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Yahoo
6 days ago
- Business
- Yahoo
How Nvidia's size is rewriting the market playbook
Listen and subscribe to Stocks In Translation on Apple Podcasts, Spotify, or wherever you find your favorite (NVDA) explosive growth is doing more than lifting portfolios - it's changing the whole this episode of Stocks in Translation, Strategas Securities senior ETF and technical strategist Todd Sohn joins host Jared Blikre and Producer Sydnee Fried to discuss exchange-traded funds (ETFs). Sohn explains how ETFs serve both long-term investors and active traders while warning about overexposure to tech due to market dominance, with Nvidia as a prime example. The trio also talks through the underperformance of healthcare ETFs, outdated index regulations, and the importance of knowing what you own in an ETF-driven market. Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service. This post was written by Lauren Pokedoff Welcome to Stocks and Translation, Yahoo Finance's video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I'm Jared Blicker, your host, and back with me is the voice of the people, Sydney Fried, who is here to ask the people's questions and keep us honest. It has been a while since I've missed you. Thank you. I miss being here. I was back Monday, but it's great to have both of us back here. And today we're gonna be exchange traded funds or ETFs. Why they're underappreciated, according to our ETF loving guest today, we break down the different flavors, what to look out for and how to read their ingredients like an FDA label. In fact, ETF is our word of the day, and this episode is brought to you by the number $9.05 billion. That's how much money is poured into commodity ETFs since those April 8th lows, and you can double that if you include We're gonna dig into how truly diversified your portfolio is even as bonds continue to disappoint year after year. Is the 60/40 portfolio dead? And without further delay, let's get to our featured guest of the day, Todd Sohn. He is the senior ETF and technical strategist at Strategic uh Securities, and Todd lives and breathes ETFs. I know this for a fact. His enthusiasm for the asset class is palpable every week. He sends me aslide deck full of original analysis on ETFs, stuff I am truly seeing nowhere else, and we're gonna share a bunch of that with you, the viewer today. So Todd, I saw you last week at a CMT event that's charted market technicians for chart nerds like me and, well, some others, and, uh, you gave a great presentation on kind of the state of the market here and how you're seeing that through the lens of ETF. So just give us a brief run of all, that was very kindintroduction. Thank you so much guys. to be with you let's see, state of the market. We are back to all-time highs in stocks. Bonds are still, uh, struggling here, but you do get 4.2% in short duration income producing vehicles. That's great. Um, and I, I wouldn't be terribly surprised given the run we've just had, one of the best 3 month runs in history coming off of the April market low to see stocks maybe chop around for the summer. I don't think that's unreasonable. Think of a car going 0 to 60 and you kind of got to cool the engine off here. So still in very good shape, um, but be patient, I think over the next couple of months. All right, so let's get to our word of the day ETF and we're gonna break it down for the viewers. In exchange traded fund bundles many stocks, bonds, or other assets like commodities, cryptos into one ticker symbol that trades intraday like a single stock. And I say intraday because unlike mutual funds, they trade all day long. You can only get in and out of mutual funds at the close of the of the day. So ETFs come in many different flavors. A recent trend is the use of leverage, and we talked about that the last time you were here, Todd. So just tell ETFs in general. SoETFs do two things, uh, I would say for investors. One, they're a great low-cost long-term investing tool, depending on what you're, you're buying, right? The idea of saving for retirement or maybe that big purchase down the line, a house, a car, Xbox, who knows? Uh, but they're also great lens into the, the temperature of the market, right? I can see what ETFs are outperforming, where flows are going, what kind of products are coming to the market, because ultimately if something's hot, you're going to see many issuers launch similar types of products, copycats to the I can give you a pretty good sentiment check, and I think that's very helpful if you're someone who is more in the weeds on a day to day, week to week type of basis. So what's going on with these leveraged ETFs. Let's see, the bulk of ETF assets are in passive investing vehicles, very boring. S&P 500, whatever, keeping it simple for the long run. That's what most 98% of us should be doing for the long term, all three of us, but the 2% 2% like to use what are leveraged vehicles, and you're gonna basically going to get 2 times the return on a daily basis for an asset. And there is a very new trend, it's only about 3 years old where you're putting leverage on single stocks now. So if I'm very bullish on Nvidia.I can buy 2 X levered Nvidia ETF that if Nvidia is up 2% today, the fund should give me a 4% return. And you're seeing this explode to stocks all the way down the cap scale, so very volatile type of names, like a Rocket Labs or Archer Aviation or hymns in hers, really kind of esoteric stocks that maybe they're the future growth companies of but are also very much high conviction if, if you want to scratch that itch away from just pure passive investing. How do you even find leverage? Like, is it just when you're doing your buy order on whatever brokerage you use? Is it just like an option when you go to a certain ETF? It has to be an approved product to be issued, right? So now there's probably about 130 of them right now. So they're not available on such as you know, Defiance, very friendly with Sylvia Jablonsky, she's great. They come out with these, these ETFs. They get to the show. Yeah, she's excellent, wonderful person, um, and they'll they'll say, all right, we're gonna file for a leveraged Rocket Lab. They're tick. Oh yeah, oh yeah, like you can bet, OK, do I want to buy Tesla because I think it's gonna go to, uh, you know, up today, you can get a 2x of the normal stock return. But Todd, just refresh us because we talked about of leverage before. And if you get, and I've seen this in real time, if you get a stock that's going like this and then it kind of chops its way north, you can actually lose money even though the stock has gone up on these leverage products just because of the volatility. You have to, this is where reading the label matters. They reset the leverage every single day. So today you are supposed to get 2x the return or inverse the return depending on the resets and then tomorrow you get 2 X from that point. It's not a cumulative effect.K involved even if it's up after a week or net on the month, you might not experience that in the daily. You really want these products. I mean, technically not supposed to open them for more than a day, but if there's a very fast up trending when a real profits are made. If you chop around, then you're you're gonna end up with losing more than what the actual underlying stock has done. So which sectors or stocks are big right now and leverage ETF? Yeah, I know I was just gonna ask about tech tech is huge and then tell us about that and some of the uh the dogs, tech communications and some of these more type of plays, uh, I keep saying Rocket Lab or quantum computing is also getting big. Stocks that are really less traffic, less traffic in passive indices, they don't have a lot of but they come, they're very trader friendly, you'll find them on message boards and whatnot, people liking a product, maybe they're drone makers, right, those are popular too, but you're not gonna see them for something like Verizon, that's just too boring. Nobody wants that. Uh, Verizon is a dividend type of stock, so you won't get it in on in say consumer staples, telecom, but you're gonna find it in very high beta type of names that come usually come from the technology sector. One of the things you flagged that I thought was fascinating here is Nvidia. So Nvidia makes up about 7.5% of the S&P 500, and you compare Nvidia to entire sectors. So utilities is about 2.5%, so Nvidia is 3 times the size of all together, all the utilities in the S&P 500. Energy, it's 2X. Staples is 5%, 5.5%, so it's uh just kind of 1 X that. But then healthcare, which is a huge sector, you think about Pfizer, Merck, and then all the, you know, some of the smaller companies like uh is 9.25% and Nvidia, the biggest stock in the solar system is closing in on that. This is a really fascinating aspect right now. The S&P is this ever of changing index. 30 years ago, financials were big. 20 years ago, energy was big. Now it's if you think, you know, if you're an investor, you think, OK, I'm buying the S&P 500, I'm buying big US stocks. I'm, I'm diversified. That diversification is shrinking by the day because tech is overwhelming the index and Nvidia is bigger than staples, it's bigger than energy, it's bigger than utilities, real estate materials. It's closing in on the industrials and healthcare, so one stock is bigger than these massive, massive so, OK, that's great, it's benefitted investors, but if you're looking at a portfolio, and you own the S&P and you own large cap growth by chance, and maybe you own a thematic AI fund because you're bullish on a lot of exposure to a small cohort of names that are usually found in those indices like Nvidia, Microsoft, Meta, right?So I just worry that investors need to understand what they own now. It's becoming more and more important just given how these companies are really taking over the world. I want to ask you too, I, I noticed this a few months ago, did, um, a chart segment on this. There is a disconnect between the XLK, for instance, and XLK is large cap tech. It's one of the spider funds. Uh, it tracks the S&P 500 tech universe and the actual, if you were to compute all of weights, uh, market cap of all of the tech funds in the S&P 500. XLK is actually underweight on a lot of names. So, and that has to do with laws that go back to the 1930s and 1940s. So highlight, you know, some of the risks to investors, you know, you think you're getting large cap tech, but you're actually underweight some of the things that you might think you're buying. The rule, these rules were created for 40A funds, right? 1940, almost, we're getting close to 100 years when this was made. And it appears to me that the now challenging these rules that were made and they're challenging index providers to say, hey, these rules were not built. This methodology was not created for trilliondollar type stocks, ETF vigilantes. That's what I'm that's that's I've never heard that before. That's. Uh, you said leverage isn't for everyone. How do you decide whether you want to wade into that because it's so, it sounds risky, but it also sounds like all, alluring, but if you're just choosing something like how big of a it's my gosh, we have a semiconductor or we miss earnings and the stock goes down 10%, you'll be 20%. OK, 100%. But if it goes up 10%, then it comes 10%, 20%. So this is you have to pay attention. It's the best thing you could say is what your risk tolerance is. If you, if you're 21 years and older and you walk into a casino, do you get uncomfortable or do you love the lights and the chips and the cards? That's a good analogy. Um, but just know, OK, I have $100 to spend after that I'm leaving the room, so you really need to understand much of an allocation you'd want to use for these leverage products. I wouldn't it. OK, I have always wanted to try that. I do. I mean, maybe that's because if you use an know what your, your risk is. You're you're buying it, you have defined. You put up the money up front and you just let it sit and you hit a home run. That's, let'sbe real here. Talk to me real quick. We got a minute before the break about healthcare because this has been, this is one of the dogs.I was thinking about when I said that word. Yeah,so, gosh, healthcare not loved, unloved massive outflows from healthcare sector, ETFs so it's very cold temperature. Investors don't like healthcare. Healthcare's performance of the last 5 years is in its bottom decile to the S&P using 50 years of data. So that's performance, not even flows, yeah, reallybad. So big outflows, horrendous this thing ever work again? I, I, I mean, I've, I've wanted to, and it's just been wrong. But healthcare is interesting because you get value characteristics from farm own equipment and growth characteristics from biotech. So there's a lot of interesting stuff going on in that sector. I agree. And there are biotech ETFs which are, leave out the big boys. We need to take a short break, but coming up we're gonna be talking portfolio diversification with commodities ETFs and a culinary runway showdown that might just get you reading those ETF ingredients after episode is brought to you by the number $9.05 billion which is how much money investors have poured into commodity ETFs since those scary post-liberation Day lows on April 8th. Now I got this from one of your slides, Tom, Todd, and I note that precious metals are actually also in the $9 billion range there. So you add those two together and 18 $18 billion I keep want to say $1 trillion but that's actually challenging crypto for the number spot in what has been working the best in terms of investor expectations since those April 8th lows. And so Spot crypto has taken in 19.9%, basically $20 billion and commodities including precious metals is two. So talk to us about that. I think investors are realizing that, OK, 10 stocks are almost 40% of the S&P. Defensive sectors like we were talking about before, only 20%, that's a 35 year low. So this diversification benefits disappearing. They need to find other routes toWhether it's protect or just alter our portfolio, crypto is clearly becoming an important allocation. Um, there's also probably a fear of missing out aspect to then commodities can at least offer uncorrelated returns to stocks, ideally. So I think that's where the gold comes in, or you can buy a broadly diversified commodity ETF. So you'll have energy, agriculture, some other metals like palladium and platinum. This is all very much a diversification play rather than chasing returns like you'll see from some othergroups. Gold has been a thought for me because when we did see the markets kind of turned down in April, I believe, and they've recovered since then, a part of me was like, well, you know, I don't.I don't think I have enough diversification, even, even within my ETFs, by the way, which we can talk about. But I looked at commodities, people talking about silver prices, gold prices. So what do you think about commodities for a passive investor? Like, does everyone need X%? I think it helps. Now there's different, there's some differences, right? They can be taxed differently, but I think that 101 type, but I wouldn't worry about that too much, um, depending on what type of investor you they're at least different. They're not in Nvidia, they're not AI, they're not technology. So gold, right, there's a movement towards gold because of the geopolitical side that's going on. We can figure out any catalyst, right? Maybe it's a weaker dollar that benefits gold too. Um, so I think having these assets that can rise during equity volatility is just a benefit to, to protect your portfolio. It may not make up the whole difference, but at least provide a padding. You fall down, you fall on a mat, you'll be OK, as opposed to on a hard floor. I, I posed a question at the top of the show. Is the 60/40 portfolio dead? And, and traditionally this is the 60/40 portfolio is 60% equities, 40% bonds, and that's something that has worked on and off through large spans of time and it specifically it really works in the 80s, 90s, and the first maybe 1520 years, but after the pandemic, it is done very poorly. When we had the 2022 bear market, bonds lost money and so they exacerbated the downside and investor li o s So what do you think of bonds right now? I like staying down the curve. We don't want duration risk, which is how much your bonds will be affected by moves in interest rates. So on the, I can buy a 3 month treasury bill, I can buy a 1 year Treasury bill, and I will still get around 4%. That's pretty good. If I buy a 10 year treasury or a Treasury ETF, I will get maybe closer to 4.5, but it comes with a lot of volatility because of duration risk. We're about 10 months since the first rate cut, uh, from the Federal Reserve in this cycle last duration treasuries and long duration corporate bonds are down since then as an index. So that's really rare. Usually bonds rise. That was a slide in the you sent me. So this is a very rare situation. And let me throw in this because the news of the day is, uh, Donald Trump, President Trump, was threatening to fire Jay Powell, and he's talked about this before, but apparently there was a letter that got circulated. The New York Times got a hold of it. Uh, we saw to the lows of the day. It was a fairly dramatic sell-off in a short amount of time. And then Trump recanted, stocks popped up again, but how do you see this risk affecting some of these shorter duration assets and because this has to do with where the Fed is going with its short term rates. So if you start to see rate cuts, which we'll see if the administration has its way, I, I have no edge in that, right? It's a lot of noise, which is why we want to invest for the long rate cuts will start to impact those short duration bonds, you will get less income. That's the risk if you have most of your money in short term bond now, on the long end, OK, maybe if rates do decline, that could actually give you a little bit of a boost in terms of price return for a longer duration bonded, uh, ETF, but just remember the volatility involved. I think that's, you know, can you stomach the ETF labeled treasury bond being higher volatility sometimes than stocks. That's really tricky. I don't think a lot of investors realize that. Another potential diversifier international stocks. A few people have said to me recently to own 1% of international in your portfolio, and a couple of the answers were higher than I expected. So what do you think of international ETFs? I'm a fan because they are they're less growth oriented than the US. Now the US is the best market. I think there's no doubt about we're at a point where again diversifying, I think really matters. So I can buy Europe, I'll get more industrial and financial stocks. If I buy Japan, I get a lot of industrial stocks and really interesting consumer technology. It's called video games, right? They're great at making their their games there. So, Europe and Japan, I don't know if you want to be overweight to the US but have some percentage of your portfolio, maybe it's 5 to 10%.Uh, in there as well. Emerging markets, I'm not sold on. I think that's easier to play using maybe an active manager who really knows the space as opposed to going passive. Um, but you absolutely, I think, want to have international exposure at this point just for the diversification benefits and to water down how much growth and AI exposure you might have. I wouldn't know how to pick one, I think for there's dartboards or listen, there's ETFs that developed international ETFs from Vanguard, iShares, all sorts of providers that give you the whole, uh, world exposure. It's the easiest route to go. All right, we're gonna stick with ETFs here, but we gotta cue the runway lights because it is time for who wore it better. Our markets-based take on a Hollywood Gab show favorite. Now, on the left catwalks, struts our ETF food label reader, clipboard in hand, squinting at a holdings list like a nutrition panel, highlighting every And on the right saunters the blind buffet buyer, a plate piled high with whatever looks shiny, no idea whether it's mega cap carbs, junk bond fat, or a sprinkle of leverage spice. Uh, what management fee, you might ask? Now, Todd, I know you're a reader of the food label, AKA the prospectus, but my question for you is, which contestantIs wearing the current rally off of the April 8th lows better. The disciplined label reader who knows every calorie of risk, or the thrill seeker who grabs and gulps. It's got to be the discipline reader to me. I mean, the thrill seeker just because we've got a really sharp rally, maybe they, maybe they've actually done better in the short term, but I, I have to imagine the discipline wins out in the long run. I don't think so you know that. I'll give the, I'll give the grab and go very, maybe a slight edge in the 3 months, but by the end of the year, uh, you know, those habits don't stay very well. But how does an investor, or I know readspectus. Well, there is now because of AI, right? I can go on a chat GBT or any of those and say, what does the the prospectus for the XYZTF mean? Give me a summary of that. We didn't, we didn't have it though. Would you, would you believe it? I always have a little, I don't know, reluctance. Now the other route is if theETF issuer is good at what they're doing, they will lay everything out for you on their website. So you go to the issuer's website, you find the ETF you're interested in, and they should have a bullet point summary of what this ETF is meant to do and where it might fit within your portfolio. So you don't have to go in and read the perspectives because those are very dense documents. I used to write them and I, I seriously, and they're, I wouldn't say they're they're on purpose obfuscating, but it's just the length itself makes things daunting and you got to repeat things at different places and it's a lot of legalese, even though they're supposed to be written in plain English. Tell me about the fees though. How do you look for a low fee ETF and not get smacked with something you're not expecting? They'll have the fees on the website, right? This is required to have the fees, the big a spreads in there, uh, that's gonna be on top of what you I think the more you look at ETFs, the more you realize Vanguard and iShares and State Street will have the lowest fee products for what that's worth. Those are the plain vanilla core type of passive holdings, maybe Invesco but you could also just do a Google or AI search. What are the lowest cost ETFs available for US stocks, for international stocks? Like, do you have all these tools that weren't available 20 years ago? 100%. I get, I get curious, like, if you're just picking a big tech ETF, do you just like look at total assets and pick the one with the biggest one? So it gets tricky. You could, but you also want to know what it's tracking because the indices have these little nuances tracking error. We didn't. Oh yeah, I mean, that's a whole other topic we'll have you back. I love to. I'd love to come back. Um, what type of index is it tracking? Uh, market cap weighted, fundamentally is it actively managed by someone? So there's these nuances to the indices and how big certain stocks might for most people, yes, market cap is the way to go, but maybe you need to change it up. All right. And on that note, we got kind of wind things down here and it's been a fascinating conversation with you, Todd. We learned about exchange traded funds, how they're different from mutual funds, and especially how to dig into some of these details that are easy to miss. And one of the standouts to me in this conversation is uh diversification because I think in this market environment, it's especially I like your idea of managed futures, not only because I used to be in the industry and that's how I got my start, but, uh, very important to think about these things. Time for a wrap here at Stocks and Translation, but make sure you check out other episodes of our video podcast on the Yahoo Finance site and mobile app. We're also on all your favorite podcast platforms, so be sure to like, leave a comment, and subscribe wherever you get your podcast. We will see you next time on Stocks and Translation.
Yahoo
16-06-2025
- Business
- Yahoo
Small-cap stocks: A closer look at seasonal trends
Yahoo Finance Markets and Data Editor Jared Blikre, who also hosts Yahoo Finance's podcast Stocks in Translation, breaks down the seasonal market patterns of small-cap stocks. In particular, he focuses on the Russell 2000 (^RUT), the presidential cycle's impact on small-cap market moves, and how things are shaping up a little differently this year. Catch more Stocks in Translation here, with new episodes every Tuesday and Thursday. To watch more expert insights and analysis on the latest market action, check out more Catalysts here. Every market has a hidden calendar, and small cap stocks have a rhythm all of their own. But how much does the presidential cycle actually matter? And is 2025 already breaking all of the rules? Today we revisit seasonality. I'm Jared Blickre, host of Stocks and Translation, and first the definition. Seasonality is the predictable and recurring changes in data that tend to happen at the same time every year. And we've talked about this, well, I've talked about this at the beginning of the year. But guess what? Seasonality did not predict anything in regards to the tariff tantrum that we saw, and that kind of bucks seasonality in a big way, but it seems to be back. So let's take a look at this chart. The Russell 2000 started in the late 70s, so this goes all the way back to 1979. Every month, these green bars are the median returns, not the average because that can skew things to the upside or the downside too much. But we take the median returns, and then in white, I also have the percent positive. And I like to see something above 70% to get me really bullish because that is the historical average or median, uh, for any given day in most stock indices. So we're going to notice here, June is kind of ho hum. That's about 1.3%. And what you might notice is that May is a lot better. And in fact, we're just coming off the best May since last November. And guess what here? November is the best month of the year, historically speaking, with a positive rate of about 70%. And December is right there with it, 74% of the time. It is up, uh, over 2%. So you put it all together, we are still in the midst of a nice little seasonality, perhaps back run in the Russell 2000 with small caps, and we did see them lead this week in particular. Now, let's take a little different look here, and you can slice seasonality in a lot of different ways, but one of the ways is to match the presidential cycle. So since 1979, we've had 11 or so first year presidential terms, all the way from Ronald Reagan, he had two, and then you had HW Bush, and then you had two of Clinton, all the way through Biden. And so that's what we're looking at here. And with only 11, uh, with only 11 sample sizes here, we're seeing a lot more volatility. So the green bars are going to vary a bit more. But what you might notice is the standout month is May. And again, we just had the best May since last November. And historically, with this presidential cycle, we've seen returns of about 4%, 91% of the time, 3% plus. Also, June again, ho hum, it's a little bit less than 1% there, but it does have a percent positive of about 73%. And then July looks a little bit better. What you might notice here is that August and September are really not the greatest months in this cycle. So that's something to look out for potentially, especially August, which has a median negative return and also only a 45% positive rate, which is pretty low here. And I'm going to show a final chart. Hopefully, I'm not going to confuse things anymore, but I did want to show you what has happened this year, and that is in blue here. So this is a 2025 chart. Here we have, I'm going to trace out what the Russell 2000 has done this year. And there's that big plunge, uh, into the early April that we saw. And then I have two maps, the white and the green lines. Now the white line is going to closely match what has happened that first bar chart that I showed you since 1979 every year and those median returns. And you can see it's pretty much from the lower left to the upper right here. We do kind of flatten out in the fall a little bit, but then there's a rise into year end. But what I'm really interested in is that green line. And this is a special way I've been, uh, I've been conducting these seasonality studies. For everything that's included in here, you have to have the exact same day of the week as it appears in this particular month. So for instance, this month started on June 2nd, and that was a Monday, and we're only going to include those years back to 1979 where June 2nd was a Monday. And that happens to be 1980, 1986, 1997, 2003, 2008, which was a global financial crisis, and also 2014. And what we see here is a bit of negative seasonality into early April. And that kind of matches, not to the extreme that we saw, but it matches what we saw this year. And so what I'm interested in in particular is what's happening in June. We do see a nice upslope here, and when we get to October, November, December, that's when we reach the rocky period. So the bottom line, if you put all of this together, and you put some stock in seasonality, uh, we probably have some smooth sailing perhaps until August, September, October, November, and then with the resumption of the uptrend, maybe in November and December, and that's if everything goes according to plan. And with all the geopolitics, who knows? We could get another bump up in volatility. But all considered, we do have a map for the year. So tune into Stocks and Translation for more jargon busting deep dives. New episodes on Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcast.
Yahoo
12-06-2025
- Business
- Yahoo
Cathie Wood's ARK Innovation ETF: How Tesla has fueled gains
The ARK Innovation ETF (ARKK), Cathie Wood's Tesla (TSLA)-heavy fund, is in focus after the ETF sold roughly $17 million worth of the stock ahead of the robotaxi event. Despite the sale, Woods remains a major Tesla bull on Wall Street. Yahoo Finance Markets and Data Editor Jared Blikre, who also hosts Yahoo Finance's Stocks in Translation podcast, takes a closer look at the Ark Innovation ETF and how its largest holding, Tesla, has fueled its moves. Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service. To watch more expert insights and analysis on the latest market action, check out more Catalysts here. The ARK Innovation ETF soared over the early pandemic making Kathy Wood a household name. Today we're going to take a look at how it's performed along with its number one holding. I'm Jared Blikre, host of Stocks and Translation. Wood's flagship found, uh, fund, was founded in 2014, but it really hit investors' radars in 2020, betting big on technology and disruption, major pandemic themes. And as we're about to see, this ETF's fortunes have swung mostly thanks to one single stock. Tesla. Check out this wild ride. All these charts I'm showing, by the way, start right before the pandemic in 2020. Ark skyrocketed from just 33 bucks in March 2020 to almost 160 in less than a year. That's a nearly 400% moonshot. And it was fueled by retail traders with those stimmy checks and meme stock FOMO, uh, it did have some bubble vibes, admittedly, but as the pandemic stimulus faded in 2021, the ETF dropped a brutal 82% from its peak before staging a modest recovery recently. Now, notice the number of stocks in Ark, how it moved alongside its price. Into the frenzy of 2021, the ETF bulked up to nearly 60 names, but when the bear market arrived, that number fell sharply. From peak diversification to a tighter core, Ark got leaner as the fund rapidly lost value. But through all this churn, one stock held its place at the top. Tesla. From about $200 million at the end of 2019, Ark's Tesla position soared to 2.4 billion at the peak. Even today, it's the only stock in Ark with a position consistently above half a billion dollars. So it's no surprise that Ark's fortunes are tied to Tesla's. Now, in this chart behind me, you can see the link between Tesla's stock price and Ark's Tesla holdings. But watch this carefully. Even when Tesla's share price was moving sideways recently, its relative weight in the fund continued to grow. Why is this? Because Ark trimmed other positions, increasing Tesla's weight. This shows that it's not just Tesla's price that matters, but also the portfolio, portfolio rebalancing. And that happens at Ark's discretion on a daily basis. And this final chart drives that point home. Tesla has rarely been less than 8% of the entire fund, but as assets fled, that share spiked, at one time making Tesla one sixth of the entire ETF. A huge reliance on this single stock. Ark made a name by embracing disruption, but its commitment to Tesla has been a stalwart over this fund's roller coaster ride. Thursday, I'm going to take a look at how the rest of the portfolio has shifted and who could step in if Elon Musk, Tesla truly stumbles. Tune into Stocks and Translation for more jargon busting deep dives. New episodes on Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcast. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
12-06-2025
- Business
- Yahoo
Tap into these big trends to grow your portfolio
Listen and subscribe to Stocks In Translation on Apple Podcasts, Spotify, or wherever you find your favorite time to view your portfolio with a long-term mindset. In this episode of Stocks in Translation, Tematica Research CIO Chris Versace joins Markets and Data Editor Jared Blikre and Producer Sydnee Fried to break down everything having to do with thematic investing - an approach that involves investing in companies poised to benefit from long-term structural trends, like AI and or clean energy. Versace stresses the importance of using daily news signals to validate or reassess thematic exposure as well as his concerns about future inflation from tariff-driven price hikes. Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service. This post was written by Lauren Pokedoff Welcome to Stocks and Translation, Yahoo Finance's video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I'm Jared Blicker, your host, and with me is the People's Voice, Sydney Fried. She's here to ask the people's questions, speaking as the people's spirit moves. First, please like, subscribe, and comment on stocks and translation on Spotify, Apple Music, Amazon, or YouTube, and today,We are going to be digging into various investment strategies. Our phrase of the day is thematic investing. Themes can transcend sectors and styles, so how to mix them into your portfolio. And this episode is brought to you by the number 55%. That is a chance that we get a Fed rate cut by September, but how much do rate cuts really matter? To help us with all of this today, we are welcoming for the first time, Chris Versace, CIO of and portfolio manager of the portfolio. Good to finally get you on the show here. I, you know, I think I was supposed to be here and I unfortunately fell victim of COVID a fewmonths ago. It wouldn't be the first time COVID has interrupted our plans this century. Um, tell us how you're seeing the market, please. So Imean, where, where are we today, right? So from a technical perspective, the market is kind of closing in on those high RSI levels near you know, the market, I also think is kind of reacting to the May CPI print that was on the headline, a little weaker than expected. So good news for the market if you're pro uh Fed rate cuts, but as we were talking before we started.I do have some concerns about that data, right? You know, um, I think companies were winding down inventories right ahead of the tariffs. So if they have to replenish, prices could be a little bit higher. And then if we take a look at some of the announcements that we got Walmart, Mattel, uh, Macy's, Ford, and a rash rash of others, price increases are coming to help offset the pressure of those tariffs. So I think the market is really trying to figure out where are we, what's next, and I'm sitting here companies are gonna be dealing with all this likely when we get into the June quarter earnings season. I'm watching second half of the year guidance. All right, very good. We're gonna talk about the Fed in a little bit. We want to focus now on our phrase of the day, which is thematic investing, which is investing in companies with the aim of benefiting from long-term structural trends could be AI, aging populations, clean energy, rather than sticking to uh to traditional sectors or style just kind of break down thematic investing in for for us and how it works for you. So there's a lot of interpretations for thematic investing. So let me just give you my, OK? So we look for structural change across the shifting landscapes of economics, demographics, psychographics, technology, and regulatory mandates, and what we want to do.I isolate the companies with the greatest exposure to the things that we create based on those structural changes, and we do this with a thematic scorecard. So we actually rank companies based on their sales or profit exposure to the strategy. So we can capture those that are really gonna benefit, sidestep those that are not. And if you like to go short, Jared, you know, sometimes you might be able to say, well, these companies, they're being left behind. They're not responding to the structural change. So if you're an aggressiveinvestor. Value stocks. Maybe, maybe not. You know, when companies get left behind, they, they oftentimes have problems. So we're trying to identify structural tailwinds to keep it simple, structural headwinds. Is thematic investing always in the form of an ETF? That's where you're just pulling a bunch of stocks together. It can be, but I would also say that I think you've got to be a little careful. So we, we have some at Somatic we have a couple of clients over in Europe and we've helped create some thematic ETFs for them. We build the the but oftentimes you see folks kind of putting filler or stuff that doesn't really fit, so you really have to, in my opinion, if you're looking for an ETF, look for something with high purity, and there are ETF issues out there who'll say, well, if a company has 50% might be fine. Then what about the other 50% have a word in their name. That could be it too. That, that could be it too. That could be it too. But you, so you need really high, high purity levels, I think. I would say 80% or higher. What's the non-ETF example then of thematic investing just names you can do individual stocks or you are seeing um some, you know, service providers create models which would be a smaller we have created models as well, usually between 6 to 8 stocks again with very high thematic purity that are poised to benefit from these strategies or themes that we've identified. Could you just give us some individual stock examples then of current themes that you like and then some of the leaders? Oh, sure, I mean, I'd be remiss if I didn't rip out art artificial intelligence like everybody else. So that would be obviously your Nvidia is, your Marvels, but we also have safety and security, so we like that, which is uh a play not only on tasers less and less but body cameras, cloud services, and burgeoning artificial intelligence into the public safety sector. And what's interesting about that, you, you, you guys should ask me this. Well, you just said AI is a theme, but you got AI over here in public safety, and that's one of the great things about thematic investing because I come from a background of, uh, being an equity research analyst at Wall Street firms where you have your vertical wow, can't you identify some pretty interesting compelling stuff when you look horizontally across the transformation that's unfolding? I think AI is poised to be one of those, um, disruptive and transformational technologies. I mean, it's gonna beeverywhere eventually, at Starbucks, even Starbucks apparently. I evaluating the performance of like your thematic investments different than evaluating the performance ofAny other of your investments. So if you're asking like could you do the standard PE stuff valuation stuff? Yes, do you haveto read the prospects for all these companies in the world so, so with our thematic scorecard, right, we try to rank every company that we're, uh, that we've identified in the universe. So it could be a prospectus. There's a lot of 10Ks company presentations, earnings call transcripts, you know, a lot of reading, a lot of reading. So, so you can really identify, um, what percentage of their business sales profits, whatever, whatever is, you know, um, shared publicly that tells you, yes, this not only fits, but it is should be ranked a certain score, it should be in the strategy. But Iguess I'm also wondering like if you'reDoing AI thematic investing, how to judge whether those investments are doing better than if I just went into tech and I had more exposure to other technical like. Oh, I see. Um, so for some of the models that we have, we do have some additional screening factors that we do, EPS growth and and things like that. Um, but I will also tell you though thatWhat I think helps, and this might be a differentiation from just buying tech to buying um AI or some or digital infrastructure or digital lifestyle or some of the other strategies we have. The really cool thing about thematic investing is it's actually and around us in our daily lives. So every week we publish signals, right, ripped from the headlines, confirmation points about what's unfolding. Subway ads even, um, could very well be, could very well be aging the population. A lot of plastic surgery ads here on the New York City subway system. So why not? Gotcha. Well, do you ever layer in technicals on top of that or just some of the fundamentals? So, um, it's fundamental work. There is some technical work you know, when we look at our models, you know, uh, we're looking at, you know, is there a death cross or what have you. So there is some of that, yeah. OK. What's uh is there a specific allocation you recommend someone to have in their portfolio for thematic investing? So this is an interesting question, right? Because we tend to you tend to hear advisers talk about core and satellite, and I would say this, these models fit into the satellite exposure, right? What what's the extraExposure you want the kicker, the sweetener, call it what you will, um, you know, are we tinkering with some core models? Yeah, we are, but I would say the thematic models fit really into that satellite approach. So is the core then passive? Is it just a generic passive strategy or is that your core strategy? Oh, I'm just talking just conceptually how RIAs and others about core. Is it important for a passive investor to even bother withthis? I would say if you're looking to capitalize on areas of growth with well positioned companies, the answer would be yes. All right, so I'm just, I'm like I'm getting tips from my own portfolio that's fine. That's fine. All right, um, so we've talked about, we've talked about theory quite a bit. You've given a few examples. What in the data is leaning you towards certain strategies like what are you seeing?What are some of these signals you're seeing on a daily basis that tell you, all right, I need to pay a little bit more attention tothis. So, you know, as you guys kind of picked up, there's a lot of paying attention to what's unfolding, you know, whether it's news articles, stories, company comments, right? So there are, and I will say this, not all thematics are going to work at the same time or all the for example, right now we're seeing a lot of headlines about chocolate prices moving higher and you might say, OK, chocolate prices great Hershey, Mars, Tootsie Roll, yeah, what, yeah, exactly. So we kind of take that as a signal that maybe our guilty pleasure theme is not really in vogue right now, right? We're also seeing the rise of non-alcoholic beer, which is becoming the second largest category in beer, very exactly favorable for guilty pleasure. So, and, and on the flip side, we're seeing, um, you know, some warning signs earlier this year about luxury goods and spending and softness there as well as tariffs taking a bite out of that business as well. So again, maybe some near term tailwinds, sorry, headwinds headwinds for our luxury buying boom model. So not again, not everything's in vogue at the same time. And how much do you pay attention to some of the generational aspects like maybe the younger generation Gen Z is just eschewing luxury so we don't want any part of that. Do you try to make those determinations? Uh, you know, it's if that were happening, we would try to do that, but the data doesn't seem to point to that. If, if any, if anything, they're more affordable luxury or more, um, aspirational luxury. Got you. All right, um, so we, you touched on the, the weak CPI that we got earlier this week. What does that tell you about the macro picture in the US right now? Well, I think if we take a look at the new order data that we saw in the May ISMPMI numbers that uh technically in contraction territory for uh manufacturing largely on a month over month basis for the services sector, it tells us the economy is going to slow, especially relative to some of these, I can only say wacky Atlanta Fed GDP now numbers that we've been seeing 3%, 4 numbers I've ever seen. I, you know, I personally prefer the New York Fed nowcast model. Uh, I think historically they, they've been a little more um on track with the, with what, excuse me, with what is really happening in the the Atlanta Fed numbers, and while I like Bostic, um, I just, like, they're all over the place and they have a history of missing to the upside, missing to the downside. Hold that thought, we need to take a short break, but coming up we're gonna be talking Fed rate cuts and a mouthwatering, if not soupy, runway battle. Stay episode is brought to you by the number 55%. That's the chance that the Fed pulls the rate cut trigger again by its September meeting. The number got a slight boost after the cooler than expected inflation read earlier this week, and all of this data, by the way, comes to us from our beloved sponsor, the bond market. Got bonds? All uh, Ray cut odds this year. Um, I can imagine what the is, I can imagine what your answer might be, but is it gonna happen? Is it gonna happen by December, September. So what I've been saying, we, we follow the data, right, as you can imagine. So as we get more data, we, we will, uh, revise our view. But what we have been saying is that the odds of two rate cuts very low in our opinion, and I think after the ISM data that we saw, the same May data I was just referring to, we saw the prices component on services jump, we saw the the prices component in the manufacturing number remained extremely elevated and then the May employment report had a big jump in wages on a year over year basis. Our thinking was, you know, it's got to be more like 1, not 2, and if you take my comments about how I think the market might be setting up for a little head fake with the May CPI numbers, I continue to think that there's more likely a chance we get 1, concern is now what's the Fed going to say next week when they update their set of economic projections? I was thinking they were going to take it down to one.I think the May CPI report gives them a little room to keep 2 on the table for now. What would it take to get to? What would it take to get to? Well, there's two levers to that, right? We could see inflation cool on a sustained basis, move even lower in the June July data, right, because the Fed's going to have plenty of time to that September, uh, timetable for its policy meeting. So a lot more data, and I think that's why you'll ultimately see Powell go, we need to see more good data. I just like it. But the other side of that is the economy, right? And you know, while I was making fun of the Atlanta Fed numbers recently, um, you know, they, they support the notion that the Fed doesn't need to do anything. So unless we see those numbers come down, potentially contract, don't think we're going to see it, but if they come down sub 2%, closer to 1%, maybe sub 1% in the next 3 months, then you'll see people getting a little more enthused about rate cuts. The other thing to watch would be the employment I say that because job growth did surprise 139,000 in the month of May, a little weaker than the last couple of months, but still growing. But if that if that changes, then all of a sudden I think you can see people get a little more concerned about the speed of the economy, saying, oh, maybe more rate cuts are needed. Um, the other thing I'll, I'll mention on just on jobs is the Doge, you know, buyouts, right? If you carefully read the May employment report, anybody who's receiving them is still counted for now as employed, and that rolls over September. Oh, OK, so September's report or the next month's October. Are we hyper fixated on one or two cuts or like that's a that's a great the Fed, I think do Fed rate cuts, how much do they actually matter these days? Well, immediately they don't, right? You know, they, there is a lag effect for them going into the market and, you know, affecting, um, you know, mortgages and other rates. So I, I would say that it's important only because it kind of denotes that if we get one cut, the odds of another one coming are probably that much greater because of the data that's prompting the Fed to do it. Yeah. Um, so, all right, we talked about the Fed. I'm gonna give you the floor here. Anything else in the macro picture that we didn't touch on that you wanna, you wanna you'reyou're giving me my last question that I use no, no, I know. I'm just saying, I'm, I'm just saying this, this is like, um, I would, this might be a pivot because it's not really on the macro side, but it's more of a market question that ties into the economy and I think it'll bring us back to it's that, it's that guidance, right? Because as, as we're sitting here, like, you know, we're we're volleying around a lot of topics and I think Jamie Dimon said it um yesterday when he was presenting at the Morgan Stanley uh conference thatBetween, you know, tariffs, geopolitics, and other things, there's a lot of moving pieces here. And my, my concern is that when we move into the June quarter earnings season, a lot of this will still be this soup, if you will, will still be with us and a lack of clarity, you know, I think companies err on the conservative side. That means that guidance expectations will probably get reset for the second half of the year for the S&P 500. And if I'm the question is by how much am I right? because that can trigger a whole valuation question from a simple PE basis even for the S&P 500. I gotta, I gotta say the last earnings round, uh, earnings season when I was, we were just entering, I think Walmart, they suddenly cut their guidance and I thought, OK, there's gonna be a swath of companies that are just gonna say this is a but I didn't really see that happen. It wasn't as bad as I expected anyway. Um, what does it take for earnings to really take down the S&P 500, the big market overall? Well, I think you got to take a look at, you know, who are some of the top constituents, right? You got your Microsoft, you got your Nvidia, you got Apple, and, you know, the kit and caboodle of the rest of the Mach 7, right?So you have to watch those guys, but it's also going to be, um, you know, other retailers, other folks that are really, I think, feeling the continued pain of tariffs if we don't get any of this clarity. But even if we do, you know, I was just saying, you know, this morning that, oh, so President Trump is saying there'll be 55% tariffs on Chinese imports. The average tariff on Chinese imports in January of this year was around 21%.So there's still going to be some inflation pressures there whether or not people have to pass through or margins get hit because they can't pass pricing through. So again, a lot of uncertainty for that second half of the year, at least as we sit here today, likely to be with us as earnings season kicks in for June. So asan investor, how do you navigate this potentially uncertain second half? Well, so the way I would answer that is as an investor, are you buying the market or are you buying?you know, well positioned companies benefiting from structural changes, yada yada yada. Well, I would say thematic or targeted exposure, right? Because what we want to capture is where is the growth. So we are gonna pivot hard pivot here to our runway battle. Today our runway battle trades in heels for ladles. First down the catwalk is broth, crystal clear consummate, a single unmistakable flavor note. Think pure play themes, one bet, no delusion, butDon't slurp too fast because lumbering right behind is chowder, thick, chunky, loaded with potatoes, clams, and 12 kinds of risk factors, Sid. That's your diversified basket, layered like a fact set model. Now, Chris likes to preach, listening to the data, yet even the cleanest reads can get cloudy when the market starts whisking in surprise rate cuts or earnings misses. And in case you're wondering about the theme today, Chris was once featured in a Progresso soup which dish compliments investors' portfolios the best this season, the sleek, transparent sip that tells you exactly what's inside, or the hearty meal that can mask a few unwanted ingredients. Spoons up, let's taste some alpha crisp. OK, so I, I'll say this, as much as I love the clear consumme, right, it's just, it's exactly what you expect you're going to get packed full of flavor, very confirming, living up to I'm a fan of, I think you called it the chowder, right? Because whenever there's, um, chowder to me is kind of like, oh, what's that? Oh, a little spicier or uh maybe, oh, I didn't know what that was. Whenever you get that when you're investing, there are disruptions that when that happens, if you're a prepared investor, you can be opportunistic, potentially entering a great company at a better price than you might have had before you sat down for that bowl of spicy soup. That is a brilliant answer. Unprepared, even though I love soup, I wanted to bomb a little in that want to go more personals now, so I want to hear a little bit about your career and kind of how you started learning about the markets in the firstplace. Oh wow. All right, so I'll tell you the true story, true story. I, I got out of college and I didn't know what I wanted to do at in fact, while my senior year of college, while everybody was getting jobs, I was like, I'm going backpacking to Europe for 7 weeks. Oh, you're that guy. I, I was that guy. And I and I and I and I did it and then when I came back, I wasn't sure what I wanted to do and I had an opportunity to teach, and some computer science classes at my high school so I double majored math and economics in college and so I took it and then I read this book, no again, no joke one up on Wall Street by Peter Lynch, OK? And I read it and I was, I was sitting there in the math office one day and I just said, you know, I got nothing to lose. I call Fidelity. I asked for Peter phone rings. Lynch. And I said, oh, Peter Lynch, this is blah blah blah blah blah blah blah blah blah. How, how, how, how do I get into this business? Do you have any idea how many calls I get like this every week? I was gonna say you did it right and that encouraged and that and I what I liked about that book, whereas if you think about the the greatest example that everybody touts, it's how he would walk around the mall, follow his wives or her friends, and see what they were buying, and I think Legs pantyhose was the great example that he talked about. But that if you think of what I said earlier, follow the data, see where the changes are, where are people buying these all kind of come back and I would like to say I had it perfectly figured out 30 years ago. I did not, all come around and it kind of fits in with some of this thematic investing. Great story and thank you for showing up here today and talking with us, Chris. And we have wound things down here at Stocks and Translation. Be sure to check out our other episodes of our video podcast on the Yahoo Finance site and mobile app. We're also on all your favorite podcast platforms, so be sure to like, to like, leave a comment, and subscribe wherever you get your podcast, and we will see you next time on Stocks in Translation. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
10-06-2025
- Business
- Yahoo
Understanding valuation: What investors often miss
Listen and subscribe to Stocks In Translation on Apple Podcasts, Spotify, or wherever you find your favorite podcast. The stock market is nearing record highs as consumer sentiment hits new lows— raising a key question: what are investors seeing in the economy that the public isn't? In this episode of Stocks in Translation, editor Sam Ro joins Markets and Data Editor Jared Blikre and Producer Sydnee Fried to discuss stock market fundamentals with a focus on corporate valuations. Ro breaks down valuation metrics amid market uncertainty, and how investors should view hard and soft data to best shape their portfolios. Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service. This post was written by Lauren Pokedoff Welcome to Stocks and Translation, Yahoo Finance's video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I'm Jared Blicker, your host, and with me is the People's Voice, Sidney Freed, who's here to ask the people's questions, the people's spirit moves first, please like, subscribe, and comment on stocks and translation on Spotify, Apple Music, Amazon, or YouTube, and today we are welcoming back Samro, the editor of which has been recognized with the best in Business Award by the Society for Advancing Business editing and former Yahoo Financing managing editor, he now brings that award-winning perspective to our show today. Great to see you, Sam. And today we're gonna be talking about fundamentals because Sid's all about fun, aren't you? And our word of the day is valuation. There are lots of ways to measure it, and by many of them, the S&P 500 is still riding high despite that tariff uncertainty. We dig into it. And theThis episode is brought to you by the number 96 billion. That's how much Apple Services business made last year in sales up 10x from a decade ago. No longer just a device maker, how Apple and its mega cap peers have evolved since their early days. So Sam, let's just start out briefly telling us, uh, your big picture view on what you're seeing. It's been a roller coaster ride this year and especially over the last couple of months. Yeah, I mean, I think I'm seeing the same thing everyone else is seeing. The stock market has recovered basically almost all of its losses, and it's probably like 1 or 2% points from its all-time high all this new uncertainty that's been introduced in the last 2 or 3 months. So, yeah, at a high level, I think that's, that's, that's the whole story. Um, it seems like the obvious story when you're talking about you're on Yahoo Finance, you're talking about stocks, but it's like, it seems like uh uh notable, um, considering all the uncertainty. Yeah, if you're just watching the headline news every night, not necessarily finance, you wouldn't suspect that we are literally 1 or 2% points away from those all-time highs. Sam, you are a master of the fundamentals and you have a CFA title. I want to get to our word of the day, which is that is, so there are, well, let me get the definition here. There we go. It is the market's price tag on a company usually stated as a multiple of its profits, sales or cash flow. So price to earnings is one way, but another style is enterprise value. We could also use market cap, um, and that's based on the stock price and also the outstanding shares, but we want to stick with fundamentals today, so just give us your overview of how you think about valuation. Yeah, I mean, you know, I think it's sort of the building blocks of how we think about value in the stock market. I think that, you know, that's kind of a tautology, but, you know, being able to relate the price of an asset to what you get out of paying that price. Um, and so I think it's a really important topic today, um, as it relates to where the stock market is, because, uh,You know, in addition to just, you know, thinking about valuations and price earnings multiples and stuff, just with whatever the market prices and whatever earnings are projected to be, you know, there's obviously a lot of complex topics and uh subtleties that go into making those calculations, right? And I think, um, you know, especially when we're talking about valuations today, and how they are, you know, relatively high, are high relative to history, know, it raises a lot of questions as to, you know, how we actually should be thinking about evaluations when uncertainty is so high, because usually, you would think when you have a lot of uncertainty, you should get a discount, right? If the fixes up, stocks are down, but that's not what we're seeing, that's not what we're saying. Um, and so it's a question of, you know, does this actually make any sense? Um, but, you know, of course, if you actually look into the history of this stuff, it rarely ever makes you know, we talk about how stuff like PE ratios are above long term averages, but how much time has the PE ratio actually, you know, traded within range of the average, right? So it's, it's almost as if, you know, we can have these discussions about how the market should trade based off of evaluation. I know that I've said that 1000 times, but it's the word of the day. So I think it works. Um, but, you know, when you actually look at the market history, history actually tells us the market doesn't trade at averages almost ever. Now we'll get to that, but. Well, what, what is an attractive valuation? Is there a specific range that a company wants to be? Well, I mean, I think for a company, they don't care about the evaluation, they, they just want to see the stock price go up. So they'll always say that whatever the valuation is at a given point, um, maybe it's probably fair, but the price could go higher. That that's what a manager or an owner of a business is going to tell and then you'll have sort of, you know, the purest, you know, academics who look at the history and will tell you that, you know, the PE ratio of the stock market should be closer to 15 or 16. Um, and as you extend out the historical measurement period, you're looking at, that number tends to go lower. Um, but the reality is, uh, we haven't traded at 15 for very long over the last couple of years, and if that kept you out of the market, you've missed out on a whole lot of gains. So let's talk about the irrationality here of the whole situation. Valuations might be a little bit, uh, I don't know if the right word is irrational, but let's just go with that. And that comes from stock prices being elevated and how would, how do we use this information to make money? In other words, you know, I come from the school of technical analysis mainly, and I know fundamentals have longer term value in investment portfolios, but even in the short term, how do you, how would you use this information from the short term to the long term? Yeah, well, I think, I think part of the problem is when we think about valuations, we spend too much time obsessing over the price, right? You know, again, when we're talking about stuff like the price earnings ratio, there's two components here. There's the price on the earnings. So maybe there is something we should be thinking about when it comes to earnings. AndYou know, the other historical trend there is that earnings tend to trend higher. And when you look at analysts forecasts for earnings in not just this year, but 2026 and 2027 and 2028, further down the road, it's a line going up to the maybe that helps us understand why valuations are above average, because, you know, maybe it's elevated now, but, you know, in a year or two from now, we're talking about a higher denominator, a higher earnings figure, which if prices went sideways, you know, valuations would just shrink, because that's just how the math would so maybe that's what investors are doing. They're actually looking further into the future. And instead of thinking of it as paying a high premium for this year's earnings, they, they might be thinking that they're getting a reasonable price for the next 5 or 6 years' worth of earnings. How valuation when deciding whether you're investing in a stock and does it need to be paired with other things to kind of make that decision. Um, you know, it's tricky. You know, I think it depends on everybody's sort of view on risk and the risk appetite and especially their time know,Stuff like PE ratios, you know, tend not to send a very strong signal as to where prices are gonna go in the very short term period. But, you know, studies also show that they have a decent, they do a decent job of of forecasting what longer term returns are, like, what are your average returns over 10 years, and, um, you know, the higher the the lower the returns tend to be over time. Still positive. I mean, that's another thing that, you know, people forget, even at, you know, 20 times earnings, which is considered a might have lower returns over the next 10 years, but those returns are still positive. I wanna ask you about some of the themes that you've explored in your newsletter, the ticker, and, uh, great, great writing, by the way, and great syn synopsis and organization, the way you lay it out makes me want to read more and it's, it's all right there in a, in a compact email online, and you're talking about that we've talked a lot about the hard versus the soft economic data and I know that's something that we've been tracking and you've been writing about. So tell us about some of the surprises there maybe. Yeah, you know, uh, sentiment as as measured by uh the soft data measures, uh, has been very poor. Um, people are really bummed out about things. Um, businesses are, you know, feel really uncertain about the business outlook, and consumers are talking about how, uh, they, they feel like it's harder to find a job, or that they think they're, you know, jobs are at risk and they think that the economy is think inflation is very high, etc. etc. They don't know the S&P 500% points of, yeah, you know, if you survey many people, they'll they'll still tell you that, you know, maybe we're at the lows of the year, um, but that's just sentiment and that's perception, um, but the hard data continues to reflect, um, something that's actually a little bit more positive, um, and that's, you know, despiteHow unhappy people say they are. They're still going shopping, they're still going to restaurants, they're still going to the movies, they're still planning their vacation, but reluctantly, begrudgingly, you know, whatever you wanna call it, but um that's what's happening and and so maybe like from uhYou know, societal sentiment, policy standpoint, um, you know, these sentiment figures, uh, you know, carry some weight, um, you know, cause like,Uh, there's different ways to measure, you know, value in your lives or happiness and all this kind of stuff. Um, but from an investor standpoint, um, things tend to gravitate toward back toward those fundamentals, and those fundamentals are driven by what people actually do, and what businesses actually do. And for now, at least, businessare actually still investing in their businesses and consumers are still going shopping. Is theresomething wrong then though with the way we measure soft data if it's not lining up with the hard data? Are they all wrong? I don't know, maybe I don't know if it's wrong. It just tells us a little bit more that that we do detach, um, you know, our feelings from what reality are, or maybe it's maybe it is actually the case that we're just unhappier than we used to be, um, you know, with structural change and unhappiness, a whole other area we can go down and and you know, maybe it's a uh we rely so as investors and policymakers or, or, you know, people who think about the economy, maybe it is a problem that uh we we rely too much on the hard, hard metrics, maybe that's the problem. Um, I'm not gonna I'm not, you know, I don't think we're gonna solve those problems today, but at least from an investor's perspective, and and that's why I write for, right? Um, when you're thinking strictly about trying to get a return on your capital or your you sort of have to live with this reality that, you know, you're investing in an environment where people might be unhappy, but you try to shut that stuff out, because over the last, not just, you know, a couple of months, but like the last couple of years, we've learned that that soft sentiment data can detach from the hard data, whichYou know, at least in recent history, um, has held up. Now that could flip, of course, you know, who knows, cause people, you know, uh, don't always do what they say, and, you know, maybe there's a period where everyone's happy and the economy tanks, you know, who knows. But for now, um, you know, if we have to pick between two sets of data, you have to rely on the hard data. And that's what Powell is following. So we need to take a short break here, but coming up we're gonna be talking about mega cap business pivots and a who wore better featuring tasty frozen treats. Stay episode is brought to you by the number $96 billion. That's how much Apple services business, including the App Store, iCloud, TV plus and music, made in sales last year, up 10x from a decade ago, and it's a far cry from the company known years ago, mostly for selling devices like the iPhone and and the laptops and even further cry from the OG Apple computer that was in jobs built and sold in the 1970s. And all of this leads to an interesting topic you brought up to us, which is most of these mega cap names have pivoted and sometimes strongly and sometimes multiple times over the years from their original businesses. Yeah. Yeah, I think it's an incredibly fascinating and incredibly important to, to be told and explore, especially from an investor's perspective, right? Um, you know, we were just talking a minute ago about valuations, you know, high PE ratios and, you know, paying a premium for some company, butIf we were having a conversation about valuations, you know, 25 years ago, when Apple was only making, you know, desktop computers, how many computers can they sell before, you know, you hit a ceiling? And so if you're only thinking about um investing in a company that only makes computers, then yeah, uh it might not make sense to pay a premium onOn, on, on the, the stock that you're buying. But if you can be a little bit more imaginative, and if you understand that this is a company that understands change and changes, tweaks its business model as the world changes and as, you know, it reaches a saturation point, then you can begin to imagine a path where a company can continue to grow earnings like Apple has and turn into a multi-trillion dollar company. Iwas gonna say it seems like a good sign to me as an investor, if you're actively seeing a company can change withTechnology and with the times versus someone who their product doesn't work and they kind of just flounder, right? Sure, yeah, I mean, you know, I think the most classic example of this is Netflix, right? You know, DVDs. Yeah, and DVDs was the disruption, right? Well, male DVDs, you know, was a disruption. You know, you start with videotapes, and then that goes to DVDs, which is videotapes were disrupting too. I mean, everything's just as bigdisruption. And it's like, every, at that time, this is the greatest thing that you see, and it's so hard to imagine a world where the way you consume, you know, media, for example, with Netflix, that all that stuff could change. So going from, you know, disrupting Blockbuster, and then mailing people DVDs and then deciding that, you know, we're, yeah, we're gonna scrap that we're gonna start screaming. And then in addition to that, we're going to start creating content. Um, you know, again, if you wereYou know, to rewind back to, you know, 20 years ago, when it's just DVDs, it's hard to imagine a company getting as big as where Netflix is today. I mean, you know, you see a lot of volatility there, but um that business model just keeps changing. Yeah, I mean, I remember some of the takedowns in real time saying we lost it. Uh, but I did have something prepared and this is just, this is just a mag 7, and I'll go through some of the highlights here. So we already talked about Apple. I mean, Microsoft, they're kind of, uh, they' as old as uh as Apple, and they started out in PC operating systems. Now it's the cloud is their biggest gainer. They, they're a software services company. Amazon started out in books, and now it's all about the cloud again and ads, and plus they sell everything in the universe. Alphabet, again, another cloud story, but they started out as a search engine, and now it's the search engine is a tool, but it's about selling ads and Nvidia from to AI data center GPUs and Meta is an interesting one. Facebook, then, I mean, they're still involved in social, but it's an ad company now. I think, uh, the famous line from Mr. Zuckerberg is, we sell ads, sir, you know, in front of Congress. And Tesla, well, maybe Tesla is one of the few that really hasn't changed so much. It was kind of a niche, uh, company with the electric roadster, and now they mass market EVs and I guess energy too. you know, if you ask people like Cathy Wood, you know, uh, you're not investing in a car company, you're investing in all the things that, right, exactly, or whatever, whatever a Tesla could be further down the road. But yeah, um, you know, I think another part of this too, especially with the Max 7 companies, as they evolve, um, they've alsoDeveloped a lot of arms of their business that, you know, might stand alone as $1 trillion dollar businesses or $100 billion dollar businesses. Um, you know, Microsoft also has LinkedIn and Xbox and all these other we didn't talk about gaming. Yeah, gaming and all these other things. Amazon has a movie studio and they, they stream and, you know, they're in the content business. I think they, they said something about getting into the news business at one point, even good luck. Oh and then, yeah, Facebook, Meta, they have WhatsApp and Instagram and all these different things that again could be standalone $100 billion dollar businesses. So, you know, it's it, as much as it's easy to get caught up in how these companies and, and, you know, yes, they have evolved over this time, um, but it's easy to get caught up in these $1 trillion dollar valuations that they have and say this is, you know, not justified, this doesn't make any sense. But when you realize that each of these companies are like, make up of large cap companies effectively, then it begins to makesense. And sometimes they have 100,000 employees, which is just mind boggling. Um, so is it about the founders, it is about the executive team and the workers in general, because if you're looking, and these are seven very different companies, and you can throw 8 in if we're talking about Netflix here too, but very different management styles, some of them are still founder led with voting rights secured and just a couple people or even one and others just have evolved as, you know, kind of like the modern software conglomerate that Microsoft could be characterized as. Yeah, I think it's a good question. And you know, I'd watch a 3 hour special on something like this. Well, let's let's do I mean, you know, uh, I think it probably helps some of these companies that, you know, they are founder led or largely founder led because, you know, there's one person that can make a final decision here and they move forward and plow through with those things. Um, and it's not like, you know,Uh, Mark Zuckerberg or Elon Musk or Jeff Bezos when he was running Amazon. It's not like they didn't make mistakes along the way, they always, they all have like these big grant announcements for products, and they plowed all this money into it, and they were also very quick to pull the money out of it when um they saw that the opportunity wasn't quite know, I, I don't know, um, something about, uh, these companies that succeed. I mean, you know, there's also going to be plenty of companies that are founder led that got huge, that completely collapsed on itself, and, you know, what are those stories and why didn't those those work out? That's another 3 hour show. That's another 3 hour show. But I, I do think it's incredibly fascinating, um, to, to think about companies that, you know, are massive, that are household brand names, but then, you know, you do a little bit ofOf, uh, the review of the history and you realize that when they started they were completely differentcompanies. All right, hold that thought. It is time for our runway showdown featuring two titans of frozen treats. Stage left gelato glizin, a polished chrome cart, small batch, slow churned and priced for connoisseurs, think lean inventories, premium margins, management guarding, every basis point of profit. Stage right, we have soft serve. It is bursting from a country fair machine, light and built for speed, it wins by pumping out cones all day long, a high volume low margin strategy that keeps cash flowing even in choppy weather. Call it resilience versus throughput. So Sam, when the economic headwinds swirl and valuation stretch, which type struts with the crown here, the disciplined margin-minded gelato, or the crowd-pleasing soft serve that bets everything on scale? Uh, that's a very complicated question. Yeah, I don't know. I think it's probably a tie. Uh, I love that. Usually it's one-sided. Sure, yeah, gelato's been around for forever and Soft Serve has been around forever. Um, I think, was, as someone, as someone who, uh,Uh, preaches the, the merits of diversification and index fund investing, you know, why do you have to choose one or the other? Why can't you go with both? And, you know, if one fails, you still have the other one, and, you know, you limit your downside. Equal weighted or market cap weighted? Oh, that's a good question. I'll probably go market cap weighted. Yeah, with the soft serve, big things get bigger, right? Exactly. here's my question about diversification that I want to throw in there. you want to invest in a tech ETF, this is so random. Do you consider it diversified if you throw all your money one way and it's a tech ETF but then you pick a second tech ETF and you're like, I'm diversifying cause it's a different one. They're all invested in the same things though, right? Yeah, I mean, you know, again, it's, it depends on what you're looking for in terms of the nature of that diversification. Um, it could be like if you're buying the same indexes from two different funds, then you're not getting any additional diversification. If one's weighted differently and the other is weighted, you know, if one's weighted based off of market cap, and the other one is, you know, equal weighted or, you know, there's different cap sizes, and yeah, maybe get some more diversification at a micro level, but you're still in the same and like, you know, even if it were different industries, um, and if you have two ETFs, you're still allocated into the stock market, so, um, you know, depends on what kind of diversification are you looking for. Is it sector level? Is it market cap? Is it industry, is it the asset class, you know, maybe it should be in bonds, um, and then maybe even beyond that, like, is it just financial assets that you should be uh invested in. I'm basicallyfascinated with like how you do this, play the stock market, but through ETFs only and like,Try to pick them, like, pick, you know, you know what Imean? Sure, yeah, and, you know, I, I think uh there's a lot of literature that shows, um, you know, it depends on what you're trying to achieve when it comes to risk and return and what your time horizons are, but um theUh, the consensus in the literature says it's very hard to beat just a straight S&P 500 index fund. And on that Warren Buffett note, we are going to end things here at Stocks in Translation. Be sure to check out all our other episodes on the Yahoo Finance site and your favorite podcast platform. We'll see you next time. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
