Hey, this is Steve Eisman and welcome to

another episode of the Real Eisman

Playbook. Today,

we're going to be talking to Todd Sohn,

who is the chief chartist at Strategas.

In the world of Wall Street, chartists

are like the video game of our world.

You look at the charts, and they really,

if you know how to look at them, tell

you what's going on in sectors, the

market, etc. We're going to have a lot

to talk about, and I'll be back

afterwards with some lessons learned.

Hi, this is Steve Eisman, and welcome to

another episode of the Real Eisman

Playbook.

So, I thought today would be a good

time, given how much has gone on this

year, is to take a step back and look at

charts and what charts are telling us.

And so, today we have

recurring guest, Todd Sohn, chief

chartist of Strategas. Hey, Todd,

welcome back.

>> Thank you. Always great to be with you.

>> So, before we even talk about any

charts, for the for those members of my

audience who are not as familiar with

charts as others,

what's the philosophy of charts? What

are you trying to learn? What are they

good for? What are they not good for?

>> The The old saying is picture tells a

thousand words. If you were stranded on

a beach island, let's just say for a

month,

maybe you're on vacation.

You come back, you need to figure out

what happened in the world in that last

month, you look at 100 different charts,

and you have the story right there. The

charts will summarize everything you

need to know

very succinctly, efficiently,

uh and they can also tell you when

you're wrong or you're right about

something. So, there it's a great great

great way to understand what's going on

across all sorts of different asset

classes.

>> So, let's start with some

individual stock charts, and then we'll

dig deeper into market stock charts,

which are kind of more intricate.

So, I'm looking at a chart, and we're

going to put this on the screen for

everybody, the semiconductor

ETF, which is the socks SOXX index. And

just to show everybody, you know, I'm

going to again we're going to put this

on the screen, but this is what it looks

like. And the charts are also going to

be in the attachments in the description

for for everybody to look at. So, this

is the semiconductor your

this piece of paper shows the chart

itself.

And then below there's a chart called

momentum. So, here's the chart. Tell me

what this is saying. And what is what

what is the momentum thing mean?

>> It's technically called RSI, relative

strength index. That's the fancy word in

the in the technical world.

>> that mean?

>> It's literally just measuring how fast

something is rising or falling, right?

How overbought or oversold is something.

It is a guideline. It's not a rule as to

what it says. Um, you know, what you can

you can try to gain some information

about it. You know, something reaching a

new high without being as overbought,

that can be a little bit of a warning

sign. Or something making a new low

without being as oversold, that can be a

a perhaps change of trend that the

pressure of selling is not as high.

>> is the semiconductor chart telling you?

>> This is a market about semis.

>> The market's all about semis.

>> Oh, yeah. Yeah.

>> Elaborate on that.

>> We have seen semis on a massive run,

especially since March 30th. We're going

on almost 3 months of that.

Uh, we talked about last time. They're

18% of the S&P 500 now, going on 19%.

>> And where were they

10 years ago?

>> 2%. Amazing, right?

>> It's amazing. 2% to 18-19%

in 10 years.

>> So, you have a group here

and we're using SOXX the ETF. There can

be other semi and conductor ETFs.

They're all going to be weighted

differently. This one's the probably the

most even footed. You're not weighted

too much towards Nvidia or whatnot.

Super overbought, perhaps consolidating,

maybe a little bit of a crescendo as we

just had big IPO and some earnings.

Um, but nonetheless, they are in charge

of the market right now.

>> So, the market

for lack of a better term, lives and

breathes

by this index.

>> Yeah.

>> If tomorrow if something happened and

this index

I'll just going to make this up

collapsed.

>> Right.

>> By definition the market would collapse.

>> Yes. In on the surface indices would be

very weak, right? Maybe there's

something internally that's going on

different, you know, you rotate away

from semis, but on the surface for index

based investors you will feel that pain.

>> Okay. Software.

Maybe this is the inverse of the stocks

has has been. Tell us what This is the

software ETF.

>> Right.

>> What is this telling you?

>> A little messy.

Um could I make the case the worst is

past for software stocks.

>> Well, the stocks have done generally

terribly throughout the last year.

>> Yes. They have been a rough year.

>> had a rally.

>> Had a nice little rally.

Um in the technical world they have what

I would describe as mean reverted back

to some moving averages, you know, your

200 day, your 50 day.

Um

it's not something I feel great about,

right? If you want to take a flyer on

them, you got to respect your stop loss

levels. That's totally the way I'd go

for software stocks going forward.

>> So this chart is is not telling you it's

time to buy.

>> Yeah.

>> It's told you it was at a mean reverted

back to a lower level.

>> A a reprieve.

>> A reprieve.

>> from very negative sentiment.

>> Oversold.

>> Oversold negative levels, right?

>> But it's not telling you this is a great

buy.

>> Do I think it's

as what is defining as semiconductors?

No. No. Could it be a great buy?

Absolutely. I look at something like

this, software, where it's a little bit

of a mess and it's a great use of the

options market where I can structure a

trade

and I'm going to pay my premium, however

it is, and that's my risk.

>> And that's it.

>> That's it.

>> So you're not a buyer of the group,

you're a you're a speculator.

>> Where I can only lose certain amount.

>> Yeah. Yeah.

>> Okay. Got it.

GEV. One of my favorite stocks. I've

owned this stock for very, very long

time. My viewers know that. This is GE

Vernova, the power company.

>> The power story.

>> The power story.

>> And this ties in somewhat to the

semiconductors, right? They're all kind

of the same.

>> of the same

neighborhood.

>> If you showed me this ticker, this chart

without any without telling me what the

ticker was, I would tell you it's going

to be a buy pretty soon, right? You have

a great trend, you got very overbought.

Uh and now you're just consolidating,

you're re-earning some profit taking.

>> And when you say it was overbought, is

that when the momentum momentum thing

over here is above the red line.

>> Exactly.

>> Okay. That was overbought, and so the

stock has had a little bit of

>> Yeah, it'll come down here. I think

expectations for power and

semiconductors

>> still think the chart looks good.

>> Yeah, for now, in its current state,

yeah. It's it's one that you would

suggest as buyable. Now

it's just a matter of you know, what's

the next catalyst to take it higher. Is

it more CapEx? Is it earnings? You name

it.

>> Big tech.

Amazon.

>> Okay.

>> think this chart looks so great.

That and I know nothing.

And I own Amazon, so I wish it looked

good, but this doesn't look so great.

>> lot worse charts out there.

Granted, but there's a lot better

charts, too. I think it's pretty middle

of the road.

>> A two out of a one, two, three.

>> Yeah. Yeah, totally middle of the road.

Can I make the case

Again, I think it's a similar one where

you play options on this, you know, do a

a straddle. I'm not really an options

expert, but

if you're skeptical on whatever their

business is, buy some puts. If you think

that this thing can rebound as it tests

the middle of the range, call options

again.

>> So, it's you call this call this chart

an eh.

>> Yeah, no strong opinion.

>> Okay.

>> All right.

>> Now, here's a

maybe more important name in some ways.

Meta.

>> More much more messy.

>> Talk to me about this chart. What is

What is this chart showing you?

>> I will admit I was have been skeptical

this

>> Skeptical of what?

>> Of the stock, of the chart

a few times over the last decade. And

it's always come back.

Right? I remember in 2022 I was like,

"Oh, this thing's done." You know, it

was down 60, 70 maybe from its high. I

don't I don't remember.

Like there's no way this is getting back

to now. It came right back. In its

current shape, not great. It looks more

like a short.

>> So, what I just when the viewers look at

it, when they'll look at this chart,

like like what is it about this chart

that tells you this is bad?

>> So, there's a couple of tells.

>> Okay.

>> Right. One, you have a market that is

making a new high. S&P 500, equal S&P

500, small caps are making new highs.

This is not made a new high in months.

>> Months.

>> tell number one.

>> Right.

>> Tell number two is we really like to

work off of the slopes of moving

averages. Everyone uses a 200-day moving

average. That's just kind of been the

the the bible

>> the bible of

uh charts.

When the like GEV, the slope of the

200-day is rising. Tells you the

market's the the trend is higher.

On a name that might be in an

unfavorable group, the slope of the

200-day would be going down.

>> Okay.

>> When you start to see it flatten out and

roll over, that's usually a tell of a

vast something's changing or the trend

of that name is changing.

>> 200-day moving average is beginning to

slope downward.

>> it's flat to downward, which tells you

something's different. Uh and there's no

great edge. I'm very curious to see how

that one plays out, especially compared

to its peers.

>> Oracle.

This is a weird-looking chart.

>> Yeah.

It's like software. I mean, it's it is

software.

Um where I can make again make the case

the low might be in, but you have to

respect it.

Um would I take a flyer on it? Perhaps,

but I think there's a lot of better

opportunities out there as well from,

you know, whether it's hardware, semis.

>> And is the 200-day moving average

rolling over in Oracle?

>> it also is rolling over. It's downward

to to flat, which again reflects messy.

>> Messy.

>> And messy is super frustrating,

especially in a market that is making a

new high.

>> Right.

>> Right. It's really hard.

>> what's the matter with me that I own a

stock that's messy when the market's

going up? It's frustrating.

>> you're going to have you're going to

frustrate yourself, and there's nothing

enjoyable about that while everything

else is rising.

>> All right, let's talk about another

iconic name. This is fun. This is fun by

the way.

>> [laughter]

>> Just for our viewers understanding on

Wall Street, this is our version of

video games.

>> Oh, yeah, totally. Listen, the most

useful exercise I do, Chris Perrona

does, even Jason Trennert at Strategas

is print out 100 stock charts.

>> S&P 100.

>> Not even a day, a week, whatever. It's

like a homework assignment. Print them

out, just look through them.

>> And and figure out what's going on.

>> And you can get the message of the

market so quick.

>> Yeah.

>> Say, all right, these stocks are going

down, these ones are going up, or the

whole market's a mess.

>> Microsoft. What is this chart?

>> Similar position as Meta, if not weaker.

>> If not weaker.

>> Yeah, you're you're already almost

retesting the lows from earlier in the

year, what in the spring, in April.

Right.

Which to me, that's a little bit of a

red flag.

>> That's a red flag. Okay.

>> Is the bar low for it? Maybe, but again,

it all goes back to the

Yeah, it's all it's it's ugly compared

to again a market that's making a new

high.

>> Right. Google.

>> Different story.

>> Different story.

>> One that

A got very extended, super overbought.

Think about you run a mile in 4 minutes,

you're exhausted. You take some some

money off the table and revisit. It will

likely be viable, I would guess.

>> Okay.

>> That And if you just compared on one

screen, Google, Alphabet, whatever you

want to call it,

Meta, Microsoft, you'd have Google would

be the contrast there.

>> Google has the best chart.

>> Yeah.

>> Of those big names.

>> Of those big names, yeah. I mean, it's

it's most similar to GE V.

>> Yeah. And I and I, you know, they're

probably

in cahoots together, right?

>> Well, I'm sure they are.

>> power in the AI of Google.

>> All right.

So, that was fun. Let's Now, those were

the ones that I actually asked you to to

print out to give me for individual

stocks, cuz that's what I wanted to do.

Let's Then you have the book.

>> Oh, yeah.

>> Okay. So, before we get through go

through the book,

give me a summation of the book.

>> So, the book is about how you can use

ETFs to invest what we're seeing in the

markets through the lens of ETFs. ETFs

are a great measurement of investor

behavior, right? I can see flows,

volumes, and product launches every

single day.

And they are becoming more and more

ingrained in the market. On an average

day, ETFs will do about 30% of volume.

>> Say that again.

>> ETFs will do about 30% of US exchange

volume on a given day.

>> So, in other words, total trading volume

>> Yeah.

>> stocks and ETFs is basically the

summation of all the all the trading

volume.

>> On a daily basis, ETFs are 30% of the

total.

>> Yes.

>> And stocks are the remaining 70%.

>> Correct. That's growing.

And then during more stressful

environments when everyone's freaking

out, they'll go up to 40 to 45% cuz

people are adjusting exposures. I see.

So, they're just great tools.

>> tech and they're buying staples or

whatever.

>> whatever it may be. Could be used for

hedging, shorting, whatever it might be.

So,

along with building charts, I handle all

of our ETF research at Strategas as

well. And so, I want to tell folks how

they can There's 5,000 of them, right?

How can we

>> ETFs. How many stocks are there?

>> Less than that.

>> There are more ETFs than there are

stocks.

>> still more mutual funds than ETFs, but

>> Right. But, they're they're they're

they're kind of passe.

>> They're yeah, they're kind of on their

way out.

>> Okay.

>> So, I just want to always provide what

ETFs you can look at and all sorts of

different information. I think the most

interesting thing right now is this boom

in leveraged ETFs.

>> Okay, so explain to my viewers what's a

leveraged ETF.

>> So, a leveraged ETF

gives you, depending on the fund, two to

three times the exposure of an asset,

underlying asset.

>> So, if I'm

let's say let's let's pick a stock,

Nvidia. I'm picking a single stock.

So, if if I buy a two times

Nvidia ETF,

>> Yes.

>> on a day where it's in theory where

Nvidia goes up 2% my ETF goes up 4%.

>> Correct. That's what it's supposed to

do.

>> to do.

>> Now remember it's only on a daily basis.

>> This is not

>> From point to point it doesn't

necessarily do that.

>> There can be some slippage. You know,

there's also fees embedded into the fund

that you're going to pay over time.

>> Okay.

>> And it's meant to be again daily. These

are not buy and hold instruments.

>> Right. It's a trading vehicle.

>> Yeah. And so that space is absolutely

booming. We just had a whole bunch of 2X

space ETFs launch today.

>> Two times a SpaceX.

>> Yep. Already.

>> Already.

>> So I have to imagine those are going to

be really popular.

>> Okay.

>> That's a $200 billion category by the

way.

>> $200 billion category.

>> Leveraged ETFs.

>> Up massively since 2020.

>> All right. So let's go through this

book. You got

this we'll start from the beginning.

There's a chart here. High beta and top

decile, low vol and bottom decile. Is

that ETFs or just stocks?

>> These are stocks. So this So this chart

it's a little complicated. It's the

rolling one-year performance of the beta

factor, right? Of high beta stocks

relative to low beta stocks.

>> So for viewers to know

what beta means is if the market goes up

1% in a day and a stock has a one one

times beta

that means it goes up 1%.

>> Correct.

>> if it's like Nvidia where it's almost a

two times beta on a day when the market

goes up 1% Nvidia generally go up 2%.

>> Right.

>> That's what beta is.

>> Yeah.

>> And Nvidia is a high beta stock.

Semiconductors

>> are high beta stocks.

>> Staples are low beta stocks. Exactly.

And so the performance of say semis

versus staples has gotten to

historically extreme territory.

>> In other words, semis are up a gazillion

and they and [laughter] and staples are

barely up at all.

>> Staples have been forgotten. They're 4 4

and 1/2% of the S&P.

>> It's amazing.

>> And so the point of this chart is not to

say, "Hey, sell everything." cuz it's

Listen, it's still a bull market.

But be aware that beta is getting

extreme. Low vol, on the other hand, is

an extreme underperformance and maybe

you should think about

>> mean?

>> It's basically looking at volatility

rather than beta. They're kind of the

same. They're They're They're They're

cousins.

>> Okay. So, high beta working versus low

vol is another way of saying tech is

working and and staples is not working.

>> are not.

>> are not.

>> And that's what's also reflected on this

chart here.

>> Okay. And this chart is similar scenario

at the sector level. What does this

chart telling me?

>> This is the rolling six-month

performance of sectors relative to the

S&P.

>> Okay.

>> And I equally weighted it, too, just to

put everything on an even footing.

>> Okay.

>> And the point is to say tech has done

great. We know that. If you're there,

stay there.

But if you're looking for stuff to hedge

tech, look in healthcare, discretionary,

financial,

yeah.

>> just people are wondering

what is the next move? Right, because

we're so used to this AI

and power theme that's been going on and

on and on.

>> Right.

>> Investors are looking for other stuff to

buy.

>> Page seven, you have a chart here that

says ETF This is a very

>> [laughter]

>> um What's the right word for it?

>> Could be aggressive.

>> Catches your eye.

>> Oh, yeah.

>> Says ETFs are the market. What does that

mean? And it's it's showing

cumulative ETF flows versus cumulative

mutual fund flows.

>> Yeah.

>> What does this tell us?

>> This is the chart why I think everyone

should be paying attention to ETFs.

It is the cumulative flows of both

vehicles since 1984. Now, ETFs didn't

exist

>> ETFs versus mutual funds.

>> Yeah. How much money's going in and out

>> Right.

>> on a monthly basis.

>> Now, ETFs started when?

>> 93. Technically, the first 10 years of

this chart, there's no data, but that's

just to make it pretty.

>> And I understand.

>> The whole point is that

>> for the first 10 years of this chart, it

was at zero.

>> [laughter]

>> Mutual fund flows peaked uh almost 8 9

years ago, cumulative flows.

>> Cumulative flows. What do you mean by

cumulative?

>> Just adding up month by month.

>> So, if it's gone down, does that mean

mutual funds are in outflow?

>> Outflows.

>> Are in outflow.

>> So, the point of this chart is that

mutual fund flows on a cumulative basis

are now negative since 1984. The vehicle

still exists. It's great for

>> that again. So, in other words, from 19

If you take a look at the cumulative

flows

>> Yeah.

>> into mutual funds from 1984

to today, and you added all up,

>> Yep.

>> that number is now negative.

>> Correct.

>> That's a stunning statement.

>> right?

>> That's a stunning statement.

>> It's

>> The only reason why mutual fund assets

are where they are is because of the

market.

>> Yeah. If we had a

>> If we had a bear market, they'd be in

deep

>> or just be disaster. Or just a market

that didn't go up as strong as it did,

it would be the asset management

industry would be in trouble.

>> Right. Okay. Wow.

>> It's all the money's going to ETFs.

>> It's all the money's going to ETFs of

all various kinds.

>> Totally.

>> Right.

>> Core, you know, passive, active,

levered.

>> Right. Got it.

>> This is This is pervasive.

>> So, this this talks about daily ETF

volume as a percentage of total US

exchange volume. What does this tell us?

>> That was what we were talking about

before, how on a given day

>> Give it 30%, and then during more

stressful environments, it tends to

rise.

>> Yeah. As people adjust positions, you

know, portfolios, and whatnot.

And now, this is the sequel

to the chart just before on flows, and

it's most of those outflows are coming

from actively managed mutual funds.

They have some

>> Most of the outflows that we saw on on

the thing before,

so this is negative 5.1 trillion

cumulative

>> Yep.

>> negative outflows all from actively

managed equity funds.

>> Yeah. Tough go.

>> Wow. Not not an easy place to be at T.

Rowe Price.

>> No, but the good news is there's money

going back to actively managed ETFs now.

>> Actively managed ETFs?

>> Yeah. Yeah. So, they have They have

audibled.

>> Cuz they're cheaper.

>> They're cheaper. They're transparent.

You get exposure to almost anything you

want now.

>> Right. Okay.

>> It's just a better vehicle.

>> Got it. So, let's talk about this chart.

This says this is S&P 500 percentage

exposure and it says at the top tech

nearing 40% of S&P. I actually looked

this morning before I came in it was the

it infotech was 38%.

>> But yeah, came in a little bit. It's

okay.

>> Right.

>> It's okay. Story remains the same though

that

very popular indices are becoming more

and more dominated by tech. And that's

great. We've all benefited if you've

been long that index or that ETF

tracking the index.

>> Right.

>> You benefit from it.

Uh but I also think it's a great time to

look under the hood and understand how

much exposure do I have to a certain

coordinate names.

>> Okay. So, what So, elaborate on that.

>> So, if I own the S&P 500, if I own

Russell 1000 Growth, if I own a thematic

fund, I have a lot of Nvidia, Microsoft,

Meta exposure.

>> Exposure.

>> Cuz they all

>> Cuz they're so big.

>> They're so big. Most of the funds are

market cap weighted.

>> Right.

>> they inevitably end up at the top.

Again, it's worked out well, very well.

Made a lot of wealth. But But

>> But you're very exposed to tech.

>> You are so exposed. And so, you get a

day like what was it last Friday Friday

where there's an unwind and that's

painful. It's only one day.

>> What you're basically saying is people

think that if they own an index like the

S&P,

>> Yeah.

>> they're very broadly diversified. When

in fact, what has happened is because

tech is such a huge percentage of the

S&P, you're really not diversified.

>> And And here's the other angle. The the

pushback I get is oh okay, what about

international?

You know, Korea's two stocks, Italy's

three banking stocks.

Yes, those are more concentrated.

But the amount of money tracking the S&P

is far far far larger than Italian

stocks. Right? How much of your

portfolio is in Italian stocks and

Korean stocks? Pennies compared to the

US. That's why this matters.

>> Okay. I got it. So, basically the

message is

you own an index, but don't think you're

diversified because you own the index.

>> They're becoming less diversified.

>> Right. Cumulative sector ETF flows since

March 30th S&P 500 low.

I know what this is saying, but tell my

viewers what it's saying.

>> So, this is an extraordinary chart.

>> Listen, flows are investor behavior. All

right, you can measure investor behavior

with the video surveys, anecdotal

questions.

>> But, what they're actually buying is

what they're what they're doing.

>> literally what they are doing.

>> So, what this says to me is if if

the tech

the cumulative flows since March 30th

are up and to the right

>> Yep.

>> and everything else is flat-lined. Like

like no no demand. Nothing.

>> 27 billion into tech ETFs, give or take,

since the March 30th low.

>> Right.

>> Take all the other sectors and add them

up, minus 4 and 1/2 billion or so.

>> 27 billion have gone into tech ETFs

since the March 30th low

>> Yep.

>> and negative 4.4 billion into every

other sector combined.

>> Exactly.

>> So, basically

there's been one game.

>> One game.

>> One game and that's it.

>> Tech.

>> And really and really within tech, if

you take out software, because that's

been a real problem, it's really

semiconductors and equipment.

>> Yeah. So semis and hardware.

>> And hardware. And any type of hardware.

>> So, I I just and I this pairs off nicely

with the chart before on their weight.

Like it's just all in on tech right now.

This tech is the story.

>> By the way

God forbid anything bad happens here,

it's going to be a a disaster.

>> don't know. I don't know this

it

it it it it it

>> not predicting that. I'm just saying

given how the the tech is such a huge

percentage now of the S&P, if the if

there is an unwind in tech, it's going

to be ugly.

>> Yeah. Yeah, it comes in spurts and then

it rebounds, which is fine.

>> Right.

>> Um yeah, you just want to be prepared.

>> What does this mean, this chart? Factors

are loaded up on technology, too.

>> So, this goes back to the

diversification standpoint. Clients,

friends, whoever. Let's say, "Okay, I'm

going to buy the quality factor ETF."

And there's a bunch of that.

>> Quality factor ETF. David, what what's a

factor?

>> A factor, instead of measuring a stock

by how big it is, is measuring it by

characteristics. Right? You think in

sports, um,

baseball, what's their batting average,

what's their slugging percentage.

>> How many factors are there? Give us list

of some factors. Give me like the big

ones.

>> Value, quality, momentum,

profitability would be part of that,

free cash flow.

>> So quality would mean what?

>> Does it have low debt? Right? High ROE,

good return on investment,

good, you know, not too high on the

valuation side.

>> Okay, is it

>> Is it well-run business? Now, listen,

I'm not a fundamental [clears throat]

analyst, that's also

>> Yeah, yeah, yeah. Okay, so what is what

is what is this talking about here?

>> Folks say, all right, I'm going to buy

quality cuz they're good companies and

they'll weather a downturn.

>> Right.

>> Right? Lower vol. The problem is some of

the quality ETFs out there are mirroring

the S&P now because S&P has kind of

morphed into a quality index.

>> What do you mean it's morphed into a

quality index?

>> companies at the top

have Well, they had so much free cash

flow, they would be labeled as quality.

>> Oh, because so Nvidia, because it's

swimming in cash, is not just tech and

momentum, it's also quality.

>> Yeah, yeah, according to some

>> According to these parameters.

>> you're just adding more of the same on

the on the top.

>> Okay, so people will think they're

buying an ETF quality, which gives them

diversification.

>> It's Yeah, it's not If you rip open

what's in the ETF,

>> it's all the same stuff.

>> to look under the hood. So, that's one

problem there. And you see momentum,

too.

Momentum factor could be full of semis.

>> Right.

>> So, you're just adding more and more of

the same.

>> So, leverage ETF usage, according to

this charge, is at a record.

>> Yep.

>> And that make you nervous?

>> It does.

>> Explain. [snorts] So, the leverage ETF

is what we were talking about, like

Nvidia two times.

>> Two times.

>> two times.

>> Correct. There's, um, so there's roughly

200 billion in assets across a few

hundred products now. There's been a

proliferation of them cuz it's a very

profitable business. You can charge 1%

on the ETF.

>> Really?

>> Yeah, good good good fee business.

>> That's a good fee business.

>> And what has happened is I think since

COVID

these products have been discovered. You

do not need a margin. You can do it on

your phone, on your brokerage account.

>> Oh, so this is a way to do the same

thing of options except

>> Yes.

This is not margin.

>> This is This is It trades as a stock.

>> A stock one-click solution. Buy 2x

whatever Tesla, 2x SpaceX, 3x

semiconductors. And so the volume of

this, called the usage rate, is huge. It

is huge. It is It is stair-stepping

higher.

>> And this is So this this is I this would

make me nervous.

>> It makes me a little nervous. Yeah, and

well, the other part

of which if you had a a derivative

specialist here, you know, one of our

guys at Strategas or something,

they would tell you that because these

funds rebalance at the end of every day

to reset that to a daily exposure, it's

adding more volatility into the market.

So on days when a stock with leverage is

up, they have to buy more to reset the

leverage. So that's why you can see some

some serious volatility on certain days.

>> So this chart says levered single stock

activity continues to stair-step

higher.

>> Yes. Okay, so

>> provocative that title.

>> [laughter]

>> Very provocative. What

>> That's what What does that mean?

>> That's what we do in sell-side research.

>> We try to be provocative. I learned that

from Jason. Got to be provocative, you

know. Tell the story.

>> taught it to Jason.

>> [laughter]

>> Okay, so So we were just talking about

the levered space.

>> Yeah.

>> The subset of that is now levered single

stocks. Those did not exist until

>> Levered single stocks.

>> Levered space was always on.

>> So these are basically ETFs of a single

stock. Like I was saying Nvidia two

times.

>> These didn't exist

until 2022.

The ETF was

>> This did not exist until 2022.

>> a newer

>> This is a newer game.

>> newer game and you're starting to see it

really being endorsed.

>> So before 2022, if you were playing a

levered thing, you would you could do

two times the stock the SOX index.

>> Yeah, yeah, an index, a the

>> Some index.

>> Yeah.

index, whatever.

>> Correct.

>> So, now you can do levered on individual

stocks.

>> There's hundreds of them.

>> Hundreds of them.

>> Like and you're getting smaller and

smaller on the market cap of the names

with leverage on them. You know, it's

kind of like a lotto ticket.

>> Like give me an example of the new one.

>> One of the quantum names.

>> One of the quantum names. Okay. Space.

>> space. Space. No, not SpaceX. I'm

talking like the really small space

ones.

>> Okay. [laughter] All right. So, things

are Whatever thing you're telling me is

things are getting frothy.

>> And I personally think so, but who

knows? Who knows? And retail Again, they

>> They love this.

>> They can they can go on Robinhood or

their brokerage and just buy it. They

don't need a special account.

>> Right.

>> As long as you understand how they work.

>> All right. So, here's something else

that you put out that I find

interesting. Chasing single themes can

be detrimental.

>> Yeah.

>> What does that mean?

>> So

>> and then it says thematic ETF universe

percentage drawdown versus volatility.

This is a complicated busy chart. What

does it say?

>> It's complicated. My apologies for that

one.

So

in the ETF world, right? You have your

core exposures, S&P, bonds, small caps.

>> QQQ.

>> QQQ.

>> SOX.

>> And everywhere happens is folks

complement that with thematic funds.

Thematic funds blur the line between

sectors. You think about uh natural

resources, energy materials.

>> Right.

>> Nuclear stocks, cybersecurity.

Could have tech and communications or

industrials in there.

Um space is the newest one of of a

theme.

>> So, you could have a theme where the

stocks in the ETF

are in more than one sector.

>> Yeah, exactly. It's meant to

>> Because it's multiple themes.

>> Yeah, and people like to add those cuz

it's adding to a portfolio, but it's

also reflective of performance chasing.

The amount of times you see a single

theme get hot and all of a sudden

there's massive flows into it. It's

reflective of herding behavior.

>> Okay. So, why is it saying chasing

single themes can be detrimental?

>> So what this chart is showing you is the

three-year drawdown for all the thematic

funds that are out there.

>> What do you mean drawdown?

>> How much they've declined, the most they

declined at one point over the last 3

years.

>> Okay.

>> Versus their volatility.

>> Okay.

>> They're very volatile and they can go

through substantial

>> ETFs are very volatile.

>> Super volatile and they they can decline

by 50%.

>> Well, this says the average 3-year

drawdown is is 32%.

>> Yeah, yeah.

>> And yeah, that's that's the average. And

some are obviously more. That's the

average.

>> Cannabis is the best example of that,

right? Super volatile and they're in

like an 80% drawdown.

>> 80%

>> And they have their days where they go

up 20.

>> Right, right.

>> Okay.

>> So just be careful when buying single

theme ETFs. Yes, they can help

>> Because they can be very volatile.

>> They can just blow up your whole

portfolio or blow up the whole part of

it.

>> Or whichever part you that you got in

the first place.

>> How overloaded you get on them.

>> This says most single themes come with

poor sharp ratios.

>> Yeah, now we're now we're getting we're

getting funky.

>> Funky. First, explain what a sharp ratio

is.

>> Sharp ratio measures how much return you

get for per unit of risk.

>> Right, right.

>> Risk-adjusted returns.

>> want a high sharp ratio.

>> Above one is better. That's kind of the

baseline, I think, right?

>> 70% have a sharp ratio less less than

one from thematic ETFs.

>> Thematic ETFs, 70% of them have a sharp

ratio of less than one. So they're very

volatile.

>> And their returns aren't so great given

their volatility.

>> are not so great.

>> I'm going to stay away from thematic

ETFs.

>> are very

You know what happens is they get very

enticing because inevitably you see, oh,

the space ETFs are running up on the TV.

>> Right, right, right, right.

>> Or

AI and you pick just pick it. Um, you

got to be really good. You got to be on

top of it.

>> Okay, next chart. This says short list

of industry groups

that have been more than a 15% weight.

So what then and then you list semis,

tech hardware, energy, software.

What is this all telling me?

>> So I wanted to go back.

We were talking about semis weight

earlier, 18% or so.

And history's the best guide we have for

this stuff cuz we don't know the future.

So, I just wanted to find has there any

been any other groups above 15% in the

S&P? That's an arbitrary number, nothing

special about that.

And when you got the data and found that

since 1990,

only tech hardware back in the tech

bubble, which semis were part of back

then,

>> Right.

>> climbed way above 15, got to like 30.

Uh energy in the mid-2000s got right

above 15. And then software

>> the fracking days.

>> Yeah, I guess so.

>> Yeah, I must have been or whatever you

want to call it.

>> Right.

>> and then software got above it, too,

back in the late part of the last

decade.

Two out of three of those times have

ended up with not so great results for

the overall markets and for that group.

>> That would be energy and software.

>> yeah. And then the 2018 example was

because MSCI GICS reclassified a bunch

of stocks and removed it.

>> Nonetheless, you know, it does not mean

this whole thing's going to pop and

we're going to have a problem. It's more

we're just looking at history here as a

as a road map to understand how far this

can go.

>> And here's a chart. I'm not quite sure

what this means. It has a very

interesting title which says broader

flows climbing, but not extreme. What

does that mean?

>> So, this is a sentiment measure. All

right, I'm looking at what percentile

equity ETF flows are in relative to the

last 1 year.

>> And the So, I say that again. You're

looking at percentile of what?

>> The what percentile equity ETF flows are

in over the trailing 1 year.

>> Okay.

>> look back.

Uh how aggressive are we? Or how

lukewarm are flows?

>> Equity ETF flows.

>> Flows are just a it's a temperature

barometer. They're not necessarily a

signal.

>> And so, where are we now?

>> Lukewarm given where the market is.

>> Not a not a signal that we're at a real

top.

>> Tech is the extreme part. There's no

doubt about that. But broader flows

>> flows not.

>> broader flows are kind of just going

along with it.

>> Then we have

cyclical versus defensive flows are

subdued too. What does that mean?

>> Similar idea. I've taken this chart

all the cyclical sectors without tech.

Financials, industrials, materials,

discretionary.

>> Right.

>> Add those flows up and then subtract

them from defensives, energy, staples,

utilities, health.

>> Why would you do that?

>> Just a measure of risk risk appetite.

>> Okay.

>> Right? We're trying to figure out how

bullish What are people doing with their

money at the sector level?

And right now in terms of cyclicals

and relative to defensives, they're not

that, you know, overenthusiastic.

>> That's cuz they're just buying tech.

>> Exactly. Yeah.

>> They're not buying cyclicals or

defensives.

>> kind of the same idea. I'm just taking

different showing different variations

of it.

>> And then it says contrast between

financials and industrials one reason

why. What is that about?

>> cyclical flows together are not showing

much appetite. There's been a lot of

money going [snorts] to industrials

because of the power story.

>> Because of the power story.

>> Exactly.

>> Which is just another form of tech.

>> Exactly.

>> And no flows into financials.

>> There's a lot of unease from financials.

>> Unease.

>> And you know, I I kind of look at that

as bullish, to be honest, but I think it

has a lot to do with the private credit

headlines.

>> Right.

>> People are getting scared by that.

>> Healthcare appetite has cooled off. I

didn't know it ever got hot.

>> It

>> [laughter]

>> It was a brief moment.

>> I missed it.

>> I would the most frustrating sector in

the last 3 years

>> is healthcare.

>> is absolutely healthcare. Without a

doubt.

>> Unless you own Eli Lilly.

>> Yeah. Yeah, it's true. Unless you own

Yeah, unless you own some of the stocks

that have been good stocks. If you're

just buying the sector, unbelievably

frustrating. Biotech's been good. But on

the whole,

a ton of money out of healthcare.

>> Out of healthcare.

>> Yeah. If I made this a cumulative chart

rather than a rolling 3-month sum,

>> Right. You would see just a massive

amount of money

>> Massive outflow.

>> And so, yeah, and this has been the case

now for forever.

The setup is there for healthcare to

work. It just doesn't want to It just

doesn't want get its act together. Okay.

[laughter]

>> That's what that chart here reflects. So

this says bull case for health care long

way to go for normalization. What does

normalization mean?

>> It's health care shrunk shrunk from 16%

of the S&P to 8%.

>> Say that again.

>> Health care has has gone from 16%

to 8%.

>> It's unbelievable.

>> The The joke we'll say is it took a

GLP-1 literally like by itself.

The health The health care sector had

its own GLP-1.

>> Its own GLP-1. Okay, I got it.

>> And so the performance is so bad

you could make the case it's good. I

have we we have this conversation

>> words, it's so bad maybe there'll be a

reversion to the mean.

>> Yeah, exactly. We're looking for

reversion to mean. We had this

conversation a year ago I'd be saying

the same thing. So I sound foolish, but

it's that's just what the data tells us.

Okay.

>> Small caps flows up but hardly fully

endorse. What does that mean?

>> No one really cares about small caps

anymore.

>> They don't care.

>> Um when you have

>> Why do you think?

>> Cuz you have trillion dollar IPOs.

>> Right. Which is which are all exciting.

>> Super exciting. I thought it was

interesting last year small cap ETFs had

outflows.

That was the first time since 2011.

>> Wow.

>> That's rare for an an important asset

class. And yeah, the money's come back a

little bit this year.

Uh but between the flows and just

conversations a lot of folks just kind

of gave up on it. I think it's because

it was such a rough period from 2021

till about a year ago.

>> Energy is coming off the burner. Well,

energy didn't do too well. This

everybody knows. This is it's um June

15th.

Um President Trump announced on Sunday

there was a deal and oil prices

collapsed and energy stocks have

collapsed. But you say but here prior to

that energy is coming off the burner.

What does that mean?

>> There was a massive sugar rush to energy

from uh it was a February 27th. It was

when they did the initial move overseas.

Big rush as energy got some momentum.

Money flooded in.

>> Right.

>> Coincidental that all of a sudden oil

started to peak too? Perhaps, who knows.

>> Okay. So it's coming off the burner.

>> To me people are now taking their

profits on energy as this moves along.

>> Consumer discretionary underperformance

in bottom decile. This chart look on

consumer discretionary, looks like we're

we're in a recession.

>> Yeah, it's strange, right? The

discretionary stock

>> Discretionary is is a a barometer of the

health of the consumer.

>> Discretionary is definitely reflective

of the K economy.

I don't want to opine on that, but

>> Right.

>> there's a lot of have and have-nots, and

it's resulted in discretionary

performance being awful.

>> Awful.

>> Uh

>> Awful.

This is an equal weight one, by the

>> Yeah, you know why? Cuz I don't like cap

weight discretionary is skewed by Amazon

and Tesla.

>> Right.

>> And so, whenever you backtest anything

from that sector, it's just going to get

Amazon type results.

>> Right. Yes, what what you're saying is

because the market cap of Amazon and

Tesla is so big relative to all the

other companies, if you do a market cap

you're all you're doing is measuring

Amazon and Tesla.

>> Yeah, so I I I think it's very flawed.

So, I yeah, I equally weight

discretionary.

>> Right.

>> There are good discretionary areas,

though. Hotels

and couple of the cruise lines are good.

The restaurants are starting to come

back, and then airlines are accountable.

>> I know the answer to this question, but

I'm going to say what it says. Staples,

do they matter anymore? I think the

answer is no. How How How big were

staples at the peak, and where are they

now?

>> they're like 19% at one point.

>> Staples were 19% of the S&P.

>> at one month or so in the early '90s,

the largest sector. Can you believe

that?

>> Staples.

>> Yeah, can you believe that?

>> In the '90s.

>> Yeah, it's crazy, right?

>> And where is it now?

>> 4 and 1/2.

>> 1/2%.

>> Third or fourth smallest after

>> So, the So, Nvidia is double the size of

the entire staple sector.

>> Yeah.

>> Right.

>> Uh

uh Amazon or Alphabet. Microsoft is

larger than it.

And you know, maybe this is a Gen Z

thing. People don't drink anymore.

And smoke a cigarette.

>> toilet paper.

>> [laughter]

>> It will take a market freak out for

algorithms to buy consumer staples

again, I think, is what is happening.

>> All right. This is an interesting title,

but I'm I'm quite sure what it means. It

says growth of derivatives and ETFs a

hurdle for allocating to staples.

>> Yeah.

>> Unpack that for me. What does that mean?

>> So,

staples, they were great in maybe the QE

era cuz some of those companies had

yield. They threw off yield at least at

least and they might have been lower

vol.

But because ETFs have proliferated so

much and there are such

a massive amount of ETFs using

derivatives. I'm not talking about

leverage. I'm talking about options now.

>> What you mean? So, there in with in the

ETF there are options etc. to to soup

soup up the performance.

>> Exactly.

>> Okay.

>> So, I can buy a covered call ETF which

is where I'm selling options to generate

income while maintaining some equity

exposure.

>> Okay. So, what's that got to do with the

hurdle for allocating to staples?

>> Well, if I have 10 bucks to allocate to

staples, yeah, the performance kind of

stinks. Why don't I just buy an S&P 500

covered call ETF? So, I get S&P exposure

plus the income

>> All right. I see.

>> Or,

I can buy a a buffered ETF which

protects me on the downside.

>> Okay. So, people are playing that much

or is it just

>> It's just having It's just having more

So, you go on a street.

>> Right.

>> one restaurant, now there's five.

>> Got it. We're working through our

sectors. REITs were a diversifier during

the tech bubble.

What does that mean?

>> So, I I want I I want to try and find a

case for REITs.

>> Good luck.

>> [laughter]

>> What But by the way, what percentage of

the S&P are REITs?

>> they're like 2% or less than that.

>> Less than two?

>> Yeah.

>> I mean, at that point from a portfolio

manager's perspective, like forget about

it.

>> stock. You know, if you're buying a If

you're doing that.

>> Right. You can buy one stock. It's I

think the REIT index is like 30 stocks.

But but you know, you're going to buy

one if you're going to buy anything.

>> So, okay. So, my bull case for REITs

then is in the tech the 2000s extreme.

Way too extreme right now.

But if you ever had to have another 2000

environment, the REITs actually went up

during it.

>> Right. They were the diversifier. Got

it.

>> That is the case for REITs.

>> Got it. Okay.

Here's a provocative statement.

Quality is wasting space in your

portfolio.

>> So, what do you mean by that?

>> goes back to what we were talking about

earlier with quality being full of tech.

>> Right.

>> This is a 50

>> Quality is now a disguised tech is what

you're saying.

>> exactly. So, it's not a diversifier.

>> No, it's the R squared of this ETF,

which is about a $50 ETF, is near

perfect to the S&P 500.

>> Okay.

>> Why do I need that

if it's doing the same thing?

>> As the S&P 500.

>> Yeah, I don't need it.

>> You don't need it. Exactly.

>> something

>> So, no point in buying a quality ETF.

>> can buy something that will diversify,

do something completely different.

>> buy the S&P 500.

>> I'm more S&P if you want, sure.

>> Right, but that's what you want. It's

just It's just not, you know.

>> Okay.

>> Maybe people might think I'm wrong, but

I That's how I would see it.

>> you.

Any thoughts on interest rates before we

finish up?

>> From the long end, too tough.

Um

you know, I know the two-year yield has

given a little boost here.

Maybe the Fed will have to tighten. You

know, that's more in Don and Jason's

lane.

>> Right.

>> Uh I would just say there's 8 trillion

of money market funds

and as a percentage of the bond agg,

that's very elevated. It's about 25%.

>> Okay.

>> So,

not that money market funds is the S&P,

that's kind of irrelevant here,

but money market funds are certainly

taking share from other bond managers

who could use some of that money when

the rate environment ever changes

whether it's higher or lower.

>> Okay.

>> I'm actually more than more interested

in what gold does here cuz it's it's

kind of falling off.

>> Yes, let's talk about gold.

>> Yeah.

>> Because somewhere in here is a is a gold

chart,

>> [laughter]

>> um which we'll we'll we'll put up on the

on the screen or we'll put in in the

show notes.

What in the world has happened to gold?

>> Whether it's higher rates,

uh

modestly higher dollar maybe's been a

headwind.

I look at it as more so what is a was a

blow off from metal mania earlier in the

year or actually last year. It feels I

don't even know what month it is now.

>> Right.

>> There was a massive amount of volume and

money going to that asset.

>> Last year.

>> Yeah. Oh, yeah.

>> What's interesting is that even you

would have thought

when that when the war started

and

interest rates were up

>> Yeah.

>> people were petrified of inflation

they're petrified about the world if you

would if you would said that to me and

said what would gold do, I would say

gold's up. And it wasn't.

>> Yeah, it's changed.

>> It's changed and I don't I don't I don't

know why.

>> Chris always likes to say pay attention

when stuff that is supposed to behave

one way does not.

>> Right.

>> And that's kind of been gold's case.

>> It hasn't acted the way you thought it

would should.

>> in the last couple of months, no. So,

I've seen a lot of money coming out

coming out of gold ETFs. So, that kind

of perks my interest of well, maybe this

thing will start to bottom out.

>> Okay.

>> And what about uh while we're on the

topic, Bitcoin? How's that chart look?

>> It's it's uh rough.

>> Rough?

>> Rough is the only way to describe it.

Same setup those gold where people are

like moving on from it. You know, uh

we're questioning it.

>> So, we we had a a thesis that that

people have that all all the young

people who used to trade Bitcoin are now

on Kelshi.

>> Mhm.

Good point.

>> And so, it's just it's just not cool.

>> Yeah. It got too um ingrained in the

system. Right. Went from DeFi to

traditional finance.

>> Traditional finance, which was death.

>> Um

but I'm also seeing money come out of

gold Bitcoin ETFs. So, you know,

>> They're coming out of the Bitcoin ETFs.

>> Yeah, yeah. So, the bar's low for both

of those assets. It's just the you know,

what what kind of environment do you

need now for them to recover?

>> Got it.

Any final thoughts?

>> Pay attention to what you own. That's

what I preach. Especially in this

environment, it's a bull market, but

you might be loaded up on more exposure

than you think in certain areas.

>> Okay.

Todd, thank you.

>> Thank you, Steve.

>> That was great. And we're back.

So,

that was really informative. You know, I

I I would say the the meta message here

is that tech has so dramatically

outperformed over the last several

years.

It's now almost 40% of the S&P. And then

if you add in all the other companies

like Google and Amazon, which are not

technically in tech, it's well over 50%

of the S&P. So,

Todd's message is that if you own an

index

and you think therefore you're

diversified,

you're actually no longer diversified

because tech so

dominates.

You know, we went through a whole bunch

of charts that just show flows into tech

ETFs off the chart. It flows into

everything else moribund. So, you know,

I think that's the big message. What's

interesting in terms of individual

stocks is the Google chart still looks

good.

But Meta,

Oracle,

Microsoft, Amazon, their charts look eh

to bad.

And that's A, either partly software

exposure to AI capital intensity

exposure. So, this the groups of tech

that have done the best are the ones

that are not related to that. So, that

would be semis and tech equipment.

And the other group that's done very

well would be a stock like GEV, which is

power related. So, everything is sort of

one theme.

It's what dominates the market. And the

scary part here, this is how I'll end,

is that if the stuff ever reverses,

there'll be no place to hide.

See you soon.

>> This podcast is for informational

purposes only and does not constitute

investment advice. The host and guests

may hold positions in stocks [music]

discussed. Opinions expressed are their

own and not recommendations. Please do

your own due diligence and consult a

licensed financial advisor before making

any investment decisions.

>> [music]