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Could the Midterm Elections Trigger Another Tech Stock Sell-Off? · The Financial Exchange Show

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  Speaker 1: is The Financial Exchange with Chuck Zada and Mike Armstrong.
• 1:07
  Speaker 2: It's Chuck, Mike, and Tucker with you here. Hope you
• 1:14
  Speaker 2: all had a very spooky Halloween. If anyone wants any candy,
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  Speaker 2: you can't have mine.
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  Speaker 3: You can have mine.
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  Speaker 2: You can have Michael's.
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  Speaker 3: I will hand deliver it.
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  Speaker 4: Real quick, didn't get one Butterfinger.
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  Speaker 3: Not one.
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  Speaker 2: Didn't get one. Well, what was your costume?
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  Speaker 1: Yeah.
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  Speaker 3: That's because you were out trick-or-treating, Tucker.
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  Speaker 2: Tucker, when you're dressed up as yourself trick-or-treating, it's not
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  Speaker 2: really going to play well.
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  Speaker 3: Peeling out from the neighborhood. Come on.
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  Speaker 4: Not one Butterfinger out there, folks.
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  Speaker 1: Come on.
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  Speaker 3: Elbowing kids out of the way.
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  Speaker 2: Tucker's scorecard for Halloween is zero Butterfingers, eight egged houses,
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  Speaker 2: three ding-dong ditches, and a black eye. So things didn't
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  Speaker 2: go well for Tucker, but we're here, and it is
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  Speaker 2: now the first trading day of November. There are 42
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  Speaker 2: trading days left in 2026. That's pretty tight. And so
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  Speaker 2: we are getting right down to it.
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  Speaker 3: It was a spooky market on Friday. Led us right
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  Speaker 3: into the Halloween holiday. It was a.
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  Speaker 2: Spooky market on Friday, but this does happen to be
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  Speaker 2: the most bullish time of year for equities. basically on
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  Speaker 2: any short-term time horizon. The next week typically ranks in
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  Speaker 2: the 99th percentile for seasonality, so it is, again, the
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  Speaker 2: strongest five-day period of the year. The next month is
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  Speaker 2: in the 89th percentile, and the next quarter is literally
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  Speaker 2: the best-performing period of the year from now through the
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  Speaker 2: end of January.
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  Speaker 3: And so... this is it. I'll remind you all that
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  Speaker 3: that is not the Santa Claus rally. The Santa Claus
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  Speaker 3: rally is the last five training days of the year.
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  Speaker 3: Plus the first two of the next year.
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  Speaker 1: Correct.
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  Speaker 3: That is the quick reminder.
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  Speaker 2: Yes, correct. That is the, the one period that actually,
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  Speaker 2: you know, typically beats what we're seeing now in terms
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  Speaker 2: of five day stretches. Uh, but yeah, it's, uh, we're,
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  Speaker 2: we're basically in, uh, a stretch that is as bullish
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  Speaker 2: a period as you typically see seasonally. Now remember seasonality
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  Speaker 2: doesn't mean that you actually perform that well each and
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  Speaker 2: every year, in each of these cases. So for the
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  Speaker 2: next week, even though, again, it's 99th percentile, 28% of
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  Speaker 2: the time, you're down. Next month, 34% of the time,
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  Speaker 2: you're down. Next quarter, 29% of the time, you're down.
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  Speaker 2: So just because someone says, well, bullish seasonality, you can
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  Speaker 2: still lose money during bullish seasonal periods, typically about a
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  Speaker 2: third of the time. So don't be like.
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  Speaker 3: So unless you're willing to repeat the strategy for the
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  Speaker 3: next 100 years in order to make money on it,
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  Speaker 3: then it's not usually a good investable strategy.
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  Speaker 2: No, but if you are willing to repeat it for
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  Speaker 2: the next 100 years, then have at it. Hats off
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  Speaker 2: to you and approach it how you will. In terms
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  Speaker 2: of what we've got on tap this week, from an
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  Speaker 2: earnings perspective, I believe the company still known as Apple
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  Speaker 2: is going to be reporting. I think my data that
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  Speaker 2: I'm seeing is wrong because it says they're reporting today.
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  Speaker 3: Yeah, they are.
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  Speaker 2: They're reporting on a Monday?
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  Speaker 4: Yeah, it's usually a Wednesday or a Thursday. No one
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  Speaker 4: reports on Mondays.
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  Speaker 3: I know.
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  Speaker 4: Apparently they do now.
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  Speaker 2: Okay, so Apple's reporting today, which is weird.
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  Speaker 3: Yep.
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  Speaker 2: I don't really have any expectations because I'm not an
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  Speaker 2: Apple analyst, so I'm not going to be like, well,
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  Speaker 2: I get no idea. They're going to sell a bunch
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  Speaker 2: of iPhones, iPads, and other stuff, and they'll make some money,
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  Speaker 2: and it'll be a lot.
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  Speaker 3: Yeah, the most interesting thing I think you can say
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  Speaker 3: about Apple is that every time people have wanted to
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  Speaker 3: sell AI stocks, they've bought Apple in its place.
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  Speaker 2: Yeah, and so this is the thing where, hey, if
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  Speaker 2: you do think AI stocks are oversold... Then by virtue
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  Speaker 2: of that, if you think AI stocks are going to bounce,
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  Speaker 2: the money's probably coming from Apple.
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  Speaker 3: In order to fill that bounce. Nonetheless, $ 5 trillion company.
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  Speaker 3: It's something to keep an eye on.
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  Speaker 2: So Apple's reporting. We got earnings from Marriott earlier today.
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  Speaker 2: I'm going to touch on them just in terms of
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  Speaker 2: consumer spending and what we're seeing there. Just real quick.
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  Speaker 4: Apple last reported earnings on a Monday back in 2015.
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  Speaker 2: So it's been 11 years.
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  Speaker 3: Yeah. That's strange.
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  Speaker 1: Very strange.
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  Speaker 3: I wonder if they have something special to say.
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  Speaker 2: Ooh, trick or treat, I am John Ternus, and you
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  Speaker 2: are going to see what I bring to you for earnings.
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  Speaker 4: He does look like a solid Dracula, actually.
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  Speaker 2: Oh, he's the best vampire eating apples made of blood ever.
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  Speaker 4: Sounds Swedish now.
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  Speaker 2: My Transylvanian's a little weak this time of year. We
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  Speaker 2: can't all master our Romanian accent, okay, Tucker? I've been
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  Speaker 2: witching pretty hard for the last couple weeks, and now
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  Speaker 2: I've got to suddenly go vampire, and it's a lot
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  Speaker 2: to handle. Also, Tuesday, AMD going to be reporting. We'll
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  Speaker 2: see if they continue what we've seen in semis, which is... Hey,
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  Speaker 2: you beat and then get crushed after earnings. That's kind
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  Speaker 2: of been the norm there.
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  Speaker 3: Or worse, your Intel you miss and then you get
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  Speaker 3: really crushed. Yes.
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  Speaker 2: Yes, that's not good either. By the way, do you
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  Speaker 2: know the only day that Intel has had worse than
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  Speaker 2: last Friday was in 1974 when they were down 31%
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  Speaker 2: in one day?
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  Speaker 3: Wow. So Friday was the second worst day for Intel ever.
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  Speaker 3: And quick reminder, you, American taxpayer, part of that investment. Congratulations.
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  Speaker 2: We need to talk about that overall framework in a
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  Speaker 2: second because the more I've thought about it, the more
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  Speaker 2: I'm just like, this isn't actually accomplishing anything.
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  Speaker 3: But we'll get there in a minute.
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  Speaker 2: Wednesday, McDonald's and Uber. And this is your quarterly reminder
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  Speaker 2: that Uber now does about twice the revenue per quarter
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  Speaker 2: that McDonald's does, making it a far better indicator of
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  Speaker 2: American spending habits than McDonald's. I just always like to
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  Speaker 2: point that out. And that's basically the big stuff for
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  Speaker 2: this week. Okay, you get Airbnb on Thursday.
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  Speaker 1: Great.
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  Speaker 2: Everyone's just upset about, you know, whatever they're upset about
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  Speaker 2: with Airbnb now and fine. And Berkshire may or may
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  Speaker 2: not report on Friday because you never actually know if
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  Speaker 2: they're going to.
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  Speaker 3: Few utilities, few energy companies, but that's going to round
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  Speaker 3: out the week for us.
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  Speaker 1: Yeah.
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  Speaker 2: Economic data, with it being the start of November, we
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  Speaker 2: do have a nice little chunk of economic data that's
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  Speaker 2: going to be joining us in addition to what we
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  Speaker 2: have on the earnings side. Today, we just got to, hello,
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  Speaker 2: what is going on there? Why is my mouse clicking
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  Speaker 2: when it's not supposed to be clicking? ISM Manufacturing just
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  Speaker 2: came out at 55.5, a little bit better than expected.
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  Speaker 2: So again, no big surprise there. It was at 54.5
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  Speaker 2: last month. and continuing to hum right along. We get
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  Speaker 2: JOLTS job openings data tomorrow. That's going to be remembered.
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  Speaker 2: JOLTS is two months delayed, so it's for the month
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  Speaker 2: of September that we're going to be getting that. Wednesday,
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  Speaker 2: we've got ADP employment data. We've got ISM services, and
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  Speaker 2: we've got EIA energy data. Thursday, we've got jobless claims,
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  Speaker 2: and we also have, I believe, productivity comes out on
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  Speaker 2: Thursday as well. And then on Friday, we've got jobs
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  Speaker 2: report and the now crappy Michigan Consumer Sentiment Report as
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  Speaker 2: well coming out on Friday. And this is, without mentioning,
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  Speaker 2: what I do think is going to be the biggest
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  Speaker 2: market mover of the week, which is midterm elections on Tuesday.
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  Speaker 2: And so Wednesday, I think you've got the potential for
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  Speaker 2: some fireworks in a few areas, and we'll discuss what
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  Speaker 2: those areas are as we go here. So it's a
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  Speaker 2: busy week kicking off the 11th month of the year.
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  Speaker 3: Agreed. You want to take a break, and then we'll
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  Speaker 3: scenario play some of that midterm election talk?
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  Speaker 2: Yes, that sounds wonderful.
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  Speaker 3: Excellent.
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  Speaker 2: Mike, do we want to talk midterm elections or anything
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  Speaker 2: else that's currently.
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  Speaker 3: In the stack? Let's jump to midterms. We talked about
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  Speaker 3: it briefly before. The going narrative that everybody likes to
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  Speaker 3: ask about, do markets care about elections? Do investors care
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  Speaker 3: about elections? Of course investors care about elections. They care
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  Speaker 3: about election outcomes. I think the piece that I take
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  Speaker 3: away is that they just don't have any better insight
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  Speaker 3: about who's going to win and then what policies those
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  Speaker 3: people are going to propose than you would. I do.
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  Speaker 1: No.
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  Speaker 2: And so I think that from a policy perspective, let's
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  Speaker 2: put that on the back burner because I'm going to
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  Speaker 2: be 100% honest. I don't think actual policy is going
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  Speaker 2: to determine how midterm results move markets this week.
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  Speaker 3: I don't.
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  Speaker 2: I fundamentally think it's not.
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  Speaker 1: Important.
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  Speaker 2: What I do think is important is... Tucker, can you
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  Speaker 2: get the time machine fired up for us, please? We
• 10:35
  Speaker 2: gotta go back. We don't have to go too far.
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  Speaker 3: No, don't worry. It's fine.
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  Speaker 2: We're not going back too far. Okay. It's the fall
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  Speaker 2: of 2024. Okay. About two years ago, almost exactly. And
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  Speaker 2: Tesla stock is trading in the mid-200s in early November.
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  Speaker 2: By the time we reach mid-December, Tesla stock doubles to
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  Speaker 2: $ 488 per share. Yeah. The reason being, Republicans take the
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  Speaker 2: presidency and control the House and the Senate. And Elon
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  Speaker 2: Musk had donated a decent chunk of change to Republican candidates.
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  Speaker 3: I recall.
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  Speaker 2: So, we have, you know, a case that, again, two
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  Speaker 2: years ago, like, you can look at it and be like, okay, like,
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  Speaker 2: Tesla literally doubled, not because they, like, sold more cars
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  Speaker 2: during the course of the month or anything like that,
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  Speaker 2: but because, hey, this was viewed as being favorable to
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  Speaker 2: Elon Musk's company's chances of success. Now, here's the interesting part,
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  Speaker 2: is within the next four months, Tesla stock went back
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  Speaker 2: down to where it was before the election.
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  Speaker 3: Yeah, because... when you think about the policy that got
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  Speaker 3: rolled out, it turned out to not be terribly favorable
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  Speaker 3: to EVs or battery tech or any of the stuff
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  Speaker 3: that he was investing in. I don't know if that
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  Speaker 3: was the entirety of the reason, but sure. Correct.
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  Speaker 2: But the point that I'll make is, okay, Elon Musk
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  Speaker 2: gave a bunch of money to Republicans and when Republicans
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  Speaker 2: controlled everything, his companies were rewarded in the short term,
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  Speaker 2: even though intermediate term, it didn't make a difference. And
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  Speaker 2: now the stock is, you know, again, over the last
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  Speaker 2: couple of years, it's basically been range bound. It hasn't
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  Speaker 2: done anything interesting.
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  Speaker 3: This is fine.
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  Speaker 2: But the point that I am going to make here is,
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  Speaker 2: if you look at what is being predicted in prediction
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  Speaker 2: markets on Tuesday, and again, remember, I'll give the example
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  Speaker 2: of Brazil from last week. Brazil was priced as an
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  Speaker 2: 80% chance that Lula was going to, excuse me, throw up.
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  Speaker 2: And in fact, he did not throw up. He held
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  Speaker 2: his water and won the election. Now remember, a 20%
• 12:44
  Speaker 2: chance of that means that markets were correctly predicting that
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  Speaker 2: he had a chance. It wasn't 99.9 or anything. But obviously,
• 12:51
  Speaker 2: this was surprising to markets as a whole. And the
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  Speaker 2: Brazilian real got hammered, Brazilian stocks got hammered on Monday,
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  Speaker 2: and so on and so forth. So let's take this
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  Speaker 2: forward now and look at what we're seeing in prediction markets,
• 13:06
  Speaker 2: which again, like Yes, I know that they're mostly gambling,
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  Speaker 2: but they still can provide signal on things like elections.
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  Speaker 2: And if you look at this, it is incredibly likely,
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  Speaker 2: though not a certainty, that Democrats end up taking the House.
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  Speaker 2: And it is probably similar to Brazilian election odds that
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  Speaker 2: Democrats end up taking the Senate.
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  Speaker 3: Yeah, Cal, she's got it at a 72% likelihood of
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  Speaker 3: a Democrat sweep.
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  Speaker 2: So again, I'm not saying that this is good or bad.
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  Speaker 2: I'm just saying that this is what's being predicted now.
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  Speaker 2: What I don't think is being priced into markets is
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  Speaker 2: the post-2024 election results basically reversing for companies that have
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  Speaker 2: donated a lot or been pet companies of President Trump.
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  Speaker 2: Elon Musk's companies, a whole bunch of tech companies, including
• 13:59
  Speaker 2: ones like Intel, where the US government has taken a
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  Speaker 2: direct stake in them. And so, I think if you're
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  Speaker 2: talking short-term, again, because long-term, remember, the stuff that you've
• 14:10
  Speaker 2: got to pay attention to, a lot of times this
• 14:11
  Speaker 2: stuff is kind of counterintuitive in terms of how it
• 14:14
  Speaker 2: ends up working, where back in 2020, Joe Biden ends
• 14:18
  Speaker 2: up getting elected, and everyone's like, oh, renewable energy stocks
• 14:22
  Speaker 2: are going to do great, and traditional energy is going
• 14:23
  Speaker 2: to get hammered. And during his term, it was actually
• 14:25
  Speaker 2: the exact opposite. So my point is merely, hey, in
• 14:29
  Speaker 2: the short term, what's going to matter to markets, meaning
• 14:32
  Speaker 2: before the end of the year, is... okay, people are
• 14:35
  Speaker 2: going to wake up on Wednesday, and if this is
• 14:37
  Speaker 2: what happens, don't be surprised if tech potentially ends up
• 14:42
  Speaker 2: getting hurt because of this, and if Elon Musk-related companies
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  Speaker 2: and other companies that have been big donors to Republicans
• 14:49
  Speaker 2: and President Trump end up getting hurt in the short term.
• 14:52
  Speaker 2: But the other point I'll make is, just like with Tesla,
• 14:55
  Speaker 2: it didn't make a difference in the long run. I
• 14:57
  Speaker 2: think that's probably the case here as well. The bigger
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  Speaker 2: thing that's going to matter for tech in the next
• 15:02
  Speaker 2: 18 months is, How many tokens do people buy from
• 15:05
  Speaker 2: large language models? And what are the prices of those
• 15:08
  Speaker 2: tokens that they buy? It's not going to matter what
• 15:11
  Speaker 2: the election result is, except, and this is the except
• 15:15
  Speaker 2: that I put out there, because AI is the one
• 15:17
  Speaker 2: place where I think it does matter a little bit,
• 15:20
  Speaker 2: simply because even at the state level, you're getting a
• 15:23
  Speaker 2: ton of pushback now, bipartisanly, on ai buildouts and so
• 15:29
  Speaker 2: i think there are real questions as to what that
• 15:31
  Speaker 2: means uh for that industry's ability to grow and not
• 15:38
  Speaker 2: necessarily in a bad way is the interesting thing.
• 15:40
  Speaker 3: Yeah the the big is it a nice excuse to
• 15:44
  Speaker 3: have to pull back spending i guess.
• 15:45
  Speaker 2: Yes the big risk with the ai buildout is that
• 15:48
  Speaker 2: you build too much too quickly and The best thing
• 15:52
  Speaker 2: that could happen to AI to avoid that is a
• 15:55
  Speaker 2: restriction on how quickly it could grow. Again, I'm not
• 15:58
  Speaker 2: saying this is good, bad, or whatever. I'm just saying
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  Speaker 2: that it exists as something that you need to consider.
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  Speaker 2: But this is kind of how I'm thinking about... midterms
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  Speaker 2: here because, again, from a policy perspective, do we really
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  Speaker 2: think any substantive policy?
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  Speaker 3: No, anything that's substantive, if it is a sweep or
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  Speaker 3: a split, anything substantive is going to be blocked by
• 16:18
  Speaker 3: one party or the other via veto, more investigations, more hand-wringing,
• 16:25
  Speaker 3: but any substantive move on policy, no, that happens when
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  Speaker 3: there's a single party in control of all three chambers,
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  Speaker 3: and that's not going to likely be the case as
• 16:35
  Speaker 3: an outcome. It's a 94% chance priced into markets right
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  Speaker 3: now that Democrats get control of some portion of Congress.
• 16:44
  Speaker 3: And so, yeah, that seems far more likely. Yet to
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  Speaker 3: your point, it would be pretty unpopular for any member
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  Speaker 3: of a state or national Republican Party to take a
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  Speaker 3: real strong stance for AI data center construction right now. Right. Like,
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  Speaker 3: you know, the Trump administration and Republicans generally have been
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  Speaker 3: hesitant to slow it down in any meaningful way or
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  Speaker 3: put up any roadblocks.
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  Speaker 2: But you've started to see some things, even in states
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  Speaker 2: like Texas.
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  Speaker 3: At the state level, yeah, you started to see it
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  Speaker 3: a little bit. I guess that would be my point is, yeah,
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  Speaker 3: if Democrats were to sweep and propose some degree of
• 17:23
  Speaker 3: slowdown legislation on that front, might not be good for
• 17:26
  Speaker 3: the AI stocks in the short term and pretty tough
• 17:29
  Speaker 3: to oppose from a public sentiment standpoint right now, from
• 17:33
  Speaker 3: the Republican standpoint.
• 17:34
  Speaker 2: Now, if you're talking about what this means for the
• 17:36
  Speaker 2: market overall, again, if you listen to what I just
• 17:39
  Speaker 2: said and I'm saying, OK, like in the short term,
• 17:41
  Speaker 2: like tech stocks and Elon Musk related stocks could get hit. Well,
• 17:46
  Speaker 2: given the concentration that those types of companies have in
• 17:49
  Speaker 2: the broader indices, could it lead to some more weakness
• 17:52
  Speaker 2: over the next week, month, quarter?
• 17:55
  Speaker 3: Sure. That's a possibility. Yeah.
• 17:58
  Speaker 2: But again, what's going to drive markets in the long
• 18:00
  Speaker 2: term is not, hey, are investors punishing those companies because
• 18:04
  Speaker 2: of an election in 2026? It's going to be, are
• 18:08
  Speaker 2: you selling more stuff more profitably in the future than
• 18:12
  Speaker 2: you were today? And the answer resoundingly for American companies
• 18:16
  Speaker 2: over the last hundred years has been, yes. There are
• 18:19
  Speaker 2: brief periods where that gets interrupted because of a recession
• 18:22
  Speaker 2: or whatever. a war or something else. But by and large,
• 18:26
  Speaker 2: the reason why the S & P 500 has grown
• 18:28
  Speaker 2: the way that it has historically is because the U.S.
• 18:31
  Speaker 2: is basically a miracle when it comes to companies being
• 18:36
  Speaker 2: able to grow their earnings over the long run. That
• 18:39
  Speaker 2: is what powers this. There's nothing else to it. So
• 18:45
  Speaker 2: this is kind of how I'm looking at what might
• 18:47
  Speaker 2: happen over the next week, month, or quarter. And Again,
• 18:51
  Speaker 2: you just have to be cognizant of how these things
• 18:53
  Speaker 2: can move. It's not that you necessarily need to do
• 18:55
  Speaker 2: anything because, again, Mike said, what was it, a 72%
• 18:59
  Speaker 2: chance being priced in? The Democrats control the House and Senate?
• 19:01
  Speaker 3: On one betting site, yeah.
• 19:03
  Speaker 2: Okay, well, that means, like, again, like, you do the math,
• 19:05
  Speaker 2: and that is a two out of seven chance that
• 19:08
  Speaker 2: Democrats are not, which means, okay, like, twice a week,
• 19:12
  Speaker 2: you would get a set of results where that doesn't happen.
• 19:15
  Speaker 1: Yeah.
• 19:16
  Speaker 2: And that's not.
• 19:18
  Speaker 2: I often like to say 30% is the most misunderstood
• 19:22
  Speaker 2: percentage in the world because people are like, oh, that's
• 19:25
  Speaker 2: not likely. And I'm like, no, that's really likely, actually.
• 19:28
  Speaker 2: You just don't understand percentages well. Let's take a quick break.
• 19:32
  Speaker 2: When we return, it's Wall Street Watch.
• 19:38
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:41
  Speaker 1: TFE Show. Breaking business news is always first, right here
• 19:46
  Speaker 1: on the Financial Exchange Radio Network.
• 19:49
  Speaker 3: Turn it up.
• 19:50
  Speaker 1: For Wall Street Watch. Tracking the stocks, the data, and
• 19:53
  Speaker 1: the headlines driving markets so far today, right here on
• 19:57
  Speaker 1: the Financial Exchange Radio Network.
• 19:58
  Speaker 4: We have another busy week of earnings on tap, in
• 20:01
  Speaker 4: addition to a jobs report later this week as tech
• 20:03
  Speaker 4: looks to bounce back from its sell-off. Last week, oil
• 20:06
  Speaker 4: prices are also pulling back. On hopes of peace talks
• 20:09
  Speaker 4: with Iran, right now the Dow is up over 1%
• 20:12
  Speaker 4: or 575 points up. S & P 500 is up
• 20:16
  Speaker 4: over nine-tenths of a percent or 70 points higher. NASDAQ
• 20:19
  Speaker 4: up one and a quarter percent or 319 points higher.
• 20:23
  Speaker 4: Russell 2000 is up 1%. Ten-year treasury yield is down
• 20:26
  Speaker 4: two basis points at 4.904%. And crude oil down 6.5%,
• 20:28
  Speaker 4: trading at $ 97, while Brent is at $ 105 a barrel.
• 20:36
  Speaker 4: Some major merger news from the tech world this morning
• 20:38
  Speaker 4: after Marvell Technology reached a deal to buy data center
• 20:41
  Speaker 4: optics maker Lumentum in an all-stock deal valued at about
• 20:46
  Speaker 4: $ 115 billion. Lumentum makes lasers and other optical technology for
• 20:52
  Speaker 4: moving enormous amounts of data at high speeds. Marvell is
• 20:56
  Speaker 4: down 4%. Meanwhile, Oracle filed plans to issue new stock
• 21:00
  Speaker 4: and more debt to finance its AI build-out. where the
• 21:03
  Speaker 4: hyperscaler will sell $ 10 billion in common stock and $ 10
• 21:06
  Speaker 4: billion in senior notes. Oracle down 4%. After suffering its
• 21:11
  Speaker 4: worst trading session since the 70s, dropping 28%. On Friday,
• 21:15
  Speaker 4: Intel shares today are down over 1.5%. Estee Lauder down
• 21:19
  Speaker 4: modestly after beating quarterly expectations and also raising its full-year
• 21:24
  Speaker 4: earnings outlook. And after today's closing bell, we'll see more
• 21:27
  Speaker 4: tech earnings from Apple and Palantir. I'm Tucker Silva, and
• 21:32
  Speaker 4: that is Wall Street Watch.
• 21:34
  Speaker 2: Mike, we got a piece in the New York Times.
• 21:36
  Speaker 2: It's titled, After Tech Sell-Off, Investors Brace for More Market Volatility.
• 21:43
  Speaker 3: You think so? With markets up?
• 21:47
  Speaker 2: Here's the thing. You take a look just at where
• 21:52
  Speaker 2: things stand. Let's look at Friday just as an example.
• 21:55
  Speaker 3: The S & P was down 1.8%.
• 21:56
  Speaker 2: The NASDAQ was down 3.5%.
• 22:00
  Speaker 3: It finished a little bit better. NASDAQ finished down like 2.8, right?
• 22:04
  Speaker 2: NASDAQ 100, I was looking at.
• 22:06
  Speaker 3: So, like, narrower. NASDAQ composite, yep.
• 22:08
  Speaker 2: So, if you look at this on a sector-by-sector basis,
• 22:12
  Speaker 2: tech was down 4.3% on Friday. Everything else held in
• 22:17
  Speaker 2: there okay. Like, you had two other sectors, communications services
• 22:20
  Speaker 2: and industrials, that were down more than one. But you
• 22:22
  Speaker 2: actually had six out of 11 S & P 500
• 22:24
  Speaker 2: sectors that were up on Friday. And so... This is
• 22:30
  Speaker 2: very much a tech story, because if you look now,
• 22:32
  Speaker 2: zoom out a little bit, for the last month, tech
• 22:35
  Speaker 2: is down about 8%. Communication services, which includes, remember, communication
• 22:40
  Speaker 2: services is dominated by Meta and Google, or Meta and Alphabet,
• 22:44
  Speaker 2: I guess, however they want to be called now. they
• 22:47
  Speaker 2: were down 9.3% in the last month, but everything else
• 22:50
  Speaker 2: is basically up. Industrials are down a touch, but every
• 22:53
  Speaker 2: other sector in the S & P is up for
• 22:55
  Speaker 2: the last month. And so I think that this gets
• 22:59
  Speaker 2: at something we've been talking about for the last three
• 23:01
  Speaker 2: to four years, which is, contrary to how things normally work, where, hey,
• 23:05
  Speaker 2: you want a broad participation in a run-up in order
• 23:09
  Speaker 2: for markets to look and seem healthy, The S &
• 23:14
  Speaker 2: P 500 in the last four years, basically since 2023,
• 23:17
  Speaker 2: has been at its best when there's been really narrow
• 23:19
  Speaker 2: leadership that's been tech and not much else. And now
• 23:22
  Speaker 2: that that's reversed, you have this thing where, hey, for
• 23:25
  Speaker 2: the last month, the S & P is down 1.1%. Again,
• 23:29
  Speaker 2: let's not make this more dramatic than it is. I
• 23:32
  Speaker 2: know it feels like the S & P is like
• 23:34
  Speaker 2: off a crazy amount overall right now, but even where
• 23:37
  Speaker 2: it sits today with this little bounce, the S &
• 23:40
  Speaker 2: P 500 is is off 2.5% from its high. It's
• 23:45
  Speaker 2: next to nothing. But, and this is the big thing,
• 23:50
  Speaker 2: under the surface, we've been talking about this, there's just
• 23:52
  Speaker 2: this dispersion that is absolutely nuts, where if you look
• 23:57
  Speaker 2: back and say, oh, how have these stocks done in
• 24:00
  Speaker 2: the last month? The answer is, well, very, very badly.
• 24:05
  Speaker 2: So as an example, for the last month, if you
• 24:09
  Speaker 2: go through the tech sector, NVIDIA's down 10%. Micron's down 18%.
• 24:14
  Speaker 2: AMD's down 20%. Intel's now down 46%. Dell's down 25%.
• 24:19
  Speaker 2: Applied Materials is down 26%. ServiceNow is down 20%. Like,
• 24:24
  Speaker 2: it's been brutal for tech. But on the other hand,
• 24:27
  Speaker 2: Walmart's up 20% in the last month. Raytheon's up 9%.
• 24:31
  Speaker 2: Eli Lilly's up 23%. Visa's up 17%. ExxonMobil's up 12%.
• 24:37
  Speaker 2: Union Pacific's up 10%. Home Depot's up 18%. There's it's
• 24:42
  Speaker 2: not a case where like, hey, the index is down
• 24:44
  Speaker 2: two and a half and everything's just gradually falling. You
• 24:48
  Speaker 2: are either ripping in the last month or doing absolute.
• 24:53
  Speaker 2: You're doing badly.
• 24:55
  Speaker 3: The single day moves on some stocks has also been,
• 24:58
  Speaker 3: I think, rather compelling, a compelling story. Right.
• 25:01
  Speaker 1: I mean.
• 25:01
  Speaker 3: Meta reported now two weeks ago. And a few things
• 25:07
  Speaker 3: that they disclosed. I mean, one was a lawsuit settlement.
• 25:11
  Speaker 3: I don't think that had much bearing on the results.
• 25:14
  Speaker 3: They were very optimistic about their new Muse application. They
• 25:18
  Speaker 3: also issued or they didn't issue. They authorized the issuance
• 25:23
  Speaker 3: of a whole bunch of new equity shares in order
• 25:27
  Speaker 3: to fund things.
• 25:27
  Speaker 2: They issued some of them.
• 25:28
  Speaker 3: They issued some. what was the stock down? 10% on
• 25:31
  Speaker 3: the day? I mean, it was a massive swing for
• 25:34
  Speaker 3: a multi-trillion dollar company. Alphabet was likewise, similar story here
• 25:39
  Speaker 3: where not quite as bad, but big move in a
• 25:43
  Speaker 3: single day on reaction to these earnings. And I think
• 25:45
  Speaker 3: it speaks to, yeah, just the moment we are in
• 25:48
  Speaker 3: right now where there are optimists, there are pessimists, but
• 25:52
  Speaker 3: everyone is very critically looking at what are you able
• 25:56
  Speaker 3: to roll out on this AI spend and how much
• 25:58
  Speaker 3: is it eating your existing business?
• 26:02
  Speaker 2: Yeah, I look at the situation with just, like, AI
• 26:09
  Speaker 2: as a whole. There are some key questions that I
• 26:12
  Speaker 2: keep coming back to. Let's talk about meta, just because
• 26:15
  Speaker 2: I think they're at the epicenter of a lot of
• 26:17
  Speaker 2: this for me. The first is, and again, I've had
• 26:22
  Speaker 2: this conversation with, like, three different groups in the last, like,
• 26:25
  Speaker 2: four or five days. So if I've already said this,
• 26:27
  Speaker 2: I'm sorry. But what's really interesting to me is that
• 26:31
  Speaker 2: all of these companies are trying to issue equity now,
• 26:34
  Speaker 2: whereas normally they defend their equity with an iron fist.
• 26:36
  Speaker 2: Like we've all seen Shark Tank where you battle over
• 26:39
  Speaker 2: this stuff. And hey, no one ever wants to give
• 26:43
  Speaker 2: up equity. And now you've got companies just giving up equity.
• 26:46
  Speaker 2: And the place that I get to that's challenging on
• 26:48
  Speaker 2: this is, look, there's always a price for money. If
• 26:51
  Speaker 2: you're Meta, you know, six months ago, you say, okay,
• 26:53
  Speaker 2: I can issue, you know, $ 50 billion in debt for
• 26:57
  Speaker 2: whatever it ends up being.
• 26:57
  Speaker 3: It's not much.
• 26:58
  Speaker 2: It's, you know, 5%, 6%, 7%.
• 26:59
  Speaker 3: I want to clarify this here. Meta decided that they
• 27:03
  Speaker 3: were going to issue equity. It wasn't because they couldn't
• 27:05
  Speaker 3: find somebody to buy bonds.
• 27:07
  Speaker 2: No, I'm not done yet.
• 27:08
  Speaker 3: I'm getting there. Yeah.
• 27:09
  Speaker 2: So, like, look, there's always a price at which you
• 27:12
  Speaker 2: can find someone to lend you money.
• 27:13
  Speaker 4: Yeah.
• 27:14
  Speaker 2: And so here's the part that is bothersome to me
• 27:16
  Speaker 2: when looking at the AI bull case is, hey, if
• 27:21
  Speaker 2: Meta really believes that AI is going to be so
• 27:23
  Speaker 2: crazily profitable for them, like imagine that you, Mike, imagine
• 27:28
  Speaker 2: that you sell a widget and it costs $ 30, 000 a widget.
• 27:34
  Speaker 2: If you say to me, Chuck, I need to borrow $ 10, 000
• 27:36
  Speaker 2: and I say, fine, but I need 100% interest. You
• 27:40
  Speaker 2: look at me and you say, Okay, fine, because I'll
• 27:43
  Speaker 2: sell that widget and I'll make enough money that it'll
• 27:45
  Speaker 2: be fine. I'm stripping out other costs, but you get
• 27:48
  Speaker 2: the general idea.
• 27:49
  Speaker 3: Yeah, if I can make it for a penny and
• 27:50
  Speaker 3: sell it for $ 30, 000, then it works.
• 27:52
  Speaker 2: Not a penny. If you need $ 10, 000 in order to
• 27:56
  Speaker 2: make it, and I say, fine, but it'll cost you $ 20, 000
• 27:59
  Speaker 2: to get that.
• 28:00
  Speaker 3: $ 10, 000.
• 28:01
  Speaker 2: You still say, fine, I'll do it because I know
• 28:03
  Speaker 2: I can make that money. It doesn't matter what the
• 28:05
  Speaker 2: interest rate is.
• 28:08
  Speaker 3: If AI.
• 28:08
  Speaker 2: I'm not saying it's not going to be transformational. I
• 28:10
  Speaker 2: think it is already. But there's a difference between transformational
• 28:14
  Speaker 2: and profitable. And here's the part that I can't get past.
• 28:19
  Speaker 2: Even if Meta says, okay, it's going to cost us
• 28:22
  Speaker 2: 15% in interest, which it's not. No one even came
• 28:25
  Speaker 2: back to them with that, from what we can tell.
• 28:27
  Speaker 2: 15% in interest to go and borrow this money. Well, hey,
• 28:31
  Speaker 2: if you really think it's going to be that profitable.
• 28:35
  Speaker 2: Borrow that money because you don't want to dilute yourself.
• 28:37
  Speaker 2: You want to keep the equity because that's where the
• 28:39
  Speaker 2: money's made on the back end. You say, fine, I'll
• 28:43
  Speaker 2: pay you 15% interest. I'll pay you an extra couple
• 28:46
  Speaker 2: billion dollars a year in interest because I'm going to
• 28:49
  Speaker 2: make $ 500 billion in profit by 2035 off of this tech.
• 28:55
  Speaker 2: I'll pay you a couple billion and I'm going to
• 28:57
  Speaker 2: laugh all the way to the bank doing it. The
• 29:00
  Speaker 2: fact that they won't is interesting to me. Because they
• 29:04
  Speaker 2: don't know what it's going to be worth. And I'm
• 29:06
  Speaker 2: trying to walk through it, right?
• 29:07
  Speaker 3: I think if they had serious doubts about the success
• 29:11
  Speaker 3: of the build-out and what it's going to be worth
• 29:14
  Speaker 3: down the road, they wouldn't issue debt, they wouldn't issue equity.
• 29:17
  Speaker 3: They would stop building it. To me, this is a
• 29:19
  Speaker 3: company like Meta hedging its bets a little bit. They're saying,
• 29:23
  Speaker 3: you know what? This is getting quite expensive to build.
• 29:27
  Speaker 3: We think that it's going to be there, but we're
• 29:29
  Speaker 3: not quite willing to put All the debt out there
• 29:33
  Speaker 3: that would make it so that our core business model
• 29:36
  Speaker 3: might be constrained in the future if it doesn't go well.
• 29:39
  Speaker 3: So we want everybody else to have some buy-in on this.
• 29:42
  Speaker 2: Because here's the thing. On both the supply and demand side,
• 29:46
  Speaker 2: we have no reliable way to predict what things are
• 29:49
  Speaker 2: going to look like. I don't know if token consumption
• 29:51
  Speaker 2: from these models is going to be 10 times this
• 29:53
  Speaker 2: year in 27, 100 times, or 1,000 times.
• 29:55
  Speaker 3: Mm-hmm.
• 29:58
  Speaker 2: I legitimately have no idea. I also have no idea
• 30:02
  Speaker 2: what token prices are going to be. They're falling dramatically,
• 30:06
  Speaker 2: but I don't know if they're going to continue to
• 30:08
  Speaker 2: fall at like 50% every three months or not. And
• 30:11
  Speaker 2: so like no one knows what any of this is worth.
• 30:14
  Speaker 2: And I just keep coming back to, we had a
• 30:15
  Speaker 2: conversation about this last week where do we really think
• 30:19
  Speaker 2: that this is going to be the first time in
• 30:21
  Speaker 2: human history that a new technology is developed and we
• 30:25
  Speaker 2: build the exact right amount of that technology? No, we're
• 30:29
  Speaker 2: either going to build... Here's the thing. It depends on
• 30:32
  Speaker 2: the timeline you look at. You always build way less
• 30:35
  Speaker 2: than you need in those first innings because you just
• 30:37
  Speaker 2: can't build it fast enough. And then you inevitably hit
• 30:40
  Speaker 2: a point where you've overbuilt, and you just don't know
• 30:43
  Speaker 2: when that point is until you cross it. We haven't
• 30:47
  Speaker 2: crossed it yet.
• 30:47
  Speaker 3: Happened with the internet, happened with railroads, happened with... Happened with.
• 30:51
  Speaker 2: Radio, happened with airplanes, happened with.
• 30:55
  Speaker 2: Probably the agricultural revolution happened with tulips. You can go
• 30:58
  Speaker 2: through everything. There's never enough until there is, and once
• 31:02
  Speaker 2: you cross that point where there is enough, the unit
• 31:05
  Speaker 2: economics are completely different. Let's take a quick break. When
• 31:08
  Speaker 2: we return, let's talk about the overall American economy, why
• 31:14
  Speaker 2: it's moving ahead at a good clip, but why so
• 31:17
  Speaker 2: many people are feeling left behind.
• 31:18
  Speaker 1: Put the Financial Exchange on your daily watch list. We're
• 31:22
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• 31:25
  Speaker 1: and the world of business. Watch the show and join
• 31:28
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• 31:31
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• 31:36
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• 31:39
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• 31:54
  Speaker 2: Mike, we've got a piece here in the Wall Street Journal.
• 31:56
  Speaker 2: It's titled, The American Economy Rockets Ahead But Doesn't Take
• 31:59
  Speaker 2: Everyone With It. Subheader, the U.S. economy is growing in
• 32:03
  Speaker 2: an enviable clip with low unemployment as well as deep
• 32:05
  Speaker 2: frustration over the cost of living. Look, we've talked about
• 32:09
  Speaker 2: this quite a bit in that GDP growth continues to
• 32:12
  Speaker 2: be north of 2%, which, given where population growth is,
• 32:15
  Speaker 2: is pretty darn good. Despite that, we get things like
• 32:19
  Speaker 2: the University of Michigan Consumer Sentiment Survey or the New
• 32:22
  Speaker 2: York Fed has one and basically all of these The
• 32:25
  Speaker 2: conference board has one. The Michigan one we kind of
• 32:28
  Speaker 2: throw out because the data has just been very extreme
• 32:31
  Speaker 2: for the last few years since they made a methodology
• 32:33
  Speaker 2: change in 2022. But by and large, every survey that's
• 32:37
  Speaker 2: out there says that people hate the economy. And the
• 32:42
  Speaker 2: three things that I posit are probably the biggest things.
• 32:45
  Speaker 2: Number one, people just hate inflation generally, and inflation has
• 32:47
  Speaker 2: been elevated for a while. Number two, Every year since 2020,
• 32:51
  Speaker 2: the last seven years now, there's just been some new
• 32:53
  Speaker 2: crisis that we've been dealing with. And I think people
• 32:55
  Speaker 2: are just exhausted by it at this point. And the
• 32:59
  Speaker 2: third piece is, yes, the economy is being powered ahead,
• 33:02
  Speaker 2: but it's a narrow subsection of the economy that's powering
• 33:05
  Speaker 2: it ahead. And so the benefits are very much not
• 33:08
  Speaker 2: evenly distributed. Yeah, we've talked about this.
• 33:11
  Speaker 3: I mean, it's less the case today than it was
• 33:13
  Speaker 3: a few weeks ago. But the high interest rates that
• 33:16
  Speaker 3: we're seeing are quite restrictive to pretty much every aspect
• 33:20
  Speaker 3: of the economy unless you are a AI company focused
• 33:23
  Speaker 3: on building data centers, in which case you are a
• 33:25
  Speaker 3: little bit less focused on those high interest rates. And
• 33:28
  Speaker 3: for everybody else, it does feel quite tight. I guess
• 33:32
  Speaker 3: the concerning part to me, I'm with you, the Michigan
• 33:35
  Speaker 3: Sentiment Survey and other sentiment surveys haven't been an indicator
• 33:38
  Speaker 3: of much of anything when it comes to economic activity
• 33:42
  Speaker 3: or when it comes to stock market performance or consumer
• 33:46
  Speaker 3: spending like that. That's been proven out pretty thoroughly. what
• 33:49
  Speaker 3: has been changing is general sentiment towards big ideas like
• 33:54
  Speaker 3: capitalism and like improving your own, uh, wellbeing in society
• 33:59
  Speaker 3: over your lifetime. Like those things have also seen a
• 34:02
  Speaker 3: noticeable dip. We, we talked about it. I think it
• 34:04
  Speaker 3: was an ABC poll, uh, with both Democrats and Republicans, uh,
• 34:09
  Speaker 3: speaking very favorably about ideas like price controls. And so
• 34:13
  Speaker 3: that to me is the real stuff that I think
• 34:15
  Speaker 3: is being impacted here is being affected. And I think, uh,
• 34:19
  Speaker 3: The one area you might see it is in voting
• 34:22
  Speaker 3: numbers where, yeah, these feelings of sentiment, these feelings of
• 34:26
  Speaker 3: being ripped off or unable to afford the American economy anymore,
• 34:30
  Speaker 3: I think are showing up somewhere, just not in consumer
• 34:33
  Speaker 3: spending and not in stock market performance.
• 34:35
  Speaker 4: Leaving your assets to your spouse may seem like the
• 34:38
  Speaker 4: simplest way to handle your estate, but without the right planning,
• 34:42
  Speaker 4: it could lead to a larger tax bill.
• 34:44
  Speaker 3: Down the road.
• 34:45
  Speaker 4: Cushing Dolan wants you to understand how a joint revocable
• 34:48
  Speaker 4: trust could help. For married couples, this trust may help
• 34:51
  Speaker 4: reduce estate taxes by taking advantage of tax breaks available
• 34:55
  Speaker 4: to each spouse. And unlike other types of trusts, you
• 34:58
  Speaker 4: can continue to manage your money, sell property, and make
• 35:02
  Speaker 4: changes while you're both alive. If you're in the process
• 35:05
  Speaker 4: of building your estate plan or need a second opinion
• 35:08
  Speaker 4: about an existing plan, get Cushing & Dolan's new free
• 35:12
  Speaker 4: guide called The Simplicity of Joint Revocable Trusts. All you
• 35:16
  Speaker 4: have to do is call Cushing and Dolan at 866-848-5699.
• 35:21
  Speaker 4: That number again is 866-848-5699. Or you can request the
• 35:26
  Speaker 4: guide from their website, LegalExchangeShow.com.
• 35:30
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• 35:32
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 35:35
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• 35:38
  Speaker 1: Cushing and Armstrong do not endorse each other and are
• 35:40
  Speaker 1: not affiliated.
• 35:41
  Speaker 2: Fun little piece here from the Wall Street Journal. It's titled,
• 35:43
  Speaker 2: Netflix Needs You to Watch, Not Just Pay. And it
• 35:46
  Speaker 2: gets to the fact that, hey, a couple years back,
• 35:49
  Speaker 2: they rolled out their ad-supported versions after not having any
• 35:54
  Speaker 2: ads on the platform for the first, I don't know,
• 35:58
  Speaker 2: like 12, 13 years that streaming existed. Remember that. Netflix
• 36:02
  Speaker 2: used to be the company that sent you those little
• 36:04
  Speaker 2: red envelopes. I can't wait to tell my kids about that.
• 36:07
  Speaker 3: Right?
• 36:07
  Speaker 2: Isn't that kind of wild? Isn't it wild that we're
• 36:09
  Speaker 2: going to go back to that once AI kills the internet?
• 36:11
  Speaker 3: Yeah, it's going to be funny.
• 36:13
  Speaker 2: You know, it's going to be kind of cool. Or something.
• 36:17
  Speaker 3: A horse delivered my DVD today.
• 36:20
  Speaker 4: It was in his mouth.
• 36:31
  Speaker 3: They can't drive the cars since the AI took them over.
• 36:36
  Speaker 2: We have to keep lots of carrots around to feed
• 36:38
  Speaker 2: the delivery animals, but everything's great.
• 36:41
  Speaker 3: Sorry.
• 36:44
  Speaker 2: Every house in America's got a carrot garden now. It's
• 36:46
  Speaker 2: just wonderful. So here's the thing. Since June of 2023,
• 36:51
  Speaker 2: the average Netflix subscriber has gone from watching 1.8 hours of.
• 36:56
  Speaker 3: Netflix a day.
• 36:59
  Speaker 2: Which is insane.
• 37:00
  Speaker 3: So many hours.
• 37:01
  Speaker 2: Which is insane.
• 37:02
  Speaker 3: How many hours a day?
• 37:03
  Speaker 2: 1.8 per day.
• 37:04
  Speaker 3: Ooh.
• 37:06
  Speaker 2: Down to 1.64. So a 10% drop in hours watched
• 37:10
  Speaker 2: per subscriber per day.
• 37:12
  Speaker 4: Okay.
• 37:13
  Speaker 2: Now, if you are selling ads, the number one thing
• 37:16
  Speaker 2: that those ads need to do is show some kind
• 37:20
  Speaker 2: of correlation, not even a causation, but some kind of
• 37:23
  Speaker 2: correlation of, hey, I spent X on ads and generated
• 37:27
  Speaker 2: Y on revenue. And so if hours watched are dropping,
• 37:32
  Speaker 2: number one, companies are going to say, okay, I'm not
• 37:35
  Speaker 2: going to pay as much because I'm not seeing as
• 37:37
  Speaker 2: many views of my ads.
• 37:39
  Speaker 4: Sure.
• 37:39
  Speaker 2: And number two, the ROI is probably going to be
• 37:41
  Speaker 2: showing that it's dropping for those companies as well. And
• 37:44
  Speaker 2: this is a problem then for Netflix's revenue, which previously
• 37:47
  Speaker 2: has been based only on how many people subscribe, but
• 37:49
  Speaker 2: now is going to be based partly on how many
• 37:52
  Speaker 2: ads do you sell and at what price?
• 37:53
  Speaker 4: Yeah.
• 37:54
  Speaker 3: We talked about this a few years ago, but Netflix
• 37:56
  Speaker 3: is not an advertising company. They need to pivot to
• 37:58
  Speaker 3: become one if they want to continue to grow their stock.
• 38:00
  Speaker 3: And yeah, they also have to produce really good content
• 38:05
  Speaker 3: that's going to draw those eyeballs there in the first place.
• 38:07
  Speaker 2: Let's take a quick break. Keep your eyeballs right here
• 38:09
  Speaker 2: and your... Earballs.
• 38:11
  Speaker 3: Earballs. Yep.
• 38:13
  Speaker 2: And we'll get to hour two in just a little bit.