The 'Big One' is Here... Apparently.
Summary
TLDRThe video discusses the media's portrayal of a potential US recession and its impact on stock market volatility. It challenges the notion that market declines are solely due to recession fears, highlighting other factors like the unwinding of the Yen carry trade and Warren Buffett's Apple stock sale. The script emphasizes the outsized influence of the 'Magnificent 7' tech companies on the S&P 500 and suggests that investor sentiment towards AI and these companies is a significant driver of market movement. It also advises against making investment decisions based on recession speculation, advocating for a long-term focus on business performance.
Takeaways
- 📉 The stock market experienced a significant drop due to fears of a potential US recession, with media outlets widely covering the event.
- 🏦 Financial institutions like Goldman Sachs and JP Morgan have raised their estimates for the probability of a US recession, with some estimates as high as 40%.
- 📈 Despite concerns of a recession, the stock market's decline was not solely due to recession fears but also due to other market events, such as the unwinding of the Yen carry trade and Warren Buffett selling Apple stock.
- 📊 The Bureau of Labor Statistics reported weaker job growth and a slight increase in the unemployment rate, contributing to recession concerns.
- 📉 The S&P 500 and other major indices saw sharp declines, but the media's attribution of these declines to recession fears may be overstated.
- 🤖 The 'Magnificent 7' tech companies have a significant impact on the S&P 500, with their performance driving market sentiment and volatility.
- 📊 These tech giants have seen their valuations soar, with many trading at high price-to-earnings ratios, indicating investor expectations for future growth.
- 📈 Despite solid earnings reports from some of these companies, the market reaction has been mixed, with stocks falling post-earnings in some cases.
- 🔄 There is a growing sentiment that small-cap stocks may start to outperform large-cap tech stocks, indicating a shift in investor focus.
- 💡 The key driver of the stock market's movements is investor sentiment towards the 'Magnificent 7' and their potential in AI technology.
- 🗣️ Speculation about a recession is rampant, but the actual timing and occurrence of a recession are uncertain, and investment decisions should not be based solely on such speculation.
Q & A
What is the main topic of the video script?
-The main topic of the video script is the speculation about a potential US recession and its impact on the stock market, particularly focusing on the role of the 'Magnificent 7' companies.
Which companies are referred to as the 'Magnificent 7' in the script?
-The script does not explicitly list the 'Magnificent 7' companies, but it implies they are major tech companies that have a significant influence on the S&P 500 index.
What is the significance of the 'Magnificent 7' in the context of the S&P 500?
-The 'Magnificent 7' are significant because they account for about 30% of the S&P 500's gains and are responsible for a large portion of its movements, making the index more concentrated than ever.
What factors have been cited as reasons for the recent stock market volatility?
-Factors cited include the unwinding of the Yen carry trade, Warren Buffett selling large amounts of Apple stock, and investor sentiment towards the 'Magnificent 7' companies, especially in relation to their valuations and growth expectations.
How did the script describe the media's role in the perception of a potential US recession?
-The script suggests that the media has played up the possibility of a US recession, attributing market declines to recession fears, which may not be the sole cause of the market volatility.
What is the role of investor sentiment in the current stock market situation according to the script?
-Investor sentiment, particularly around the 'Magnificent 7' companies and their association with AI technology, is a major driver of the stock market's movements, with the potential for volatility as sentiment changes.
What was the script's stance on the predictability of a US recession?
-The script suggests that predicting a recession is uncertain and that investment decisions should not be based on speculation about a recession.
What does the script suggest about the long-term performance of the stock market?
-The script implies that in the long run, stock market performance reflects the long-term business performance, as opposed to short-term sentiment or speculation.
How does the script relate the actions of Warren Buffett to market sentiment?
-The script suggests that Warren Buffett's decision to sell Apple stock might have prompted other investors to reconsider their investments in tech stocks, highlighting the influence of such actions on market sentiment.
What is the script's advice for investors regarding the current market situation?
-The script advises investors to focus on the long-term health of businesses and their cash flow, rather than getting caught up in short-term market volatility or recession speculation.
What is the significance of Seeking Alpha in the context of the video script?
-Seeking Alpha is mentioned as a sponsor of the video and as a resource the speaker uses to analyze businesses and earnings, providing insights into company performance and investor sentiment.
Outlines
📉 Stock Market Volatility and Recession Fears
This paragraph discusses the concerns of an imminent US recession, fueled by media coverage and financial analysts' predictions. It mentions the stock market's significant drop, attributed to recession fears, and highlights the role of weak jobs data, rising unemployment, and stable interest rates. The speaker challenges the media's narrative by pointing out other market events, such as the unwinding of the Yen carry trade and Warren Buffett's sale of Apple stock, which may have contributed to the market turbulence. The focus then shifts to the 'Magnificent 7' tech companies, which are driving market sentiment and whose volatility is a significant factor in the stock market's current state.
🚀 The Impact of Tech Giants on Market Sentiment
The second paragraph delves into the disproportionate influence of seven major tech companies on the stock market, despite their high valuations and varying earnings performances. It discusses how these companies' stocks have been bid up on the promise of future growth, particularly in AI technology, and how any deviation from flawless growth could lead to significant stock adjustments. The paragraph also touches on the market's reaction to these companies' earnings reports, showing a trend of volatility and investor sentiment shifting between belief in their potential and skepticism about their valuations.
💡 Long-Term Investing and the Futility of Recession Speculation
In the final paragraph, the focus is on the importance of long-term investing and the pitfalls of basing decisions on short-term market fluctuations or recession speculation. It emphasizes the unpredictability of market movements and the value of focusing on a company's fundamental performance over time. The speaker uses the teachings of renowned investors like Warren Buffett and Benjamin Graham to illustrate the point that stock prices reflect long-term business performance, not short-term sentiment or speculation about economic downturns.
Mindmap
Keywords
💡Seeking Alpha
💡Recession
💡Stock Market Volatility
💡The Magnificent Seven
💡Investor Sentiment
💡AI (Artificial Intelligence)
💡Earnings Estimates
💡Market Capitalization
💡Warren Buffett
💡Benjamin Graham
Highlights
Video sponsored by Seeking Alpha, offering a 7-Day free trial and $25 off annual subscription.
Media frenzy over potential US recession following stock market dip.
Goldman Sachs and JP Morgan increase odds of US recession, with estimates ranging from 25% to 40%.
Weak jobs data, rising unemployment, and persistent inflation contribute to recession fears.
Stock market volatility not solely due to recession fears, but also other market events.
Unwinding of Yen carry trade and Warren Buffett's Apple stock sell-off as significant market events.
The 'Magnificent 7' tech companies contribute disproportionately to S&P 500 movements.
Investor sentiment around AI and these top companies is a major driver of current stock market trends.
High market capitalizations of these companies relative to their earnings indicate risky valuations.
Seeking Alpha's valuation ratings show 'F' grades for major tech companies, signaling overvaluation.
Even with solid earnings, stock prices of these companies are volatile due to high expectations.
Tesla and Google examples illustrate the impact of earnings reports on stock prices.
Shift in market sentiment suggests small-cap stocks may outperform large caps going forward.
Volatility in the market linked to changing perceptions of tech stock values.
Speculation about recession is uncertain and not a reliable basis for investment decisions.
Benjamin Graham's quote emphasizes the long-term reflection of business performance in stock prices.
The importance of focusing on long-term business health over short-term market fluctuations.
Seeking Alpha premium as a valuable resource for daily business analysis.
Transcripts
this video is sponsored by Seeking Alpha
sign up to Seeking Alpha premium using
my link to score a 7-Day free trial and
$25 off your annual subscription is the
US really headed for a recession a week
ago you probably saw the stock market
take a decent dive on fears of an
imminent us recession and the media had
an absolute field day with this Forbes
jumped on it as did the Washington Post
CNBC alzero the BBC the list goes on
it's a clicky subject people love
negative news especially when it touches
on the topic of a potential us recession
but do they have a point Goldman Sachs
recently raised the odds of a US
recession from 15% to 25% JP Morgan
raises recession probability to 35% and
their CEO Jamie Diamond recently stated
in an interview that he thinks the
probability could now be as high as 40%
as time goes on these estimates keep
getting higher and higher and with weak
jobs data being released in the US a
couple of weeks back unemployment Rising
inflation hovering around 3% and
interest rates unlikely to be lowered by
a meaningful amount in the near future
could the US actually be one wrong turn
away from a recession well firstly I
want to address the stock market
volatility we've been seeing as nearly
every news Outlet last week attributed
the sharp decline in markets to concerns
around an impending us recession and
that's not entirely the case it is true
that the market had a particularly bad
day on Monday the 5th the S&P 500 the
index of the 500 largest stocks in
America fell 3% the tech heavy NASDAQ
fell 32% and the Dow Jones dropped over
1,000 points to finish 2.6% down down
but a lot of people were quick to pin
this on an increased likelihood of a US
recession and this messaging came after
the release of the most recent jobs data
if you missed it the Bureau of Labor
Statistics noted that in July just
114,000 jobs were added in the US which
is down substantially from the figures
seen in May and June and looking at the
unemployment rate in the US while it's
still quite low it has slowly been
trending up over recent months so that
combined with cooler but still
reasonably persistent inflation and the
reality that interest rates will
probably stay restricted for quite some
time are causing people to worry about a
recession coming soon but is this really
what's moving the markets is a potential
us recession really affecting the stock
market as much as the media are trying
to force us to believe well even looking
at that week of the major Market
turbulence if you actually look behind
the curtain even on Monday alone there
were two completely different Market
events that happened last week which
probably caused the stock market
shakiness you had the unwinding of the
Yen carry trade which has been covered
extensively across YouTube and you also
had the world's best investor Warren
Buffett dumping huge sums of Apple stock
back into the market and after
commentary from Buffett earlier in the
year saying he's comfortable trimming
Apple to hold more cash seeing him make
such a big move likely prompted many
investors to reconsider their
investments in the highflying tech
stocks the news caused Apple to fall
around 5% but this really just
highlighted a much bigger Trend we've
been seeing in the Magnificent 7even
over the past month the reintroduction
of volatility in these seven business
businesses and if you ask me this is
really where we see the big overarching
story of what's driving the stock market
right now if we look at the current
trends of the S&P 500 we can see since
July it took a dive and then recovered
but look at this when we look at the
price charts of The Magnificent Seven
companies notice something since mid
July these businesses have tanked and
then recovered and you can say well of
course these stocks will move up and
down as the market does but it's
actually the other way around these s
stocks are the market the Magnificent 7
even after their big dip and Recovery
across the past month still occupy about
30% of the S&P 500 the S&P 500 is more
concentrated than it ever has been this
article I was reading on Seeking Alpha
noted that out of the entire upward
movement of the S&P 500 this year
onethird of it was down to just these
seven businesses appreciating 7even out
of 500 businesses accounted for 30% of
the gains think about that and
ultimately what this means is that
changes in sentiment in just these seven
businesses have an outsized impact on
the broader Market the media can talk
about an imminent recession or the
upcoming election or even interest rate
changes but ultimately the bigger mover
of the stock market right now is going
to be investor sentiment around these
seven companies and the reason this
group of stocks is particularly volatile
right now rising and falling so sharply
is because they have been bid up to the
Moon because the big money has declared
the AI is the future and these seven
stocks will will be the beneficiaries of
this technology what we've seen is
insane amounts of money flowing into
these stocks swelling their Market
capitalizations along Way north of their
current earnings investors are making
their bets on AI early and then hoping
the earnings catch up later for example
if we take a look at the valuation
ratings from Seeking Alpha we can see a
bit of a theme for where their earnings
are at currently Google gets an F Amazon
gets a D minus meta gets an F Tesla gets
an F Microsoft gets an F Apple gets an f
and Nvidia gets an F compared to where
their profits are today these businesses
have been bit up so high that they need
to continue growing flawlessly to
satisfy investors and even one minor
slip up could equate to a much harsher
stock adjustment than you'd normally
expect take Tesla for example they beat
Revenue estimates but missed on earnings
per share estimates and even though it's
common knowledge that the car industry
is cyclical and Tesla is having to lower
prices and they're dealing with more
Chinese competition and the stock fell
12% post earnings they still have a PE
ratio of around 56
very very high or what about a company
on the other end of the Spectrum in
Google posting really solid earnings
numbers Revenue up 13% year of year net
income up 28% year of year 10000 billion
of cash on the sidelines and only 12
billion in long-term debt they're doing
everything right but when they posted
earnings somehow they still fell 5% and
it was because investors found a teeny
tiny Mist expectation in their YouTube
revenue and this is actually a really
interesting stat on Seeking Alpha you
can really easily see where the
companies beat or Miss earnings and take
a look at this meta beat estimates on
their Q2 earnings Google beat estimates
Microsoft beat estimates Apple beat
estimates Nvidia beat on their last
earnings in May Amazon beat on EPs and
missed slightly on Revenue Tesla missed
on EPS but beat on Revenue but despite
this overall solid earnings performance
after their earnings were released all
of them took a massive dive now they
have since recovered but this choppy
movement really speaks to the bigger
problem causing the US market to bounce
around at the current time and it's
exactly what this headline is alluding
to up until now the Magnificent 7 could
do no wrong it's been nothing but growth
and nothing but hype but now things are
just starting to change it seems at
least for some that the shine is
starting to wear off on the massively
hyped tech stocks and it's becoming a
battle between the out andout Believers
and those that think these stocks are a
bit overblown and this seesing consensus
is leading to a lot more volatility that
we have seen I mean take the company
Warren Buffett sold in apple if he
thought the business was set for gang
bust the growth from their efforts in Ai
and the valuation was fair there's no
way he'd be selling but take a look at
Apple over the past few years Revenue
has stagnated as has their operating
income sure Apple can do tens of
billions in share repurchases to Goose
the numbers but at the end of the day
investors are expecting more than that
at a PE of 33 and as I spoke about in
another video recently the sentiment
seems to now be changing so much so the
Bank of America Global researchers
expecting earnings growth in the small
cap stocks to start outpacing that of
their large cap peers at a trend that
was drawing money out of the big Tech
behemoths and back into the small
companies in the market but now is just
adding to the volatility in the market
so while we might see news sites linking
the performance of the stock market to a
US recession or macroeconomic factors
like jobs data or currency fluctuations
with the Japanese Yen the main thing
that's going to really dictate the
near-term performance of the S&P 500 is
really what happens to these seven
businesses that collectively hold
onethird of its weight if investors stay
excited about AI the market will likely
keep going up but if AI loses its luster
or if these companies stop posting such
strong growth numbers then you can
expect the broader Market to fall and to
specifically hone in on the topic of a
potential us recession it's important to
remember that while you hear a lot of
speculation online the truth is nobody
knows for certain if or when one might
come along and it's pointless to try to
make investment decisions based on that
information I mean the funniest thing is
when I started writing this video in the
midst of last week's sell off all of the
Articles were talking about how the US
is definitely headed for recession but
since I started writing the crazy thing
is the market has almost completely
recovered it's now down only 2% from its
all-time high and what's even funnier is
now the news articles are talking about
how the US isn't going into recession
look at this from last week when we saw
articles that Goldman Sachs raised its
recession probability to 25% this week
the article is Goldman Sachs lowers its
recession probability to 20 % you can't
make this stuff up one week later and
all is well again the value of retail
sales increased in July by the most
since early 2023 government figures
showed the fewest applications for
unemployment benefits last week since
early July it just goes to show that you
really cannot buy into this recession
chatter one week it's Doom and Gloom and
the next it's clear skies honestly to
keep myself grounded I always like to
think about what the world's best
investors would say in these sorts of
scenarios the Warren buffets or the
Charlie mungas or the Benjamin Grahams
and a great quote about the stock market
that comes from benang Graham is in the
short run the stock market is a voting
machine but in the long run it is a
weighing machine and what this means is
that over a period of weeks or months or
sometimes even years the stock market's
movements are really just a result of
what people think if they're excited
stock prices rise if they're pessimistic
stock prices fall and you cannot control
that at all so the only way around this
as an investor is to think longterm in
the long run stock prices ultimately
reflect the long-term business
performance right there was a lot of
pessimism about Amazon and the tech
bubble that drove the stock down but in
the long run the stock performance is a
result of what that business has been
able to achieve over time so I think
it's important to detach what you're
seeing here in the media on the
day-to-day and think along those lines
at the end of the day Google stock will
go up and down based on what investors
think about Ai and it will also go up
and down based on whether or not the US
goes into recession but right now Google
produces $5.50 per year in free cash
flow for each one of its shares and and
over the long run if the business stays
healthy and that number continues to
Trend up the long-term trend of the
stock will also be up you can say that
for any business in your stock portfolio
and I think it's important to remember
that in times like these also wanted to
again thank Seeking Alpha for sponsoring
this video as I'm sure you could tell
throughout the video Seeking Alpha
premium is one of the few resources I
use on The Daily when looking into
businesses so I'm very happy to partner
with them if you want to try them out
for yourself remember you can get seven
days for free by using the link in the
pin comment and if you sign up to an ual
subscription you'll also get $25 off
through my link it's a great partnership
I've got going with them I definitely
recommend checking them out but with
that said thanks very much for watching
guys and I'll see you all in the next
video
[Music]
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