Transcription
Ladies and gentlemen, there is chaos in financial markets. The bulls, the bears, they are battling it out and everyone wants to know what is going to happen. Is a big market crash right around the corner?
Tom Lee was recently on CNBC and he was asked to explain why he thinks that there's an abrupt change in market conditions later this year. He had five things that he thinks are completely changing financial markets. Take a listen right here.
"We can see with pretty good visibility three things happening. you know, one is that we know markets eventually test, especially if a Fed that's redoing the five, you know, framework with five task forces. I think that's in 2026. The second is that the IPO of SpaceX today there's very little flow, but that's going to unlock later this year in phases along with the IPO of anthropic and open AI. And the third is that because of just the the disruptions we experienced so far in the straits of Hormuz there is in the supply chain coming shortages that those are actually the preconditions. I think the fourth catalyst is that speculative firepower runs out. Um that will happen when some things like margin debt you know experience levels that are associated with short-term corrections. Or it could be that you could see a lot of cash move the sidelines, but I don't have any sense that investors are that bullish yet. So to me, I don't think that fourth piece is in place yet."
But on the other hand, the S&P 500, according to James Thorne, just delivered nearly 22% earnings growth. These are video game numbers. Absolutely bonkers. And if earnings are going up, that means that stock prices are going up. Wall Street somehow is missing this story. According to James, he says that we're living through one of the strongest profit cycles in modern history. Yet, the narrative remains fixated on looming collapse. Again, is a big market crash right around the corner or not? That is the multi-trillion dollar question.
Now, if we dig deeper into the data, we can see here from Blue Kirk that the AI-driven semiconductor rally is now officially bigger than the dot bubble. That gets everyone really worried. Today, the SOX index has gained over 100% in 2026. There's been only one other year in which that has happened and that was 1999, one year before the .com peak.
Now, of course, if you go and you look at the software or semiconductor stocks going to the moon, everyone wonders what's driving that. Mike Novogratz, the billionaire investor, he says that the United States structurally has to push asset prices higher. And a big reason is because of the $40 trillion in national debt. Take a listen to Novogratz's logic right here.
"We have $40 trillion of debt and it's growing. The only way we deal with that debt is to inflate it away. Period. End on the story. There is no other. We don't grow out of $40 trillion of debt. So, we actually need inflation and we've got to in some ways run 3 to 4% inflation, convincing the market and consumers we're going to keep that close to two. And each year we don't keep it to two, but don't lose everybody's faith. You know, we're eradicating 2% of debt. If you could run 4%, if me and you knew, we could run 4% inflation for the next 10 years and but have that two target and have the markets believe we were going to get to two. We'd have 10 years of 2%, you know, whacking away at that debt, deflating it away. in 2% that's 10 years that's 10% in or 20% in 10 years plus compounding it's probably 30% in 10 years you'd have less debt less net debt and so like that's that's what has to happen what normally happens is people lose control of confidence and then all of a sudden that inflation goes not to 4% but to 14 or 40% and all the debt gets wiped out and but all the wealth gets wiped out."
"Right."
"Yeah. And so it's a really we are playing in the trickiest game macroeconomics can play."
Now we have the national debt exploding higher and we have stocks continuing to the moon. That might mean that things are getting too frothy. They're getting too hot. And so the Fed, maybe the Fed should raise interest rates. You hear people talking about this because of the higher inflation levels that we've been experiencing. But Warren Pies, he doesn't think so. He actually expects the Fed's next move to be a cut in 2027. That's right. He says a cut, not a raise. Listen to what Warren's thinking right here.
"Our simple rules is if in our during this period, if you don't see a recession in your indicators and the Fed is easing, you can't be underweight equities. And it calls to mind uh things like when you have strong earnings growth. We have 20-some percent earnings growth projected for 2026 in the S&P 500. 10% forward sales growth. I mean, that's a fundamentally derived bull market. We've only seen one year where earnings have grown by 20% and the market has not produced double-digit returns. That was 2018. And so that's the the scenario we're worried about. I think it's all clear unless the Fed does actually move towards that hiking regime. I don't think we're there yet. I think that that's what the market's worried about though clearly today. So when I look at it technically, I think everything's going to be okay. I don't think the two-year is pricing in at this point almost a full 100% odds of a next move being a hike in my framework. My framework is 50 basis points above the Fed funds rate. Is the market on the two years the market pricing in a hike? I just don't think that's really we're we're getting over our skis here. If oil pulls back, that's really been the big change in the last 3 months. If oil pulls back, settles down, we get a resolution in Iran, I think a lot of these things fall into place. Um, yeah, more uncertainty because frankly worse is just not going to communicate very well to the market. So more uncertainty does equal more risk premium, but you have to kind of rely on your analysis of the data. I just don't see a hiking regime yet."
Now, I think that Warren's got some pretty solid logic there and I do think that the Fed is more likely to cut than raise rates. But one thing that we've got to dig deeper into, Torsten over at Apollo shows that if you strip out artificial intelligence and energy from the stock market, the S&P 500's actually down. Now, I always laugh whenever I see this stuff. It's like saying, you know, if we didn't have water, then the ocean would be empty. Well, of course, there's water in the ocean. But the same thing is there's AI and energy stocks in the S&P 500. And so those stocks are going up, which means the entire index is going up. But yes, if you strip out AI and energy stocks, then the S&P 500 is down. It just means AI and energy, that's hot. Those are the people with the hot hand, and those are the stocks that are going up.
Now, one thing though to be careful of is that Ryan Dedric points out June 17th historically kicks off one of the worst 10-day periods of the year. So, regardless of what he thinks is going to happen over the long run, Ryan is telling you the June swoon. Something to be careful about. He points out that 428 stocks in the S&P 500 fell yesterday. That's the most this year. Of the 500 stocks, 428 of them sold off. And in fact, that was the most since 479 fell on the last day of 2025. So again, this goes back to this K-shaped stock market where we have AI and energy stocks growing and growing and growing. A lot of that's being driven by the national debt, the fact that the government's got to debase the dollar, and also that there are macroeconomic factors that are driving those areas higher, but everything else is sold off. There's weakness in about 430 different stocks.
And so the question becomes, are the bulls or the bears right? Is the stock market going higher or lower? Is a big crash on the horizon? A lot of that's going to have to do with what the Fed does. And if the Fed starts hiking rates at a fast pace, then yeah, asset prices may have some sort of headwind. But my guess is that the Federal Reserve, they have a proclivity to actually lower interest rates, not raise them. And as we get to the end of the Iran war, we're going to see energy prices come down lower. And if energy prices come down, you'll see inflation start to cool off. And it'll give confidence to the central bankers to cut those rates. If we get rate cuts, the stock market is going way higher and the AI trade is way more sustainable because earnings are growing. And so the more that people tell you that there's a big crash on the horizon, maybe they're right. I just personally don't believe it. I don't see it in the data. All I see is that there is earnings growth, there is a likelihood of interest rate cuts, and I think that stocks are going higher because investors are going to keep allocating to equities rather than trying to store their wealth in cash. As long as that's happening, there's a persistent bid for the equity market. And that means that you can either try to time the market, you can try to predict the next big crash, or you can just do what great investors have done for the last century, allocate to US equities, and chill out. Let the central bank pump asset prices to the moon and make sure you're on the right side of the dollar debasement trade.
That's it for today's show. Thank you guys so much for watching. Please remember to subscribe on YouTube. My goal is to get to 1 million subs. Hit that button, help me out, and I'll see all of you on Monday, live from the desk of Anthony Papiano.