Positively Sloped
Positively Sloped is where markets, culture, and momentum collide — because the most interesting things in the world are the ones trending up and to the right. Jake and Scott break down what’s moving — in the markets, in the headlines, and in your group chat — with sharp insights, real opinions, and just enough irreverence to make finance actually fun. These are the conversations we’ve been having for years — debates, hot takes, and deep dives — just now with a mic in front of us.
Positively Sloped
22. Nvidia vs Google: Who Will Come Out on Top | Sell in May and Go Away?
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Join Jake and Scott Bauer, CEO of Prosper Trading Academy, as they break down the re-escalation in the Iran conflict and why the markets are staying surprisingly resilient. We dive into the massive market cap race between Nvidia and Google, analyze why the defense sector (Lockheed, Boeing, Palantir) is lagging despite geopolitical strife, and debunk the "Sell in May and Go Away" myth. Plus, a look at $5 gas, 4.5% interest rates, and when the "numbness" to inflation might finally break the consumer.
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Kingsview Wealth Management is an investment adviser registered with the SEC. Registration does not constitute an endorsement of the firm by the SEC nor does it indicate that Kingsview has attained a particular level of skill or ability. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. All opinions expressed by the Positively Sloped participants are solely their opinions and do not reflect the opinions of Kingsview Wealth Management, its parent company or any of its affiliates. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the Positively Sloped participants deem reliable. Kingsview Wealth Management serves as portfolio manager to separately managed account strategies and investment adviser to exchange-traded funds. As of the date of this recording, those strategies and funds held positions in AMD, Amazon, Apple, Broadcom, GE, META, Microsoft, Nvidia, and Palantir, and did not hold positions in Intel, Micron, Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, Raytheon, GE Vernova, Costco or WDI.
I'm today's positively sloped CEO of Prosper T3 Scott Bauer joins me in the studio as we break down the recent update in Iran and what that's having on macro factors before we talk about NVIDIA versus Google, the battle of titans for the number one spot in the SCP-500, and get to rates. They are on the rise, approaching four and a half percent on the tenure. Okay, let's talk shop. Today is Tuesday, May 5th. Dad, welcome, welcome back to the show.
SPEAKER_01Thank you, Cinco de Mayo. Cinco de Mayo. Absolutely. Cinco de Mayo.
SPEAKER_03But there's uh nothing to taco out on, I don't think, right now, but we've got we've got an uh action-packed show to get to. Markets are rising, rates are rising, so we'll talk about that dynamic. They're going off down there. And uh it's a really interesting backdrop right now, I think. And let's let's just start with the most recent update on uh on the war in Iran, the Strait of Horror moves. Neil and I skipped out on it last week as you know, for three weeks we had really not a lot. Like we just had ongoing negotiations, whatever that meant. Uh Jared Kushner and and Vance were going to Pakistan, then they weren't going to Pakistan, then they weren't going to Pakistan again. Um, we did have a re-escalation uh now yesterday, uh or or Monday, as you're listening to this, with uh Iran hitting a couple UAE ports and breaking the ceasefire that actually lasted more, you know, for the most part, 28 or so days.
SPEAKER_02Yeah, that we know about that we know about.
SPEAKER_03Um, and and we saw yesterday's market reaction, kind of the first down day in the string of the last the last couple weeks, which have been really strong, taking the markets to fresh highs. What did you see yesterday?
SPEAKER_02So so what's really interesting is if we would have had that kind of escalation, what happened yesterday, three weeks ago, six weeks ago, the market would have been down significant. And I think what we're seeing is the this this function of maybe people getting complacent or the market getting complacent, getting numb. You know, it's like it's almost like with anything, right? First time something happens, you get freaked out. You your your nerves, you know, shoot higher. Second time, not as much, third time, and I think unfortunately, that's what the market is seeing now. And we're we're just you know, kind of one further escalation away, I believe, from the market really taking a hit. Now, what does taking a hit mean? One percent, two percent, not what happened Monday when we were just down a fraction.
SPEAKER_03We've got most of it back today. Yeah. Um, and it's a really it's an interesting backdrop, and I say that again because you know, we'll talk about catalysts and headwinds uh towards the end of the show. But for all intents and purposes, right, earnings season has been extremely strong across the board. Um, the economy looks pretty in pretty good shape right now. We'll get to the expectation for Friday's uh non-farm payroll report and next week's inflationary report. Um, but the backdrop across the board, besides the geopolitical aspect, seems pretty strong right now and pretty solid. So I it makes me wonder if the market has uh a short conflict and and short keeps on elongating as we're now on month uh the third calendar month of this. Um but if this is not a forever war and the market is pricing in some sort of resolution, again, this is what I talked about with Neil last week was resolution is gonna mean one of two things. Either the US is gonna be paying ginormous reparations to Iran, or you know, as Trump says, they want to make a deal, he's not ready to make a deal because they don't want to make the deal he wants to make. Um, it's gonna be an actual, you know, a deal that for whatever it means takes Iran out of any nuclear capacity or or they give up their uranium and it also does not allow them to capitalize on the straight ahoor moves going forward. So we'll see what a deal means. But do you think the market is pricing in prolonged instability, or are we still saying a couple months?
SPEAKER_02Interesting because the the market is typically forward looking, right? The market is typically six months looking out into the future, which would be a pretty positive thing right now. So the market is still pricing in a a nearer term resolution, probably the right way again. What is nearer term? You know, weeks, months, who knows at this point. But when we get to that point, and hopefully we get to that point where there is a you know an acceptable resolution, is it going to wind up being a buy the rumor, sell the news, or is the market going to take off from there? I think we have to be set up for both scenarios. So, what does that mean as a trader? That means I just want to be long some protection going out, going out to midsummer, maybe even into the fall. What does that mean? Well, when the VIX dip down into the 16 handle at the end of last week, that's a buy opportunity to buy some protection in the marketplace, whether it's upside VIX calls, SP puts, Q puts, whatever it is. So I think you need to be prepared for this. And and I don't think anybody really understands what the market is going to do once there is a resolution.
SPEAKER_03Sure. And I don't want to uh blow out this topic because we uh Neil and I talked about it last week, but you had some thoughts on the sell in May and go away theory. I think in regards to this year, especially. I April was just to recap it real quick. I mean, uh SP was up 10%, NASDAQ is up 15%. Um, a lot of that coming after the April 8th ceasefire, but also in tandem with a good start to the earnings season, um, another good jobs report or a good jobs report in March coming off of February's um, you know, off off number there. But again, just building and building on this positive market momentum that we got back after that that correction in February and March. Um, thoughts on selling may and go away as a trader?
SPEAKER_02As a trader, it's nonsense. Okay. Uh in in trading on the floor for you know 30 plus years, you didn't think about that at all. Not at all. I mean, trading is a little bit different, it's a lot different than investing, right? But even as an investor, you talk to your people like you, yeah, right? I think if you look historically at the trends, a long time ago, sell and may go away worked for the last 33 years, I believe it is 25 of those years, the period from May to whatever it was supposed to be October, October was actually up. Yeah, so I think it's more of an age-old adage. Um, and it doesn't really hold any longer. In fact, if you go back and look at the history of why this was, you know, came about, it's actually a 19th century thing, and it had uh it was a prelude to a horse race and people taking the summers off, and then it came to okay, traders are taking the summers off. Well, 90% of the trade or more is electronic trade. Fortunately, not here at SIBO. Here it's it's live, but 90% or more is electronic trade. Electronic trade doesn't take time off.
SPEAKER_03Interesting. So they basically went from the Kentucky Derby to an October race, and that's when nobody worked. That's right. We just we just went to the track. That's right. Interesting. So I'm um speaking of interesting, the uh, you know, when we were on last, we talked about oil uh and the the WTI and Brent inversion of price. We've corrected that, like you said, that that's usually pretty short-lived um and and easily corrected. Uh we're we're back above a hundred dollars a barrel for both WTI and Brent. Uh Brent was up to 111 last time I checked this morning. WTI just over 100 at like uh$101 a barrel, I believe. I paid five dollars a gallon in Spring Grove, Illinois this weekend.
SPEAKER_02Well, I didn't even know where Spring Grove was. I was gonna say my first question is what the heck were you doing in Spring Grove, Illinois?
SPEAKER_03We were going we were going to a tulip farm. I picked a beautiful bouquet. Yes, you did me and for Maya for Mother's Day and not Mother's Day, but just because. Um, but that I mean outrageous.
SPEAKER_02Yeah, outrageous. And and here's part of the that conundrum of people getting a little numb. We see these prices going up, we see people complaining about it. Yes, it's hurting everyday people, it's hurting our pocketbooks, but the market is numb to it. It's almost like the market has accepted the average price of a gallon of gas over four dollars now, where a month ago, two months ago, that would have been preposterous. That would have been, you know, absolutely a meltdown for the market. And and this is what I'm saying is we we can't allow ourselves to get numb to these things because at some point it's gonna come home to roost.
SPEAKER_03It will and I I you you know I'm not a big uh societal discussion guy, but we do desensitize to things very quickly and with social media and um just with the speed of information and videos, and that is totally applicable to the market today. And you and I talk about that all the time on the show and off the show. Just when we can get a true social post, and that's what the market's been rallying and pulling back on for the most part. Now, the last three weeks or since the last four weeks or so, since we had that ceasefire, there was no news to be to be leaked, and so the market just rebounded hard because, like I said, the the war is kind of what's keeping us down right now, and and and when you get a period like that, so for the last three weeks, when there wasn't that external news, the market did what the market should do.
SPEAKER_02It traded on fundamentals, it traded on earnings, right? And and what did we see? We saw a grind higher. Yep, we saw that VIX come down from a 20 handle down to 16. So things traded more normally. That's the desensitizing effect, I guess, that that it has. Now, I think things are going to ratchet up again, not ratchet up because there's going to be escalation geopolitically or anything. But the market is not going to stay this complacent going forward. Yes, earnings have been great. We still have a lot of earnings ahead of us, but the big guys, you know, for the most part, have been out. But there's only so long, there's only so long that we can stay with crude oil above 100. A lot of people are expecting it maybe even go to 150. More importantly for me, though, is where interest rates are. Yeah, that to me is the bogey.
SPEAKER_03Yeah. And we'll we'll get I want to talk about that in in great depth. Um, one segment of the market that I'm a little surprised about this year, and I don't I'm interested to get your take, would be the defense sector. You know, obviously, um, you would expect that not like a war that happens today, and all of a sudden they start producing inventory and and military spending ratchets up uh, you know, the next day because of Iran, but you'd expect that some of these defense contractors and defense stocks would have done well this year at least, like in the two months leading up to the February escalation. We've got you know the biggest names in the defense market, and this is this is a hundred percent of these names I'm about to read. Lockheed Martin, Boeing, uh Northrop, General Dynamics, Raytheon, GE, Palantir are all either lagging the SP or outright down this year. I and what like as a as a let's say a retail investor, I would have expected the opposite. Me too. And again, I wouldn't say, oh, we there was a bombing in Iran today, so tomorrow the stocks are going up, but I would say there's got to be some sort of correlation.
SPEAKER_02Um yeah, I and I and I will tell you, I was long and wrong in GE for sure. Long and lot long and wrong in GE. And and I agree, I think a lot of these stocks are getting to really, really cheap points where again, you can't expect them, you can you can't buy these stocks in the hopes, in the hopes that there's some sort of escalation, and then all of a sudden these stocks are gonna pop. You buy these stocks based on fundamentals, based on technicals, and in the longer run, they should pay off. But I agree with you, you know, the mindset is boy, we're in this period of of geopolitical strife, these stocks should do well, and they haven't.
SPEAKER_03It's interesting. We're we're a longtime owner uh in one of our portfolios of GE, and it's done very well for us. You know, if you had GEV this year, you'd be doing really well. GE Vernova's done incredibly, but uh yeah, it's it's very interesting, especially as the rest of the market grinds up. You know, we talked about the S P in April, but the SP year to date is up almost six percent. Um, that is in large part to the big players, and that's another thing we're gonna get to. I don't mean to keep teasing things. I want I want to read off uh some indicators. So I so I've got um this indicator update since April 20th. Okay, I'm choosing April 20th because it's about two weeks ago. It's when rates started ticking up. 420. 420, yeah, exactly. Uh if Brett was hosting the show. Oh gosh. Um, so for on April 20th is when rates started ticking up. So that's when the bond market clearly started to pay attention to something. So in the last two weeks, the market's up, rates are up, copper's up, gold is down, Bitcoin is up. What do you make of you could pick any of those or all of them? What do you make of any of those relationships?
SPEAKER_02Well, I I what I think is there's a massive disconnect from historically what we have seen happen, right? Yes, gold and silver, you know, to to some extent, sure, they're still near all-time highs, right? They're they're they're still near all-time highs. However, in the middle of this massive, massive geopolitical event that we're in the middle of, it's not really shining or standing out as the go-to risk-off asset anymore. So we see that now rates are up, in my opinion, because the world has soured on the US and and and the sovereignty, if that's a word, yeah, of the US. So we are, you know, we've seen massive, massive selling of US treasuries from around the world. So that is ticking rates up, in addition to obviously the massive inflation concerns surrounding oil. It's it's hard in this environment not to bring everything to the geopolitical conflict that we're having, but you know, that kind of all says what it is. Um, with Bitcoin, I I don't know that anybody still understands if Bitcoin is a risk on, if it's a risk-off. Anybody can prove, I think, the thesis to whatever fits their narrative with with Bitcoin right now. So I'm not even gonna comment on that. I'll I'll leave Howard Greenberg to to comment on that. But you know what? The the market is it's not sustainable at these all-time high levels with rates on the rate on the way up still.
SPEAKER_03Can I so I agree on the Bitcoin? And this is something that I've I we've been looking at this, this trying to find a correlation for years now. Like you said, you could find whatever you want to find.
SPEAKER_02Uh a square peg and a round wall.
SPEAKER_03Yeah, there's periods where it acts like large growth, there's periods where it acts like small growth, there's periods where it acts like gold. Yeah, um, and so I don't think I agree with you, we fully understand that. Copper's a little surprising, and that's typically a risk on signal. Um, it's pretty flat this year, which I guess is not too terribly surprising. It's rallied the the last couple weeks, as I mentioned. I'm gonna push back on you a little bit because the the market going up while rates are, let's say, slightly elevated. Hasn't that been the environment we've been in for the past five years since we started raising rates? Obviously, we were raising from near zero. So rates were historically low. Yep. Rates at four and a half percent on the 10 year is still basically historic average over 35, 40 years. So are we at the point of we're too high for that the market cannot go up with rates that high? Are we not there yet?
SPEAKER_02I don't think we're there yet. When I say that it's not the market's not sustainable, in my opinion, with rates up here, and that's all because of the consumer, right? It leads into the housing market, as we know firsthand, there is a massive, massive shortage of houses out there. People still who have refinanced or got mortgages back from 2019, 2020, they're not moving, they can't afford to move. The price of rentals is is astronomical. So, with rates here and in a 30-year fix now being as high as it's been in the last six months or or or nine months or so, uh, in addition to all these other prices going up, not just oil, not just gasoline, food hasn't come down. Everything is more expensive, including healthcare, you name it. So at some point to me, and the consumer's been incredibly, incredibly resilient. At some point, that is going to start fading away. And when that starts fading away, what's gonna happen? Well, to me, the market is not going to grind its way higher. Now, what can be said is the K economy, right? The market is really the one percenters, the five percenters who probably are not going to get affected necessarily from these escalating prices here. However, when that data starts coming out of massive, massive amounts of people not being able to pay their car loans or their mortgages and and you know, all of that. And we're all we're already seeing a lot of that at record levels here. I think it's going to hit the market again. Do I expect the market to sell off 10, 15, 20? No. Would a five to 10 pullback be healthy and ordinary? Yes. I mean, that's that's typical. I think that that can happen if rates stay here.
SPEAKER_03Yeah, and we got that in February and March. I mean, and it's not atypical to have multiple in a year. Nope. Um, the the part about the K economy I was gonna say is is you know, at Kingsview, we work with the mass affluent. And and um, you know, the interesting dynamic I see when I talk to our financial advisors about their clients is more people are interested in their investment accounts than they are what gas prices are or what you know inflation is doing, what the what the price they pay for eggs are at the grocery store. And that is the segment of the market we work with. Um, it's also interesting because you talked about disconnect with you know Michigan uh consumer worst ever, right? Worst ever. Worst ever. And and the consumer confidence report we got last week is is near all-time lows. And so it just depends what segment of the market you look at. But when I agree with you, the market is is run by institutional money and the 1% and the 5%, those people probably are not capitulating on five dollar gallons of gas or 580 if they run on diesel. But eventually, I will agree with you that if if you have the large majority of the lower end of middle consumers struggling, that eventually is going to permeate through.
SPEAKER_02There, there's no question. It has to, it it just has to. I mean, that's still what the economy runs on, right? The economy doesn't run on the one percenters, the two percenters, the economy runs on on everyday people. I mean, I I have to be honest with you, and I'm somewhere in the middle of all of that. But even when I go to Costco for my gas, I'm I'm cringing a little bit right now.
SPEAKER_03Yeah, I mean, I mean, it's it's no fun. Yeah, it's no fun. It's definitely not fun. It's definitely not fun. I think you do a better job than most of remembering the 1978 Morton Grove price that your dad paid when he was filling up the truck, probably.
SPEAKER_0299 cents.
SPEAKER_0399 cents. There you go. I mean, you're you're anchoring to that price.
SPEAKER_02He also paid for my gas when I filled up.
SPEAKER_03So there we go. Um, let's let's move on to to a a kind of a giant matchup in the market right now. Um, this has been a little out of nowhere, I think. But so Google and NVIDIA, NVIDIA has obviously been uh the number one stock in the market for a few years now. Um$4.8 trillion market cap just based off of basically 21, 22, 23, uh near 50 to 100% returns year over year over year off of the incredible earnings growth, the demand for their microchips. Google, I feel like, and you can tell me if it's different from a trading perspective, out of nowhere has come up as we are, I think 50 bucks away, 40 bucks away on Google's price from over. Eclipsing NVIDIA and so NVIDIA right now, market cap 4.8 trillion. Um, it was the first to most of those hurdles uh in terms of market cap size. Google right now is 4.7 trillion. Incredible earnings report last week. Um, has has you know, the Mag 7 has led earnings this season, even though it's been robust across the board. But Google uh almost double expect uh double EPS um from expectations. The cloud revenue was was unbelievable. The the performance obligations they have over the next two years doubled quarter over. I mean, just incredible numbers across the board for them in terms of demand. Um, what does that matter to the market, or does it? Who's at the lead, who's at the top, who's you know, lagging?
SPEAKER_02Yeah, it doesn't matter. It really doesn't matter. Um, on a on a side note here with the Google report, the alphabet report, capex numbers off the charts, right? Off the charts. But you have some of the other big guys, meta, yep, right, who capex numbers are off the charts. The market didn't like it. No, down the market the next day, the market and and still down and still fighting at 600, which is um really an area that is kind of make or break for for meta support. Yeah, it's it's really make or break there. Um, but what I'm saying is there there's so much perception, you know, is Google gonna monetize that massive amount of capex better than Meta is? I don't know. We get Nvidia comes out is it next week, two weeks, a couple weeks, right? So shortly here. Uh, I would expect them to have CapEx numbers that eclipse alphabet. So it'll be interesting to see what happens there. If the market likes it, Google probably expands. I'm sorry, Nvidia probably expands that lead on alphabet. If the market doesn't like it, you may see a new Leader when those earnings come out.
SPEAKER_03And the trouble with NVIDIA, and Google's not at this point yet, but the trouble with NVIDIA is quarter over quarter, they have beat expectations for the better part of every quarter of the last four years. It is about the margin of beat. It is about the expansion of their earnings per share, the expansion of what they're doing from a marginal perspective and efficiency. And so you could have a blowout beat like Meta did, and NVIDIA could still be flat. And I think we've talked about that in the past around NVIDIA earnings reports is that they are, you know, we typically end the earnings season with NVIDIA. It's the last giant to go for sure. But you know, we're through 63% of the SP 500 as of now. We've got another 25% or so to go this week. So by the time NVIDIA is around, we'll have less than 10%. And so it kind of ends uh the season, and there's always a huge projected move in the stock. And not to say it does or doesn't do that, but a lot of times it's somewhere in the middle of a letdown and a and a blowout.
SPEAKER_02Yeah, I I agree with that. I mean, the the numbers have gotten so enormous and the growth has gotten so enormous that you know the the market is a little bit complacent or or um just just reticent to say there's going to be blowout numbers. And again, those blowout numbers doesn't mean what the bottom line is, what revenue, what growth, what what um you know profit margin is. It's what is the growth. And can they, and so far for the last four years, they have beaten those expectations on growth at some point. At some point, it's going to moderate and it should moderate. Market probably won't like when that happens.
SPEAKER_03Yeah, yeah, no doubt. And it's it's very hard to stay in hypergrowth mode for an elongated period of time, whether that's a year, five years, ten years.
SPEAKER_02Hard to count out Jensen, though.
SPEAKER_03Yeah, for sure. I mean, they've been nothing but uh a juggernaut. And what what I what I've looked at most from the Google report, and I always, you know, guidance is more important than the numbers, but um, you know, they are providing that they're gonna sell their chips uh to their enterprise partners. I mean, they are starting to create what can be a vertically integrated monster if they if they get their chips in there, 100%.
SPEAKER_02All you know, you you kind of equate it to the Apple ecosystem, that's what they're building. And I and I think they are just at the forefront of that. And like you just said, if they can actually pull this off, they're they'll they'll be number one in no time.
SPEAKER_03Yeah, and and so for for the better part of this. So we're up, you know, like I said, SP's up six percent or so. Every year we see some sort of concentration of performance, and there's seven to ten names, and usually it's the mag seven, and it's over 50% of performance attribution. So far this year, Google, Broadcom, Amazon, NVIDIA Intel, Micron, 76% of the SP return. And again, it's not it's not unusual to say that there's a group of names running the show, but these are all the AI names, these are all chipmaker names, and they're all cloud.
SPEAKER_00Yep.
SPEAKER_03And so we're back to we had that brief rotation at the end of last year, start of this year. That seems like it's gone with the wind in a in a snap, and we're back to the AI story. It's almost like it's a little bit of like a uh fallback safety net is to work in the AI trade.
SPEAKER_02Where did that AI bubble go? Yeah, everybody was talking about and concerned about. Now, I still think moving forward that there's going to be some consolidation in the space, and you're not gonna see this broad amount of gains amongst these names. But if you dig down even a little bit deeper than just those names and look at the chips and semi-names like a sand disk and a western digital, you know, you you've got some of these stocks that are literally up 500% year to date already. I mean, it's it at some point, at some point that's gotta moderate. And you maybe that's the the trader side of me here.
SPEAKER_03I'd say that's like 40 years of experience.
SPEAKER_02At some point that's gonna moderate, but you know, you're right. We we had this broadening out, and now we're kind of concentrated again, but it's not as bad as it was a year or two ago, which I think is a good thing for the market, yeah.
SPEAKER_03And and broadening and and narrowing is relative. Yeah, it doesn't mean that there has to be 400 stocks in the SP 500 advancing, it doesn't mean there has to be correct 300. It means that you know you don't have the same five names running the performance for year over year over year. Correct. So if I had to ask you right now, would you rather own Google or NVIDIA for let's say the next five years? I'd say Google. Okay.
SPEAKER_02I'd actually say Google.
SPEAKER_03I I I agree based on the idea that they are going to vertically integrate and own all of the process.
SPEAKER_02Exactly. I think my my reward to risk on that trade is better owning Google. NVIDIA might be the safer play, a little bit safer play, but I think the upside because of what you're saying there with the ecosystem for Google, that's that's the upside, Benny.
SPEAKER_03I'd want to have and it's we'll see how this plays out, but everybody in the tech space is now focused on running their own chips. Yeah. So everybody's kind of coming into this NVIDIA space. We'll see if they can hold everybody off. They've done a great job with AMD, ADI, Intel so far, but you're starting to see those secondary chipmakers rise up a little bit. And Apple wants to make their own, meta wants to make their own, you know, and we need so much power, we need so much, so much data uh to run the world as as we do now that we're just in the infancy of that.
SPEAKER_02For sure.
SPEAKER_03I mean, we might be in the you know top of the first inning.
SPEAKER_02I mean, the building across the street where SIBO used to be, that's now going to be a data center. The entire building. I mean, you're seeing that everywhere.
SPEAKER_03You're seeing that absolutely everywhere. Unreal. Um, so let's get to the the headline topic of this week, in my opinion, is is like I said, poorly I did with my master's pick. Uh no, you had ROM, right? I did. Yeah, Rombo. I did. Yeah, he imploded. Live blow live imploding is is awesome. I'm a huge fan of what's going on there. And I hope all these guys have to grind to get their tour cards back. Would also be good for the PGA tour to make the lower tournaments better if you've got like Tyrell Hattons and Joaquin Neiman's competing in the in, I don't even know what tournament to name there, the John Deere Classic. Um, but for this week, rates on the rise.
SPEAKER_02Yeah.
SPEAKER_03Um, like like we said at the top, the the two-year approaching four percent again, the 10-year approaching four and a half, maybe not quite at the inflection point of disaster, but is there a handle that you can point to that psychologically or uh or technically is a really bad spot for treasuries to be?
SPEAKER_02Four and a half on the 10-year six months ago, a year ago, that was that was the spot. Now, I think with what the market's been doing, if we see a four and a half print, may maybe there's some concern, but the market shrugs it off. If there's a five print, and that's a massive move, and yes, it's a big round number. If there's a five print, um you would see a really, really big pullback in this market.
SPEAKER_03Yeah, and that that's another 10% on on the 10-year if that happens. I mean, that would be a like you said, a massive, massive move for a couple of reasons.
SPEAKER_02A, it would mean inflation is off the charts, and B, maybe the the worst thing about it, it would mean that the entire world really has just dumped US treasuries, and and there is then a concern about the dollar, about the sovereignty uh of the US. So that would be a number that I think would really spook the market.
SPEAKER_03And let's let's talk about the demand for US debt because China and Japan have taken a little bit of a backseat. Yep. Um, you know, the US government is not reinvesting these dollars, like the the open auction is is what it is, and um the dollar has so far done okay. I think it's pretty flat this year. It's rebounded the last several years. So who is in demand for US debt right now?
SPEAKER_02It's a great question. That is a that is a great question because all all you hear is you know from these auctions, um they get a grade of C, C minus, D minus. What does that mean? That means the demand for what the treasury is selling is is not high. And so when you talk about the these treasury auctions in supply and demand, if you think about it, well, if there's no demand for what the US is selling, they've got to do one of two things. They they and and they both work together. They have to lower the price or raise or raise the or raise the rate. I mean, that's why you see that inverse relationship, and uh it's tough. I I don't know, I don't know where that demand is going to come from in the current, how do I say this, um political environment that we're in.
SPEAKER_03Yeah, I mean, there's there's obviously being we can we can stay apolitical and say there's a certain sentiment that uh international people leadership feels about our current political environment and about President Trump. Um, you know, what would be interesting to me is that we had we had this is without rates being raised, and we had a uh rate hiking cycle in 23 and 24, uh coming off of the 22 inflation prints from the Fed. And so we got up to four and a half percent. Um, and we saw you saw money markets near four and a half, five percent. Um, and I can tell you from a a wealth management perspective, CDs were going off the shelf like nothing. Because why would you not take four and a half percent if you can if you could be safe in that? So, you know, that tends, I mean, it is it is literally a supply and demand economy where if we get to four and a half percent, there's gonna be buyers again. We saw record money market uh flows being held, eight trillion dollars in money markets, because you can sit on the sidelines and earn on it. So would that help? Or you you don't see that being uh uh buoy for the for the market.
SPEAKER_02No, I don't, I really don't, because I think that the overriding fear or the overriding premise of of US uh leadership being questioned is the consideration. That's the concern going forward.
SPEAKER_03Okay, so you I mean US excellence, you you think less excellent a little bit. Less excellent, yeah. So we've got we've got to to you know, we've got an interesting now two-month pause or month and a half pause from the Fed, um, which is good because Paul will know what's going to transition out in in uh 10 days or so. We don't have another meeting until June 17th. Hopefully we have clear leadership from Warsh at that point, just for the sake of continuity. Um, what do you expect from the month and a half of data that we're gonna get and take out the geopolitical aspect of it in terms of what's gonna happen or not happen? We can't predict it. What do you expect from non-farm payrolls and inflation?
SPEAKER_02I I can't imagine seeing a scenario that would lend the market, the treasury market, to rates going lower in the near term here. In fact, as of yesterday for March of 27, there's now better than a 50% chance of a rate hike. Yeah. So I think the data is going to be really, really tough to parse through. We are going to see increased inflation. I'm not so sure that the jobs number, even if we get a really weak number, which would be good for the camp of lowering rates, I almost think that's irrelevant at this point. And in the non-farm payrolls are typically, you know, one of, if not the biggest data point of every month. Yeah. I'm not so sure that this number coming out Friday is going to affect the market. I think what people have to understand is that whether it's Powell, Walsh, whoever, Bernanke, Greenspan, whoever it was, right, they don't set policy. Right. Right. The the Fed chair does not set policy. It is a committee. It is a committee. And with the dissents that we saw, you know, in in the last meeting here, there is certainly question. There is certainly question as to where rates are going to go. And if anything, that bias is is probably nudging towards going higher.
SPEAKER_03Yeah, for sure. And so for on Friday with the NFP report, we've got um an expectation of 64,000 jobs growth, which will be modest. Uh it's coming off of a good January, a bad February, a great March. Uh, so you know, trending upward, which is a good thing. But if we do get another hot inflation print, which by all accounts we should, uh, that would definitely be interesting. I mean, literally last week when when Neil and I talked about the last Fed meeting, said there's a 99, we talked today before, there's a 99.9% chance enough.
SPEAKER_02Not doing anything, right?
SPEAKER_03There was a 0.2% chance of a hike. And then even looking out to June and and the rest of the year, it was still not very um, there was not a good chance of of any movement for the next couple meetings. That's now up to 50%.
SPEAKER_02It it is, and I think what is happening again, we're gonna bring this back to what's happening in Iran, but that is now starting to feed into the economy, right? The the numbers are starting to feed in the economy. So you can say when when the next inflation report comes out, and if it's you know super hot, yes, you can say, oh, but if it weren't for but the reality of it is it's here. So that bias is towards raising, there's no question. And I actually think with NFPs on Friday, the the worrisome part for the market is that we get a big beat, which which is probably very possible with with the expectation only being 60 or 64,000. If we get a big beat, which that's a great thing, right? We want job growth, right? We want job growth. That certainly doesn't play into the hands of lowering rates.
SPEAKER_03Yeah, and I I think for for the theater and the drama, which uh we should want the Fed not to be, but it would set up quite uh the interesting response from from Trump if Walsh comes in and he is forced to raise rates in the first meeting. And of course, like you just said, he's not setting policy, but you do have a few Trump appointees from this term that are that'll be on the Fed at that point. And and that would be very interesting to see how quickly Trump flips the switch on Walsh. Um, let's get back to bring it back to the market, though. Okay. What do you think is is the key driver of the market right now? Rates.
SPEAKER_02Okay. Rates. I I you know again, we have to remember the the fixed in fixed income, the debt market is bigger than the equity market. And so that to me can be the decider of whether we continue to break out or not. If if rates stay right here, you know, the market has accepted 445 on the 10 year, four and a half, whatever it is. If that stays right here, the market can probably grind along. I'm not saying we're gonna see the growth that we saw over the last six weeks, five weeks, whatever it is. If rates start ticking up, and I know I said five percent is that magic number on the 10 year, if we start to see 4.6, 4.7, there's gonna be a lot of concern out there.
SPEAKER_03Yeah, I I I think for for I kind of I should have phrased it differently. I meant for the last month or so. What what was driving the market? Earnings that's what I think.
SPEAKER_02Oh, for sure. Earnings and guidance, earnings and guidance, you know, and in with the exception of really meta and maybe a couple others, the massive amount of capex that's out there, market has pretty much said, okay, great. Couple instances they didn't like it. So, yes, it has definitely been earnings, massive, massive earnings rebound. Um, and it wasn't because expectations were set low, they really weren't, and growth and guidance has been pretty darn good.
SPEAKER_03Yeah, I I mean I would agree with that. We had uh you know, we covered it a couple times, but the ear the earnings growth year over year expectation for the SP as a whole was 13, 13.5%. Right now we're at 27. And again, it's 60 of that, there's 60 growth coming from the Mag 7 names that have reported so far, but the rest of the market's still 14. The rest of the market is above what expectations were supposed to be, cap weighted with mag 7.
SPEAKER_02What's beneath the surface? For sure.
SPEAKER_03And that shows you that that American companies are still fundamentally strong. And and right now, if we if we had this, uh if earnings ended today, this would be the largest year-over-year growth since Q2 of 21, which is kind of a fuzzy number because it was coming off Q2 of 2020. We really had uh you know the the shutdown. So you think rates on the downside are are the biggest headwind for the market going forward? What do you think is the biggest catalyst? Rates, rates, rates, lower rates, yeah.
SPEAKER_02Absolutely. Um, we get lower rates. Some of the tech stocks that that have been lagging behind, that's better for them. All of a sudden you're gonna see the these companies really come into play. And then lower rates for the consumer, you know, as much as we we say that the higher rates maybe aren't affecting the market yet. I think lower rates can accelerate things big time. So I think that that could be a really, really big push, and especially for the housing market, which I think we need it. Yeah, yeah.
SPEAKER_03I I mean, I I think one of the other headwinds is is you said rates for both. I'm gonna say earnings for both. Okay. Uh, where you know, guidance actually has been okay. I mean, guidance from the big names has been great, obviously. Um, but of of the companies that have reported so far, we're about 50-50 for positive negative guidance. So when you look past the mag 7, which this is a theme of this of this uh discussion today, is like the 1%. Does the 1% drive the economy? Does the mag seven drive the market? Yes and no to both of those questions. But um guidance has been sort of mixed, and so I do think if we get um any sort of weakness from names and from the market in in Q2 or with Q2 earnings in conjunction with the Iran war still going on and us still having inflationary issues, that I think could be cause to drag the market down and get another correction five, 10%, 15%, like you said at the top.
SPEAKER_02Well, we'll get a uh we'll get a look on that probably in about six weeks or so. Yeah, right. I think the banks will start in about six weeks. I think what what to me the market underneath looks pretty decent. Okay, is it stretched? Probably. Um, can we absorb higher rates? To me, no. Are we going to get one of those big pullbacks? Probably at some point, but I think the underpinnings of the market actually look pretty decent. So for me, from a trading standpoint, doesn't matter. From an investing standpoint, I want to stay invested in the market, but I also want to have some of that downside protection.
SPEAKER_03I want to have some insurance. Yeah. I want to I want to talk about that topic uh on our next episode of how you know the market continuously hits all-time highs. And and PE is is obviously a relative metric. So it's not like PE is always going to all-time highs, but we always have markets stretching to all-time highs. How as a trader, how as an investor, do you digest that and say, okay, I can see the next leg up, or I could see the next two legs up, or another 100%, whatever the mindset is. So I want to talk about that and just the psychological aspect of it, but we have run way over time. It was a great discussion today.
SPEAKER_02Um you're gonna have to cut me off.
SPEAKER_03We have to have to edit no, we won't have to edit any out, but thank goodness. Uh appreciate you joining next week. We'll be off next week. We'll be in uh Scottsdale for the Kingsview Elevate conference. So get to see um, you know, hundreds did I get the invite? I don't know. The invite might it's at the old address. Got it. Let me go pick that up. But I get to see, you know, a hundred of our financial advisors around the country that I often reference on this show and talk about working with them and their clients. So it's always a great week. It'll be in Scottsdale. Can't wait to uh finally break out of some cold rain that we've had for the last seemingly months.
SPEAKER_02Uh plane of golf.
SPEAKER_03Uh 72 holes. That's how much one round is, right? That's how many one round is exactly. Well, thank you, everyone. That's the show for today, and we'll see you in a couple weeks.
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