices. Oil has become one of the most important variables affecting inflation expectations, and continued geopolitical tensions have added uncertainty to the outlook.
At the same time, recent economic data continues to paint a relatively resilient picture. Employment remains strong, retail spending has held up well, and the broader economy continues to expand despite higher interest rates.
Rather than reacting to every Fed meeting or inflation report, the discussion encourages investors to focus on longer-term economic trends instead of short-term market headlines.
One of the biggest takeaways from the episode is that leadership within the market is constantly changing.
Many of the companies that led returns over the past several years have experienced meaningful corrections, while areas that previously lagged have begun outperforming. Chris reminds listeners that simply because a stock has fallen sharply does not automatically make it an attractive investment, while Noah emphasizes that buying market indexes over long periods has historically produced better outcomes than trying to predict individual winners.
Their conversation reinforces a timeless investing principle: diversification helps investors participate in changing market leadership without relying too heavily on any one company, industry, or investment theme.
The episode also explores several of the forces influencing markets today, including geopolitical tensions, oil prices, consumer sentiment, and the continued expansion of artificial intelligence.
Although headlines can create uncertainty, Chris and Noah note that many of the underlying economic fundamentals remain relatively healthy. Employment continues to hold up, consumers are still spending, and businesses continue generating solid earnings.
Rather than allowing short-term volatility to dictate investment decisions, they encourage investors to stay focused on long-term goals and maintain discipline during periods of market rotation.
The Federal Reserve may have held interest rates steady, but markets continue to evolve.
As leadership broadens beyond Big Tech, value stocks, small-cap companies, and a wider range of industries are playing a larger role in driving returns. Combined with resilient corporate earnings and a healthy economy, this broader participation could provide a stronger foundation for long-term investors.
Throughout Episode 66, Chris Needs and Noah Brooks remind listeners that successful investing isn’t about chasing headlines or predicting the next market leader. It’s about maintaining diversification, focusing on fundamentals, and staying committed to a long-term plan through every market cycle.
Welcome to the Market Enthusiast. I’m Noah Brooks, and obviously this is Chris Needs.
Noah Brooks (00:22)
Hello. Happy Fed Day, everyone. Happy Fed Day. Yeah. We’re recording. It is Wednesday afternoon, and the Federal Reserve came out today and they made major changes to the interest rate policy, right? Nope. Nope. Stood pat. Yeah. So no change today. five or six months of no changes whatsoever.
A very, very short statement by by the Federal Reserve. I think it was probably the shortest in the last, I don’t know, 10 years or so. so a lot going on. We’ll we’ll get into that. S S P is up about eight, eight and a half percent for the year. Down about two percent since we’re in here last time, Chris recording. that that doesn’t feel great, but down two percent. And I think we’re about three and a half percent.
off all time high so not really anything to worry about right right right and we were talking earlier like there’s some crazy names with huge drawdowns you have Oracle Coinbase Sand Disk Nike ServiceNow Western Dig Netflix Palantir Robinhood Tesla all down having fifth four all of those are forty percent drawdowns at least and markets only down about three percent in terms of
Recently, not not too bad. Off off of all time highs. Off of all time highs. Not bad. Not not too bad. and that shows up, you know, growth and value. We always talk about growth and value here. growth is actually down for the year, right? So Mag Seven, we know they’re kind of some of them are getting trounced. Apple’s the only one beating the index right now. Yeah. Which is is great, right? It’s a big holding. It’s it’s over now the biggest holding. It surpassed NVIDIA again. So happy Apple Day, maybe we should be saying. Okay.
what over five trillion today in in market capitalization. you know, and what you’re seeing here is we said Russell 1000 growth down for the year, Russell 1000 value up 20% for the year. So what a delta. We’ve been talking about a rotation here for it seems like since we started this podcast years ago. but we’ve we’ve really been talking about it in the last year or so. In the last six or seven months, it has come to fruition.
international obviously doing doing significantly better than the SP 500, even though emerging markets have gotten walloped in July, down about 10%, still up close to 14 or 15% as we’re standing here. developed markets up 10%, mid-caps and small caps, yeah boy, they are the standout. Small caps up over 20%, mid-caps up over 15%. And those big names, those large cap companies.
Kind of wah wah wah. Yeah, I’m not sure if we talked about on the last podcast. obviously we’re about to be through July here, but through the first half of the year, small caps outperformed large caps by twelve percent over the first six months. So that was the highest delta between those two. highest outperform I should let me take that back. Highest outperformance by small caps in the first half since two thousand one. Yeah. Would love to see that continue. you know, the remainder of the year. I hope it doesn’t come back.
Feels like you had said earlier, every July there’s this like mini rotation where people unload technology and value starts outperforming. that didn’t just happen in July, that’s been happening all year. But every year we’re like, okay, here comes the value side of it, and it never materializes. Yeah, it would seem like twenty-three, twenty-four, twenty-five, it’d seem like maybe a month, a month and a half. you’d have value outperforming. We’re like, finally, this makes sense. You know, value is gonna catch up, gonna
Converge a little bit on valuations. And then by mid-August, it seemed like, huh, growth’s coming back a little bit, and then it would just run up near the end of the year. Yeah. Well, you have this scenario here where everybody’s concerned, you know, there’s really like four things going on, the four big narratives now. You have Iran, and therein lies oil prices, Federal Reserve and interest rates, and then the AI capex spend. And it seems to me.
With all of these large companies, Google announced last week in their earnings, that they were gonna spend two up to two hundred billion dollars for twelve months on capital expenditures. The market didn’t like that, did it? No, not really. Not really. So you you have these big guys spending enormous amounts of capital to to win or to stay in this AI race, but it seems like the rest of the companies out there
Are actually starting to take advantage of artificial intelligence and the market is starting to notice that. And maybe that’s why we have that disparity between AI companies being down. You just mentioned a whole list of them that were down more than 40%, and a lot of other companies that are non-tech, non-AI related, but are receiving the benefits of implementing artificial intelligence. And certainly the profitability is increasing, their margins are increasing.
Yeah, don’t think it’s an accident that Apple, despite doing absolutely nothing exciting, is the leading returner of the Mag Seven, then sure, because they have not made CapAx investments into AI and they haven’t damaged their free cash flow the way that the others have. And and we talked last podcast about, you know, the semiconductor stocks versus the hyperscalers and how they’ve gone completely different directions because they’re basically swapping cash flows. And
It’s just something that makes sense if you think about it. If you’re gonna go near free cash flow flat and you’re gonna destroy all your free cash flow, which a lot of people model valuations on, that you’re gonna get hit on that. I’m not surprised when when you’re seeing these more responsible companies that are not taking their their free cash flow down, you know, succeeding. We’re talking about a product that strictly
gauges investments and grades them on their free cash flow and how that’s performing year to date versus you know the hyperscalers and mag seven types. Yeah. Well I’m not an Apple guy. You know that, but I am still waiting for the Apple car to come out. Yeah. They they they put the kibosh on that a few years ago and it’s probably good that they did that. one thing that I did read and not specifically to Apple Apple but to the cell phone companies, the European Union has passed a law
It’s not just recently, but it’s coming into effect here in February of 2027. so like seven, eight months from now, that all cell phones, all new phones sold in the European Union after that have to have a consumer replaceable battery, meaning me, the consumer, has to be able to replace the battery with simple tools, non-technical tools, like simple like a screwdriver or Allen Ranch hex screw, something like that.
What’s that do for Apple’s upgrade cycle? I’m not surprised that the European Union would do that, you know. No, they’re heavy heavy regulators. Yeah. Right. Yeah. But come on. Very interesting. I like it as a consumer you’ve got like that for sure. I mean, how many few It’s like a right to fix thing, like you’re dealing with like what is it, John Deere or one of those companies that didn’t allow people to fix it.
And now this is sort of along that lines of you can fix your own phone, you can extend like I wouldn’t get a new iPhone if it weren’t for the battery going in the last, I don’t know, fifteen years, I probably would have bought half the phones that I did had it not been for the battery. Mm-hmm. And if you’re able to go out and s buy a new battery, what knows what the cost is, but buy a new battery and replace it yourself, that extends that phone years.
In my opinion. Two to three years it extends it. Unless you’re like hyper new. I need the newest tech, the newest AI, the newest camera. You’re a spec nerd. I am not a spec nerd. I just get one every few years when the battery stops charging. If at the end of the I love when people are like, yeah, I need to upgrade to this lace version. You should see the camera on this thing, and like, sure, pixels, whatever, they’re amazing. But I look at one picture versus the next, I’m like, Was this worth the the
$2,000 you’re paying for a new iPhone or whatever. And where do you look at that picture? On your phone? Yeah. It’s not like you actually do anything with the pictures that we take. Professionally, yeah. You when was the last time you printed out a picture and said, I really like the resolution on this? Right? I don’t think I ever have. Yeah. you haven’t? I have. I definitely have. Not really. Not from my iPhone. I guess maybe I guess maybe digital camera. I don’t know.
No, nobody has my kids have like four of them. Digital one, yeah. okay. No. Like a kid’s digital camera, not some old one that you used to have? Yeah. Okay. That’s a thing. Yeah. No? I’ll get my dog one. Bernie. Bernie. Yeah. So listen, going back to the Federal Reserve, right? They came out, they had a a short statement, like I said, very short. they didn’t raise rates, but there were a few dissents. So essentially there were three Fed governors.
That said they wanted to raise rates 25 basis points today. Nine governors voted not to raise rates, and here we are. So you that internal dissent is relatively uncommon in the Federal Reserve. there was some speculation that they might raise rates today. And I think that Bloomberg was reporting that there was like a 30% chance they would raise rates. Well, they didn’t, and it doesn’t look like they’re going to.
Me in my conspiratorial mind, I thought to myself, well, Walsh Walsh is going to raise raise by twenty-five so he can say, Okay, now we’re gonna lower by fifty, you know, in a few months. When he causes a market meltdown. Yeah. So that didn’t happen. but yeah, I mean I said this last time. I I think he’s sitting setting the intellectual groundwork to lower rates, you know, con conducting these
Committees convincing someone he’s not a lap dog and then you know lowering weights there. I don’t know. I’m I’m not convinced. I think truly he stood on business that he didn’t like inflation and everything like that way back in the day. And he only changed when there was a spot opening up. So I’m a conspiracy theorist in that thing. I think he was trying to dupe the president just to get the seat. He was running like a politician himself. Why would you want to be in that position?
I mean Because you’re the most protected person in government. But why would you the most protected person in government? Why would you want that position to begin with if you already have all the money in the world? Yeah. Well yeah. Isn’t he a billionaire? His wife is. So he in I guess there’s definitely a prenup in there, but yeah, he’s a billionaire. So like what does it matter? I don’t know. He’s not going out and looking at egg prices, right? Right. Yeah, I don’t think so. I doubt he shops himself.
I th I think everybody should go shopping themselves to see what the actual prices are. Maybe. Maybe. I don’t know. I just saw something there going backwards when we were talking about Google and how they got hit on their CapEx. And then Larry Page, their founder and comes out and the co-founder, says, I would rather go bankrupt than lose the AI race. That’s how important it is. I’m just like, no, that’s not what the people want to hear. And then
Sanjay’s in there just like trying to be the CEO, and he’s just like, well, market didn’t like this reaction. Why do you have to come out with that headline? Why do you do that? I just think it’s gasoline on a fire. Why do you have to say that? And I I don’t know. I think the whole AI trade and the hyperscalers and well, I guess more so the semiconductor and memory names. I think the market’s not only acknowledging that they went parabolic and need to be.
Come back to Earth a little bit, bring some gravity back in, even though the fundamentals are great. And we were talking about this earlier. The forward PEs on those memory stocks are so low. They are so cheap. But I think the market is saying we don’t think you’re capable of actually getting the earnings in that equation. And why are these hyperscalers going to start stop buying memory? I think I think it’s like a a deep seek two point We got that Kemi.
Three versions the Chinese model. Yeah, the Chinese model from Moonshot, where it’s they say it was like 30% less cost. I think that’s combining electricity and chips and memory, 30% less than the other, you know, frontier models out there. And they were right on our butt, came up out of nowhere pretty quick. And I think we’re fearing a allocators are fearing a deep seat moment where suddenly they say, well, not only do I need thirty percent, I need fifty percent less memory.
Or 50% less chips because our algorithm and our training is more effective. Our nets, our neural networks are stronger and better, and they don’t need nearly as much. I think maybe it’s some short-term repricing on that fear. So our markets are highly efficient. They priced in this massive purchasing of memory chips currently and and anticipated that for the next what year or so.
But now are pricing in the possibility of not necessarily keeping up with those expected earnings in the future because there’s much more competition. Right. So we were talking earlier. I think this it’s if you look on a forward basis, valuations are cheap. They’re not unreasonable. I don’t think this is a valuation bubble that people are fearing. And whether the average person out there knows or not, it’s not a valuation bubble. I think what they’re fearing is an earnings bubble.
Meaning they don’t think those earnings can keep growing at the pace. So we’re gonna see a at least going sideways on earnings, but we’re not gonna see the continued explosive growth that we’ve seen and are being priced in in the guidance. Yeah, which or or being priced out, I guess you could say. When you think about the law of large numbers, I mean it is really tough to continue to grow at thirty, forty, fifty percent indefinitely. It’s almost impossible to. It just it’s it it can’t really happen. You have these big cycles, especially in memory.
I was around for the you know, what I don’t know if it’s the first big cycle, but in the early nineties, Micron has been around a long, long time. They were selling you know, RAM at Staples and Office Depot. Everybody was flocking to it and that was a big cycle in the beginning. And we’ve gone in and out of these memory cycles and you know, we’re in one of right now. So when you worked at Staples were people coming in and buying like blocks of RAM and you would say really? yeah. Yeah. And it was extremely expensive.
I believe it. I I c it’s a terabyte back in the day was probably like five hundred bucks, and now it’s like ten cents. I don’t know about a terabyte of RAM. We used to sell terabyte raids, right? Which is hard drive, random access interface device, these big backups, and they were like and not that we sold them at the store, but we they did sell them upwards of like a million dollars for a terabyte back in the nineties. And now that’s like a distra it’s like
Now it’s like more than 400 bucks. Yeah. Yeah. Yeah. So I mean, every everything goes through cycles and we are in heavy demand for memory and compute power, right? I mean, there’s there’s no question about that. It’s just I don’t know how long it can last. Not knocking it. you know, we’re gonna continue to need it and we’ll probably need more of it. It’s just I’m not sure that the earnings are gonna be able to continue with those massive numbers indefinitely.
Well, if you have those gains and it’s not a qualified account, hey, you have some options on that forty percent drawdown list that you could rotate some of those massive appreciators. Yeah. But remember, my I I didn’t come up with this, but the bottom of your screen is not support. Okay. That’s true. That’s true. I went through some of this in the in the dot com bubble. If you liked it at three hundred and now it’s at one fifty, it doesn’t mean it’s a good buy. Yeah.
It means it fell by fifty percent. Wait, do your do your goodbyes get goodbye wife, goodbye house, goodbye car. It’s a goodbye. Yeah, it’s a goodbye. No, no, we we don’t want to do any of that. but there are, you know, to your point though, there are gonna be some great opportunities for companies that get sold off, you know, throwing the baby out with the bath water, all of that stuff. Great opportunities. And most of these companies that we’ve seen here, especially some of the names that you mentioned earlier.
They’re not going to disappear. Yeah. I mean, you know, Oracle is one of these companies that has a lot of debt. They’ve gone cash free negative. and free cash flow free negative. And I I don’t think they’re gonna go away. I don’t think so either. You know, but I don’t know that it’s a good buy at these prices. you know, it can it can still go down. Yeah, it can surprise you how far things fall when they fall out of favor.
Yeah. And people are just unloading them. I mean, yeah. I mean, you have the NASDAQ one hundred, which is down about twenty percent right now. So that’s bear market, right? from its high. From its high. From its high. But you know, definitely down there. Now that doesn’t mean panic, get out, run. Like this is also one of those scenarios where if you missed out on it before, you know, you have a chance to rebalance into it. geez, it was
one year, three months ago when NVIDIA was trading down at 88 and now it’s up around well today it might be one ninety five one ninety five. you know it comes back quick as well. So don’t get scared off by some volatility in these high growth names you know going on on that valuation since not all semis are made equally semis are subsector and tech obviously you have the Broadcoms you have the Nvidia’s of the world
And then you do have like the SK Heinex, the the microns, you know, sand discs or the memory side of semiconductors. So they’re not made equally. But semis right now aren’t expensive. You know, there’s seven regular SP sectors that are more expensive than it. So it might be a scenario where, you know, NVIDIA and Broadcom, they haven’t been going to the moon like Sandisk and SK Heinex and Samsung, etc. maybe it’s a time you
Allocate a little more to them. Maybe not. Maybe this is just a time where you look for growth outside of tech altogether. You know, but you have some options to move your money around if you’re in one of those names that has come well off the top. Because like Sand Disk moves, Micron and all these names coming down 50% in one month is tough for a lot of people to handle. There’s there’s no question about it. And you know, for the really since 20 and 12, 2013.
You know, buy the dip has just continued to work. I don’t care if the dip was COVID or if it was 2022 or 2018, buy the dip has continued to work. At some point, long term buy the dip always works, right? And you know, if you look at it a hundred years, long-term buying the dip always works, not necessarily on an individual name. Stock level, yeah, index level it does. That’s an important thing. Like people say stocks will always come back. Individual stocks.
Don’t necessarily always come. Just ask the people that bought Lucent at fifty, forty, twenty, ten, and then you know, it it evaporated into something else. Never came back. You know, lots of dot com names. We all know that. never came back. So buying the dip on the index, I think, always works over a longer period of time. I’m not saying any of those names that you mentioned are disag are gonna disappear. I I think they’re all gonna be around. but it doesn’t mean that they have to be higher in five years from now than they are today.
So when you know, when you when you’re thinking about what to do out there, to your point about buying some growth names outside of technology, I think that’s where the market is currently headed. Maybe let this let this like bubble a little bit. And we’re in this phase of consolidation over the last two months or so. I mean, realistically, since the Iran conflict has started, we’ve made a new high, but we’re kind of still stuck in these levels.
And we’re kind of just grinding. I don’t think that’s bad. Yeah. You know, it w if if we continue to make new highs, then we have these valuation pressures and the four P is way too high. We let’s let these earnings catch up. Yeah. Right. And if we end the year up 10 in the market, I that would be a positive for for me because there is this rotation, not necessarily out of technology, but there’s the selling of these semis. Nvid Nvidia is still close to 200 buck ninety-five today.
probably end the year at that same level, right? If I if I had to guess, we it might go down, it might come back up, but you know, 195 is is where it is today, and I don’t know that it’s going to move too much. But there is a noticeable shift to your point about the queues being down 20%. And when you look at where the overall market is, only down three or three and a half percent from all time highs, if you hadn’t, if you hadn’t mentioned those big drawdowns.
You know, or if you do mention those big drawdowns, you might think, well, the rest of the market has got to be down dramatically, but it’s not. Yeah. And in fact, the equal weight S P five hundred is up about 14% for the year, beating the S P five hundred, the cap weighted index, by like six percent. So we’ll we’ll see how that ends. but yeah, I mean, the few things that are out there now in terms of the narratives, we have Iran, we have interest rates.
We have this AI spend that we’ve been talking about right now. And oil seems to be the big inflation number, right? It’s it moves around pretty dramatically. It’s been as high as one twenty two earlier this year. I think it got down under seventy a few weeks ago, and now we’re back up to eighty seven on on Brent crude. And that’s gonna show up on the inflation. And certainly for July’s inflation number, it will show up. Yeah, I think that’s obviously super important to
spin a web of how you can explain what’s happening right now. You have risk off risk off sentiment coming from Iran and oil shooting up, which also pushes up yields because you know that has to account for inflation. And that’s hurting consumers out there. You know, people trying to go out and buy a house. You can’t buy a house. Well you can, but it sucks to buy a house at seven percent interest rate versus, you know, four or five. Sure. And then you add in consumer sentiment negative from
past inflation already. You have the echo chambers on social media. You have, you know, people being told they’re gonna lose their jobs due to AI, which, you know, you see different layoff numbers and and they’re not bad right now. When claim initial claims, continuing claims are not out of control by any means. But the headlines still have the impact behaviorally on investors. So you see every day the CapEx numbers, it’s like holy cow, they’re spending 205 billion on CapEx.
How is this sustainable? So you have people saying, holy cow, we’re still within 3% of all time highs. CapEx is unsustainable. Circular financing, all these things I think lend the average investor to say, I don’t want any part of this. Let me kind of step away, step back from some of this. And I think that’s where you get and then you also have the calendar stuff we kind of talked about where it’s like the the July rebounds to start Q three.
You always sort of have a little bit of a sell the winners scenario and sort of buy the laggards a little bit, whether however long it lasts. But all those things put together and it makes sense that you’re gonna see those huge winners and the hyperscalers and growth guys who are doing the capex sort of get hit a little bit. And that’s where you’re seeing it. Hopefully we get this Iran thing figured out. We get yields coming back down because if we could get looser conditions, not conditions aren’t that tight.
You know, if you look at the equations, but interest rates are high, which makes people feel bad. Yeah. I thought we had won the Iran war. we won it like ten times already. Okay. Okay. I’m not gonna go down that path. Hey, we’re two and on leaders being eliminated. well, kind of eliminated. I don’t know. We haven’t really seen Well, so no, what’s happened now in the in the last week or so,
Two weeks or so, we’ve been bombing the heck out of Iran. I think they did what 13 straight nights of bombing and then paused. And you know, depending on your information source, we either paused to allow for continued negotiation or we paused because we were running out of ammunition. That’s a thing. And I also think in terms of what I look at in news sources, is we stopped the day after they struck the
Saudi Arabian tankers in the Red Sea from the Houthi rebels in Yemen. So that’s like they’re pulling their proxies into action, which we wanna nip that in the butt if we can. And I think that was also part of it of yes, we’re having a drawdown most likely on a stockpile. But in addition, like, man, if they’re gonna mess things up in the Red Sea as well, we don’t wanna see where oil goes in that scenario. So we stopped and hopefully likely higher. Hopefully things
cool down. It it just it does I mean, it could happen at any time, but it doesn’t seem at the moment that the the forces inside Iran wanna make it easy. I think they’re looking I mean, I don’t know if they’re calculating this politically for midterms. I I don’t that would be it’d be interesting if they were doing that at a loss of life. I think the IRGC, the hardliners are in control right now and they don’t care politically.
They don’t feel threatened by an uprising because they have the guns. But don’t they feel threatened by getting blown up? I mean, that would be my concern. Don’t stick your head up. So they’re all just living underground. Yeah. that would stink. Yeah. Yeah, I don’t I don’t like that. Hey, I’m watching The Agency on Paramount again. It’s a good show, Michael Fastbender. I think he’s great. It’s a great show. And and one of the storylines in there is them. They have a source in Iran trying to
Figure out where they’re gonna do a nuclear stockpile and things like that. Well, that’s one of the things that they’re talking about, right? I mean, the president has said that the number Picasso. Did you see that? Yeah, Picasso. We can’t really hit it are our intelligence reports. I didn’t see that we couldn’t hit it. I thought we were gonna try. We have those bunker busters. But the president has stated time and time again that the biggest concern that he has is eliminating the nuclear stockpile from Iran, you know, enriched plutonium and their their potential to make more of it.
that seem I don’t want to say like a bridge too far, but I don’t think they’re wanna give that up. And that’s the reason, the stated reason that we have been doing what we’re doing. Right. So all this other stuff, this extraneous stuff, this tertiary stuff, with oil, that’s that’s kind of like side view mirrors. We should be going in there. That’s what’s really affecting us, but it’s side mirrors on the objectives. Right.
Why don’t we just go in, get a million of our troops, go in, grab the plutonium, and we’ll be out in like 20 minutes. Why not? No? That easy. Well, listen, the the Red Sea, I don’t know what the percentage of oil that goes through the Red Sea, but I think you know, you could have a a significant spike if that becomes a real problematic area, more so than it has been. now you have, I think, Saudi Arabia that’s actually bombing Iran as well. So this could get messier. I don’t know that it’s going to.
But, you know, there are people betting out there that oil is going to be significantly higher in the in the short term. you know, God knows where it’s gonna be at the end of the year, but I would think that it could certainly go higher. At the same time, the president has shown that there’s a possibility for diplomatic agreements, and you could come out at any time and and have him say or have them say, Hey, we we came to a resolution. The sticking point for them is gonna be the plutonium.
And who has control of the Strait of War Moons? They don’t want to give that up. We want it to be free and open. And they’re like, no, that’s not gonna happen. So I don’t know how long this is gonna go. What I started saying in the beginning in March was it really is the length and level, right?
How long this goes and at what price oil is averaging. gas prices are, you know, locally here, 440, 450, depending on where you go. I know they’re a little bit cheaper in the South, where there’s less taxes, but that definitely makes an impact on spending. Having said that, the US economy is pr doing reasonably well when you look at the data. You mentioned jobs. new jobless claims are actually down to some of the lowest levels that we’ve seen, the four-week moving average, which is just a
A longer calculation because of the volatility in the weekly numbers is about 207,000 at the moment. So the average for four weeks is a little over 200,000. I mean, the lowest four-week moving average average that we’ve seen has been like 182,000. We’re just above it. So there is not this massive layoff occurring. Although looking at some of the data that came out when when we had the last jobs report, the labor force participation rate.
Has been steadily declining, right? So the labor force participation rate is really how many worker, work working age people are there out there divided by the number of people that are actually working. So when you include everybody that is not in an institution, not in the military, able to work, I think there’s about 275 million people. And then if you divide that by the number of people that are actually employed, when you
And people that are looking for work. I think at the number is around 175 million. You do that math, it comes up to about 61%. That by itself isn’t good or bad. Looking at it over time, though, we were at a participation rate of around 67.5% back in March of 2000. And we’ve been steadily declining. Now, last time we were on here, we were talking about Social Security. This plays right into that.
With this declining labor force participation rate, you continually have less workers supporting people that are on Social Security. Yeah, you don’t want that ratio, your your stock to look like this ratio here. Yeah. Yeah. Yeah. Absolutely. You had said you had done some some math a few years ago, and you had, you know, the data stated that when Social Security was started, that there was about 20 workers.
for paying into Social Security for every one beneficiary. What are we at now, Noah? Well, in nineteen sixty, it was around six. Today it’s about two point seven workers for every one person collecting benefits. That people were living too long. We need a good pandemic. Didn’t we wait, didn’t we just have one? I thought that was the point of that. Speaking of the pandemic, did you see did you see Dr. Fauci today? Here we go. Yeah.
Every question. He was advised by his attorney to do that. He didn’t answer what color his tie was or anything. He just he’s not having it. He’s not having it. You’re trying to get me charged up. No, no, won’t do that. so back to the participation rate. It is coming down, and that’s you know, that is not helping the whole so Social Security conundrum. And I don’t see anything in sight that is going to prevent that from going lower.
We need artificial intelligence to create more not more jobs, not lessen them. And maybe we should keep the popul like to your point about keeping the population from growing. Is that a thing? Goes back to that Bill Gates TED talk. Did you ever see that where he’s like, if we do a really good job with vaccinations and a really good job of this and that, he’s like, we can get the population down ten percent. We’re like, What? Down? What?
That’s not the intention. That would be a lot of yeah, that would be a lot of people. Ten percent of the population, I think we’re at what three hundred and forty million people. Yeah. Yeah, something like that. So going back to the economy, we didn’t have that much economic news. We had some retail sales numbers that came in pr pretty good. When you strip out gas stations, spending increased seven point seven percent month over month. It’s not bad.
Right? People are spending money. We had some new home sales annually adjusted, I think 1.6%. Now a lot of that had to do with multifamily housing. It’s not the worst thing in the world. multi-family, multifamily housing doesn’t necessarily create the economic benefits that single family housing creates, as you know, a new homeowner does. but it’s not the worst thing in the world. And you know, jobs are still there. We had 57,000, 58,000 this month.
So the economy is humming along and consumers are very resilient. So until that changes, which certainly could, till that changes, we’re in this upward trajectory in the overall economic conditions. I don’t see any problem with that. No. So labor labor market refuses to crack. hey, we talked last time about emerging markets exposure to tech earnings and their and the growth rate for this year.
Obviously we’ve seen what’s happened in South Korea and SPEM getting hit. emerging markets index getting hit this month in July after everything I ran ratcheted back up. But we told you that the stocks six hundred only had six percent earnings growth exposure to which is the European index. And that’s doing much better right now. So I don’t know. Maybe we had a well timed comment there. Well, you we to your point about
South Korea was up earlier in the year like a hundred percent, mostly driven by two big semiconductors. and they’ve fallen dramatically over the last month or so. So you’re seeing our merchant markets kind of get hit. I don’t know, you know, we we talked we talk about regulations regularly on here. The European Union has a lot of regulations. It’s one of the reasons that they are not the leaders in technology in some of the areas that the United States is certainly far ahead of them.
And maybe if there is this rotation that continues on, Europe might be the allocator’s choice because of the limited lack of technology over there and and more of a value tilt overall. Yeah. I think that would be You heard it here for a prudent decision for people who want to take risk off for sure. Absolutely. so we have some earnings that are coming out later today after the bell. We don’t we don’t have a a
we don’t have a vision into the future, but we did see Google came out and Tesla came out. Tesla was saying they were gonna spend an enormous amount of money, earnings forecasts were got crushed. Got got crushed, right? Yeah. And then Google came out, they said they were gonna spend two hundred billion dollars on Capex. I mentioned that earlier. And then the rest of the Mag Seven is coming out in the next few days. So that’ll be a pretty big tell. I imagine they’re all gonna say something similar, right? There’s a
There could be some difference differences between them, but they’re all gonna say, Hey, we’re spending a lot of money on chips, we’re spending a lot of money on compute and you know Hopefully they make the clay the case very clear of why they’re doing it, how it’s paying off and starting to pay off. Well, that payoff, right, is the juice worth the squeeze. Yeah. Yeah. And and with some of those earnings reports and certainly forward guidance, which the Fed no longer gives, you’re gonna really see those chip companies respond to those
To those earnings. One one way or the other, right? Up or down. I mentioned Tesla. SpaceX, right? We’ve talked about SpaceX on here a few times. Obviously, it came public a few weeks ago. It’s been a stinker. It’s come back to earth. It it has it has come back to earth. Yes. Yes. I was hearing Ron B Ron Barron talk about and and he got in early on several of Elon Musk’s ventures and
He just loves Elon. Obviously if you make someone billions of dollars of wealth, you’d like them too. But one of his largest positions is SpaceX and and Tesla for the record. And I’m sure he’s having he’s he’s a pro, so he probably is less bothered than we would think, but they’re definitely getting hit over the last month. Absolutely. Yeah. just something about Elon kind of rubs me the wrong way. I’m sure he’s a great guy, but are you hating on
His Asperger’s Are you hating on a handicapped man? you think he’s handicapped? His Asperger’s, yeah. That counts. Diagnosed. He said in in a interview last week that he thought maybe he had gone too far with Doge.
How’s that all working out? Yeah, okay. and I I think a lot of the hate came on how he wanted to just axe and cut everything. Maybe it would have been more beneficial to say going forward, we’re gonna fix these contracts and fix, you know, how the how the monies are given out rather than just cutting people, cutting departments, cutting programs, saying going forward we’re gonna have a framework.
For efficiently used capital because the government doesn’t do anything efficient. If he could have somehow applied what he’s done at Tesla or SpaceX, which you have to admit with regardless of the stock, what he’s done with SpaceX making things reusable, what he’s done with the contracts he’s negotiated has been extremely successful, extremely efficient. If he could have somehow put those things in place for going forward, a framework that would be tough to break, start some good habits.
that probably would have been more productive and drawn less ire. Just less ire, not avoided ire. So making the government more efficient. People don’t like that, generally.
Okay. I don’t know if they like it or not. there I to your point, I think it could have been done maybe a little bit He doesn’t have a good bedside manner. Give him a break. I would hate for him to be my doctor. Yes. Take he would chainsaw my my thyroid out and that would be the end of it. And you know. So anyway. as we wrap up here, we had a death that maybe people locally or people on the east coast would know.
Richard Wood, one of the co founders and former CEO of Wawa, the convenience store, died. Are you a Wawa guy? I love Wawa. Yeah. So here on the East Coast, Wawa and Sheets, maybe that’s a Pennsylvania thing, but Wawa is expanding up and down the East Coast. he passed away, he was credited from taking Wawa from like a regional dairy to this massive I’d say local dairy. You said dairy. Wow. Why’d you name it Wawa then? I don’t know.
Isn’t Wawa mean water? I’m am I making the wrong assumption? I just thought Wawa meant water. I have no idea what it means. I know it means sandwich to me. Yeah. nice little sub. What’s that turkey thing they do over Thanksgiving? The gobble. The gobbl the wawa. That’s Arby’s. Well maybe they do it too. Arby’s does a gobbler. The deep fried gobbler. Yeah. Okay.
and then the only other thing that I I had on here was the turtle still MIA, Mitch McConnell. He’s gone like six weeks. Andy Bashir, the governor of Kentucky, is like, you need to prove that you are like capable of being a sitting senator. Yeah, basically. Is he alive? He’s alive, but he’s I think he’s full turtle. I think he’s like Well, he’s actually he already announced he wasn’t running. Yeah. Right. So I mean he’s not worried about campaigning, he’s not worried about, you know.
g getting out there and getting the votes or anything. but I guess, you know, it’s it’s gonna be difficult for his party without him if he’s not there to vote on some some key things that they want to get get done. and it brings up the point of, you know, there should there be rules in place about health disclosures when stuff like this happens. I don’t know. Well I guess we’ll see how long he is out for. Yeah. Hiding in a shell.
This is why we shouldn’t have career politicians. That’s a whole nother that’s a whole nother episode. All right. Anything on the way out here? Nope. Hopefully we can just get through this volatility a little bit. get some resolution, some less missiles and bombs going off. Get some yields to come in a little bit. Yeah. Say it over and over, but sticking with it. Absolutely, absolutely. I will just say don’t stop the compounding.
And as Mr. Buffett says, don’t bet against America. Thanks everybody for listening. We’ll see you next time on The Market Enthusiast.
Have questions about how this impacts your investment strategy? Reach out to your advisor or email us at marketenthusiast@goodlifefa.com.
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a decision. Economic forecast set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Fed Holds Steady as Markets Rotate Beyond Big Tech
The Federal Reserve held interest rates steady, but the bigger story may be happening beneath the surface of the market.
In Episode 66 of The Market Enthusiast, Noah Brooks and Chris Needs discuss the Fed’s latest decision, why market leadership is shifting beyond Big Tech, and what that could mean for investors. They also explore AI spending, corporate earnings, oil prices, inflation, consumer sentiment, and why staying diversified remains as important as ever.
Table of Contents
Market Leadership Is Expanding Beyond Big Tech
For much of the past several years, a small group of mega-cap technology companies has driven the majority of stock market gains. That dynamic appears to be changing.
Chris and Noah highlight that while many well-known technology names have experienced significant pullbacks, value stocks have surged ahead. The Russell 1000 Value Index is up roughly 20% for the year, while growth stocks have lagged behind. Small-cap and mid-cap companies have also delivered impressive performance, continuing a trend that has developed throughout 2026.
Rather than viewing this rotation as a negative, the hosts see it as a sign of a healthier market. Broader participation means gains are being driven by a wider range of industries instead of relying on only a handful of companies. For long-term investors, that reinforces the value of maintaining diversified portfolios rather than chasing whichever sector has recently outperformed.
AI Spending Is Creating New Winners and New Questions
Artificial intelligence remains one of the biggest investment themes in today’s market, but the conversation is beginning to evolve.
Major technology companies continue investing enormous amounts of capital into AI infrastructure, with billions being spent on chips, data centers, and computing power. While those investments could create significant long-term opportunities, investors have recently become more cautious about the pace of spending and whether future earnings will justify today’s capital expenditures.
Meanwhile, companies outside of the traditional AI leaders are beginning to benefit from implementing artificial intelligence into their own businesses. Chris and Noah discuss how improving efficiency, productivity, and profitability across many industries may be contributing to the market’s broader leadership.
The discussion highlights an important reminder: innovation often creates opportunities beyond the companies building the technology itself.
Corporate Earnings Continue Driving Markets
Earnings remain one of the strongest fundamental supports for the market.
Although several technology companies have seen their share prices decline, Chris and Noah point out that many businesses continue producing healthy profits. The challenge is that investor expectations have become extremely high, particularly for companies tied to artificial intelligence.
Even strong earnings reports can disappoint if they fail to exceed ambitious forecasts. As a result, markets are placing greater emphasis on sustainable long-term earnings growth rather than simply rewarding companies for meeting expectations.
The hosts note that this environment may create opportunities for investors willing to look beyond the market’s most popular names.
The Fed Holds Rates While Inflation and Oil Remain in Focus
The Federal Reserve once again left interest rates unchanged, continuing a pause that has now lasted several months.
While the policy decision itself was largely expected, Chris and Noah explain that investors remain focused on inflation and energy prices. Oil has become one of the most important variables affecting inflation expectations, and continued geopolitical tensions have added uncertainty to the outlook.
At the same time, recent economic data continues to paint a relatively resilient picture. Employment remains strong, retail spending has held up well, and the broader economy continues to expand despite higher interest rates.
Rather than reacting to every Fed meeting or inflation report, the discussion encourages investors to focus on longer-term economic trends instead of short-term market headlines.
Why Diversification Still Matters
One of the biggest takeaways from the episode is that leadership within the market is constantly changing.
Many of the companies that led returns over the past several years have experienced meaningful corrections, while areas that previously lagged have begun outperforming. Chris reminds listeners that simply because a stock has fallen sharply does not automatically make it an attractive investment, while Noah emphasizes that buying market indexes over long periods has historically produced better outcomes than trying to predict individual winners.
Their conversation reinforces a timeless investing principle: diversification helps investors participate in changing market leadership without relying too heavily on any one company, industry, or investment theme.
Looking Through Short-Term Volatility
The episode also explores several of the forces influencing markets today, including geopolitical tensions, oil prices, consumer sentiment, and the continued expansion of artificial intelligence.
Although headlines can create uncertainty, Chris and Noah note that many of the underlying economic fundamentals remain relatively healthy. Employment continues to hold up, consumers are still spending, and businesses continue generating solid earnings.
Rather than allowing short-term volatility to dictate investment decisions, they encourage investors to stay focused on long-term goals and maintain discipline during periods of market rotation.
The Bottom Line
The Federal Reserve may have held interest rates steady, but markets continue to evolve.
As leadership broadens beyond Big Tech, value stocks, small-cap companies, and a wider range of industries are playing a larger role in driving returns. Combined with resilient corporate earnings and a healthy economy, this broader participation could provide a stronger foundation for long-term investors.
Throughout Episode 66, Chris Needs and Noah Brooks remind listeners that successful investing isn’t about chasing headlines or predicting the next market leader. It’s about maintaining diversification, focusing on fundamentals, and staying committed to a long-term plan through every market cycle.
Listen to the Full Episode
Full Episode Transcript
Welcome to the Market Enthusiast. I’m Noah Brooks, and obviously this is Chris Needs.
Noah Brooks (00:22)
Hello. Happy Fed Day, everyone. Happy Fed Day. Yeah. We’re recording. It is Wednesday afternoon, and the Federal Reserve came out today and they made major changes to the interest rate policy, right? Nope. Nope. Stood pat. Yeah. So no change today. five or six months of no changes whatsoever.
A very, very short statement by by the Federal Reserve. I think it was probably the shortest in the last, I don’t know, 10 years or so. so a lot going on. We’ll we’ll get into that. S S P is up about eight, eight and a half percent for the year. Down about two percent since we’re in here last time, Chris recording. that that doesn’t feel great, but down two percent. And I think we’re about three and a half percent.
off all time high so not really anything to worry about right right right and we were talking earlier like there’s some crazy names with huge drawdowns you have Oracle Coinbase Sand Disk Nike ServiceNow Western Dig Netflix Palantir Robinhood Tesla all down having fifth four all of those are forty percent drawdowns at least and markets only down about three percent in terms of
Recently, not not too bad. Off off of all time highs. Off of all time highs. Not bad. Not not too bad. and that shows up, you know, growth and value. We always talk about growth and value here. growth is actually down for the year, right? So Mag Seven, we know they’re kind of some of them are getting trounced. Apple’s the only one beating the index right now. Yeah. Which is is great, right? It’s a big holding. It’s it’s over now the biggest holding. It surpassed NVIDIA again. So happy Apple Day, maybe we should be saying. Okay.
what over five trillion today in in market capitalization. you know, and what you’re seeing here is we said Russell 1000 growth down for the year, Russell 1000 value up 20% for the year. So what a delta. We’ve been talking about a rotation here for it seems like since we started this podcast years ago. but we’ve we’ve really been talking about it in the last year or so. In the last six or seven months, it has come to fruition.
international obviously doing doing significantly better than the SP 500, even though emerging markets have gotten walloped in July, down about 10%, still up close to 14 or 15% as we’re standing here. developed markets up 10%, mid-caps and small caps, yeah boy, they are the standout. Small caps up over 20%, mid-caps up over 15%. And those big names, those large cap companies.
Kind of wah wah wah. Yeah, I’m not sure if we talked about on the last podcast. obviously we’re about to be through July here, but through the first half of the year, small caps outperformed large caps by twelve percent over the first six months. So that was the highest delta between those two. highest outperform I should let me take that back. Highest outperformance by small caps in the first half since two thousand one. Yeah. Would love to see that continue. you know, the remainder of the year. I hope it doesn’t come back.
Feels like you had said earlier, every July there’s this like mini rotation where people unload technology and value starts outperforming. that didn’t just happen in July, that’s been happening all year. But every year we’re like, okay, here comes the value side of it, and it never materializes. Yeah, it would seem like twenty-three, twenty-four, twenty-five, it’d seem like maybe a month, a month and a half. you’d have value outperforming. We’re like, finally, this makes sense. You know, value is gonna catch up, gonna
Converge a little bit on valuations. And then by mid-August, it seemed like, huh, growth’s coming back a little bit, and then it would just run up near the end of the year. Yeah. Well, you have this scenario here where everybody’s concerned, you know, there’s really like four things going on, the four big narratives now. You have Iran, and therein lies oil prices, Federal Reserve and interest rates, and then the AI capex spend. And it seems to me.
With all of these large companies, Google announced last week in their earnings, that they were gonna spend two up to two hundred billion dollars for twelve months on capital expenditures. The market didn’t like that, did it? No, not really. Not really. So you you have these big guys spending enormous amounts of capital to to win or to stay in this AI race, but it seems like the rest of the companies out there
Are actually starting to take advantage of artificial intelligence and the market is starting to notice that. And maybe that’s why we have that disparity between AI companies being down. You just mentioned a whole list of them that were down more than 40%, and a lot of other companies that are non-tech, non-AI related, but are receiving the benefits of implementing artificial intelligence. And certainly the profitability is increasing, their margins are increasing.
Yeah, don’t think it’s an accident that Apple, despite doing absolutely nothing exciting, is the leading returner of the Mag Seven, then sure, because they have not made CapAx investments into AI and they haven’t damaged their free cash flow the way that the others have. And and we talked last podcast about, you know, the semiconductor stocks versus the hyperscalers and how they’ve gone completely different directions because they’re basically swapping cash flows. And
It’s just something that makes sense if you think about it. If you’re gonna go near free cash flow flat and you’re gonna destroy all your free cash flow, which a lot of people model valuations on, that you’re gonna get hit on that. I’m not surprised when when you’re seeing these more responsible companies that are not taking their their free cash flow down, you know, succeeding. We’re talking about a product that strictly
gauges investments and grades them on their free cash flow and how that’s performing year to date versus you know the hyperscalers and mag seven types. Yeah. Well I’m not an Apple guy. You know that, but I am still waiting for the Apple car to come out. Yeah. They they they put the kibosh on that a few years ago and it’s probably good that they did that. one thing that I did read and not specifically to Apple Apple but to the cell phone companies, the European Union has passed a law
It’s not just recently, but it’s coming into effect here in February of 2027. so like seven, eight months from now, that all cell phones, all new phones sold in the European Union after that have to have a consumer replaceable battery, meaning me, the consumer, has to be able to replace the battery with simple tools, non-technical tools, like simple like a screwdriver or Allen Ranch hex screw, something like that.
What’s that do for Apple’s upgrade cycle? I’m not surprised that the European Union would do that, you know. No, they’re heavy heavy regulators. Yeah. Right. Yeah. But come on. Very interesting. I like it as a consumer you’ve got like that for sure. I mean, how many few It’s like a right to fix thing, like you’re dealing with like what is it, John Deere or one of those companies that didn’t allow people to fix it.
And now this is sort of along that lines of you can fix your own phone, you can extend like I wouldn’t get a new iPhone if it weren’t for the battery going in the last, I don’t know, fifteen years, I probably would have bought half the phones that I did had it not been for the battery. Mm-hmm. And if you’re able to go out and s buy a new battery, what knows what the cost is, but buy a new battery and replace it yourself, that extends that phone years.
In my opinion. Two to three years it extends it. Unless you’re like hyper new. I need the newest tech, the newest AI, the newest camera. You’re a spec nerd. I am not a spec nerd. I just get one every few years when the battery stops charging. If at the end of the I love when people are like, yeah, I need to upgrade to this lace version. You should see the camera on this thing, and like, sure, pixels, whatever, they’re amazing. But I look at one picture versus the next, I’m like, Was this worth the the
$2,000 you’re paying for a new iPhone or whatever. And where do you look at that picture? On your phone? Yeah. It’s not like you actually do anything with the pictures that we take. Professionally, yeah. You when was the last time you printed out a picture and said, I really like the resolution on this? Right? I don’t think I ever have. Yeah. you haven’t? I have. I definitely have. Not really. Not from my iPhone. I guess maybe I guess maybe digital camera. I don’t know.
No, nobody has my kids have like four of them. Digital one, yeah. okay. No. Like a kid’s digital camera, not some old one that you used to have? Yeah. Okay. That’s a thing. Yeah. No? I’ll get my dog one. Bernie. Bernie. Yeah. So listen, going back to the Federal Reserve, right? They came out, they had a a short statement, like I said, very short. they didn’t raise rates, but there were a few dissents. So essentially there were three Fed governors.
That said they wanted to raise rates 25 basis points today. Nine governors voted not to raise rates, and here we are. So you that internal dissent is relatively uncommon in the Federal Reserve. there was some speculation that they might raise rates today. And I think that Bloomberg was reporting that there was like a 30% chance they would raise rates. Well, they didn’t, and it doesn’t look like they’re going to.
Me in my conspiratorial mind, I thought to myself, well, Walsh Walsh is going to raise raise by twenty-five so he can say, Okay, now we’re gonna lower by fifty, you know, in a few months. When he causes a market meltdown. Yeah. So that didn’t happen. but yeah, I mean I said this last time. I I think he’s sitting setting the intellectual groundwork to lower rates, you know, con conducting these
Committees convincing someone he’s not a lap dog and then you know lowering weights there. I don’t know. I’m I’m not convinced. I think truly he stood on business that he didn’t like inflation and everything like that way back in the day. And he only changed when there was a spot opening up. So I’m a conspiracy theorist in that thing. I think he was trying to dupe the president just to get the seat. He was running like a politician himself. Why would you want to be in that position?
I mean Because you’re the most protected person in government. But why would you the most protected person in government? Why would you want that position to begin with if you already have all the money in the world? Yeah. Well yeah. Isn’t he a billionaire? His wife is. So he in I guess there’s definitely a prenup in there, but yeah, he’s a billionaire. So like what does it matter? I don’t know. He’s not going out and looking at egg prices, right? Right. Yeah, I don’t think so. I doubt he shops himself.
I th I think everybody should go shopping themselves to see what the actual prices are. Maybe. Maybe. I don’t know. I just saw something there going backwards when we were talking about Google and how they got hit on their CapEx. And then Larry Page, their founder and comes out and the co-founder, says, I would rather go bankrupt than lose the AI race. That’s how important it is. I’m just like, no, that’s not what the people want to hear. And then
Sanjay’s in there just like trying to be the CEO, and he’s just like, well, market didn’t like this reaction. Why do you have to come out with that headline? Why do you do that? I just think it’s gasoline on a fire. Why do you have to say that? And I I don’t know. I think the whole AI trade and the hyperscalers and well, I guess more so the semiconductor and memory names. I think the market’s not only acknowledging that they went parabolic and need to be.
Come back to Earth a little bit, bring some gravity back in, even though the fundamentals are great. And we were talking about this earlier. The forward PEs on those memory stocks are so low. They are so cheap. But I think the market is saying we don’t think you’re capable of actually getting the earnings in that equation. And why are these hyperscalers going to start stop buying memory? I think I think it’s like a a deep seek two point We got that Kemi.
Three versions the Chinese model. Yeah, the Chinese model from Moonshot, where it’s they say it was like 30% less cost. I think that’s combining electricity and chips and memory, 30% less than the other, you know, frontier models out there. And they were right on our butt, came up out of nowhere pretty quick. And I think we’re fearing a allocators are fearing a deep seat moment where suddenly they say, well, not only do I need thirty percent, I need fifty percent less memory.
Or 50% less chips because our algorithm and our training is more effective. Our nets, our neural networks are stronger and better, and they don’t need nearly as much. I think maybe it’s some short-term repricing on that fear. So our markets are highly efficient. They priced in this massive purchasing of memory chips currently and and anticipated that for the next what year or so.
But now are pricing in the possibility of not necessarily keeping up with those expected earnings in the future because there’s much more competition. Right. So we were talking earlier. I think this it’s if you look on a forward basis, valuations are cheap. They’re not unreasonable. I don’t think this is a valuation bubble that people are fearing. And whether the average person out there knows or not, it’s not a valuation bubble. I think what they’re fearing is an earnings bubble.
Meaning they don’t think those earnings can keep growing at the pace. So we’re gonna see a at least going sideways on earnings, but we’re not gonna see the continued explosive growth that we’ve seen and are being priced in in the guidance. Yeah, which or or being priced out, I guess you could say. When you think about the law of large numbers, I mean it is really tough to continue to grow at thirty, forty, fifty percent indefinitely. It’s almost impossible to. It just it’s it it can’t really happen. You have these big cycles, especially in memory.
I was around for the you know, what I don’t know if it’s the first big cycle, but in the early nineties, Micron has been around a long, long time. They were selling you know, RAM at Staples and Office Depot. Everybody was flocking to it and that was a big cycle in the beginning. And we’ve gone in and out of these memory cycles and you know, we’re in one of right now. So when you worked at Staples were people coming in and buying like blocks of RAM and you would say really? yeah. Yeah. And it was extremely expensive.
I believe it. I I c it’s a terabyte back in the day was probably like five hundred bucks, and now it’s like ten cents. I don’t know about a terabyte of RAM. We used to sell terabyte raids, right? Which is hard drive, random access interface device, these big backups, and they were like and not that we sold them at the store, but we they did sell them upwards of like a million dollars for a terabyte back in the nineties. And now that’s like a distra it’s like
Now it’s like more than 400 bucks. Yeah. Yeah. Yeah. So I mean, every everything goes through cycles and we are in heavy demand for memory and compute power, right? I mean, there’s there’s no question about that. It’s just I don’t know how long it can last. Not knocking it. you know, we’re gonna continue to need it and we’ll probably need more of it. It’s just I’m not sure that the earnings are gonna be able to continue with those massive numbers indefinitely.
Well, if you have those gains and it’s not a qualified account, hey, you have some options on that forty percent drawdown list that you could rotate some of those massive appreciators. Yeah. But remember, my I I didn’t come up with this, but the bottom of your screen is not support. Okay. That’s true. That’s true. I went through some of this in the in the dot com bubble. If you liked it at three hundred and now it’s at one fifty, it doesn’t mean it’s a good buy. Yeah.
It means it fell by fifty percent. Wait, do your do your goodbyes get goodbye wife, goodbye house, goodbye car. It’s a goodbye. Yeah, it’s a goodbye. No, no, we we don’t want to do any of that. but there are, you know, to your point though, there are gonna be some great opportunities for companies that get sold off, you know, throwing the baby out with the bath water, all of that stuff. Great opportunities. And most of these companies that we’ve seen here, especially some of the names that you mentioned earlier.
They’re not going to disappear. Yeah. I mean, you know, Oracle is one of these companies that has a lot of debt. They’ve gone cash free negative. and free cash flow free negative. And I I don’t think they’re gonna go away. I don’t think so either. You know, but I don’t know that it’s a good buy at these prices. you know, it can it can still go down. Yeah, it can surprise you how far things fall when they fall out of favor.
Yeah. And people are just unloading them. I mean, yeah. I mean, you have the NASDAQ one hundred, which is down about twenty percent right now. So that’s bear market, right? from its high. From its high. From its high. But you know, definitely down there. Now that doesn’t mean panic, get out, run. Like this is also one of those scenarios where if you missed out on it before, you know, you have a chance to rebalance into it. geez, it was
one year, three months ago when NVIDIA was trading down at 88 and now it’s up around well today it might be one ninety five one ninety five. you know it comes back quick as well. So don’t get scared off by some volatility in these high growth names you know going on on that valuation since not all semis are made equally semis are subsector and tech obviously you have the Broadcoms you have the Nvidia’s of the world
And then you do have like the SK Heinex, the the microns, you know, sand discs or the memory side of semiconductors. So they’re not made equally. But semis right now aren’t expensive. You know, there’s seven regular SP sectors that are more expensive than it. So it might be a scenario where, you know, NVIDIA and Broadcom, they haven’t been going to the moon like Sandisk and SK Heinex and Samsung, etc. maybe it’s a time you
Allocate a little more to them. Maybe not. Maybe this is just a time where you look for growth outside of tech altogether. You know, but you have some options to move your money around if you’re in one of those names that has come well off the top. Because like Sand Disk moves, Micron and all these names coming down 50% in one month is tough for a lot of people to handle. There’s there’s no question about it. And you know, for the really since 20 and 12, 2013.
You know, buy the dip has just continued to work. I don’t care if the dip was COVID or if it was 2022 or 2018, buy the dip has continued to work. At some point, long term buy the dip always works, right? And you know, if you look at it a hundred years, long-term buying the dip always works, not necessarily on an individual name. Stock level, yeah, index level it does. That’s an important thing. Like people say stocks will always come back. Individual stocks.
Don’t necessarily always come. Just ask the people that bought Lucent at fifty, forty, twenty, ten, and then you know, it it evaporated into something else. Never came back. You know, lots of dot com names. We all know that. never came back. So buying the dip on the index, I think, always works over a longer period of time. I’m not saying any of those names that you mentioned are disag are gonna disappear. I I think they’re all gonna be around. but it doesn’t mean that they have to be higher in five years from now than they are today.
So when you know, when you when you’re thinking about what to do out there, to your point about buying some growth names outside of technology, I think that’s where the market is currently headed. Maybe let this let this like bubble a little bit. And we’re in this phase of consolidation over the last two months or so. I mean, realistically, since the Iran conflict has started, we’ve made a new high, but we’re kind of still stuck in these levels.
And we’re kind of just grinding. I don’t think that’s bad. Yeah. You know, it w if if we continue to make new highs, then we have these valuation pressures and the four P is way too high. We let’s let these earnings catch up. Yeah. Right. And if we end the year up 10 in the market, I that would be a positive for for me because there is this rotation, not necessarily out of technology, but there’s the selling of these semis. Nvid Nvidia is still close to 200 buck ninety-five today.
probably end the year at that same level, right? If I if I had to guess, we it might go down, it might come back up, but you know, 195 is is where it is today, and I don’t know that it’s going to move too much. But there is a noticeable shift to your point about the queues being down 20%. And when you look at where the overall market is, only down three or three and a half percent from all time highs, if you hadn’t, if you hadn’t mentioned those big drawdowns.
You know, or if you do mention those big drawdowns, you might think, well, the rest of the market has got to be down dramatically, but it’s not. Yeah. And in fact, the equal weight S P five hundred is up about 14% for the year, beating the S P five hundred, the cap weighted index, by like six percent. So we’ll we’ll see how that ends. but yeah, I mean, the few things that are out there now in terms of the narratives, we have Iran, we have interest rates.
We have this AI spend that we’ve been talking about right now. And oil seems to be the big inflation number, right? It’s it moves around pretty dramatically. It’s been as high as one twenty two earlier this year. I think it got down under seventy a few weeks ago, and now we’re back up to eighty seven on on Brent crude. And that’s gonna show up on the inflation. And certainly for July’s inflation number, it will show up. Yeah, I think that’s obviously super important to
spin a web of how you can explain what’s happening right now. You have risk off risk off sentiment coming from Iran and oil shooting up, which also pushes up yields because you know that has to account for inflation. And that’s hurting consumers out there. You know, people trying to go out and buy a house. You can’t buy a house. Well you can, but it sucks to buy a house at seven percent interest rate versus, you know, four or five. Sure. And then you add in consumer sentiment negative from
past inflation already. You have the echo chambers on social media. You have, you know, people being told they’re gonna lose their jobs due to AI, which, you know, you see different layoff numbers and and they’re not bad right now. When claim initial claims, continuing claims are not out of control by any means. But the headlines still have the impact behaviorally on investors. So you see every day the CapEx numbers, it’s like holy cow, they’re spending 205 billion on CapEx.
How is this sustainable? So you have people saying, holy cow, we’re still within 3% of all time highs. CapEx is unsustainable. Circular financing, all these things I think lend the average investor to say, I don’t want any part of this. Let me kind of step away, step back from some of this. And I think that’s where you get and then you also have the calendar stuff we kind of talked about where it’s like the the July rebounds to start Q three.
You always sort of have a little bit of a sell the winners scenario and sort of buy the laggards a little bit, whether however long it lasts. But all those things put together and it makes sense that you’re gonna see those huge winners and the hyperscalers and growth guys who are doing the capex sort of get hit a little bit. And that’s where you’re seeing it. Hopefully we get this Iran thing figured out. We get yields coming back down because if we could get looser conditions, not conditions aren’t that tight.
You know, if you look at the equations, but interest rates are high, which makes people feel bad. Yeah. I thought we had won the Iran war. we won it like ten times already. Okay. Okay. I’m not gonna go down that path. Hey, we’re two and on leaders being eliminated. well, kind of eliminated. I don’t know. We haven’t really seen Well, so no, what’s happened now in the in the last week or so,
Two weeks or so, we’ve been bombing the heck out of Iran. I think they did what 13 straight nights of bombing and then paused. And you know, depending on your information source, we either paused to allow for continued negotiation or we paused because we were running out of ammunition. That’s a thing. And I also think in terms of what I look at in news sources, is we stopped the day after they struck the
Saudi Arabian tankers in the Red Sea from the Houthi rebels in Yemen. So that’s like they’re pulling their proxies into action, which we wanna nip that in the butt if we can. And I think that was also part of it of yes, we’re having a drawdown most likely on a stockpile. But in addition, like, man, if they’re gonna mess things up in the Red Sea as well, we don’t wanna see where oil goes in that scenario. So we stopped and hopefully likely higher. Hopefully things
cool down. It it just it does I mean, it could happen at any time, but it doesn’t seem at the moment that the the forces inside Iran wanna make it easy. I think they’re looking I mean, I don’t know if they’re calculating this politically for midterms. I I don’t that would be it’d be interesting if they were doing that at a loss of life. I think the IRGC, the hardliners are in control right now and they don’t care politically.
They don’t feel threatened by an uprising because they have the guns. But don’t they feel threatened by getting blown up? I mean, that would be my concern. Don’t stick your head up. So they’re all just living underground. Yeah. that would stink. Yeah. Yeah, I don’t I don’t like that. Hey, I’m watching The Agency on Paramount again. It’s a good show, Michael Fastbender. I think he’s great. It’s a great show. And and one of the storylines in there is them. They have a source in Iran trying to
Figure out where they’re gonna do a nuclear stockpile and things like that. Well, that’s one of the things that they’re talking about, right? I mean, the president has said that the number Picasso. Did you see that? Yeah, Picasso. We can’t really hit it are our intelligence reports. I didn’t see that we couldn’t hit it. I thought we were gonna try. We have those bunker busters. But the president has stated time and time again that the biggest concern that he has is eliminating the nuclear stockpile from Iran, you know, enriched plutonium and their their potential to make more of it.
that seem I don’t want to say like a bridge too far, but I don’t think they’re wanna give that up. And that’s the reason, the stated reason that we have been doing what we’re doing. Right. So all this other stuff, this extraneous stuff, this tertiary stuff, with oil, that’s that’s kind of like side view mirrors. We should be going in there. That’s what’s really affecting us, but it’s side mirrors on the objectives. Right.
Why don’t we just go in, get a million of our troops, go in, grab the plutonium, and we’ll be out in like 20 minutes. Why not? No? That easy. Well, listen, the the Red Sea, I don’t know what the percentage of oil that goes through the Red Sea, but I think you know, you could have a a significant spike if that becomes a real problematic area, more so than it has been. now you have, I think, Saudi Arabia that’s actually bombing Iran as well. So this could get messier. I don’t know that it’s going to.
But, you know, there are people betting out there that oil is going to be significantly higher in the in the short term. you know, God knows where it’s gonna be at the end of the year, but I would think that it could certainly go higher. At the same time, the president has shown that there’s a possibility for diplomatic agreements, and you could come out at any time and and have him say or have them say, Hey, we we came to a resolution. The sticking point for them is gonna be the plutonium.
And who has control of the Strait of War Moons? They don’t want to give that up. We want it to be free and open. And they’re like, no, that’s not gonna happen. So I don’t know how long this is gonna go. What I started saying in the beginning in March was it really is the length and level, right?
How long this goes and at what price oil is averaging. gas prices are, you know, locally here, 440, 450, depending on where you go. I know they’re a little bit cheaper in the South, where there’s less taxes, but that definitely makes an impact on spending. Having said that, the US economy is pr doing reasonably well when you look at the data. You mentioned jobs. new jobless claims are actually down to some of the lowest levels that we’ve seen, the four-week moving average, which is just a
A longer calculation because of the volatility in the weekly numbers is about 207,000 at the moment. So the average for four weeks is a little over 200,000. I mean, the lowest four-week moving average average that we’ve seen has been like 182,000. We’re just above it. So there is not this massive layoff occurring. Although looking at some of the data that came out when when we had the last jobs report, the labor force participation rate.
Has been steadily declining, right? So the labor force participation rate is really how many worker, work working age people are there out there divided by the number of people that are actually working. So when you include everybody that is not in an institution, not in the military, able to work, I think there’s about 275 million people. And then if you divide that by the number of people that are actually employed, when you
And people that are looking for work. I think at the number is around 175 million. You do that math, it comes up to about 61%. That by itself isn’t good or bad. Looking at it over time, though, we were at a participation rate of around 67.5% back in March of 2000. And we’ve been steadily declining. Now, last time we were on here, we were talking about Social Security. This plays right into that.
With this declining labor force participation rate, you continually have less workers supporting people that are on Social Security. Yeah, you don’t want that ratio, your your stock to look like this ratio here. Yeah. Yeah. Yeah. Absolutely. You had said you had done some some math a few years ago, and you had, you know, the data stated that when Social Security was started, that there was about 20 workers.
for paying into Social Security for every one beneficiary. What are we at now, Noah? Well, in nineteen sixty, it was around six. Today it’s about two point seven workers for every one person collecting benefits. That people were living too long. We need a good pandemic. Didn’t we wait, didn’t we just have one? I thought that was the point of that. Speaking of the pandemic, did you see did you see Dr. Fauci today? Here we go. Yeah.
Every question. He was advised by his attorney to do that. He didn’t answer what color his tie was or anything. He just he’s not having it. He’s not having it. You’re trying to get me charged up. No, no, won’t do that. so back to the participation rate. It is coming down, and that’s you know, that is not helping the whole so Social Security conundrum. And I don’t see anything in sight that is going to prevent that from going lower.
We need artificial intelligence to create more not more jobs, not lessen them. And maybe we should keep the popul like to your point about keeping the population from growing. Is that a thing? Goes back to that Bill Gates TED talk. Did you ever see that where he’s like, if we do a really good job with vaccinations and a really good job of this and that, he’s like, we can get the population down ten percent. We’re like, What? Down? What?
That’s not the intention. That would be a lot of yeah, that would be a lot of people. Ten percent of the population, I think we’re at what three hundred and forty million people. Yeah. Yeah, something like that. So going back to the economy, we didn’t have that much economic news. We had some retail sales numbers that came in pr pretty good. When you strip out gas stations, spending increased seven point seven percent month over month. It’s not bad.
Right? People are spending money. We had some new home sales annually adjusted, I think 1.6%. Now a lot of that had to do with multifamily housing. It’s not the worst thing in the world. multi-family, multifamily housing doesn’t necessarily create the economic benefits that single family housing creates, as you know, a new homeowner does. but it’s not the worst thing in the world. And you know, jobs are still there. We had 57,000, 58,000 this month.
So the economy is humming along and consumers are very resilient. So until that changes, which certainly could, till that changes, we’re in this upward trajectory in the overall economic conditions. I don’t see any problem with that. No. So labor labor market refuses to crack. hey, we talked last time about emerging markets exposure to tech earnings and their and the growth rate for this year.
Obviously we’ve seen what’s happened in South Korea and SPEM getting hit. emerging markets index getting hit this month in July after everything I ran ratcheted back up. But we told you that the stocks six hundred only had six percent earnings growth exposure to which is the European index. And that’s doing much better right now. So I don’t know. Maybe we had a well timed comment there. Well, you we to your point about
South Korea was up earlier in the year like a hundred percent, mostly driven by two big semiconductors. and they’ve fallen dramatically over the last month or so. So you’re seeing our merchant markets kind of get hit. I don’t know, you know, we we talked we talk about regulations regularly on here. The European Union has a lot of regulations. It’s one of the reasons that they are not the leaders in technology in some of the areas that the United States is certainly far ahead of them.
And maybe if there is this rotation that continues on, Europe might be the allocator’s choice because of the limited lack of technology over there and and more of a value tilt overall. Yeah. I think that would be You heard it here for a prudent decision for people who want to take risk off for sure. Absolutely. so we have some earnings that are coming out later today after the bell. We don’t we don’t have a a
we don’t have a vision into the future, but we did see Google came out and Tesla came out. Tesla was saying they were gonna spend an enormous amount of money, earnings forecasts were got crushed. Got got crushed, right? Yeah. And then Google came out, they said they were gonna spend two hundred billion dollars on Capex. I mentioned that earlier. And then the rest of the Mag Seven is coming out in the next few days. So that’ll be a pretty big tell. I imagine they’re all gonna say something similar, right? There’s a
There could be some difference differences between them, but they’re all gonna say, Hey, we’re spending a lot of money on chips, we’re spending a lot of money on compute and you know Hopefully they make the clay the case very clear of why they’re doing it, how it’s paying off and starting to pay off. Well, that payoff, right, is the juice worth the squeeze. Yeah. Yeah. And and with some of those earnings reports and certainly forward guidance, which the Fed no longer gives, you’re gonna really see those chip companies respond to those
To those earnings. One one way or the other, right? Up or down. I mentioned Tesla. SpaceX, right? We’ve talked about SpaceX on here a few times. Obviously, it came public a few weeks ago. It’s been a stinker. It’s come back to earth. It it has it has come back to earth. Yes. Yes. I was hearing Ron B Ron Barron talk about and and he got in early on several of Elon Musk’s ventures and
He just loves Elon. Obviously if you make someone billions of dollars of wealth, you’d like them too. But one of his largest positions is SpaceX and and Tesla for the record. And I’m sure he’s having he’s he’s a pro, so he probably is less bothered than we would think, but they’re definitely getting hit over the last month. Absolutely. Yeah. just something about Elon kind of rubs me the wrong way. I’m sure he’s a great guy, but are you hating on
His Asperger’s Are you hating on a handicapped man? you think he’s handicapped? His Asperger’s, yeah. That counts. Diagnosed. He said in in a interview last week that he thought maybe he had gone too far with Doge.
How’s that all working out? Yeah, okay. and I I think a lot of the hate came on how he wanted to just axe and cut everything. Maybe it would have been more beneficial to say going forward, we’re gonna fix these contracts and fix, you know, how the how the monies are given out rather than just cutting people, cutting departments, cutting programs, saying going forward we’re gonna have a framework.
For efficiently used capital because the government doesn’t do anything efficient. If he could have somehow applied what he’s done at Tesla or SpaceX, which you have to admit with regardless of the stock, what he’s done with SpaceX making things reusable, what he’s done with the contracts he’s negotiated has been extremely successful, extremely efficient. If he could have somehow put those things in place for going forward, a framework that would be tough to break, start some good habits.
that probably would have been more productive and drawn less ire. Just less ire, not avoided ire. So making the government more efficient. People don’t like that, generally.
Okay. I don’t know if they like it or not. there I to your point, I think it could have been done maybe a little bit He doesn’t have a good bedside manner. Give him a break. I would hate for him to be my doctor. Yes. Take he would chainsaw my my thyroid out and that would be the end of it. And you know. So anyway. as we wrap up here, we had a death that maybe people locally or people on the east coast would know.
Richard Wood, one of the co founders and former CEO of Wawa, the convenience store, died. Are you a Wawa guy? I love Wawa. Yeah. So here on the East Coast, Wawa and Sheets, maybe that’s a Pennsylvania thing, but Wawa is expanding up and down the East Coast. he passed away, he was credited from taking Wawa from like a regional dairy to this massive I’d say local dairy. You said dairy. Wow. Why’d you name it Wawa then? I don’t know.
Isn’t Wawa mean water? I’m am I making the wrong assumption? I just thought Wawa meant water. I have no idea what it means. I know it means sandwich to me. Yeah. nice little sub. What’s that turkey thing they do over Thanksgiving? The gobble. The gobbl the wawa. That’s Arby’s. Well maybe they do it too. Arby’s does a gobbler. The deep fried gobbler. Yeah. Okay.
and then the only other thing that I I had on here was the turtle still MIA, Mitch McConnell. He’s gone like six weeks. Andy Bashir, the governor of Kentucky, is like, you need to prove that you are like capable of being a sitting senator. Yeah, basically. Is he alive? He’s alive, but he’s I think he’s full turtle. I think he’s like Well, he’s actually he already announced he wasn’t running. Yeah. Right. So I mean he’s not worried about campaigning, he’s not worried about, you know.
g getting out there and getting the votes or anything. but I guess, you know, it’s it’s gonna be difficult for his party without him if he’s not there to vote on some some key things that they want to get get done. and it brings up the point of, you know, there should there be rules in place about health disclosures when stuff like this happens. I don’t know. Well I guess we’ll see how long he is out for. Yeah. Hiding in a shell.
This is why we shouldn’t have career politicians. That’s a whole nother that’s a whole nother episode. All right. Anything on the way out here? Nope. Hopefully we can just get through this volatility a little bit. get some resolution, some less missiles and bombs going off. Get some yields to come in a little bit. Yeah. Say it over and over, but sticking with it. Absolutely, absolutely. I will just say don’t stop the compounding.
And as Mr. Buffett says, don’t bet against America. Thanks everybody for listening. We’ll see you next time on The Market Enthusiast.
Contact Us
Have questions about how this impacts your investment strategy? Reach out to your advisor or email us at marketenthusiast@goodlifefa.com.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a decision. Economic forecast set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Categories:
Tags: