Software vs Semis, Trump Accounts for Babies, Sell-Side Indicator

Ladies and gentlemen, welcome to The Compound and Friends. Tonight's show is an all-new edition, first one of the year of What Are Your Thoughts with Michael Batnick and I, and we got directly into it. Software stocks versus semi stocks for this year. Sevita Subramanian sell side indicator. We took a look at some of the big stuff that was announced by NVIDIA. And Amazon at the Consumer Electronics Show yesterday did a little bit of a level set on the AI trade with some really great charts.

My recipe for fighting communism in the year 2026, we looked at the Trump accounts, which are going to include a federal seed contribution of $1,000. into a stock market account for every baby born between now and December 31st, 2028. I love this idea and I want to see it continue to take take root. and take flight and we'll get into that as well so thank you guys so much for listening we're sponsored by public tonight more on public in just a moment i'll send you into the show right now

Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Redholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

oh my god it's what are your thoughts michael can you believe it i i really can't starting all over again 2026 first show of the year like nothing ever happened we are back the energy in the chat is palpable you can uh you could feel it through the screen can you not i sure do josh i feel good i feel real good yeah you look way better than the last time i saw you hey let's uh let's do some shout outs shall we

We have a full house, I'm told. Somebody named Seth Hansen made a funny joke. We were 400 comments in on the live chat, and he goes first, which I appreciate. That's my brand of smartassery. I appreciate it. All right. Akbar Muhammad is here. Brian Lichter. Rachel is back. Josh 681. David Graham. Sodak Jason.

Let's see. Who else? Magnus is back. Oliver Ruff. Charisma Spigot. He says Charisma Spigot is palping. I'm palping. Brian Lichter. I haven't heard that name in a while. What's up, dude? I know. I know. That's a blast from the past. All right. Suzanne Newman is here. Jamie Newsome. Vanessa Arson says, hey, boys. Hey, back, Vanessa. Let's have some fun tonight, guys. First things first, we have a sponsor.

I'd like to give a shout out to one of the greatest sponsors of all time. Maybe the greatest, some say. Public.com and the public trading app is the investing platform for those who take it seriously. That's right, Josh. On public, you can build a multi-asset portfolio of stocks, bonds, options, crypto. And now the big reveal, generated assets. What am I talking about? I'll tell you. This allows you to turn any idea.

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Generated assets are like ETFs with infinite possibilities, completely customizable based on your thesis, not someone else's. Go to public.com slash W-A-Y-T and earn an uncapped 1% bonus. When you transfer your portfolio, that's public.com slash W-A-Y-T paid for by public investing. Full disclosure in podcast description. All right. What a read. It's like we finish each other's sentences. Unbelievable. You really are.

You really are back. It's incredible. I think you're up first. What do I got? That's right, Josh. So I don't know the last time. I'm sure it's happened before where Take of Mine has aged so sour so fast. On Friday morning, as I was about to just throw in the towel and hop off the mic with you and Ben, I said, I got to get one more take in. And my take was this. I think this is the year.

where we realize that AI is not going to replace software companies like Adobe and Salesforce, but it's going to actually enhance what they do. And then the market said, oh yeah, asshole, watch this. So on Friday, on Friday, oh, yeah, it was Friday. Chart on, chart on, please. So the semiconductor index was up 4.2%. Yeah. The software ETF felt...

3%, a spread of, holy shit, is that a record? Next chart. Yeah, it is, dumbass. An absolute record. Never in the history of these two indices, whatever, which goes back. 25 years has the spread been 7%? Like really, really something else. You know what that is? That's like God throwing a thunderbolt at you. Yeah. I mean, it's- Yeah, keep talking, moron.

Chart back on. Now, it's one day, but it's really bad. It's comedy because you said it on Friday morning. And that's where the market closed. Okay. Next chart. Josh, I didn't realize. So. All right, what strikes you about this? I want you to go first. This is semis versus software. Yeah. And what, just stock performance? Like the index versus the index? Yeah, I don't need to keep you guessing. I'll just say this.

I didn't remember or realize the degree to which software, I'm sorry, semis got the shit beat out of them relative to software from 2024 to 20, like that, that's a massive spread. And now- that's liberation day so chart off please for a sec so during that time period Tariffs, obviously, semis were in the – not the epicenter, but semis were going to be hard hit, right, if all those tariffs were placed. So soft – like the – Salesforce and Intuit and Applovin. All those names were...

hit, but not nearly to the degree. So that round trip that we had is wild. And let me go out on a limb and say something that might age even worse. Actually, nothing's going to age worse than my Friday comment. Like nothing. Chart back on. I think this might be a blow off top and I hate to like say something so outlandish and I'm not a trend fighter, but I think we might've got a blow off top in this.

So let me ask you a question, though, because there's two versions of how that would play out. In one version, all of a sudden, software stocks start to rally and outperform and semis are like just OK. In another version, this happens because semi-stocks crash and software stocks weren't up as much. So they just sort of like meander listlessly. Wait, say that one more time.

This could work two ways. You could get that mean reversion between those two sectors, software versus semis. You can get it because software stocks are great, or you can get it because semis crash.

Okay. So I think it's going to be something in the middle. I don't think that – listen, I'm not calling for a crash. You're getting ratioed into the Stone Age already. Good, good. Okay. That's not what I do. But like some of the charts that we see today – in memory land in semi land are straight up and uh some wild shit all right anyhow so we'll see where this ends the year um sorry i got one for you i got one for you dawson says blow off top in a ratio chart is a new one

No, it's not. No, it's not. That could happen. No, that could happen. Listen, I've been here about blow off Thompson ratio since I met JC in 2012. That's not, I didn't make that up. Well. I suppose anything's possible. I wouldn't say, like, it can happen. But is that the bet you want to make? That's not. No. What software stocks would you use to express the trade? Do you know it's an IGV? I do.

Um, I will say this, that is a high degree of difficulty trade. Okay. And there are no points for complexity. So no, it's not the bet that I want to make. Um, IGV ETF. Let's see the holdings. It's not software. I'm going to give you, I'm going to upset some people, but it's not a, it's actually a very bad software index.

Whatever. It's Microsoft, Palantir, Salesforce, Oracle, Intuit, Apple, Adobe, Palo Alto, ServiceNow, CrowdStrike. Those are the top 10 names. Right. Now, Oracle's building data centers. Microsoft is the biggest data center. Other than AWS, like Palantir is more like a consulting company that has a software arm. Like all I'm saying, all I'm saying is it's not like a well composed index, whereas. The top 10 semi index.

Those companies are making chips. Find a perfect set. Build a perfect software index. You could do it on public. Generated assets. It'll look the same, dude. It doesn't matter. You're picking this. It'll look the same. This is interesting.

Next chart. I didn't realize the degree to which not just these stocks move together, but like the market caps of Adobe and Salesforce were. Like identical. I mean, it doesn't really get closer than that until the hard recent break. Isn't this interesting? Yeah. This is market cap. I'm looking dumb in Adobe already. I think I'm down 15 sticks.

It could be one of these things where the second half of the year is an about-face from the first half. We could spend the whole first half selling off these. enterprise class software stocks, with the exception of cyber, which I think are not involved in that. But any software company that's selling workflow, automation, or like, I'm thinking about

The really great companies like the Workdays, the Service Nows, the Mondays, the – who else is on this list? Dude, Now is getting pummeled and everybody raves about this company. It's a great company. But my point is this could go on. For another two quarters, just people saying- Of course it could. Get me out. I think these guys are dead. Or guess what? Their narrative could change on a dime. And I respect the trend, okay? So until proven otherwise-

Of course, these names are guilty and you should assume that the trend persists always. Yeah. But I'm just saying that narratives change quickly. They do. No, we've seen it. And that's why I'm a price person first. And then I try to figure out what's the narrative that's making the price do what the price is doing. A lot of people are vice versa. They decide.

This is the story, and the market's not cooperating, but I will be right. The market will be wrong. And I'm not saying one is necessarily always better than the other. I mean, yes, it is. Dude, usually the market is right and we're wrong. You're wrong. No, no, no, no, no. No, obviously. But there is a universe where the market takes things too far.

And the contrarian that has a better grasp of the fundamental story steps in and says, this has gone far enough. And Alphabet and Apple last year are two perfect examples of that.

Yeah, I'm not a major contrarian, but I do think that this ratio is getting a little stretched. Not a little stretched. It's getting stretched. It is stretched. All right. Our friend, friend of the – we call her friend of the show. We haven't even had her on as a guest. She's never been on the show. Yeah, no, we love her shit, but –

Yeah, no, I know her personally. Like, we hang out. Savita, Supermanian's famed sell-side indicator. Savita started the year off throwing a bombshell into the crowd, saying... Finally, after 15 years, it's getting very close to flashing a cell signal. And the cell side indicator, just to give people, I'll get a little bit deeper into it. She created this. as a contrarian indicator for when her colleagues in sort of top-down sell-side strategy calls were like to build up on stocks.

So she was always looking at this as a contrarian bullish indicator because the strategists were so bearish in 2009, 2010, 2011, 2012. The strategist had such low expectations for the stock market, so her indicator was a great contrarian signal. And it's taken a long time. And up year after up year after year. And now it's completely gone the other way. Let's put this chart up. Okay. So the very simple way to explain this is.

She is capturing the buy and sell signal. She is generating a buy and sell signal based on rolling 15-year. plus or minus one standard deviation from the rolling 15-year mean. So it's a very long signal that she's figuring out. And she's just basically looking at the percentage of equity that strategists are recommending.

Am I explaining that? How bad of a job am I doing it at saying what this means? No, I only laugh because rolling 15 years or so is a hilarious input. I've never heard that before. But no, that tracks. This is Savita in her own words. Contrarian sentiment signal that tracks sell-side strategists' average recommended allocation to equities in a balanced fund. The indicator was unchanged at 55.9% in December after rising the prior two months.

Despite strong equity returns this year, the SSI fell 1.1 percentage point overall. The indicator declined 2.5 percentage points from January to April and has yet to fully recover since then. Declining equity allocations were offset by a move into cash and commodities. But now we're less than two percentage points away from a sell signal. Savita says this has been a reliable contrarian indicator.

It has been bullish when Wall Street was extremely bearish and vice versa. The indicator remains in neutral territory, but is much closer to a sell than a buy. Although the SSI is more bullish than bearish, its current level of 56%.

is still below levels reached in prior market peaks so so we still have time um there's nothing here i'm sorry this is not this is this is literally noise because it's not an extreme yet but directionally Okay, two things. Number one, I don't love to, I know it's very popular to fade euphoria. This is not even close to euphoria. No. I think that contrarian signals always work better.

in bear markets, like we know this, right? It's a lot easier to say, okay, everybody's gotten way too bearish and way too bullish, number one. Number two, this is in the range. I mean, there's nothing going on. It's unchanged month over month. There's nothing here. I think she sees it threatening that downtrend. Stop it. All right, last thing.

According to Bloomberg's monthly survey, the average strategist expects the S&P 500 to rise 10% this year, slightly below strategist's expectation of 12% price return in 2025. At this time last year. If the S&P achieves this forecast, the index's total return since the end of 22 would exceed 100%. The best four-year gain since 1999. Savita goes on to say that her.

2026 price target is only 7,100, which is 4% higher from here. She's at the low end of strategist forecasts. Why? Growing capital intensity of big tech spenders. that make up an outside share of the index, elevated multiples, cracks in the labor market, downside linked to AI upside. And this argues for a more cautious stance. What are your thoughts? I hope she's right. Not a popular opinion. I would love, I would sign up right now for a 4% return for the year. Like I would prefer that than a

I don't want a 27% return. Like that sets up for, we know how that ends, right? If you go up another 15, 20, like that sets up for a fall. If we can build the wall of worry, consolidate some of the gains, go sideways, gain 4%, I'd sign up for that today. No problems. No questions asked. The street's expectation for earnings growth this year is close to 15%. You'd sign up for a 4% return on that.

basically a year of better than average earnings growth but multiple contraction? What would be behind that? No, no, no, no. I would not like, I would not love that. You said I'd sign up for that right now. Stop it. Stop it. I didn't say with 15% earnings growth. If we have 15% earnings growth. Well, that's what we're going to have. Can I finish?

If we have 15% earnings growth and severe multiple contraction, that would be weird. Something would have to happen in order for that to happen. So why'd you sign up for it? You said the 15% after I said 4%. Okay. I'm saying that would be weird. There would be some bad news. If I could get not that, just a 4%, 7%, I take that. 4%, 15%, that's weird. Okay. Adam Tronick says,

A 4% return? What is that? A return for ants? Yes. Yeah. It is. We don't need 17% a year every single year. All right. Chart on. Can I just show you two more from Savita? On the left is bond allocations declining this year, now at the lowest level since 2022. Is there anything here? Yes. Yeah, that looks like excessive risk taking. That looks right. That looks like an all out of bonds.

And I think I saw Vanguard. But dude, there's a cash component in here. Sure, of course. However, cash is not yielding nearly as much as it had been. a year ago. But I'm just saying, if you put cash and bonds allocation, that would look much different. Well, I'm going to do cash next. That's in the right pane. I think I saw Vanguard say the right allocation for this year is 40-60. Did you see that?

Did see something like that. I have not read it. What the **** is that about? Yeah, what's their problem? Chart on the right is cash allocations increased this year but remain low versus history. So again, again. A very high equity allocation recommendation from strategists for a balanced portfolio. The lowest allocations to bonds since 22. But it's like a recommendation and it's noisy. Put the chart back on.

Yeah. Right? Like if you would overlay and do some quantity stuff, is there any signal in here? I don't know. It doesn't seem like extreme. And even so what? Look at 17 and 18. That was really low. What did that mean? Yeah, I guess on the cash. It's like one of the things that you can't really say, like cash on the sideline. All right, so what's my point? Chart back on last time on the right pane. Like in 2016, I don't know if you remember how we went into the year.

People were absolutely terrified of Trump being elected and Brexit. Both of those things happened. But look at the cash allocations. They were like 7%. And a thing that a strategist could have said was. Yeah, people are really cautious. Look at the degree of cash allocation. Like we don't have that thing to say right now. What do you mean? On the left side is average recommended allocation to cash by Wall Street strategists.

And 16 doesn't look like seven. What does it look like to you going into 16? It looks like precisely seven. I mean, I didn't draw a line across, but. All right, I guess here's my takeaway. Tell me what you think. We have now reached the point in this bull market where pretty much, even if their price target's only slightly higher than where the S&P is, the strategists are in. There's no holdouts.

Is there anybody who's bearish? Is Sevita the most bearish? She's at the lower. She says that they are at the lower end of the field. But nobody's negative. We did this, I think we did this last week. Nobody's negative. So, I mean, we're at the, it's not a bad thing, but like, it's a thing that you have to say is like the. The dry powder is dwindling from people that are non-believers. Everybody is in. Dude, no, it's so weird. Okay, yes. And I was talking with Ben today.

Todd had a chart. Todd Stone had a chart that showed like beyond record inflows into ETFs in December. Yeah. Like there's just, there's infinite money. We're getting some help from the chat. Brian Westbury is the most bearish, according to C. Paul Breezy. Barry Bannister is the most bearish. Where does Bannister do research from these days? The Avengers.

At Relomit is saying Vanguard basically said bonds would be a better bet than U.S. large cap stocks. Okay. I didn't see the piece. I got to go look at it. All right, you're up.

Okay. I've got some charts, Josh. Sam Rowe, friend of the show. Did a post yesterday that I grabbed some charts, some 27 charts for 26. Or maybe it's 26 or 26. Who knows? OK. We spent a lot of time. We do spend a lot of time talking about how quickly. the hyperscalers are adding debt to their balance sheets and off balance sheet. There's like, this is different. This is a different part of the cycle. Debt has entered the room. Okay. Actually, this is pretty interesting.

Net debt to EBITDA for the S&P and S&PX financials. And like kind of really not a lot here to hem and haw about. Interesting though. If you started this chart, not in 1997. But like 10 years ago, it would probably be more dramatic. Either way, it's not a huge number. This surprised me. I would have thought that it would be more up and to the right. Okay, here's another one. Here's another one from Sembalist. Despite the recent rise in CapEx.

The amount financed by debt was still very low. So if you're listening, this is a chart with two lines. One is CapEx to sales, which as we know, is going up and to the right. But look at that. The yellow line shows the share of capex and dividends that are financed with debt. I mean, that's like shockingly low in a good way. I would have thought it would be more.

Like I would have thought there would be more debt spending. But I don't know. I guess it's just not necessary yet for most – put that back up. Who are the companies in this group? This is the Russell 3000. So finance with debt rather than internally generated cash flow. No, it's Russell 3000 tech and communications companies. Okay, my bad. Okay, so even more striking then. Wow.

Even more striking because these are the companies that are spent, that are taking out debt. But the point is that they're still- But he's trying to show you now versus the late 90s. That's the point that he's- That's the point that he's making here with this window. I'm such an idiot. I didn't even look to the left. He's showing you the late 90s, early 2000s versus now to draw this distinction.

I think the takeaway is the blue line CapEx to sales. If we're really going to have an all-out bubble, that can go much higher. Like, I mean, it has historically. Like, we ain't seen nothing yet.

if we're going to do 1999. And I don't know that we are, but I think that's the point that he's trying to illustrate is that we're not there yet. So S&P 500's revenue per worker. I don't know that I realized this. In fact, I'm going to say I didn't realize this. Went nowhere. Despite the cloud revolution, despite like a lot of the automation, it went sideways and real basis for, I don't know, 20 years.

And only now, only in the past few years, is it really busting up into the right. Pretty remarkable. We're going to get to this later in the show. OK. This is part of the problem. One more time. This is revenue per worker. Record highs. Holy shit. Great for the stock market. I mean, obviously. I'm sorry. Real revenue per worker. This is 21 cents. Is that? What is that scale? What is the y-axis? It's revenue per worker. Oh! Per million. Per million, 1986. Micro units. I don't know.

All right, one more from Michael. Actually, we got a few more from Michael. This chart shows that the stock market makes sense. We're looking at the consensus. Yeah, I like this one. The consensus forward return on equity for various sectors. And then the chart on the right adds a couple of stocks in there. And versus the consensus forward price to book. What he's saying is.

We are giving the highest price. We are giving the highest multiple. He's doing price to book rather than price to earnings, but I doubt it's much different. It probably just illustrates it better. To the best businesses. The best, right, the companies with the highest margins, the best return on equity are also the ones being most highly valued. And it's happening monotonically.

It is. So it's right. What he called it in his piece was the internal logic of valuation in the market. Right. Yeah. And I think that's a fine. Fair point. Better hope there's no.

Better hope there's no mean reversion to margins after all, because those are the stocks that are up the most and they'll come down the most. But yes. All right. Two more and then we'll get out of here. I thought this was fascinating. We're looking at the peg ratio. And that normalizes for growth, which of course is a very important driver of returns and valuations and all that good stuff. So the PEG ratio for the All World Equity Index, that's the blue line.

versus the MSCI All World Tech Index. And yeah, the spread ain't there. It's justified. Right. The peg is price to earnings growth. So they're taking... year two forward earnings per share growth. And they're saying stocks, if you correct, not correct, if you adjust for what their actual growth is. The tech world is in line with the rest of the world's equity index. And yeah, these are all mitigating factors that if you just look at these things in a vacuum and you say, it's up how much?

Or it's being valued at what? Okay, but what is return on equity? What is the growth rate? Like you need more information. The market is not just randomly assigning valuations to stocks for no reason. Okay, lastly, so today we had Dow 49,000 all-time high, right? The S&P closed at an all-time high today. Yes, it did. Man, that's a beautiful sight.

IWM, I believe, or not quite, but RSP, the equal weight. Yeah, it's all happening, Josh. And we're doing it without a lot of the nonsense. Now, you could always find nonsense, okay? But... this specific nonsense. Sandisk up 25% today. Yeah, no, there's nonsense. There's some shit going on. Yeah, but not this nonsense. So what we're looking at is the market cap of young...

unprofitable tech stocks. And we remember, we all remember this surged in 2020, 2021 to a peak of about 5%. And it's now, I don't know, 1.5%, 1%. woman and three quarters, whatever it is. Michael also has a chart showing the spending. buy young, unprofitable tech stocks. Like this is not, this is not, not, not, not what's supporting the market. And I know that there's, you know, speculation and whatever the irons and Oculus and whatever, whatever, but like.

That's not what's driving. That's not leading the market. It's just not. That's very healthy. We did a show last year where we were, I think the thing that we explained really well is the presence of a circus. does not, is not indicative of the idea that the entire market is a circus. Correct. Or you could have a three ring circus and you can have a fairly tame.

lion or elephant act in in one ring which is expected and then in the ring next door you could have literally people setting themselves on fire yes but it's the the big show is not like um

Always represented by the craziest thing that you can find happening is the way that I would put that All right, uh, I guess they're being called Trump accounts now so And it's fine. I don't care. We have Obamacare. We have Trump accounts. All good. Brad Gerstner, a friend of mine, Brad Gerstner, came to Future Proof, I think in year two.

So that would have been 2023. And on Sunday night, the opening night of the show, he got on stage. He had to run back to the All In podcast event, which was happening at the same time. But he came on stage at Future Proof and he announced. This thing that he was getting political support for. And I called it jokingly baby equity. But the idea was that every time a baby was born.

The country would put $1,000 into an account that would be automatically invested in the index fund in the stock market and that parents could actively contribute to that account. So like the same logic as an IRA. But rather than having people start when they're working age, we do it for them when they're born. And the general idea is we have too many people who are not feeling the benefit of the growth of the stock market.

the equity value of American business. And I loved it. And that's why I brought him on. I let him do his thing. He ended up, I guess, via the all-in guys who became very closely aligned with Trump. He ended up getting this to the point where Democrats loved it and Republicans loved it, and they were able to do it. And it became signed into law because they wedged it into the big, beautiful bill.

So it wasn't its own standalone thing, but it's a provision of the bill that was signed this summer. And it's taking effect. You can open an account now. The funding starts in July, okay? And I think it's a really big deal. Not that it'll have an effect on the market right away. But I think it's like really important. It addresses arguably the biggest societal problem we have right now in this country. So let me just read this to you and get your reaction.

Created under the One Big Beautiful Bill Act that gives children born between January 1st, 2025, so that's now, and December 31st, 2028, a $1,000 federal seed contribution. and allow parents, relatives, employers, and others to contribute up to $5,000 per year on the child's behalf with earnings growing tax-deferred until the child reaches adulthood.

Because the program applies to almost all U.S. children born during that period, tens of millions of accounts are expected to be open over the next few years as eligible families enroll. before the accounts become available for funding in mid-2026. And now you've got this other thing happening. Maybe it's virtue signaling, or maybe it's genuine, like out of the goodness of their hearts.

But you have a lot of people like Michael Dell and Ray Dalio kind of jumping on this and being like, here's a billion dollars. Like they want to. Schwab's organization. Right. So I like it. I love the momentum of this, that people want to be associated with this. It's like it basically has no enemies. Nobody's against – nobody's –

for any reason against this. Last thing here. During the growth period, this is according to a notice from the Treasury, contributions can only come from five sources. The $1,000 federal pilot payment. That's the government seating it. Two, qualified general contributions by states, nonprofits, or tribal governments for defined groups of children. Three, employer contributions.

Up to $2,500 per year under new Section 128 of the IRS code, which is called Trump Account Contribution Programs. We should do this for Red Halt's Wealth Babies. Oh, we got a lot of babies being born. Hold your horses. Four, rollovers from a previous Trump account. That's interesting. Or five, voluntary contributions by parents up to five grand per year.

indexed for inflation after 2027. Bloomberg wrote about this. BlackRock said they will match government contributions to Trump accounts for their employees. making it one of the first major US companies to lay out plans for supporting early childhood savings program. So I guess if you work at BlackRock and you put $5,000 into one of these accounts.

Maybe they'll match it up to a certain amount. That's kind of cool, right? We should do it. You want to do it? Yeah. Are we going to all of a sudden be encouraging too many babies, though? I love this so much. It's like, it's all good. There's nothing bad about it. I love the spirit of it. I love that it's happening. I think it's wonderful. I love the FOMO that it's creating to give more. I just think it's all good.

Michael Dell and Susan Dell will give 25 million American children $250 each. That's amazing. To jumpstart an investment account for their futures. That's $6.25 billion. Michael Dell is the man. Unbelievable. Ray Dalio is going to do this in Connecticut, Bank of New York Mellon, Charles Schwab. So it's – I think it's – all right. So this is what I actually really wanted to say.

We have a problem in this country with communism and Marxism. And we have this generation of young people who were born after the Berlin Wall fell in 89. They don't really understand why Cuba. looks like the dark side of the moon compared to the rest of the Western Hemisphere. They don't understand all of the fact that Mao Zedong killed more people than Hitler and Stalin combined. They just don't understand.

That collectivism is not a solution to anything. And it's certainly not going to solve their problems. And they're chanting slogans and they're watching nonsense on TikTok. And many of them come from middle class households. They've been indoctrinated by this combination of social media that is deliberately designed to mislead and tear our country apart. They've got Marxist leaning professors at some of the.

top schools in the country and they're just learning bullshit and it's fine. Like some of them will grow out of it and some of them will have horrible lives, but like it's a serious problem. And. We've got cities in this country that are electing people. It's amazing. You look at the background of some of these people. They're well-educated. They're not stupid. They just have terrible ideas.

Unfortunately, there's like this groundswell of support for these ideas from young people. I understand why. It is really, really hard to come from nothing and make something of yourself. and do so without your parents' help. And even if you have your parents' help, it's almost like humiliating to be in your 20s and see no end in sight to the credit card debt.

and the endless costs of living in a place like Seattle or New York City and trying to live a lifestyle that's like congruent with the childhood you grew up in. It's a huge problem. One of the big reasons for this is that people who are stock market Americans are able to spend an unlimited amount, and that crowds these people out.

I think that this is a better way to fight communism than on social media. Like I think bringing people who are not currently in this system and creating more stock market Americans from birth. And it'll take a while before we see the results of this. I genuinely think that that's a better way to fight off this trend of young people embracing socialism. And, you know, people don't know the history here.

In the 1950s, we had something called the Red Scare. And you've probably heard of McCarthyism. They probably forced you to study this in high school. But it was basically a witch hunt. They were trying to root out. people with communist or socialist or Marxist leanings. They went after a lot of the Hollywood screenwriters and directors and actors and the blackboard people. Yeah, absolutely.

And one of the most interesting externalities of the fight against the Red Scare, the term pinko comes from that, by the way, in case you weren't sure. I never heard that term. Right. So that would be a thing that they would call a socialist. a pinko um one of the interesting things is they invented the suburbs so people born today they don't understand like if you're born into the suburbs that suburb probably did not exist

prior to the 1950s, and most of it were built in the 60s and 70s. They built the interstate highway system in order so that they could get working class people out of the city to live on property that they themselves owned. Because they looked at Europe and they looked at the working class people in cities all over Europe becoming socialist, becoming Marxist. And they said, we got a real problem here. They literally invented the suburbs in order to fight that.

The prevailing theory was if somebody owns property, it's very hard for them to become a Marxist. It's very hard to become a communist if you yourself own property. And it worked. And we created the most. successful economy in the history of the world. Boiler rooms, malls. Dude, it's like they basically emptied the cities of working class people and they put everybody in houses.

Levittown by us was like one of the first examples of this built by William Levitt. This is an actual quote from William Levitt. No one who owns his own house and lot can be a communist. He has too much to do. So. This was like the Eisenhower era. Build the highways. Make it so people can commute to work, commute home. They built commuter trains. They built roads. They built the malls. This is where Sears comes from. This is Kmart.

This is McDonald's. You needed roadside hamburger stands for people who were constantly traveling back and forth. The way to fight communism is not being a dick on Twitter to people who are struggling. The way to fight communism. is this big idea that Brad Gerstner had and that now the Trump administration has embraced. It's let's make more stock market Americans. The best way we know how, literally here, now you're invested.

Own Apple. You still want to have f***ing blue hair and walk around the streets with a sign? Or you want to do something with your life? Right? So that's, so I like this better than culture war. It's like, look. Here you go. You're part of this now. You got a small piece. Your parents can contribute.

Philanthropists can contribute. Corporations can contribute. But like you're in the game now. You're going to be part of the investor class. You're not going to be part of the sign carrying class. So I feel that this is a really positive thing that we're doing. You could love this and still hate Trump. I give you permission. I give you permission. What are your thoughts on this whole concept?

I have nothing to add, really. I thought you said it beautifully, and I cannot be in more agreement. I think this is, if you don't like this, you really need to have your head examined. This is all good. Yeah, I haven't been inspired by a piece of legislation the way that this thing is like captured my imagination in a long time. But I'm just I'm just picturing millions of kids with half a million dollars.

When they turn 21, like, I mean, with the, with the Cape ratio at 40 now, I'm not half a million dollars may not be that much money in 21 years. But maybe it'll be like 50 grand or 80 grand now. It's not zero. It's great. You don't grow up to be a loser automatically just because your parents weren't rich. We have a huge problem right now. We have people who are growing up with no assistance whatsoever from the prior generation, and they cannot keep their heads above water.

It's creating all sorts of crazy political shit. And I love anything that seeks to counter that.

Me too. It's wonderful. Okay. Well done, Josh. Let's move on to what I think is a very, very interesting potential development in this here stock market. First chart, please, John. So I had Sean look back, going back to the last week of December, 2024. Kind of amazing that 2025 was going to be the year.

of AI and continued tech growth. And the Mag 7 did all right. I mean, more than all right, but it didn't beat the market since this time period. Yeah, because as much money as they made, they're also now... You can't call any of these companies asset light anymore. No. They're not the same stocks that they once were. So more interestingly, we've got a ratio of the MAG-7 relative to the four.

93. And what do you see, Josh? Because I sure see a potential breakdown. Now, I'm not, you know, who knows? Maybe this is an oops, as JC likes to say. But you got to put this on your watch list. And this is like controlling for the overall market. Like this is one versus the other. Yeah, dude, it's one versus the other. There's no overlap here. It's literally the seven versus the 493. And okay, check this shit out. Chart goat.

The legend that he is. This is a bit confusing, so stay with me. So the light blue line, that's pure risk on, okay? That is the equal weight discretionary, which we've used a million times versus the equal weight staples. And like everything else... It's going up and to the right, breaking out to new all-time highs. And this pretty much has tracked the ratio of the MAG7 strength. Like it's risk on. This is a risk on chart. And this right here divergence.

It's very interesting. Wait, I'm a tiny bit confused. So the light blue. So is the point to say that discretionary and Mag7 are like one half of the growth part of the market and then equally staples and S&P 493? or another the point is this the point is this chart off please let me explain this the point is that the mag 7 might be passing the baton to the 493 like it might actually be happening because the light blue line

I could have used SP. I could have used high beta divided by low vol or I could have, whatever. Use staples as a proxy for the defensive part of the market. For risk on. The point is we are in a risk on market. The Dow is at an all-time high. Microcaps rock.

Everything is working, and yet you've got a breakdown in previous leadership. Normally, when the market was rocking and risk was on, it was being led by the MAX 7. That's the point, and now it's not. You don't give yourself enough credit because... This is one of the things that you spent a lot of last year talking about is like there has to eventually be this transference of the benefits of AI from the companies that sell it to the companies that use it. Right?

Now, the only hitch in that story is that I told you the S&P is supposed to grow earnings by 14.6% for this coming year. Guess how much the tech sector, just tech, not communications or any other shit. Guess how much tech is supposed to grow earnings in 26, according to consensus? 18? 29%. Yeah. Yeah. But as much as I would love to see that breakdown, it's not going to be because of earnings.

But if we do see like, so this is the type of 15%, 20% gain that I would sign up for in two seconds. If it happens because of the 493, which have not done amazing over the last couple of years, if they start to go and it's a new bull market, like then it's. game on. Let's go. You know what I mean? I was just talking to somebody that said what happened last year. Who was I talking to? The most interesting thing that happened last year is that we had multiple contraction.

in large cap tech. They had the opposite in every market around the world. They had some earnings growth, but like... There are countries in Europe and Asia that were up 35%, 40%. They didn't have earnings growth like that. So we had like the mother of all re-ratings for international stocks. Oh, yeah. And here.

We had the mother of all earnings growth years with an actual D rating. So I'm glad you mentioned that. For the companies driving it. Isn't that interesting? So that's what this is showing basically. We've had no. The forward PE has gone sideways for the last three years. So like you just, I'm sorry, you just got to reject the bubble talk. Like there's no bubble. This is not a bubble. This is not the behavior of a bubble. It just isn't. I wish it would.

It just isn't. I wish it would be a bubble. I'll retire. Do it. Give me a two-year bubble. You'll never see me again. It's not. Speaking about the rest of the market. So this is from, I pulled these two charts from Daily Chartbook, who does great work. Okay. The blue line is non-tech. Non-tech. Non-AI companies that have mentioned specific plans to implement AI into their workflows, leading to lower costs and higher margins. This is from Goldman. Earnings for this group.

has already started to diverge since the third quarter of 2024. And this is, man, this is the whole kit and caboodle. Like this is it. What's in here? What's in this? Right? Yeah, I don't know. Like here in Caterpillar and McDonald's and Marriott. Hey, Charco, if you're listening. Actually, you know what Goldman- What's in that basket? So these baskets on Bloomberg, you have to pay extra for. We don't have this.

We're not paying for the Goldman baskets? No, that's a chart. That's really good stuff. These are companies that have specific implementable AI plans, but they are not themselves AI companies. Or tech.

Or tech at all. Or tech. So, Josh, what happened at CES today? Because I did not have time to look. All the shit went down yesterday. So CES, Consumer Electronics Show. Historically, this was like consumer electronics and gadgets, but it's like obviously way bigger than that. It's one of the biggest technology events of the year.

A lot of the largest technology companies like to use this to set the tone for the year ahead because of where it falls on the calendar. And I just wanted to pull out two. and just like give you a rundown i wanted to do amazon and nvidia run me down amazon was one of the weaker of the mag 7 in terms of share price return Chart on 41% in total returns over the last three years. Again, that's versus an S&P that's doubled. Right. Okay. Amazon used CES to showcase.

A lot of different stuff. Like they went across the whole company. And I'm just going to give you the highlights. One of the things that got the most attention is a 4K television that's got a matte finish to the screen. And it's meant to showcase art. It's called the Ember Artline TV. So, dude, Ben has one of those. I don't know if it's like this one exact, but in his house, it looks amazing. It looks like art. It's beautiful. So it's going to come preloaded with 2,000 works of art.

But then also it'll use your own photos and motion sensing technology that will adapt to what's shown on screen and Alexa integration, blah, blah, blah. Okay. They also finally got around to launching Alexa as a browser experience. So Alexa, you only experienced with voice, like using the Echo or the Echo Dot or one of their speaker devices. Now it's a full-on AI browser experience. Alexa Plus is available on Alexa.com. And it's meant to incorporate.

The people, the users of Alexa, I think there were 600 million devices out there or something. Now we'll have access to things they've said to the device as part of like the online experience. So Alexa.com. has just entered the LLM wars, I wanna say, which I think is sort of interesting. They're also, they had a lot of stuff with AI for advertisers.

Amazon's the third largest advertising business in the world. A lot of people don't realize that, so they rolled out a whole suite of tools for ads. All right, Ring, new security hardware. A mobile off-grid security trailer designed for construction sites and temporary locations. New ring cameras with wider fields of view. New sensors for doors, windows, and glass break detection. And a fire watch.

feature that provides alerts during nearby fire events. So they are not giving up on Amazon in the home. I shouldn't say giving up. They have not stopped innovating there. Fire TV and gaming. New interface upgrades to Fire TV, faster navigation, improved content discovery. Fire TV, like the Fire Stick? I haven't heard of that in years. Expanding cloud gaming support with NVIDIA GeForce Now, blah, blah, blah.

Automotive, they own their own autonomous robo-taxi platform. It's called Zoox, Z-O-O-X. We talked about this once. I put one on the screen. This is like the little bus that picks you up at Las Vegas airport. and goes forward and backward and never has to turn. Like, it's like, it has no front and no back. So whichever direction it's going, that's the front.

And it's meant to get people from the airport. Oh, yeah, I remember this thing. It's cute. It's cute, right? Yeah. You would, right? Holy shit. The Ravens fired John Harbaugh? For real? Wow. Why? You put the wrong kicker in? Wow. What do you want him to do? Wow. All right. Sorry. Back to you. Anyway, Amazon. I think Amazon made a very big impression, and the stock has been doing well since yesterday. Dude, I feel when's the last time Amazon had up 3.5% a day? I feel like it's been a minute.

I think the Alexa AI-enabled browser, like Alexa by browser, I think got people thinking, ooh, maybe they are on the consumer-facing. AI side and it's not just AWS. I don't quite follow an Alexa browser like. If you are one of the people who regularly use Alexa, all of that is context for the types of answers you might want to type into. the thing the way that you would type into Gemini, right? So it's like a browser-enabled version of your current interactions with Alexa.

Anyway, stock's going up. It doesn't matter. It is challenging. It's November 5th high. I just bought more. I think it's going to break out. And I did a big average up because I'm up a lot in it. All right, NVIDIA. This thing got some legs. They absolutely crushed it at CES. Jensen Wang was the keynote. On the AI computing platform front, they... Introduced Rubin. The Rubin GPU architecture is the successor to Blackwell. So again, they're on an annual cadence at this point.

of releasing the next GPU and the next GPU. The Rubin platform integrates CPUs, GPUs, networking, and software into these massive systems and the power, the efficiency improvements. Basically, like this is going to be the next foundational platform. All the hyperscalers are going to have to have access to it. Their customers will demand it. Robots. People had not been thinking about NVIDIA.

as more than a chip maker for robots. But like the physical AI strategy, I think, is having its coming out party right now. Physical AI is the next five years of earnings growth for NVIDIA beyond just data center. And they will be every bit as important in robots as they are in cloud and data center. How much do you think like that is in the price? Like if this robot shit ends up being like- Very little.

Okay. Very little. Very little. Because it's not here yet. But there's a lot going on with robotics. And I don't want to do a whole thing on robotics right now because it deserves more time and attention. I think the baton is going to be passed from data center build out to the autonomous age. And I think that's like probably this is going to be the transition year. So who are the non-obvious winners? Qualcomm.

Qualcomm released a robot brain. People don't even understand. They built a set of chips combined with software. that's designed to function as a robot brain so that anyone who wants to build robotics can skip ahead 10 years worth of R&D and just literally put this brain. into whatever robot they're building and have it instantly be able to do things. Like you don't have to do 10 years worth of research like Tesla.

And Savita's bearish. We got robot brains. What's wrong with her? Anyway. 40, 60. 40, 60. 25, 75. All right. Anyway, the big thing that NVIDIA did, though, they changed the entire narrative about autonomous driving. It took them one year to do what took Tesla eight years. They put a car on the road. drove completely through San Francisco with no human intervention, with technology that is basically a year's worth of work. And why that's important is that NVIDIA's...

OEM customers in automotive is a who's who of companies that are not just going to sit back and watch Waymo and Tesla carve up the entire autonomous opportunity. NVIDIA. has agreements and does business with GM, Jaguar Land Rover, Mercedes-Benz, Toyota, Volvo, every major auto manufacturer around the world is going to get access to if they want it.

to NVIDIA's software plus automotive chipset, which is called Drive, that they can turn their cars into autonomous cars. They'll be at level two immediately. This is what hit Tesla today? This is what hit Tesla today, and it's what boosted Uber because Uber showed up with their own version of an autonomous vehicle that's been built just for their platform.

They're not the manufacturer or the owner of the car. That's Lucid. And an AI company called Neuro. And it's been built with Uber's help. Uber designed the cabin. It holds six passengers. The thing looks sick. They showed it in black. It's got racks of sensors on the roof, sensors on the front. They're going to build 100,000 of these things. This is an $11 stock. I'm really surprised by that. LCID.

But that's the OEM partner for this particular product. And it's running NVIDIA. Here's the point. It's running NVIDIA. And that got people really excited about the possibility of NVIDIA arming all these OEMs. which would then be able to put fleets of autonomous taxis on the Uber network. NVIDIA is kind of stuck in the mud. Like the stock's not really, I mean, it's fine, but it's not really doing much. Dude.

Robots. Brains. Robot Brains by Qualcomm. All right. Good stuff. Thank you for bringing me up to speed. Anyway, that's what happened today. It was a big narrative shift. Oh. Oh. NVIDIA is an autonomous driving stock and a robot stock? Oh, shit. Like, people were not thinking. Like, I know it's not brand new. People that really understand the technology understand this. But I'm saying, like.

Stock market people were like, you know what I mean? Like, it was like, it was a vibe shift. It was a vibe shift. And I felt it in my soul. Before I do the mystery chart, I want it. Before you do that. You mentioned that NVIDIA stuck in the mud. Let's do some quick price target updates after Jensen Wang's keynote. Wells Fargo, overweight, 265. Highlight.

Analyst Aaron Rakers highlighted the design of Rubin with six new co-designed chips as a key differentiator. JP Morgan, overweight, 250, quote, Rubin GPU confirmed to be on track. For calendar second half 26 ramp, leaning even further into physical AI opportunity. Take that. Take that, application-specific integrated circuits. Morgan Stanley, overweight, 250. Joseph Moore said NVIDIA's Ruben will, quote, again, raise the bar for performance. Stop. Nobody's bearish. I get it.

UBS 235, Piper Sandler 225. Everybody saw this keynote. Where's Wedbush? Where's Dan? Where's Dan? Did he get Dan? He's at... 493,000 million. All right. This morning, I saw Sam posted something on Instagram. that you can go to your settings and look at your earliest liked shit on Instagram. So I did that. And the photos that I saw of you and the kids almost made me cry.

Oh my God. Yeah. Like 2012. Like early. So for me, the early shit that I liked, it was like you with the kids in 2012. It was f***ing wild to see. My kids were, I could carry them both. In 2012, I had to hold them both in my arms. I think he was Iron Man in one of the photos for Halloween. It was amazing.

Thanks for making me cry. Let's do Make the Case, then we'll do Mystery Chart, and we'll get out of here. Wait, don't we do Mystery Chart first? What do we do first? Make the Case. Go ahead. I'm pitching you two stocks. Okay. I'll very lightly pitch these. Sean and I wrote these up yesterday for CNBC Pro. We have a column there called The Best Stocks in the Market. We write twice a week. These were really interesting ones. Here's Fifth Third Bank, FITB.

So Fifth Third last year announced one of the biggest regional bank mergers ever. They're buying Comerica for $11 billion. They're claiming. $850 million in synergy by 2027, which means clearing out a lot of redundant operations, maybe closing some branches. And this is going to be...

I think one of the top 20 banks in the country when it's done. All right. Who cares? The stock looks great. Stock looks unbelievable, right? Yeah. I think it's going to 60. Let me show you. And it's a 3% something yield. PNC, this is run by a guy named Bill Demchak, who they call Jamie Jr. It's like an amazing growth story where they're going into the fastest growing markets in the country, Florida, Texas.

This thing just looks like it's ready to roar. It's been consolidating for a year, but this is like a pretty obvious breakout. You know what? I was about to say, like, PNC, these stocks don't war. Oh, yeah? Citi was up 70% last year. This could work. Sometimes they roar. Because they're going to get re-rated. They're not regionals anymore. They're super regionals. It's a different category. It's like a robot brain being inserted directly into these stocks. They just...

I think they both will have earnings growth from synergies of big mergers, but also they'll get a little bit of an upgrade in the multiple. And I think these could both be like 10%, 15%, 20%. uh, growers without taking a ton of risks. So yeah, I love, I love, I love the pitch. One more thing. Shari looks the same. You don't. Fair. Fair. Okay. All right. I got, I got a mystery chart coming on.

And I'm going to be lighting the clues. Chart on. This is the price. Next chart. This is the market cap. I mean, this is insane shit. For people that are listening, this is a stock. The market cap was, I don't know, $120 billion seven months ago. Not even. It's $386 billion now. So this is obviously a stock that you know, it's going literally vertical. What are we talking about here? Can I go back to the first chart, the price? Yeah. Oh my. Palantir?

Micron? Micron? Micron. All right. I knew it was one or the other. I mean, dude. Throw the market cap chart on. Look at the, what is that? This is mental. So Josh, so Josh, my call about maybe being a, there being a blow off top and SMH IGV, like, dude, that's, that's, that went vertical. Sandisk, Micron, Western Didge. What's so funny about that. I know we both just said Western Didge. These were the stocks of my youth. These were the high-flying tech stocks of.

25 years ago when I got into this game or 27, 28 years ago. And they did nothing for two and a half decades. And this AI build out just like resurrected all of them. Dell. Corning, GLW. These were my stocks. Sienna, Cisco. That's where the, if there is a blow off top, it's in the stocks of my youth. It's an incredible thing to see these things come back 30 years later.

The stocks of your youth, you sound like Barbra Streisand and Meet the Fox. These are the stocks of my youth. These are the fruit of my lawns. Please, I traded these stocks when I was 20 years old. Dude, Cisco just made, I think Cisco just made a venture deal. Do you know who Jabil Circuit is? Not personally. This is one of the hottest stocks in the galaxy. It's on my list of best stocks in the market. I used to make a market in this stock.

I worked at a boiler room that owned like 30% of the float. Before it was New York Stock Exchange. It was J-B-I-L. And I could still do the pitch. The founders' names were Jay and Bill. That's why. Shut up. Shut up. And it was called J. Bill Circuit was the full name of the company. And they literally were an electronic contract manufacturer where –

Like Dell and all these companies that made PCs and keyboards, they would outsource it to Jabil. Jabil would make boxes and then ship them in a Dell box. Wait, why are we talking about Jabil? Because that is a stock of my youth that is now one of the best stocks in the market, along with Sienna. Wait, what's the ticker of JBL? JBL. Oh, JBL. JBL. Nobody knows.

No, but people don't understand. This was a NASDAQ small cap. We used to pitch this. It was like making keyboards and servers in Asia for IBM and Compaq and Dell. Like the fact that this is one of the biggest players in the AI age, it's so much fun for me. So maybe it is 1999. But it's just, it's awesome to see these stocks get like a second.

a second crack at it. So anyway, all right, that's the show for tonight. I hope you guys had as much fun as Michael and I did. We love you. We miss you when we're not here. Thank you as always for joining us on the live. I want to let you know tomorrow is Wednesday, which means when you wake up. Brand new animal spirits on the podcast app of your choice. That's Ben Carlson and Michael Batnick. My favorite podcast, hands down. And if you like the show, you'll love that show too.

We'll do Ask the Compound later this week. We'll do the Compound and Friends at the end of the week with a very, very bold name, fancy, famous guest. And you guys are going to love that as well. So keep it locked on the compound all week. We are going to deliver in 2020 Stinks. Thank you all for coming out. God bless. Good night.