The Compound and Friends: Why the Knockout Punch Never Comes With Brian Levitt
On episode 246 of The Compound and Friends, Michael Batnick and Downtown Josh Brown
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The Compound and Friends: Why the Knockout Punch Never Comes With Brian Levitt
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On episode 246 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Brian Levitt, Global Market Strategist at Invesco to discuss: whether the AI trade has become too crowded, why earnings growth still supports the market, and what investors should actually watch for signs of trouble. They also discuss small caps, rate expectations, consumer strength, the SpaceX IPO, and whether comparisons to the dot-com bubble are useful or overdone.
This episode is sponsored by Fidelity Investments and ClearBridge Investments.
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Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
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Transcript
Josh Brown: I yelled at the guy at the bakery today. Downstairs.
Michael Batnick: Here.
Josh Brown: Yeah. I go. I'm in there every week on Thursday, I have no time for lunch, so I get a stupid blueberry muffin and a black coffee. To wake up. They have. They ring me up. They have no blueberry muffins. Okay, fine. What do you have? Lemon poppy. Of course you do.
Michael Batnick: Who wants lemon poppy?
Josh Brown: Who would buy that? Fine. I don't care. I get upstairs. I realize the coffee is ice cold. Like, undrinkably cold.
Michael Batnick: All right, so you microwave it.
Josh Brown: I emailed. I never do this. I email a guy. I'm like, yes, he does. No, I don't. Here's. No, I don't. I just let it go. I'll just never go back. I'll never go back. But I'm like, what do you want? What do you want to do here? You know what I mean? Like, well, I'm in there every week. What are you emailing the owner? I found the owner. I found the owner's email address.
Michael Batnick: I was telling. I was telling Josh. I was speaking an hour ago about how I'm trying to be nicer.
Josh Brown: Lemon poppy muffin.
Michael Batnick: Can you imagine just in life, just generally speaking, you know, like, just give people in this economy and not assume the worst.
Brian Levitt: Always feels good to be nice.
Michael Batnick: Trying to be nice, and Josh going the other way.
Josh Brown: So the gloves are off.
Michael Batnick: Brian. But, Brian, it's hard because last night, for example, I was at the Knicks game.
Brian Levitt: So jealous, by the way.
Michael Batnick: Well, I left. This is my redemption. I left game one of the Cav series when we were down 22.
Brian Levitt: No, you didn't.
Michael Batnick: I did.
Brian Levitt: Okay?
Michael Batnick: I did. Um, and last night. And listen, I. I think that people are trying to be nice. They're trying to, like, be in on the action, right? It's fun. Like, oh, Michael's at the game. I'm. He's. I know he's a big Knicks fan. Uh, are you at the game? But, like, I had a few people text me, like, acquaintances. Are you at the game? This is when we were down 25. Are you at the game? Yes. Yikes. Yikes, dude. Right? Like, why would you do that?
Brian Levitt: I don't feel bad enough already.
Michael Batnick: Why would you. Why would you say that to me?
Brian Levitt: Right?
Michael Batnick: So, anyway, I appreciate all. What do we.
Josh Brown: What do you think they think the reaction's going to be?
Michael Batnick: I gen. I don't know.
Josh Brown: I think anyone wants that text.
Michael Batnick: No, I. I don't think. I don't think that they're thinking that. Oh, like, maybe, like, Michael is a genuinely die hard. He's probably not having a great time right now and. Or the people that are texting you like during the game are probably not thinking like maybe just let him enjoy the game. His phone is probably blowing up. So I do. It's nice. Like people are trying to be nice. So I do appreciate that they're trying
Brian Levitt: to connect with somebody at the game.
Michael Batnick: I'm trying to not be like, you know, be nice. But I really appreciate all the people that didn't text me. Right, right. That just like let me be.
Brian Levitt: Yeah, don't. Don't contact me. I'm miserable.
Michael Batnick: Anyway, so last night was. It was like my wedding night. Best night in the sense that it was. No, let me, let me, let me go on.
Josh Brown: So nothing happened.
Michael Batnick: It was, it was just a euphoric blur that I woke up and I was like, what the. Like, so I need to, I need to record the game. I. I recorded the game. I'm going to watch it when I get home tonight. The fourth quarter, because it happened so fast that in the moment I just completely. It was an out of body experience.
Brian Levitt: Of course, of course. I was just doing math the whole night. Right. Like how, how much are we down? How much are we. How do we get there?
Michael Batnick: So here's what happened. I heard Will Bond say this, this morning in terms of like. Cuz literally, how did that happen? Right? They were up 29 points. How did they blow the lead?
Josh Brown: They hit eight fields in the second half.
Michael Batnick: That's how it happened. No, here's how it happened. Specifically, they took 12 threes in the second half with more than 10 seconds on the clock, which is coaching malpractice.
Brian Levitt: Right?
Michael Batnick: And you're on 20 points. You cannot take threes with 10 plus seconds of the shot clock. And they made one of those shots.
Brian Levitt: One of those shots and they. De' Aaron Fox went for the layoff with 11 seconds. I mean that's just, it's. Yeah, it's malpractice.
Michael Batnick: Boner of the decade malpractice.
Josh Brown: What's weird is that they're not a poorly coached team. Like the spurs are not. Up until, up until what we saw last night.
Brian Levitt: Right.
Josh Brown: I wouldn't say that they're expertly coached, but that's, that's like a very weird series of things that most teams would never do.
Brian Levitt: I think they were trying to step on the throat.
Michael Batnick: They weren't.
Josh Brown: They went for it.
Brian Levitt: Right? They went for it. They weren't resting. Wemby, just step on the throat. Let's. Let's get this done and get on to Game 5.
Michael Batnick: And they missed a lot of open shots.
Brian Levitt: They did well. They were lights out in the first half.
Josh Brown: They played every minute of the game except for one minute one. They rested them one minute. Right.
Brian Levitt: But you could tell by the end
Michael Batnick: they were, they were, they were missing open shots. So they were good looks. But the other thing is, and I didn't watch the game, rewatch the game yet. I think they only called one time out in the fourth, which is crazy. Like, how do you not stop?
Brian Levitt: You've got to stop the momentum immediately, immediately, immediately.
Michael Batnick: We hit another three. Timeout. Josh Hart's three at the top of the key to put it down. Fifteen, I think. Timeout. And they did it once. It was inexplicable. Anyway, so Knicks fans are psychos. I was telling Brian. So I got my tickets to OKC and San Antonio a month ago just in case. And so they ran out of direct flights. Now it's like the one or two stops to San Antonio. You go through Orlando or Atlanta, whatever, then that gets sold out. Then people are flying into Austin. Jonathan Boyard texted me this morning, he's going into Houston. I said, why are you going to Houston? It's a three hour drive. Go to Austin. It's like, dude, there's no fights. There's more flights to Austin.
Brian Levitt: Yeah, yeah.
Josh Brown: I would, I would imagine that that arena will be 30% Knicks fans.
Brian Levitt: Mike was saying higher.
Michael Batnick: Well, I said no last night.
Brian Levitt: Oh, last night was.
Michael Batnick: Last night I saw that 40% of the sales on tick pick or 30, it was 37% were from new Yorkers.
Josh Brown: Excuse me. On what tick pitch. So I, I was at, I was at one of the Philly games. I would say 40% Knicks. Conservatively. Like my entire section was Knicks. People that live in Philadelphia that are originally from New York, people that came from New York, people that came from other places that are Knicks fans to Philadelphia. San Antonio is further than Philadelphia. I honestly don't even think it's going to matter.
Brian Levitt: It's not going to matter. And if you think Knicks fans or New Yorkers were insufferable before this, just wait.
Josh Brown: Yeah. Now, do they sell, do they sell Timothee Chalamet front row seats?
Brian Levitt: Probably not.
Josh Brown: I don't know.
Brian Levitt: They pushed. They put him back a row. Right.
Josh Brown: Who are the San Antonio celebrities? Like Yosemite Sam? Like, I don't even know who the would be in that front row. Oh, honestly, like, I'm trying to, I'm trying to.
Brian Levitt: J.R. ewing.
Josh Brown: No, Davy Crockett.
Brian Levitt: Davy Crockett.
Josh Brown: Like, literally the Alamo.
Brian Levitt: The Alamo, yeah.
Michael Batnick: Last night there was. I saw.
Josh Brown: Oh, Tim Duncan.
Brian Levitt: There you go.
Michael Batnick: No, he sits up top with Pop. I saw. And I was one of them. There was a lot of people crying. Like, it was even this emotional this morning. My wife is like, you're crying again.
Josh Brown: Again.
Michael Batnick: It's just. It was. It's a lot. It's a lot to process.
Brian Levitt: Well, it's like his wedding night.
Michael Batnick: Yeah. Yeah.
Josh Brown: Cried on your wedding night, too. I've been told I did. All right, round of applause for Michael Batik. His dreams are coming true right before our eyes. I'm a Knicks fan, but Michael is a Knicks fan. You're like, almost. You are a Knick. It's at that level. All right, miss the call. Get a good one of me this week. Wait, wait. Come back, come back, come back. Let's do. Let's be.
Michael Batnick: That was a failed intro. I don't think we've had that before.
Josh Brown: Let's be deliberate. Let's be deliberate.
Michael Batnick: That was a coaching malpractice.
Josh Brown: All right, Come on. I want to get a good picture because I'm always looking to the side. Everyone always says you still are. Yeah, you're getting, like, these profile shots of me. Like these Alfred Hitchcock esque profile shots. I'm much better. Head on.
Michael Batnick: Let's go. Let's go.
Josh Brown: All right, let's do the show, John. Click it up. Let's go.
Michael Batnick: Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. This message is brought to you by Fidelity Investments. When timing is everything, you need powerful tools and research that can meet you in the moment. With the all new Fidelity Trader plus platform. Your charts and preferences show up consistently synced up across all your devices. So you can act fast whenever and wherever you're trading.
Josh Brown: You can save and order on your desktop at home, get a mobile alert when you're at work, and complete the trade in the Fidelity app without starting over. And with the downloadable Fidelity Trader plus desktop platform, you have more control with multi monitor views, enhanced tools and customization options, and integrated screen sharing with Fidelity Trading Specialists.
Michael Batnick: Try Fidelity's most powerful trading platform yet@fidelity.com TraderPlus, Fidelity Investments and the Compound are not affiliated. Views, opinions, products, services and strategies discussed are not endorsed or promoted by Fidelity Investments, but Brokerage Services, llc. Member NYSE sipc.
Josh Brown: This episode is sponsored by clearbridge Investments. Amid rising geopolitical tensions and continued market uncertainty, investors are looking for stability even before recent developments in the Middle East. Stocks backed by real assets were gaining momentum and can offer more predictable cash flows as volatility increases. Position your investment portfolio for wider equity participation with fundamentally driven Clearbridge active equity strategies. Clearbridge, a Franklin Templeton company. Go to clearbridge.com to learn more. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael
Michael Batnick: Batnik and their castmates are solely their
Josh Brown: own opinions and do not reflect the opinion of Ritholtz Wealth Management.
Michael Batnick: This podcast is for informational purposes only
Josh Brown: and should not be relied upon for any investment decisions.
Brian Levitt: Clients of Ritholtz Wealth Management may maintain
Michael Batnick: positions in the securities discussed in this podcast.
Josh Brown: 246. Go New York. Go New York. Go you guys. We have an. We have a brand new guest with us this week. First time listeners, first time viewers, my name is Downtown Josh Brown, my co Host as always, Mr. Michael Batnik.
Michael Batnick: Hello. Hello.
Josh Brown: The whole Compound team is here. John's here, Nicole's here, Duncan's here. And we are blessed. We have Brian Levitt in the house. Brian is the chief Global market strategist and head of strategy and insights at Invesco. Welcome to the show, Brian.
Brian Levitt: My pleasure. Thank you for having me.
Michael Batnick: Hell yeah.
Josh Brown: Brian joined Invesco when the firm combined with Oppenheimer funds in 2019. He started at Oppenheimer Funds in fixed income product management in the year 2000 and then moved to the Macro and Investment Strategy Group in 2005. He also attended in person the 1970 Knicks Finals. Is that what you told me before?
Brian Levitt: I think my father. All right, dude.
Josh Brown: It's a pleasure to have you.
Brian Levitt: It's my pleasure to be here. Thank you.
Josh Brown: It occurred to me, I don't like Invesco is such a huge brand in our business. Everybody knows the cues. Everybody, of course. But like just in a nutshell, what is the Invesco superpower? Like, what do you guys. Besides just the cues, what do you think you guys stand for? And what do you think is the thing that sets you apart in the asset management world?
Brian Levitt: We offer a significant array of great products. We're one of the largest ETF shops in the industry. Private market Business, Active Fundamental Equity, a large fixed income business with a big municipal bond shop. So we, we offer products that serve our clients. I mean, we, if, if you're looking for it, we likely have it.
Josh Brown: Okay, and you have been there since almost the beginning. Like, what's the origin of the firm prior to its current incarnation?
Brian Levitt: So I was with Oppenheimer Funds. I was with Oppenheimer funds for almost 20 years. And we were acquired by Invesco in 2019. And if Invesco is, there's some pretty big names that are now part of Invesco. Whether that was aim, whether that was Van Kampen, you know, some names that investors know for, you know, a variety for a long amount of time is under the Invesco umbrella.
Josh Brown: I think I can reveal this without getting anyone in trouble at this point. Certainly the statute of limitations has run out. The funny thing about Oppenheimer funds, from my own personal experience, and you probably know this, is that there was a brokerage firm totally related, correct?
Brian Levitt: Oppenheimer and Company. Yes.
Josh Brown: Okay, good guys. But I knew a lot of Oppenheimer brokers who would pitch Oppenheimer funds and give the client the impression like that, oh, that's funny. These are our funds.
Brian Levitt: So we had a difference. So you remember when Meredith Whitney made the big call on the banks? She was Oppenheimer Co.
Josh Brown: When it was like CIBC, Oppenheimer or whatever.
Brian Levitt: And people would call us looking for Meredith Whitney.
Josh Brown: Right.
Brian Levitt: And we would say, well, she doesn't work here.
Josh Brown: She doesn't work.
Brian Levitt: She doesn't work here.
Josh Brown: Yeah. Can you believe it? There's two different Oppenheimer companies on Wall Street. Right. Okay. All right.
Brian Levitt: Everyone's confused.
Michael Batnick: One of them were to change their name, which one would it have been? Which was the real one?
Brian Levitt: We were the funds. Was the real one, Right? Totally the real one.
Josh Brown: All right.
Brian Levitt: The right way to invest.
Josh Brown: Shout to. Shout to Oppenheimer.
Brian Levitt: Just. Just a blessed memory.
Josh Brown: Yeah, just. Well, you are Oppenheimer, but the other one's still here. All right, let's start with this. The most crowded trade in the market. Michael, take it away.
Michael Batnick: So, you know, I just want to say, people see me typing on my computer sometimes while Josh is talking. What is he doing? Is he texting? He's no.
Josh Brown: Doing well, screw up on. Right.
Michael Batnick: So I was just looking at Apple, probably really of nothing that we're about to speak to, but one of your. One of the suites of ETFs that I love to look at are the equal to ones. Not just rsp, but like all of the other ones. So I was taking a screenshot. I asked Claude how much. How much money is in these funds total? And it says about seven half billion dollars. I don't know if that's higher or lower than I would have, like the equal weight technology, the. The staples. Because we look at RSPS all of the time.
Brian Levitt: Right?
Michael Batnick: All of the time. Because XLY is a hugely flawed product, I think.
Brian Levitt: Yeah. And you want to get a sense breadth of the market. Right. You're following it. How, how is it performing relative to the market cap? I'm watching it all the time also.
Michael Batnick: Yeah, so anyway, we're fans of that. Okay. So not that this is news to anybody, but this is so obviously the AI or nothing bull market. And I don't just mean the stocks and their prices, if you look at the actual earnings. So this is from Jim. Jim Paulson. Char down please. John. The S&P 500 new era sectors trailing 12 month EPS. And we could understand, you know, we all know what's in there versus the old sector trailing month EPS. And this goes back to 2022. So. So he said many investors suggest the bull is doing fine because S&P 500 earnings continue to rise. While this is true, earnings for most companies are actually below where they were at the start of this bull market. So I would ask you, I think probably the interpretation is that this is bearish because it's only one area doing all of the heavy lifting. What if the red line forget about, catches up, but what if that gets, gets a lift from all the AI productivity?
Josh Brown: Right.
Brian Levitt: And I think it's starting to happen. If you actually look at the first quarter of this year, you had earnings across most sectors posting very strong gains. So it was 7 of the 11 sectors posting double digit earnings, 9 of 11 positive earnings growth or maybe even 10 of 11 positive earnings growth. So it is broadening out. The interesting thing, for the second year in a row, we really were at a point where we expected the markets to broaden out and it was starting to work two years in a row, a policy decision disrupted it. So you've seen other parts of the market, you've seen small cap earnings start to pick up and the markets have responded. But yeah, I mean it's a, it's an environment where the world is adjusting to a very substantial structural change that I think even goes beyond what investors had anticipated in the beginning of the year with regards to the AI build.
Josh Brown: The S&P is up 11% year to date. Ish. The Mag 7 are negative on the year as a group. If you equal weight them. Very strange. And then I, I read 40%. I didn't double check it. I should have. 40% of S& P stocks were negative on the year. So to Michael's point, there's extreme concentration happening in this AI CapEx story and it does touch a lot of sectors. Think about it, like utilities are in there, materials are in there, like materials are in There. So it's not just tech, but it's one story. Like if you find, if you find a stock up 20% on the year, if it's not a biotech that just got approval for something, it's probably AI related. And I think that's the. When we say like the most crowded trade, well, why is everyone crowding in there? It's literally where the earnings growth is and it's where the revenue growth is. And why wouldn't they want to own those stocks? So that's the story to me of the first half of this year. What do you take issue with any of that or.
Brian Levitt: I don't. Although I would say there's really been two stories that have unfolded since the beginning of the year. You had the first one. And if we look at our leading economic indicators, the global economy moving into an expansion while the Federal Reserve is going to lower interest rates. So that's quite bullish. And that suggests broader market participation. If you think of the first few months of the year, we had a nice feel of that. You had a pretty decent environment going on. The war in Iran stopped it. Yeah, the beginning of March, similar to the way Liberation Day stopped it in 2025. So when I say two years in a row, we made a policy decision that disrupted it. What do other parts of the market need? Like if you're going to be in a slow growth world, everyone's going to keep bidding up growth where they could find it. If you can get in an environment where you have fiscal stimulus, Fed cutting interest rates, global economy picking up, that's when more companies can participate. So we stalled it here for certainly parts of the S&P 500. But I wouldn't underestimate small caps doing well this year. Emerging markets, of course, emerging markets.
Josh Brown: What do they, what do they need?
Brian Levitt: What do small caps need?
Josh Brown: What we're going to talk about some. You wrote about bear market narratives and we're going to touch on that later. So I don't want to step on that. But what do we need to see in the second half? The resumption of what you just pointed out. We had this broadening trade two years in a row. Something weird happened in the spring out of nowhere, stopped it dead in its tracks. And we went back to a AI
Brian Levitt: it went to slow growth.
Josh Brown: What do we need to reverse that so that we're not looking at 40% of the market negative on the year? Like what has to happen?
Brian Levitt: Oil prices peaking, which I believe they have, interest rates peaking, which I believe they have. Inflation Expectations peaking and a Federal Reserve that can get back on its easing stance. So a lot of that has to do with the straight up removes what's going on with Iran and can we get past that? So the good news from a, from a market perspective is the market's moving on if we think about each of those things peaking. But you need the real economy to get support from that. So the market is believing we're gonna get to a better place. When you think of oil inflation expectations rates coming down, but the broad macro backdrop is weak as a result and the Fed's on hold as a result.
Josh Brown: So there's two interesting things happening at once. I'd love to get both of you guys what you think the oil price spike from the Iran war, it's like it really threw a monkey wrench into everything because it did two things. The first is obviously it screwed up the broadening trade.
Brian Levitt: Correct.
Josh Brown: And it took a whole chunk of the market down. And these were stocks that were starting, we were starting to see the 52 week high list expand and that totally went into reverse. So it did do that. And then simultaneously it raised inflation expectations. Even though oil is one input, it kind of brought like CPI back into the focus again. Correct. It knocked the Fed rhetoric on its heels. And so the whole housing component of the stock market, throw it out, forget it.
Brian Levitt: Financials, you're going to flatten the deals.
Josh Brown: Financials got kneecapped. Real estate, like real estate up until recently. There's some weird reasons why insurance, like all of these different categories of stocks and they're huge categories of stocks got blown up by this oil price spike. And so I feel like if that
Brian Levitt: goes into reverse, that goes into reverse,
Josh Brown: it would make sense to see people say okay, great, it's game back on
Michael Batnick: what's happening right now. Look at this chart. So this is Russell 2000 divided by the S&P 500. And this thing is, looks like it's cooking. It looks like a major, major breakout is coming.
Brian Levitt: Correct. And that's the peak in oil prices, that's the peak in inflation expectations. I mean the reality is you get a CPI report a few days ago and investors worry because it's what, 4% or so? I mean where did we think it was? We knew that's where it was going. I've never been concerned about the headline number. I'm far more concerned about what the bond market is telling us about inflation. And coming into the year you had a five year break even probably around 215. Right. That's I Like that. I can sleep very well at night with a two year, with a 215 break even, you move to 265 or so. That starts to get a little bit worrisome. We're back at 250. And so the bond market's telling you you have price stability, which means you're not going to get rate hikes.
Josh Brown: Right. We don't have wage growth as a component of the inflation. No, that's not what's happening.
Brian Levitt: Not what's happening. You have a price shock.
Josh Brown: That was the problem we had four years ago. We don't have that today. No, we have the price shock. Right. Okay.
Brian Levitt: Right. And if you think about when the problem became more critical five years ago or in 2022 was when the five year break even broke above 5%. Yeah, that's, I mean, I'm sorry, 3%. That's the five year goes above 3%. That's the problem. You have to start tightening interest rates. We know when you tighten interest rates, bankers tighten lending standards, credit spreads blow out. That's how end of cycles happen. That's not what is.
Josh Brown: If we were, if we were to end the year today and somebody would would say, use one word to describe what worked in the markets in 2026, what word would you use?
Michael Batnick: AI.
Josh Brown: What would you use?
Michael Batnick: Memory.
Brian Levitt: Growth.
Josh Brown: Momentum. Momentum.
Brian Levitt: Yeah.
Michael Batnick: Ah, yeah.
Josh Brown: Which brings, which brings us to chart 2.
Michael Batnick: It's anonymous. All of the momentum is AI. But go on.
Josh Brown: It's, it's synonymous, right? It's, it is, it is.
Michael Batnick: It's all AI. So this is from. There's a, there's a, there's a guy called the Daily Chartbook. That's not his name, but he happens to write a research piece called the Daily Chart Book. And every day he puts out 30 or so great charts and this is one of them. So we're looking at the momentum crowding score. I don't know how Barclays exactly calculated this, but whatever. It's at the 90th percentile. And so on Friday we got a very quick unwind of this. By the way, the unwind has now rewinded like DRAM. The ETF is up 12% today. So chart kid, we have a chart kid. He's an artist. Chart 3. He made a chart. I said, hey, you know what? I think this is a great way to visualize what just happened when he'll
Josh Brown: become a chart on Friday through, on
Michael Batnick: Friday through Wednesday, the stocks, I said, take a look at the stocks that were the furthest distance above their 200 day moving average and plot that against what happened over the last four day period. And it's a very clear story. The stocks that were the most extended, so on the Y axis you see how far they are away from their 200 day moving average. So micron was 150% away from its 200 above its 200 day moving average. Yeah, people were a little bit drunk and they needed to sober up and they got a little bit of a slap on the wrist. So I thought that the sell off last week was long overdue. Very much needed. I don't think that, I mean, I definitely didn't think that we would bounce in two days. I thought it would maybe last a week, two weeks, but we needed it.
Josh Brown: May I?
Michael Batnick: Yeah, go ahead, Cook.
Josh Brown: Okay. Not everything is AI this is Casey's General Store, which is an outlier because it had an amazing earnings report. No AI Literally selling pizza in gas stations in the Midwest. Okay, so not everything, but.
Michael Batnick: No, no, no. But that is the exception. Like you said. Look at all of the bubbles. Those have, those have one thing in common.
Josh Brown: Wdc, Dell, intel, sd, those are all
Brian Levitt: AI but let's make it, let's make an important point to investors. I mean, investors are always asking me when I think volatility is coming or when I think a drawdown is coming.
Josh Brown: Yeah, I think it comes up on that too.
Brian Levitt: Well, it's almost. Josh, isn't it always the result of policy uncertainty? I mean, isn't that when it always comes back in. So you, what happened on Friday? I mean, I guess we're going to, you know, we don't have a deal with Iran. All right, so there's some policy uncertainty there, but we've been doing that for weeks now. But we got 175,000 non farm payroll number which by the way gets revised 57,000 in either direction. So the last thing I want to do is freak out about a payroll number. But all of a sudden the market wants to raise expectations of one or two Fed rate hikes. So you start to get some of that uncertainty into the market and you get a sell off. I mean, it's not the earnings side. We talked about that, right? Earnings have been great. So you adjust the discount rate, at some point you're going to have some volatility in these markets. But I'm still in the camp and I've said it already, I don't believe that we're in a persistent inflation environment. And I don't believe the Fed's raising interest rates.
Josh Brown: I think what you raise is such an important point because if not that we get a choice but if, if you, if you were to get a choice, what is going to be the source of the market volatility? Door A, Nvidia just pre announced to the downside. Okay, any other door, Door B is Donald Trump versus Iran goes in a weird direction. Like you would take door B every single time.
Brian Levitt: Correct.
Josh Brown: Nobody wants door A. And the good news is we don't have door A right now.
Brian Levitt: We don't. Or if there's a door C, I would think it would be some hint of stagflation which I always think is silly. This is not stagflation. This isn't stag or flation. Sounds like Linda Richmond on Saturday Night Live.
Josh Brown: Right, Discuss, discuss, talk amongst yourselves.
Brian Levitt: But yeah, it's not stag or flation but that's, I mean I probably talk about inflation breakevens too much right now but every cycle there's something new I'm laser focused on. Right. We all are in 08 interbank lending spreads, 2020 vaccination rates. To me that's the story right now with oil where it is. As long as we have price stability this cycle is going to keep on going.
Josh Brown: Are investors taking too much risk?
Brian Levitt: No, I don't think investors are taking
Josh Brown: too much risk as a group. I know it's hard to lump everybody. You don't think so?
Brian Levitt: No. And I.
Michael Batnick: Which investors is the question.
Brian Levitt: Yeah, I mean.
Josh Brown: All right, let's start. I don't think professionals are taking too much risk right now.
Brian Levitt: I don't start with.
Josh Brown: Let's start with that.
Brian Levitt: Yeah, I don't think so. And I think individual investors are still very concerned about this I hear, you know, at least anecdotally or if you look at the bulls minus bears indices, I mean you have people who you know, get quite bearish very quickly when these types of events come around. So I don't think we're over exposed to equities. Actually if you break down US households equities fixed cash, you're pretty much in line with, you know, you're pretty reasonable in terms of what percentage you have in each.
Josh Brown: Let's do the margin debt chart. So this is friend of the show Liz Thomas, huge fan of Liz's. I don't agree with the conclusion though that she's said I remain bullish but not with my head buried in the sand. Margin debt looks high at the moment. Investors don't seem afraid of heights. She's showing she's doing it right. She's not Showing she's it. At least she's not doing the dollar amount of margin debt, which drives me crazy. She's doing it right. A percentage of money supply. M2. I would just say, like, of course margin debt would be at a high with the market at a high.
Brian Levitt: Correct.
Josh Brown: It always is correct.
Michael Batnick: Wait a minute, hold on. There's two things here. Because she did adjust, right.
Josh Brown: But she's adjusting by the wrong thing.
Michael Batnick: Okay, so, but here's, here's. I think there's another thing that's driving this that people don't talk about. We do. It's rich people using margin debt to borrow. Like, so there's so much of that. There's so much of advisors driving that where it's not the indicator that it used to be. It's not people taking excess risk. It's people borrowing against highly appreciated portfolios to put it to work back into the real economy.
Brian Levitt: Right. I agree with that completely. And when people look at charts like these, they have to recognize that basically what you're signaling here, it's not a timing tool. Right. You're suggesting that if this unravels at some point, there could be some vulnerabilities here. But you certainly shouldn't use this as a timing tool because to your point, you should expect it to be higher given where the market is.
Josh Brown: The market pulls back 10% and stays down. No V, just 10% pullback. And then three months in a drawdown, that margin balance comes down.
Brian Levitt: Correct.
Josh Brown: Naturally correct. It's not a nuclear bomb going off.
Brian Levitt: It's not a nuclear.
Josh Brown: People just get less bullish and stop taking as much risk.
Brian Levitt: That's the challenge. I think that when I speak to investors, I get the sense that people think something terrible is lurking. And the reality is they've been thinking something's terrible, been lurking forever. Right. And so, you know, try. And I always try to make sure that they're putting events into the proper context. Right. If you, you know, the, the war in Iran starts, I mean, that's gonna be the big moment. People are afraid. If you look at almost every time you have one of these geopolitical risks, market's positive 12 months later. Almost every time you have a 20% spike in oil prices, the market's higher 12 months later. And so, you know, investors, I think there's just too much of a news flow. There's just so many concerns and so many scare pieces out there where if they took a step back and they said earnings are good, credit spreads are tight, inflation expectations are contained, the dollar hasn't rallied to unnecessary levels. There's not a lot in here that would suggest we're in a danger zone.
Josh Brown: So you're doing this as long as I am. You and I are roughly the same age.
Brian Levitt: Yeah.
Josh Brown: I'm a little bit smarter than you.
Brian Levitt: And I'm a little bit older than you. Fair.
Josh Brown: No, no, no. But, like, you and I know this, but the average investor doesn't. And it's not their fault. I think you and I are now older than the average investor. Close.
Brian Levitt: Yeah.
Josh Brown: Ish.
Brian Levitt: Ish.
Josh Brown: The average investor is looking for a knockout punch. Correct in the headlines. They think a news event is gonna happen and it's gonna punch the market in the face. Don't knock it over and knock us into a bear market.
Michael Batnick: Yeah, you're right.
Josh Brown: What they don't understand is that knockout punch comes at the bottom. So a great example is Lehman Brothers. We're already in a 25 or 30% drawdown by the time Lehman goes under. They went under because of the bear market.
Brian Levitt: Right.
Josh Brown: They didn't go under. And then. And then that necessitates us having a bear market. Right, right. Okay. So that. But they think, like, such and such thing. Terrible thing is going to happen, which is then going to put us in a bear market. But the reality is we are much more susceptible to a real knockout punch once we're already in a bear market. And that happens. The knockout punch comes as a consequence of the terrible environment that we have already found ourselves in for quite some time.
Brian Levitt: Correct. And it usually.
Josh Brown: But they don't. They don't understand it. They think it's like. They almost think it's like Looney Tunes where, like, a anvil, like somebody drops a piano on Wile E. Coyote. Right. And then a lump grows out of his head. They think it's like this cause and effect. It's not cause and effect. It's what environment are you in? The environment we're in right now. Why would you be looking for a knockout punch? There's no debt problems, no credit issues. Private. There's not private credit issues. There's lack of investor interest in credit. That is not. That is not 2008.
Michael Batnick: It's just human nature.
Josh Brown: No, that I totally get. Because we've been wired that way to look for signs that there's danger, protect the nest.
Michael Batnick: I mean, like, DRAM is. I'm looking at. It's on my screen. It's up 13% right now.
Josh Brown: I finished my point. To finish my point. We're 18 years since the last actual Recession. I'm throwing Covid out.
Brian Levitt: Yeah, throw Covid out.
Josh Brown: Okay. We're 18 years from the last recession. So for 18 years, people are looking for this knockout punch that's going to put us in a bear market and recession. What if you spent that time not doing that? Right? Like, you know, imagine.
Brian Levitt: And you, and we, and you and I, we had a. All of us, we had to respond to the European debt crisis. We had to respond to Brexit. We had every single thing that happened along the way. We had to make sure that we were holding hands and guiding people through these environments. You even saw it last week. I'm reading through my social feed and people are talking about, oh, the 30 year above 5%. This is the U.S. debt problem that we've been worried about.
Josh Brown: That's the trigger.
Brian Levitt: That's it. Yeah. We're going to collapse on our debt or, oh, inflation's here. And valuations have to adjust meaningfully. And it's just not. It's just not a reality. You're not grounded.
Josh Brown: The cadence will be this. The top will look like this. There'll be great news, and stocks won't react well to it. And then we'll all shake it off and we'll put out all these tweets about, here's some context. And then the market will rally back to a high, but not the old high. And we won't think much of it. It's just the ebb and flow of markets. And then like six months will go by since we've had a new high, and people will start getting a little bit less enthusiastic because I don't understand. I keep putting money in, but it's not going up. Right. And then. So that is sort of how it happens. And then if that goes on long enough, we're in a 10% drawdown, which then becomes 12 or 10. And then you start to see the City Economic surprise Index roll over and all the surprises start coming in worse, negative. And then the knockout punch comes. We will already. We will already be in a. In a bad situation right now. I mean, you want to play this game. Today's the top. No, wait, wait, wait. I didn't mean today. Tomorrow's the top. You want to do that, you can do that. Right.
Brian Levitt: And people are saying, you know, this isn't grounded in fundamentals. This is too far, too fast.
Michael Batnick: Wrong.
Brian Levitt: Totally wrong. Right. I mean, that's what I'm hearing.
Josh Brown: It's too far, too fast. Since 2009.
Brian Levitt: 2009. Exactly.
Michael Batnick: Because they hyper focus on. They look at Micron and they say the stock's up 10x in the last year and a half. This is a bubble. Doesn't make sense.
Brian Levitt: Right.
Michael Batnick: And they look at that and they don't look at the earnings growth. But I think the longer this goes on without a real recession, I think the more emboldened or confident people get that it has to end badly at some point. Like it's been too long. But it's.
Josh Brown: Well, that's, that's the Minsky moment where people become so complacent that that becomes the risk, the lack of, the lack of fear itself becomes the biggest risk in the market.
Brian Levitt: Yeah, let's think about what's happened this year. So you come into this year, people are talking about an AI bubble, right? That was probably the biggest question we got last year. And I think a lot of that was more on demand side. Are people actually going to use this? Are we going to engage with chatbots? Are businesses going to make use of this? X? Percentage of businesses say they have no idea what to do with this. To the market having to catch up in a five month period to the fact that artificial intelligence is going to be ubiquitous. It's going to be in everything that we do in perpetuity. It's not going to be us engaging with a chatbot occasionally. It's going to be persistent engagement with artificial intelligence. And that's a level of growth and a shift in the economy that the market had to really get its head around. And the market wasn't there in the beginning of the year. And you look at what the earnings have been, the valuations haven't increased because they've come down. They've come down because the market funds the earnings.
Michael Batnick: What a concept. So one area of Josh asked, are investors too bullish or are they taking too much risk? I think there's probably a cohort of. Not probably, there is a cohort of retail investors that have been, I hate to say lulled to complacency. It sounds so condescending. Somebody that's made a thousand percent in AMD is, is hearing me say that they've been loaded into complacency. Like, hey asshole, I'm up a thousand percent. What are you talking about? It sounds rude. So I don't mean it that way.
Josh Brown: Complacent all the way to the bank. Yeah, exactly, exactly.
Michael Batnick: So I don't mean it that way, but retail investors. This is from Vander Research. Biggest single stock selling this was last week. Since November 2023. $47 million led by semiconductor names such as Micron and SanDisk. So eventually they were taking too much risk. And. Okay, so they sold a little bit, but they're, they've done extraordinarily well.
Brian Levitt: They have.
Josh Brown: Selling stocks to the point that we made in the earlier chart. Selling stocks that have doubled or more.
Michael Batnick: Yeah, it was too crowded year to date. Yeah.
Josh Brown: All right, Savita Subramanian, bank of America Equity Quant Strategy Group. Time to take profits. This is I think the biggest research piece of the week. I want to share some of what she said and get your reaction to it. And we hate her. So you could say whatever you want.
Michael Batnick: No, we do not.
Josh Brown: The S&P 500 is up 11% year to date. Multiples compressed to 21 from 22 times at the start of the year. An earnings revision that trumped returns, especially in energy and tech, the two best performing sectors. But financials, healthcare and Discretionary have seen losses year to date despite positive revisions. She doesn't like that setup where expectations are ratcheted up but multiples are not reacting positive, are not reacting positively. And she has a point because that's sort of one of her bear market signposts. She's got like these 10 things that are red flags and seven of them have now triggered 70% of her bear market, which is the average that they've observed at prior market peaks. So she's. The comparison that she's harping on is February of 2000, which for you and I, very ominous, very ominous. We know what, what went on then Last, last thing from her before I get your reaction. So she is saying high PE stocks led low PE stocks by a wide margin, which is a sign of excessive speculation. That's one of her triggers. Another trigger. Lofty long term growth expectations breaching levels consistent with equities being more vulnerable to disappointment. So that's that last point I made. The sell side indicator hasn't been triggered yet. That's where the strategists get all bulled up. But that has gotten worse because they're chasing the market, quite frankly with their targets. But she's talking about this dispersion tech versus everything else. And then inside of tech, like AI tech versus software or every other. And that is reminiscent of the peak of the market in February 2000. There's obviously a lot of differences here and she knows that and we know that. But I'd just love to get your take on this idea of time to take profits just based on how eerie some of the similarities are.
Brian Levitt: I guess the question would be if it's time to take markets, time to take profits. What are we doing with the profits and is that going to cash and sitting this out for a while?
Josh Brown: No, she's calling for a value rotation.
Brian Levitt: Yeah. So it's about a diversification story and a rotation.
Josh Brown: Take profits in tech.
Brian Levitt: Take profits in tech. Move into more other cyclical parts of the market or move into non US dollar assets. Yeah, look, that was our view two years in a row and that view got disrupted two years in a row. So what would, what would you need for that? Well, you have good starting valuations, but you need catalysts for it. Usually the catalysts come from. Yeah, from Fed easing. So the rate differentials come down between the US and the rest of the world. Lower rates helps, you know, more higher indebted parts of the market. So you could get there. And I think that we will get there. I do think that we will get back. If you think about the second half of 2025, things broadened out a bit once we got past Liberation Day, so.
Josh Brown: Oh yeah, we had international stock rally in 25. It was awesome.
Brian Levitt: I think we can get back to that place. But yeah, we're going to need to see some type of reasonable outcome out of the straight or it's going to be difficult for more cyclical parts of the market.
Josh Brown: I'll show you some charts. So this is what she's talking about. The spread between the top and bottom performers inside of tech looks exactly like the dot com bubble. If you were a tech stock in the year 2000 and not building the Internet or mobile phones, nobody had any interest whatsoever. We had a similar phenomenon this year. A lot of tech stocks not up, but just that one theme. Do this quickly. Chart 7. And the dispersion was a result of outsized gains from the top performers. And that also happened In February of 2000, right at the peak of the tech bubble. It was just this runaway group of stocks like you remember Cisco, of course Intel, Microsoft. Okay, chart eight, we'll do these together. These are the red flags. So the spread between the best and worst S&P 500 performers is near Covid levels. Not a great situation. Hopefully it's being fixed. We're in the process of that being fixed right now. And then the widest dispersion within infotech. So you can, you can kind of mentally understand that that similarity just mark like the concentration of winners within one sector, even to the exclusion of other companies in that sector. This is not like when energy rallies and they all go up.
Brian Levitt: Right.
Josh Brown: This is like, I don't know. 800 publicly traded tech stocks at this point and 300 of them are up huge. That's the scenario. So that doesn't have to fix itself with a crash.
Brian Levitt: No, it does not.
Josh Brown: It could fix itself the other way, which is what you're arguing, which is
Brian Levitt: with the broadening of the market now, what you had in 2000, you had a rate tightening cycle. Right. I mean that's how these things end. These things end with higher rates and the economy that rolls over. The positive coming into this year was stimulus. Not just in the US with the one big beautiful.
Josh Brown: We're talking about insurance cuts. Yeah.
Brian Levitt: And insurance costs. Right. We were gonna lower the funds rate to 3%. So that's the big difference between 99, 2000 and today. And I think that's why you get the sell off on Friday. Is this the beginning of the rate tightening cycle that ultimately ends it? Because you're not gonna get a narrowing of that dispersion if you're not in an easier policy environment.
Michael Batnick: I wanna get your take on the consumer and the economy because there's been so much thrown at us starting in 2022 with inflation and then interest rates and a commercial real estate crash, which was going to take the economy down. It didn't. Now we're dealing with a frozen housing market, which is kind of a big part of the economy. We dealt with tariffs, the Strait of Hormuz is closed. We have higher oil prices and yet the labor market seems to be accelerating. At least in the last three months we've, we've been okay. What is it going to take to slow us down?
Brian Levitt: Well, household net worth right now is about $175 trillion. That's an all time high. And if you look at households, their liabilities to their net worth is historically low.
Michael Batnick: Dwarfed.
Brian Levitt: Yeah. So the fundamentals of US households are far better than people think. You remember a few years ago when we were coming out of COVID they were talking about credit card delinquencies and $6,000 balances and all turns out that was all just Taylor SW tickets. So it wasn't a problem. No, that was all inflation related. So the household's in good shape. We know we have a K shaped economy. Right. Because a lot of the household net worth gains have accrued to the top part of the K. When you have spending that persists at the top income quintile or the second income quintile, the economy's going to be just fine. It's when those quintiles really tighten their belt that you go into something more like a recession if the bottom income quintile slow. Not to be flippant about it, but that's more of a SL slowdown in activity. So what we're having here, $4.50 nationally on gasoline hurts. People in LA hate when I say that because what do you mean $4.50?
Josh Brown: But it doesn't hurt the stock market.
Brian Levitt: But it doesn't hurt the stock market because this is not a very. This isn't an economy that's overly energy intensive.
Josh Brown: Well, take la. Take la. Take Malibu, Calabasas, whatever, like whatever tony area within la. Yeah. They know, of course the gas price is stupid, but not one of them is changing their lifestyle based on it. And those are the consumers that show up in the S&P 500's earnings, the bottom 20%. A lot of their spending frankly is government subsidized spending anyway. And the earnings impact of that, it's de minimis. I'm not saying that's good or it's bad. I'm just making.
Brian Levitt: That's just the reality of it.
Josh Brown: It's just the reality of it.
Brian Levitt: In the world that we exist in,
Josh Brown: it's horrible to have 20% of US households living paycheck to paycheck and have like high gas prices stop them from being able to take their kids back to school shopping. It sucks.
Brian Levitt: Yeah.
Josh Brown: But it's also the reality that the S and P is unfazed by that. Right.
Brian Levitt: And that's when it becomes more calls about industry or sector or more specific names and discretionary gets hurt when you see gasoline prices go to where they are. But in terms of the broad market, the way that we're structured, it's not a very, you know, a near term spike in gasoline prices is not going
Josh Brown: to deliver one indicator like if you were to just say this is the only indicator I'm paying attention to as a call on when the top of that K is in trouble. Michael and I have been talking about hotel stocks and some people would say like airline stocks, but maybe less pure because they have that gasoline problem, a jet fuel cost problem.
Brian Levitt: Yeah.
Josh Brown: So hotel stocks.
Brian Levitt: Hotel stocks seem like a great one.
Josh Brown: Perfect.
Brian Levitt: Right. Perfect way. And even works at Hilton all time highs.
Michael Batnick: All those stocks.
Brian Levitt: Yeah. Doing quite well.
Michael Batnick: So let me ask you this. There's obviously a couple of different takes you could have on this. We know that this economy and the consumer is heavily levered to the stock market obviously speak about the borrowing and the margin debt chart that I showed earlier. So at the peak in the tech bubble. John, chart 11, please. The household equity allocation to stocks and mutual funds as a percentage of GDP was 116%. And today it's 191%. So it's significantly larger today the amount of money that we have in stocks relative to the overall size of the economy. So you could say, oh, if the stock market comes down, the economy's gonna come down with it. And I don't mean like the stock market getting cutting half. I, the stock market gets cut in half because the economy's doing terribly. Right, okay. But I think that you can make the case that. All right, so 191%. If this pulls back to 170%, as I'm talking about the wealth effect, this pulls back to 170%. Does the consumer stop spending money? Like, where, where, where would this line have to go?
Josh Brown: Right. How bad does this have to get? So the stock market falls over into
Michael Batnick: the real world, falls 30% and stays there. Like what would have to happen to the stock market to change the uppercase spending habits? Because that is what's driving the stock market. And I know it's like sort of a circular conversation.
Brian Levitt: It's a circular conversation. It doesn't have to end just because you're in the circular momentum of it. It ends under similar conditions, which is there's too much leverage and excess in the economy, there's too much inflation, the Fed kills it. So at some point we'll get there. Right? It just. At some point you will have an environment. Well, this will become too excessive. Not necessarily where our stock market ownership is, but you'll have an overheating economy and this will roll over. And if it's a minor recession, you'll be down 20, 25%. It'll take a couple of years to get back to where you were. If it's a more significant recession, if you're way over levered and you're coming at it from a very vulnerable position, you could see it markets come down 40, 50% and it takes 10 years to get back to where you are. It really depends on the starting point. And Josh had mentioned earlier, it's not a particularly over levered economy. We talked about the household being in good shape. Businesses are generally in good shape. Last I checked, net interest payments of businesses are historically well below where they were going into Covid. So I look for it as a. Not just because that number is elevated, where are the vulnerabilities? And it does not appear to be nearly as vulnerable as I think some people suspect it might be on the
Michael Batnick: economic side, I would agree with you, but on the stock market supply side. So you wrote a piece about narratives following the stock market sell off and that's almost always the case, right, like the stock market falls and we're looking for reasons as to why it did what it did. And I, I'm 99% with you. I think in this particular recent sell off, I think the narratives were pretty clean and actually shouldn't be swept under the rugs. Okay, so for example, Broadcom's revenue.
Josh Brown: Miss.
Michael Batnick: Yeah, whatever. I mean Micron had a massive beat in March. The stock sold off 30% and then it rallied 300%.
Josh Brown: Right, right.
Michael Batnick: So like there's a lot of short term noise in here, but the, I think the strong job numbers and the rerating of expectations for rate hikes I think is real.
Josh Brown: I think the real, in terms of it's having a real impact on psychology.
Michael Batnick: It's having a real impact and it's in the market. People are expecting the Fed to raise rates. They just are. And I think that matters. I think the SpaceX IPO. We're going to talk about that in a second. Certainly noteworthy with others coming down the pike is a pike or pipe.
Brian Levitt: It's either actually.
Michael Batnick: Oh, is it?
Brian Levitt: I think it is.
Michael Batnick: Oh shit. Okay.
Josh Brown: It could be either.
Brian Levitt: I think it could be either.
Michael Batnick: Okay.
Josh Brown: But also if you're in England, it's
Brian Levitt: the pipe and a U in flavor
Michael Batnick: but coinciding with the insane crowding into the momentum factor. And also the Google equity issuance. And it was, there was chatter of, wait, are more companies going to issue equity? Like I think the stories are legitimate.
Brian Levitt: I thought that was a pretty big story with the Google equity issuance.
Josh Brown: Pretty much a non event, but it's a narrative change.
Brian Levitt: Berkshire Hathaway comes in and invests in it. I mean that's not usually what you would expect from a long term value investor if this was, was a significant challenge where they take like 10% of it. So yeah, I actually thought I looked at the Google event as a pretty promising event from that perspective.
Michael Batnick: Promising on the bullish side.
Brian Levitt: Yeah, promising on the bullish side. I mean you have, I mean the market was able to digest that without incident. And you had a Berkshire Hathaway stepping in, wanting to own it.
Josh Brown: That's like the second deal he's ever done since taking over Greg Abel. Like he did an acquisition and he did that within one week. And it's a financing deal. He's not, Berkshire's not building data centers. It's financial.
Michael Batnick: Yeah, on the SpaceX thing, Josh and I were joking the other day. I think Morgan Stanley said that their revenue could reach $3 trillion by I think it was 2040 or something. Like these are the type of things that if you look back and I'm not suggesting that this is the top, but that's the quote. That's like the thing you're like wait a minute, how are we so stupid?
Josh Brown: Right?
Michael Batnick: Like it's, they said $3 trillion in revenue in 2040 and we were just like okay, okay. So the other question is how much liquidity is really available from investors pockets to finance all of this happening. Demand for SpaceX from Barron's. Demand for SpaceX's $75 billion IPO stock has reached $250 billion, making it 3.3 times oversubscribed. So it appears like we're gonna swallow
Josh Brown: it's a fake number.
Michael Batnick: What? Go ahead.
Josh Brown: The oversubscribed shit is fake. So do you remember Cerebras went public in the middle of May. I'm on TV next to people who are saying it's 20 times oversubscribed. Well, what the did that mean? It went down 100 points over the next three weeks. Like that. You could just make up a number and say it to a reporter and they will go on the air and say the SpaceX deal is 12x over subscribe. First of all, where do you get that number from? Oh, an investment banker told me nobody like actually knows what the demand is because indications of interest. So you call up a retail investor, in this case 30% retail. Say if we could get you, if we can get you 100 shares of SpaceX at $135 a share, do you want it? Yes. You don't know if they're going to pay for it? Nobody. If it goes up, they'll pay for it. If it goes down, they're not going to pay for it. And therefore I don't care how oversubscribe. I did the indication of interest myself. I was a branch manager. I promise you it's bullshit. But on my scale these were tiny deals. You would raise $8 million for a company at this scale I would bet the bullshit factor is 10x. Because everybody wants stock. Everybody wants to be the lead placement person on this indicate of stock. Like people are just calling in orders that are completely fictional to make sure that the real orders are covered. And that's the other aspect of this. If you, if you have legitimate demand for 2 million shares of SpaceX at a investment firm 2 million. You put in for 10 million because all you're hearing about is how oversubscribed it is. So if I want the two, I better say I want 10.
Michael Batnick: All right, well, let me say I want two.
Josh Brown: I might get one.
Michael Batnick: So retail. Will retail investors be left holding the SpaceX bag?
Josh Brown: They don't think it's a bag. They. They, they.
Michael Batnick: I didn't ask you. Will they be. Will they hold Elon's bag?
Josh Brown: What does that mean? Are they.
Michael Batnick: Are they exit liquidity? Is the. Is the IPO going to fall apart?
Josh Brown: I know retail people who are being offered stock that are able to sell a minute later. Nobody's telling them they have to hold it.
Michael Batnick: All right, will. Will this fall 50% like a lot of other big IPOs in the first three months?
Josh Brown: I think a lot of that is. So my personal opinion is a lot of that is pending. What are the market conditions? Will this hold up in a. In a correction? Definitely not.
Michael Batnick: Okay, let's assume. Let's just assume a normal market. I know I'm asking to make a prediction. Will this thing fall 40%? Because it is hyped like I. My dad asked me.
Josh Brown: Okay, I think it will open. I think it will open 30 to 40% above the offering price. That's my. That's my opinion. I do not think it'll hold that gain, and I don't think it'll build on that gain.
Michael Batnick: So they're coming to market. I think the price is 130. So you expect it to open whatever, 170, 180.
Josh Brown: Okay. The price is 135. Do you know why? Because Elon told the banks the price is 135.
Michael Batnick: So what?
Josh Brown: So what? A real IPO. A traditional. I shouldn't say real. This will be very real. A traditional ipo. It's a process. It's a roadshow. There's feedback from institutional investors, not retail investors, but, like, people managing $80 billion, $200 billion. Tell the underwriters we wouldn't pay 20, but we would probably be very comfortable paying 16. And then all of that gets factored in. And then, of course, it's all made up because Elon is.
Michael Batnick: Elon is different.
Josh Brown: He said 135. So that's the price. And everyone's just like, yeah, that's. That sounds right. Let me pay 20% above that. That's what's about to happen. I think they'll get the pop. I can't imagine them not getting it. Your real question is, does it hold the pop?
Michael Batnick: No. My question is, all right, so you said it pops from 135 to 170, whatever. Will it be at 90 at some point in the next six months?
Josh Brown: I think, I think you'll get another crack at it at 135.
Brian Levitt: I think the bigger question is, is this just an idiosyncratic event happening in the market or is what are what we discussing here something, you know.
Josh Brown: Well, there's more of these right behind it.
Brian Levitt: Right. And is this something larger than that that investors need to be worried about? I'm not ready to get there. In my opinion that this is something.
Josh Brown: Oh, like is it so much money to be raised that it's going to take a bite out of the rest of the stock market?
Brian Levitt: It's either going to take a bite out of the rest of the stock market or it's indicative of a market top. And if you actually look at the IPO activity. Yeah, we've got a couple of high profile ones coming to market, but this is not the level of IPO activity that you would normally deem to be speculative. The size of the big three are quite large, but it's not as if we've got speculative levels of IPO activity in these markets.
Josh Brown: These will be heavily, all three of these will be heavily involved in the big ETFs. And that's the thing that people are talking about.
Brian Levitt: That's what people are worried about. And you see these headlines that the AI bubble's coming for your retirement account. Right. That's nonsense.
Josh Brown: That's journalists. And that's what I want. Investment people are not saying that.
Michael Batnick: Yeah.
Brian Levitt: And that's what I wanted to make sure that we were covering here as we debate this. Is it just something idiosyncratic that we're going to be watching? It's going to be a stock story that we're going to be watching.
Josh Brown: All right, wait, so 2 trillion? This is market caps, not dollars being raised, but just hypothetically for index construction purposes. Two trillion for SpaceX, a trillion for Anthropic, a trillion for OpenAI, it's $4 trillion. I mean that's meaningful amount of market cap. That is going to require some space in the QS eventually in the S and P eventually. Right.
Michael Batnick: But wait, but they are being adjusted for the float. Dramatically adjusted for the float.
Josh Brown: Well, they would have to be, otherwise it would make no sense.
Michael Batnick: SpaceX will not be a $1.8 trillion position in the NASDAQ 100.
Brian Levitt: Correct.
Michael Batnick: They wouldn't go.
Brian Levitt: It'll be free float based or it'd be less.
Josh Brown: Won't have the proportion of a 1.8.
Michael Batnick: So Elon's. What does Elon own? 40%. So his. So take that out. Take that out.
Josh Brown: Right. Okay. So you're not worried about that?
Brian Levitt: I'm not worried.
Josh Brown: You don't think that's a real wind for the market?
Brian Levitt: I don't.
Josh Brown: How about the converse of that, which is these IPOs, or at least SpaceX comes, goes off without a hitch, everybody's happy. Is that a bullish catalyst?
Michael Batnick: Yes. Well, what are the bears going to say if this, if these IPOs don't crash the market?
Brian Levitt: What's the next?
Josh Brown: The bears want this to be an asteroid.
Michael Batnick: It has to be for them, right?
Brian Levitt: They do.
Josh Brown: So what if it's not? Is that, what does that do? Does that galvanize the investing public that all, like, all is well, this big bad thing that everyone's told you to worry about is over? And look at the risk appetite. It's very healthy.
Brian Levitt: I think it does. I think it does. And I think it helps the financials.
Josh Brown: Okay, well, it's definitely going to help the. Maybe not the spread financials, but the fee financials.
Brian Levitt: The fee financials.
Michael Batnick: By the way, to your point, I know you guys have a relationship with nasdaq. Like NASDAQ stock is not doing awesome. You would think that if it was like a super frothy, elevated, excessive IPO market that NASDAQ would be. And I know you can't comment on the stock, but like, it's. Whatever. It's going sideways. It's not. There's no froth here.
Brian Levitt: No.
Josh Brown: Okay, so not a wealth destruction event.
Brian Levitt: No, not a wealth destruction event.
Josh Brown: The largest IPO in history will not be. Didn't they talk this way about Alibaba 12 years ago?
Michael Batnick: Yes, they did.
Josh Brown: They said it's too big for the New York Stock Exchange.
Brian Levitt: I think we did this with Saudi Aramco too.
Josh Brown: Yeah, I remember 2014 being an okay year in stocks. 2015 too.
Michael Batnick: Hold on. Let me just say, if this is a top, you are going to act like it was so obvious.
Josh Brown: No, I'm not.
Brian Levitt: Isn't that what we do? Yeah, it's so obvious.
Josh Brown: No, I'm really not. But I. But I won't, like, be completely shocked. I don't. So I don't. Here's the question. Are the bears saying it's a top because it's going to cause a top by virtue of sucking all this capital away from other. Or the bear is saying it's a top because it's a sign of excessive enthusiasm or are they saying both things? I've heard both.
Brian Levitt: I've heard both. But I think it is that sign of excessive enthusiasm.
Josh Brown: You know, like your parents tell you when somebody gives you two reasons for something, both are not true. Yeah, like that's how you know, they're like, I call Michael and I say, hey, you want to go hit golf balls at the driving range? She's like, like I'm not feeling well. And also my wife needs me to help her.
Brian Levitt: Neither is right.
Josh Brown: So neither is true.
Brian Levitt: Neither is true.
Josh Brown: You have plans with somebody else, right?
Brian Levitt: Exactly.
Josh Brown: I'm sick of listening to the sound of my voice. And I totally get that.
Brian Levitt: I think it's a valuation story. I think that investors just. There's plenty of investors who would think of valuations as a timing tool. Think that, you know, if things are getting frothy, if the, if the Shiller PE is too elevated, if the margin levels are. This all can't be true. And so there's the big bang moment coming. And when it wasn't Silicon Valley bank, then it was tariffs. When it wasn't tariffs, then it was the war in Iran. When it wasn't the war in Iran, now it's going to be SpaceX. And I love this so much.
Michael Batnick: So there's like this thing where 17 of 20 indicators are flashing red. Well, if they've been flashing red for three years, maybe they're the wrong indicators.
Brian Levitt: Maybe they're the wrong indicators. I mean, I try to keep it simple and are credit spreads widening? No. No.
Josh Brown: So what are the things that matter?
Michael Batnick: Credit spreads, they tell you what you need to know.
Brian Levitt: So, so I look at leverage, inflation expectations, fed policy, credit spreads, bank lending standards. That's my cycle analysis.
Josh Brown: So I noticed that you don't have anything in there about chief strategist, price targets.
Brian Levitt: No, I don't have chief strategist.
Josh Brown: You also don't have anything in there about PE ratios?
Brian Levitt: No, no, because PE ratios, I mean if I. Where I would use a PE ratio is if I was making a 5 to 10 year return, maybe more like a 10 year return expectation. You would need to have some reversion to the mean on valuations over a 10 year period because there's a high correlation there. But there's nothing with 1 in 3.
Josh Brown: Say your list again. Say your list again. All right, let's start with credit spreads.
Brian Levitt: Credit spreads, bank lending standards, the strength of the dollar, inflation expectations, leverage.
Josh Brown: What does the strength of the dollar tell you about the forward outlook for stocks?
Brian Levitt: Well, it's interesting that the dollar has not rallied substantially. So if we think about in 2015, in a very weak growth deflationary environment, the Fed was going to raise rates, the dollar soared. That's not what this is. I mean, the dollar was likely to weaken this year until the war in Iran started. And so the dollars had a reprice, basically from expecting an easing cycle to no cuts, to maybe a rate hike. So the dollar gets a bit of a bid there, but it's not skyrocketing, it's not going to levels that would make you think there's this huge flight to quality and that the cycle's rolling over.
Josh Brown: What do you think is the most underrated thing going on in the economy or the markets or both? That should augur well. So we talked about all the bear stuff. What are the things that not enough people are excited about for me, Let me, let me set this up. So we did a segment today on CNBC about one of the names on my best stocks in the market list. And we talk about Travelers. Travelers is like not an exciting company. It's a couple of bucks away from an all time high. Why? They're one of the first companies that's got tangible evidence that their AI investments are. So if you think about all the areas where AI should help companies, risk, risk management and insurance underwriting should be the top of your list. This is like the most obvious thing in the world. We have algorithms. Let's let the AI loose on those algorithms and see if we can improve how much money we end up surrendering from bad underwriting. So they announced a 21% year over year jump in underwriting. Profit it. And on the conference call they told Wall street, this is the AI like this. That's what's going on. It's not a, it's not a magical thing.
Brian Levitt: No.
Josh Brown: Okay, so if the rest of the market becomes littered with stories like that about stocks where nobody is associating them with an AI but the AI customers start to surprise on earnings to the upside. A, you'll get your broadening. B, it would be a really interesting juxtaposition versus the last three years where we all have been myopically obsessed with the 100 picks and shovels companies selling us AI. Wait, what if the real trade all along was investing in the most talented consumers of AI as they outdistanced their competitors in earnings growth thanks to those investments? Wouldn't that be such a cool story and great for investors?
Brian Levitt: Oh, absolutely.
Josh Brown: So what do you.
Brian Levitt: Absolutely.
Josh Brown: And we're so you think that's likely?
Brian Levitt: Yeah, I do think it's likely. I mean, I think it's already starting to happen in many ways. I mean, we're in the early innings of this. So you're right. We started with the chips and we moved to memory and the infrastructure build. But what about all the benefits? I mean, we're starting at this from an environment where corporate profitability, the number of employees is historically high and that's only gonna get better in the coming years. And you think about sectors that have not done well, like financials or like healthcare. I mean those are places of the market where you would expect to see substantial gains as a result of incorporating artificial intelligence into that business, particularly healthcare. Thinking about all of the challenges of life that we're going to unlock with
Josh Brown: new solutions, one of the problems, and we could end on this. One of the problems with the picks and shovels analogy is people forget that analogy during the Internet boom era. The first one, it was sardonic. They were saying because in the actual gold rush, the 1849 gold rush in San Francisco, there wasn't any gold. Like people ruined their lives chasing up into San Francisco to look for gold that was never there. Like a few people found gold and it was, it, it was like it was a catastrophe for the people. But like the idea was like, well, at least the picks and shovels salespeople made money. Actually, the company that made the most money was Levi Strauss selling, selling denim workwear.
Brian Levitt: Yeah.
Josh Brown: But fine, we better hope this isn't picks and shovels and this isn't a failed gold rush. I don't think it's going to be. We're using AI inside of our business right now, probably 1% of what we'll be using five, five years from now. And I think, and we're, you know, considered I guess, a small business, mid sized businesses and publicly traded, large size businesses. It's not a gold rush. They're literally improving their companies. So the picks and shovels analogy is like, look, it's almost too smart assy. This is like, this is real. So if we're gonna have a continued bull market, I think it'd be really cool if it were powered by ROI from all the spending that we're doing in 2026.
Brian Levitt: I agree with you completely.
Josh Brown: And you think it's likely?
Brian Levitt: I do think it's likely, absolutely. I don't see how this movement, this restructuring of the economy and this restructuring of how businesses are run, I don't see how that doesn't improve efficiencies I don't see how that doesn't improve. Prof. Do it at a level where you're. I mean, you're going to be doing it in a way that's going to be likely lowering the costs of business.
Josh Brown: You said something early on about the ubiquity of AI. Right now, for most people, their experience with AI is prompting and asking for something.
Brian Levitt: It's like a search engine.
Josh Brown: You're talking about waking up and seeing the results of what your AI did for you overnight.
Brian Levitt: Yes.
Josh Brown: That's where we're okay. This is a very different mentality, Very different. And most people haven't gotten there yet.
Brian Levitt: Well, and quite frankly, like I said, the market had to catch up. To me, it this year.
Josh Brown: I agree with you, Agent. The market wasn't ready for agentic. Correct. The market was still thinking in prompting terms.
Brian Levitt: Yeah.
Josh Brown: All right, Brian, you're the man. You have fun on the show today.
Brian Levitt: I had a great time. Thank you.
Josh Brown: What was your favorite part?
Brian Levitt: Probably talking about the Knicks.
Josh Brown: All right, Brian. We always try to end the show when we remember asking people what they're most looking forward to. What do you got? Personal business, anything?
Brian Levitt: I'm looking forward to next week when my oldest daughter graduates high school.
Josh Brown: Look at you. Look at you.
Brian Levitt: Yeah. Hard to believe.
Josh Brown: Yeah. Did you find her. Did you find her an internship for her junior year of college yet? You have three years.
Brian Levitt: Well, she wants to be Erin Andrews, so, you know, we're, I guess we're sort of in the media business. If, if you know anyone that could get her a sideline reporting job, let me know.
Josh Brown: All right, we'll try to figure that out. All right, guys, thank you so much for watching. Thank you for listening. I want to let you know you can follow Brian Levitt of Invesco on LinkedIn. We doing anything else on social or. Not really.
Brian Levitt: I have a podcast.
Josh Brown: Okay, tell us about it. Where do we find it?
Brian Levitt: Greater Possibilities Podcast Anywhere you find podcasts.
Josh Brown: The Greater Possibilities Podcast with Brian Levitt anywhere find podcasts are played. Make sure you check that out. Thank you so much for this. Great to see you. Great job, everybody. See you next week. Thank you. You want to do that one more time or you feel like we got it?
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