Yep. Here we are. You asked for the best. I brought you the very best.
Ladies and gentlemen, I got Chart Kid Matt here today. Matt, I feel like everybody left me this week except for you.
I'm never leaving you. That's it. We're here. I got Doc. Let's do it.
I got Michael Batnik on a flight to Austin right now. Shout out to Michael. Nicole is in Paris living out her shopping fantasies.
Ladies and gentlemen, we got John Grayson in the background controlling the show tonight. John's going to crush it for us because we have charts on charts on charts. For those of you listening on Spotify, two things. Number one, just click the video button and you can watch, or don't worry about it because whatever is on the screen that you can't see, we're going to make sure you understand the points that we're making. And tonight, we are going to bury you guys in insights. It's going to be unbelievable.
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All right, I do want to say a couple of quick hellos in the chat. I got Benjamin Lupoo back. Chapons is here. He gave me the strongarm emoji. Feeling that. Luis JB, bro, where's Michael? I just told you. Pay attention. He'll be back soon. What is this? Josh, when are the braids coming out? No, dude. It's not a transplant. This is my literal hair. Thanks to Dr. Keith Shine Bloom of Shine Bloom Medical. I'm actually growing this. Biff Grebles is here. KPS Fred says, "Can't wait till Josh has a man bun. It's coming, my friend. Any day now."
All right. So, chart, let's start here. Nvidia looks like it wants to... let me phrase this correctly. Nvidia looks like it wants to break out. A couple of things struck me about the recent trading and activity in Nvidia. Let's just do the technical chart. Let's jump right to that.
So, I'm just going to narrate what I see here. This is a stock that had a massive run-up in May when all of its customers, the hyperscalers, were reporting not only earnings but forward guidance and their capex plans. And basically they ratified what we all already know, which is that not only are they spending this coming quarter and for the rest of the year, but as far as the eye can see because the investments they've already made demand that they continue to spend. And we've talked at length about replacement cycles and, you know, you build the data center, 50% of the expense is the chips. Nvidia, although there are other chips available for data centers, there are other components, there are ASICs, there are CPUs, the GPU clusters are still going to be the workhorses for the data centers for as far as the eye can see.
And back to the chart. So basically, it ran up in May as those reports were coming out and then we sort of had, I think, a pretty orderly pullback to the 200-day moving average, which at that time was 199, 200. Bounced off of that level twice. Came right back into the 200s and then has been biding its time pretty much consolidating below that 235 breakout level. Today the stock closed around 228 and the longer it knocks on that 230, 235 breakout level, the longer that testing process takes place, the more powerful I think the eventual breakout would be. Just at a glance, what are your thoughts on the technicals for Nvidia?
So when I look at the chart, I see an ascending 50-day moving average, ascending 200-day moving average. We dipped right below the 50-day and surged right back up after Musk came out and, you know, shocked the... Yeah. Immediately. And I think it's a great price reaction to that news and obviously we'll talk about the buyback and we'll get into that and what that means for the stock. I have thoughts there, but just purely on the chart, if you hid the name, this is a buy to me.
Yeah. Last thing on the chart, that bottom pane is relative strength, RSI, and we're not going to get into like the calculation that goes into it, but effectively what we're looking at is momentum for the stock relative. And, you know, people, it's not science, like people have this shorthand where they're like, okay, 60s is perfect. When you have a stock making a new high, you want relative strength to be at least in the 60s, which tells you like momentum is confirming the move. And then people think about 70 plus as sort of overbought, like it's a technical term. It's not overbought like, oh, I feel like it went up too much. They will look at a momentum reading at 72, 74, 76 and say, okay, not a great entry point. This thing has to cool off. We're at 58. Like, I can't think of a better... if in fact this stock is going to make a new high, I can't think of a better momentum reading to go along with that than an RSI moving from the high 50s into the 60s. It just gives you so much space for that eventual breakout to take place. Are you following me on that?
Yeah, I'm following you. And I'm looking at the volume, too. It's not like it's a super low volume move. I'm always looking at RSI divergence. So when the stock is making a high and the RSI is not making a high, that is always something that I'm looking to see. Oh, hold on a second. Why isn't momentum confirming the move? But here, you know, you see a lot of relative strength in the name. Again, purely based just on the chart, it looks like it's ready.
Yeah. And we don't have that divergence. We have confirmation. And at a new high, if we can get RSI coming along for the ride, which obviously would probably happen if it really breaks out with conviction. Like that's what technicians are waiting for. They're looking for those moments. I also want to show a 10-year chart, Matt.
So, like this is just price and I pulled out, there's no volume, there's no moving averages, there's no [__]. This is like, so people are like, "Oh, Nvidia's boring or, you know, the stock doesn't..." like poking the meme, where you're poking it with a stick, do something. Guys, this, like split-adjusted, this was a $10 stock at the beginning of 2023. It's 228. Like, relax. Give it a minute.
Right. Right. And the insane thing is that if I charted the P/E ratio on top of this, it would literally be making 2016 lows. And I know we could talk about forward earnings and the estimates being wrong and we can speculate on that, but I went back and looked, the actual forward earnings tend to be very close to the actuals.
And it's not my opinion. You know, it just is what it is. This is a company that this fiscal year is going to do something like 96 or 98 billion in free cash flow. Next year it could be $360 billion in free cash flow on $680 billion in revenue. Again, not just based on the company's own guidance, but like based on the capex plans and Nvidia's share of that capex spend that we're getting from 50 other sources. And you think about a company that is growing earnings at this rate, it would be shocking if the earnings multiple were going up. If it were flat, it would be understandable. It's actually plunging, the multiple on the earnings.
And let's go back to the buyback thing. So, Matt, you have a chart here. Tell us what's going on.
Yeah. All right, guys. So, Nvidia announced a $150 billion buyback. Okay. Jensen dropped this like two weeks after Dario came out and said to slow the pace. So, like, lol, he essentially turned around and said, I'll do the opposite. And so, let's just... All right. So, there's some assumptions baked in here, but let's just say Nvidia's price stays flat for the next year and a half. Okay, I got to make it simple when I'm doing the chart. So, it stays flat. Okay, if you take $150 billion and you add the $85 billion that it already has in its buyback plan, you get $235 billion of buybacks through Q1 2028. So that would theoretically reduce the shares by 4.3%. And I guess we could chart off like if you just went down the laundry list of things that you would want to see as an Nvidia bull, as a market bull, as an AI bull. I think at the top would be the most important CEO in the world at the most important company in the world saying screw slowing, let's buy back $150 billion of stock. I'm not going to go speculate buying a company. Let's use the capital to reduce our share count.
Yeah. Turn down for what?
Right. So most important CEO, I think, is accurate at the present moment. There's nobody more important. And also, but he's not hiding in a bunker. This guy is literally everywhere. He's popping on podcasts. Like, I saw the seating chart for the AI dinner or meeting or whatever it was at the White House. He was next to Trump. Like, think about all the people that were there that theoretically could have been next to Trump. It's Jensen, one, right? And he knows how to manage the relationship. It's like how Tim Cook was, you know, he knows what he's doing. And I think that overall, you want the administration on your side. It's like a double thumbs up. You need that.
Yeah. He's, on top of being a genius and out-innovating everyone and seeing the machine learning trend turn into augmented reality, turn into virtual reality, turn into, oh wait, actually we should be using these for LLMs and AI, like having done all of that in his time since founding the company, nobody... I don't think people should be second-guessing his instincts, his public statements, scrutinizing his capital allocation. One of the big things is like, oh, Nvidia is like giving money to their customers and then the customers are turning around and buying more chips with that. It's, what do you want him to do? Did you hear the number I just trotted out? $360 billion in cash flow potentially over the next year. You want him to throw pizza parties for his employees? Like, what, you want him to buy back $500 billion worth of stock between now and 2030? I mean, he might. It's possible if margins hold up and revenue continues to grow, but like, he's supposed to be making these investments into the ecosystem.
Well, and Georg D in the chat is saying now he sucks up to the orange man. It's not about that. It's what's best for the shareholders, right? He needs legislation on his side to do what he wants to do. And is that something that's baked into the price? Sure. Can that change? Absolutely. But right now, he's managing the relationship well. It's another reason why you want to bet on Jensen. I mean, he's a complete... he's a badass.
Yeah. It's not sucks up to the orange man, it's understands that Trump is a mercantilist. So, this is very important actually for the audience. It's not fascism. It's not really capitalism the way the Trump administration thinks about the intersection of government and business. It's mercantilism. And for any of you who remember social studies in high school, mercantilism is an economic system where companies are given a high degree of free rein so long as their aims are in concert with what the government wants. And obviously the most prominent examples of that are things like the Dutch East India Company, the South Sea Company, and I know some of these didn't end well, but like just this idea of like, yes, we're going to allow corporations or what they used to call joint stock companies to pursue their goals of dominating trade around the world and producing profits for their shareholders. But those things have to work hand-in-hand with what the government wants.
In the case of the Trump administration, they want massive GDP growth. They want to onshore industries that are currently manufacturing or hosting their facilities outside of the United States. They want the first hiring inclination to be toward hiring people right here at home rather than somewhere else. Like that's the aim of the Trump administration and Bessent and like all of their policies. And so Jensen has found a way, like Tim Cook before him, to ingratiate himself with the administration and say, "Okay, I get it. You want to build fabs here. You want to make semiconductors here. You want US AI to dominate the world and not Chinese AI. Of course, who wouldn't want that?" Like, "Okay, we can do business. We can work that way." That's mercantilism. That's the nature of the administration. I'm not telling you it's good, it's bad. I'm just explaining to you the mindset. If you're a shareholder of Nvidia, what do you want? To [__] be an enemy of the people who control both houses of Congress, the Supreme Court, the military? Like, are you kidding yourself? Like, this is about making money in today's day and age. This is how you make money. It'll change. This is where we are.
He's aligning with the administration. They want it, okay? They need it. They need to place jobs in areas around the country, and he's helping with that. Nvidia's trailing 12-month operating earnings, okay? Forget the private investments, okay? The operating earnings are now above Apple's. It's legitimate actual earnings. These are not estimates. This happened over the past 12 months.
Right. So, can we talk about treasuries?
Let's go. Okay. So, yields are ripping higher. It feels like literally every day. I brought this chart. 75% of the last 24 trading days saw a higher 10-year yield. I don't know if you feel this way, Josh, but like I check every day the CNBC.
Explain that one more time.
Okay. So, all right. 18 out of the last 24 trading days, the 10-year yield had a one-day change that was positive.
So, it's going up almost all the time.
Almost all the time. And also, by the way, this has happened 11 times since 1965.
I went back and counted. It doesn't happen very often. Okay, I built a table. I didn't add it. I can paraphrase it. The idea is what happens to yields after, and I can tell you that 80% of the time after they march higher like this, often on a daily basis.
Yes. Correct. When that happens, 80% of the time over the next 12 months, you see yields that are lower. And obviously, we've lived since 1965, we did have a run-up in yields, but we've lived in a descending yield environment for a long time. So, you know, there's a caveat there, but it's like 90 basis points on average that the 10-year yield falls one year after you have this many up days in the 10-year yield. And all right, so then my question is, why is this happening? And I think I found at least part of the reason why in this Odd Lots episode. John, can we play this?
Foreign central banks have had all that they need and they're not buying more, and it's mostly domestic discretionary investors that are being asked to take this additional supply, and they just need more compensation.
So that's Daryl Duffy. He's a professor of finance at Stanford.
We hope that's the reason why.
That would be the best, right? Like that would be the... of all the reasons people are floating, that one would be the best case scenario. It's just an asset allocation thing. It's the idea that foreign central banks own too many treasuries, so there's no bid from them. Who's the next buyer? The next buyer is a pension fund or an endowment or a macro hedge fund. But how are they going to explain away the macro hedge fund to their clients that they just, you know, slid 10 billion of the 10-year Treasury on their balance sheet when Nvidia just announced a $150 billion buyback? It's like, you know, that's not why we're paying you. And so, you know, treasuries, it's a stretch to say they've gone no bid, but there's just, according to Daryl, not enough buyers in the system at this level. They would require higher yields.
So, Ed Yardeni is a friend of the show. We've had him on recently, and he's the guy that coined the term bond vigilantes. I think he did that in the 80s or the 90s or something crazy like that. But the idea of bond vigilantes is they are enforcing discipline on the treasury by refusing to show up at the auctions at prevailing rates. And so like rates go higher because they just refuse to buy because they don't like how we're running our budget or they don't like the deficit or they think there are like insurmountable political problems that are going to introduce potentially credit risk to the... He's not saying that's what's happening now. Ed is pretty constructive. He still thinks his roaring 2020s decade is going to end to the upside for the economy and stocks.
But he was kind of... this, I think this is over the weekend, he kind of was like, all right, here are all the reasons why we're seeing the rates climb to the extent that they are, like Matt showed in his chart. And he's talking about like corporate debt issuance has doubled in a year and, you know, we were accustomed to a world where corporations were basically funding everything out of cash flow, especially on the AI capex side, and now they're selling tons, tons of bonds. That becomes competition for the US Treasury at roughly equal rates. Not equal risk, but like all things being considered, if you can buy Alphabet paper at a 5% yield or slightly higher, right, it's a better option. So, there's a lot of that.
There's a whole thing with the Japanese unwinding their negative interest rate policy and, you know, a lot of people were doing this carry trade where they would borrow in yen terms and then go around the world and reinvest that money at higher rates. As the yen appreciates and the bond yield in Japan goes positive, it makes it less appealing to pull that carry trade off or you see people unwinding. So that's like a mechanical thing that US investors don't pay any attention to, but it could be part of like what's driving yields higher. That's that less incremental buying from overseas that the professor was talking about. So there's like... it's like, you ever play the game Clue?
It's like a whodunit and it's like, well, who did it in what room and what was the murder weapon. There's a lot of that going on and probably like the truth is some mixture of all those things. I know you wanted to throw inflation into that mix. Yeah, show us the chart.
Yeah. Not that we can pinpoint the specific reason, but we can pinpoint what it is not. And that is inflation expectations ripping higher. You can see there's... it's a finance-y term. Inflation break-evens are well anchored. Okay. So, the idea here is that if you see the break-even inflation rate surging higher, that is going to filter into the nominal 10-year yield, what we see on the screen when we type in 10-year yield. Okay, the reason for the rise in interest rates is not coming from this expectation that inflation is going to surge higher, right? So that would be another nightmare scenario that like the Treasury is ripping in response to this like insurmountable inflation problem that we can't get control over. And yes, it's true like oil prices are elevated. I don't know if people realize we're like in month four of a war overseas and literally the war is now over the passage of oil. We don't subsist on Iranian oil, but like it is relevant... getting oil from the Arabian Peninsula through the Strait of Hormuz is relevant to the global prices which have a read-through into WTI crude, etc., etc. So, like, yeah, there's like an inflation issue, but it's based on a war. And I'm not like saying we're going to get a real ceasefire. But oil is flowing through the Strait of Hormuz again. It's not ideal, but it's not as bad as it was.
And you're saying that it's inevitably temporary.
We theoretically, you know, it's something that could change. Could change for the worse.
Show me this last 10-year chart.
All right, this last chart on this. So, what I'm doing here is I'm taking the 10-year yield, the nominal yield, and I'm subtracting the 10-year break-even inflation rate. This is hitting highs going back all the way to 2008. So, there is a legitimate alternative for investors when they're looking at, okay, let's say they're... we could chart it off. Let's say theoretically they are withdrawing 4% of their portfolio. They're in retirement. Their financial advisor says, "Hey, look, you know, you could get a legitimate 2.85% real yield after inflation. That's an alternative." And this is filtering in at least at some point to valuations in the stock market. So, if we want to flash the next chart, John.
So Josh, you had me make this. This is different buckets of the 10-year Treasury yield and then the median P/E for both the S&P 500 and the NASDAQ. And as you said, the breaking point is 7%.
What is the... In other words, what is the breaking point for stocks where the yields get so high that people's next $50,000 they deposit into their account, like more of that is going into bonds and less into stocks. And we feel that en masse. Like that's the question that we're trying to answer. And I saw somebody do this with the S&P. So I asked Matt, "Show me that with the NASDAQ, which increasingly is becoming like the focal point of the stock market and frankly the driver of almost everything." All right. Now, let's put that chart back up. So tell us what your conclusions are.
The conclusions here are all you have to focus on are the two bars all the way to the right. And you see them above 7% bars. Above 7%. So above 7% yields, the S&P 500 median forward is 13.6 times. The NASDAQ 100 is 12.6 times. That is the lowest among any other bucket from 0% all the way through 7%.
You know what's interesting? You would think given the media's hysteria about rate hikes that like the best P/E ratios we get for stocks are at a 0% or close to 0% yield for bonds. But that's not actually how it works. Chart back up. When we have zero to 3% on the 10-year, like not always, but it's usually because we're responding to some sort of like economic problem. Like 0 to 3% became normal for 15 years after the Great Financial Crisis, but it's not actually normal and that is not actually where you get the best multiples for stocks necessarily. It looks like three to seven is a better sweet spot for the NASDAQ at least, just eyeballing it, than 0% to 3%.
Well, at three to seven, you actually have an alternative. You have to be disciplined about your capital where it goes. And so investors might actually assign a higher multiple because the companies have to think. They can't speculate. They can't just, you know, they have... there's actual yields that you can compare to versus at zero, you know, you could go out and speculate all you want. Three to seven, investors are assigning a higher P/E because there's discipline involved.
The thing I want to leave people with as we switch out of this topic is that 5% is not the breaking point. So, I mean, for somebody that's been in the markets for 30 years, you wouldn't have to say that out loud. But for somebody that started investing sometime after 2020 and they've never seen rates really do this outside of '21 and '22 when the Fed was aggressively fighting inflation, like 5% on a 10-year Treasury is not a breaking point for multiples or for the stock market. And I understand like if you haven't really seen this, you know, you can kind of be like, whoa, rates were just three and now they're five. It's really historically not that abnormal.
All right. Let's do this thing from AllianceBernstein. So AllianceBernstein has a guy named Inigo Fraser-Jenkins, who, confession, I've reached out to. He doesn't seem to be at all interested in talking to me, but that's okay. I don't agree with a lot of stuff that he does. Like I think he was one of the guys saying index investing is Marxism. But every time he drops something, well, not every time, a lot of times he drops a piece that grabs a lot of people's attention. He's very thoughtful, very well written. And last week he put this thing out called the Everything Trade. And I just want to give people the conclusion because we're not going to go through everything in there. And then Matt pulled some stuff out of here that's worth spending a second on.
The big idea here is that, and this is not a bearish note, and this is not a sell everything note. The core argument is that AI's appetite for capital has now gotten so large that it is tying together equities, credit, the dollar, and foreign flows. And it's basically made everything into all one big bet or one big trade. And what he's saying is that makes it harder for an investor to diversify away from AI risk. So they're keeping their equity overweight and their overweight on the US intact. And they actually said calling a top is pointless. But the point of the note is that portfolios urgently need to hold up in case this whole AI freight train stalls, whether that happens through choppy returns going forward or a big crash. And it's increasingly harder to do that.
And, you know, a lot of this is, we talked about this, big tech was paying for their investments out of free cash flow. Free cash flow is now zero and they're borrowing, which is not necessarily negative. I mean, might be, but that debt is flooding the bond market. So, if you want to own a plain vanilla bond fund, you're quietly buying yourself more AI exposure, whether you mean to or not. Foreign investors are pouring money into US stocks. So if you are investing in foreign currencies or foreign markets or foreign companies, you're putting on that shadow exposure to US AI. The buyback angle, corporations were the biggest buyers of US stocks for 20 years via share repurchases. Now AI is eating up a lot of that cash. Some companies are still doing both. But it's another factor that removes a layer of support from stocks and adds to potential volatility.
So they conclude by saying healthcare and energy are two sectors that investors have abandoned, plus gold, maybe value stocks, maybe the Japanese yen, and maybe some actively managed bonds versus passive. Those could be the portfolio hedges for the modern era. And I just thought it was really thoughtful. What were your takeaways?
I thought it was very thoughtful. It took me a minute to get through, honestly. It's dense, but it was very thoughtful. It made sense. If we could throw up the first chart here, I pulled two from the piece. If I could show you two as a summary, it would be these two. Okay, so here we're looking at expected sources of funding for the AI capex buildout between 2026 and 2028. So where's the money coming from for all of this? Okay, this is not a pie chart. You're seeing the absolute levels here. The $1.5 trillion is coming from equity capital. That's the biggest segment of funding. And then there's companies taking their cash and plowing it into AI plus maybe selling additional stock in the form of a secondary.
Yeah. And it's money the company theoretically has, right?
And then so 45%, this is not a pie chart, but imagine. Okay. 45% is from equity capital and the rest is everything else. So private credit, investment grade, bonds, ABS, CMBS, high yield and loans. I have a question for you, Josh. Like when you look at a breakdown of 45% equity capital and the rest being from, you know, private credit and debt, like is that a prudent level of debt versus equity? Or is that too much debt?
I can't answer that because I don't think we've ever seen an opportunity set this large. Like it might be the right amount. It may turn out that people are underinvesting. Like I'm looking at the news that OpenAI just made today with their Dots product, which is going to be like an enterprise version of Muse. So they're actually going to sell this to their premium business customers before they're going to release this on regular ChatGPT. But it's like an incredible increase in capability for AI agents. And I guess they're calling them Dots and they're saying like these things can reason on their own. They don't need to check in with you every second. They'll ask you permission to access things when they need to. But like completing multi-step projects in the background, like what will corporate customers be willing to pay for that not just this year but for the next 30 years? I don't know. It could be like theoretically it could be unlimited. So like when we're looking at product launches like that, I don't know what the right amount of debt for companies to take on in order to invest in this technology is. We'll know in five years, I guess.
Well, the good thing for the debt holders, and John, let's skip one of these charts and go to the next one. The good thing for the debt holders is that if you look at the credit default swaps on the different bonds for these hyperscalers, they are not blowing out. They are flat. In some cases, they are actually trading below.
Higher is worse. This is like golf.
Yeah, higher is bad. Okay. You don't want to see a blowout. You can see Meta tried, but it's kind of stabilizing. We could chart off. And so I think overall the takeaway of the piece is that investors outside of equities are getting exposure to AI even though they might not realize it. And as you're thinking about your exposure, be aware of that.
Okay, we're going to talk about stock market breadth. This is one of the other big topics of the week. People are going crazy on this. Breadth is interesting. Like most of the time it doesn't matter because it's not an extreme in either direction. And obviously people always feel good when the market is at a high and breadth is at or near a high. Like you'll hear people cite the advance-decline line or they'll trot out the equal-weight S&P to show that it's not just the Mag 7, but like a lot of stocks are making highs. Like there's all different ways to look at breadth. And Matt, I know this is your topic, but I actually want to set you up. So Barron's got everybody talking about breadth this weekend and Monday. Even the non-technicians, they did a piece citing that five stocks have contributed 93% of the S&P 500's gains since July. That's like sort of not notable. You can guess what they are. Microsoft is 181 points of the benchmark's 330-point advance since the end of July. Meta, Apple, Alphabet, Nvidia, no [__]. The percentage of constituents trading above their 200-day moving average has now fallen from 73% to 51%. Which is a notable deterioration. While the index is like one or two percent off the highs. I sort of agree with that. And just anecdotally, all of you guys, if you look at your brokerage accounts, you would probably guess that breadth has fallen off to that degree just by like the number of stocks you have that feel like they were green all summer and now they're red. And what happened to the great... what were they calling it? The great broadening, which was the theme of the summer. It seems to like that.
Yeah, I was calling it that. Yeah.
All right, Matt, take over. Tell us what's going on.
Okay. Well, okay, before we get into it. And also, by the way, I'm not here to poo-poo the breadth, right? Like, I get it. Breadth has fallen and I acknowledge that, but I'm trying to find the nuance in the numbers, present it to the audience, show them the things that they're not seeing as much.
You're doing exactly what Michael would do if he were on the show tonight. All right, I love it. We need this.
Okay, that's big shoes to fill. All right, so let's first throw up this, speaking of Michael, this quote from Michael. So, Michael slacked me this morning. He said, "Hey, Chart Kid, throw this on the show. I want people to know my thought here." So he says, "I love the breadth washout. The bearish case for an S&P catch-down is obvious and intuitive, but almost every time we've seen something like this in the last decade, it's been a great buying opportunity." That's the one, Michael Batnick.
So all right, so Michael is exactly right. And I made a joke on our internal Slack. I said, "I used to care about breadth, but then I realized I like money." This is like...
Yeah. Well, because this is like one of the things, one of the most prominent ways the bears have tricked you out of your holdings, out of your portfolio, is they've put up these periodically, this happens where five stocks are making highs and everything else is falling. They say, "You see," and the assumption is or what they're trying to convince you is about to happen is a catch-down, that the index is going to fall to match what the majority of its constituents are doing. But the thing is, in the last 10 years, it's been the opposite resolution pretty much every time, to catch up. So the breadth metrics fall and everyone gets nervous. And then all of a sudden, boom, like you get a broadening trade and they catch back up to the AI trade and it's like, I can't believe I sold stocks because of market internals again. So, it doesn't mean every single time it works this way forever, but Michael is right. This has been the history, right? And I'm kind of asking this like...
Rhetorically, but if you think about it, what you constantly bring up is like the money has to come from somewhere. So if MU launches in the Mag 7 rally, the money has to come from somewhere. So what are people selling? They're selling staples. Why would I want to own a Kraft Heinz company when I could own Nvidia after a $150 billion buyback? So...
They're clearly selling treasuries, right? And so to verify Michael's exuberance, we have a tweet from Tom Lee. Okay. And so Michael's right. You're looking at new lows in the New York Stock Exchange, in the NYSE on the bottom, and new lows surging. New lows surging tend to correspond with S&P 500 bottoms. It's just there in the data.
It's the opposite right now and it doesn't make sense, right? Well, it's like the beauty of indexing. We can talk about it ad nauseam. People know. But it's the beauty of indexing. The weightings change, it finds the flows. It's really a beautiful thing for investors.
Put that chart back up. I mean, this is starting to look scary though. I mean, the chart is showing three years, right? Or two. It's like going back to 2024, but it is a big spike in New York Stock Exchange new lows. And we're going to, I know we get into like what's in that. What are the stocks or what are the sectors? We'll do that in a second. But like it sort of is starting to become notable.
Yes, absolutely. You cannot just pass it off. People need to be aware of this. Okay, let's talk about where the breadth is actually coming from. The negative breadth. And so John, if you want to throw up our large cap breadth dashboard. Okay, here you're seeing all of the S&P 500 sectors based on their breadth score. Okay, this is something that we made in-house internally. And so we're showing things like percentage of stocks above different moving averages, the percentage of stocks making new highs, new lows, etc., etc., by sector. Okay. But where I want you to focus because there's a lot of data here. Okay. Where I want you to focus is at the bottom here, utilities. Okay. So, utilities, 3%...
I like how you did that. I like how you did that.
3% of utilities are trading above the 50-day moving average. All right, let's throw up. Next one is staples. 27% of stocks within staples are above the 50-day. These are horrible metrics. Breadth in these defensive areas is terrible. And understand these are defensive sectors. Right now, let's go to the top and let's look at tech. Okay, this is arguably the most important sector to the market. Maybe financials a close second. You need financials in a bull market. But tech has 66% of stocks trading above the 50-day moving average. 73% are above the 200-day. 10% of these stocks just made new four-week lows. So again, I'm not, and we could chart off. I'm not poo-pooing this. I just think that if you dig in, it is nuanced.
Well, it is. And chart back on. Staples and utilities are not just considered defensive. They're also interest rate sensitive. The primary allure of these stocks, at least historically, has been their dividend yields. And so we talk about higher treasury bond yields representing competition for the stock market, this is the area of the stock market they're competing with. And people who say, 'Should I,' I'm making these numbers up, 'Should I take a 3% dividend from Johnson & Johnson, that's a pharma. Should I take a 3% dividend from a company that sells ketchup and mustard, right? Or should I take a 5% interest rate from the federal government?' And so unless you have reason to believe that you're going to get a good total return because you know the ketchup and mustard company's stock is going to go up 15%, screw it. Give me the 5% on the bonds. And so I think that partly explains the weakness in staples and utilities. And you didn't show this, but the third worst sector is real estate. So, you know, also 0% of real estate stocks are above their 50-day. This is competition from treasury bonds because real estate is an interest rate sensitive and yield sensitive sector. The buyers of those stocks historically have been looking for the return of capital in the form of an interest rate or a dividend.
Absolutely. Let's look at this differently. Let's look at over time since September 2025, the S&P 500's expansion of new 52-week lows. So, this is the percentage of stocks within the S&P 500, all 11 sectors, and what percent of those stocks are making new 52-week lows. So again, this is not nothing. There's a recent expansion here. But now I want to show you the next chart, which is two of the most offensive sectors in the market. And it's tech and financials. And you only have 1% of tech stocks making new 52-week lows. You have literally zero financials making new 52-week lows.
All right, this is so important. I'm not like a sector obsessive where like I view the market through the prism of, because it's gotten so hard to categorize a lot of really big and important companies. What sector does Tesla belong in? I don't really know anymore. It was a car company that's now making robots. Where do you put SpaceX? Is it industrial? Is it tech? Is it communications? It could be all of those things or none of them. So I don't get crazy with sector classification because of how muddled things have gotten. But Matt's point here is key. If I told you that financials and tech have no stocks making 52-week lows, which is what we just showed, that should make you feel a lot better about the headline number of the overall number of stocks making new lows or the percentage. Forget about that. Which stocks are we showing you? The most sensitive, important companies to the growth story for the economy, financials and tech. There were no lows in sight. It could change. We're telling you this is a snapshot right now. That's pretty much what you'd want to see if you want to be constructive and stay bullish.
