00:04 Hey, this is Steve Eisman and welcome to another episode of the Real Eisman Playbook. Today, we're going to be talking to Todd Sohn, who is the chief chartist at Strategas. In the world of Wall Street, chartists are like the video game of our world. You look at the charts, and they really, if you know how to look at them, tell you what's going on in sectors, the market, etc.
00:52 Today we have recurring guest, Todd Sohn, chief chartist of Strategas. The old saying is a picture tells a thousand words. If you were stranded on a beach island for a month and came back, you look at 100 different charts and you have the story right there. The charts summarize everything succinctly, and they can also tell you when you're wrong or right about something.
01:39 SOXX (semiconductor ETF). The momentum measure is technically RSI, relative strength index — it measures how fast something is rising or falling, how overbought or oversold. A new high without being as overbought can be a warning sign; a new low without being as oversold can signal a change of trend.
02:55 What is the semiconductor chart telling you? This is a market all about semis. We've seen semis on a massive run, especially since March 30th — going on almost 3 months. They're 18% of the S&P 500 now, going on 19%. Ten years ago they were 2%. From 2% to 18-19% in 10 years. Using SOXX (the most even-footed semi ETF, not too weighted to Nvidia): super overbought, perhaps consolidating, a little crescendo as we just had a big IPO and earnings — but they are in charge of the market right now. The market lives and breathes by this index. If this index collapsed, by definition the market would collapse — on the surface, index-based investors will feel that pain.
04:16 Software ETF — a little messy. Could make the case the worst is past for software stocks; they've had a nice rally and mean-reverted back to their 200-day / 50-day moving averages. Not something I feel great about — if you take a flyer, respect your stop-loss levels. This chart is not telling you it's time to buy; it's a reprieve from very oversold, negative sentiment. A great use of the options market — structure a trade where I pay my premium and that's my risk. You're a speculator, not a buyer of the group.
05:25 GEV (GE Vernova) — one of my favorite stocks, owned a very long time. The power story, ties in with semiconductors. If you showed me this chart without the ticker, I'd say it's going to be a buy pretty soon — great trend, got very overbought, now consolidating, re-earning some profit-taking. The chart still looks good for now; buyable. The question is the next catalyst — capex, earnings.
06:32 AMZN (Amazon) — I don't think this chart looks so great. There are a lot worse charts and a lot better; it's pretty middle of the road, a two out of three. No strong opinion — an "eh." A similar one to play with options (a straddle; buy puts if skeptical, calls if you think it rebounds testing the middle of the range).
07:09 META — much more messy. I've been skeptical of this stock/chart a few times over the last decade and it's always come back (e.g. 2022, down 60-70% from its high). In its current shape, not great — it looks more like a short. The tells: (1) the market (S&P 500, equal-weight S&P, small caps) is making new highs but Meta hasn't made a new high in months; (2) the slope of the 200-day moving average is flattening to downward, which tells you the trend of the name is changing. No great edge.
08:43 ORCL (Oracle) — a weird-looking chart, like software. The low might be in but you have to respect it; I'd take a flyer perhaps, but there are a lot of better opportunities (hardware, semis). The 200-day is also rolling over, downward to flat — messy. Messy is super frustrating in a market making new highs.
09:38 The most useful exercise: print out 100 stock charts (Chris Verrone does, Jason Trennert at Strategas does) and just look through them — you get the message of the market very quickly.
10:12 MSFT (Microsoft) — similar position as Meta, if not weaker. Already almost retesting the spring (April) lows, which is a red flag. It's ugly compared to a market making a new high.
10:34 GOOGL (Google/Alphabet) — different story. Got very extended, super overbought — take some money off the table and revisit; it will likely be viable. Compared on one screen, Google has the best chart of the big names — most similar to GEV (power in the AI of Google).
11:13 THE ETF BOOK. The book is about how you can use ETFs to invest, seeing the markets through the lens of ETFs. ETFs are a great measurement of investor behavior — flows, volumes, and product launches every day, and they're becoming more ingrained in the market. On an average day, ETFs do about 30% of US exchange volume (stocks the remaining 70%); in stressful environments that rises to 40-45% as people adjust exposures. There are ~5,000 ETFs — more ETFs than stocks (still more mutual funds, but those are on their way out). I handle all of Strategas's ETF research.
12:56 The most interesting thing right now is the boom in leveraged ETFs. A leveraged ETF gives you 2-3x the exposure of an underlying asset — e.g. a 2x Nvidia ETF goes up 4% on a day Nvidia is up 2%. But only on a daily basis (point-to-point there's slippage, plus embedded fees) — these are not buy-and-hold instruments, they're trading vehicles. That space is absolutely booming; a whole bunch of 2x single-stock ETFs (even 2x SpaceX) launched today. It's a ~$200 billion category, up massively since 2020.
14:17 High-beta vs low-vol (beta factor): the rolling one-year performance of high-beta stocks relative to low-beta. Nvidia is ~2x beta, a high-beta stock; semiconductors are high beta, staples are low beta. Semis vs staples has gotten to historically extreme territory (semis up a gazillion, staples barely up — staples are 4.5% of the S&P). The point isn't "sell everything" — it's still a bull market — but be aware beta is getting extreme and low-vol is in extreme underperformance.
15:40 Sector level (rolling six-month performance vs S&P, equal-weighted): tech has done great; if you're there, stay there. But if you're looking for things to hedge tech, look in healthcare, discretionary, financials.
16:18 "ETFs ARE the market" (cumulative ETF flows vs cumulative mutual fund flows since 1984). ETFs started in '93. Mutual-fund cumulative flows peaked ~8-9 years ago and are now NEGATIVE since 1984 — the vehicle still exists, but the only reason mutual-fund assets are where they are is the market; in a bear market the asset-management industry would be in trouble. All the money is going to ETFs (core, passive, active, levered).
18:30 Most of those outflows — negative ~$5.1 trillion cumulative — are from actively managed equity mutual funds. The good news: money is going back to actively managed ETFs now (cheaper, transparent, exposure to almost anything). They've audibled.
19:08 Tech nearing 40% of the S&P (infotech was 38% this morning). Very popular indices are becoming more and more dominated by tech. It's a great time to look under the hood — if I own the S&P 500, Russell 1000 Growth, or a thematic fund, I have a lot of Nvidia/Microsoft/Meta exposure because they're so big (most funds are market-cap weighted). You're very exposed to tech. People think owning an index = broadly diversified; in fact, because tech is such a huge percentage, you're really not diversified. (The pushback is "what about international?" — Korea is two stocks, Italy three banks — but the money tracking the S&P dwarfs that.)
21:01 Cumulative sector ETF flows since the March 30th S&P low — an extraordinary chart. Flows are investor behavior. ~$27 billion into tech ETFs since the March 30th low; every other sector combined is minus ~$4.4 billion. There's been one game — tech. And really within tech, take out software (a real problem), it's semiconductors and equipment / hardware. God forbid anything bad happens — if there's an unwind in tech, it's going to be ugly.
22:44 Factors are loaded up on technology too. A factor measures a stock by characteristics (value, quality, momentum, profitability/free cash flow) rather than size. People buy the quality factor ETF thinking it's good companies that weather a downturn (lower vol) — but some quality ETFs now mirror the S&P because the S&P has morphed into a quality index (the mega-caps have so much free cash flow they screen as "quality"). So you're just adding more of the same at the top. Momentum factor can be full of semis too.
24:37 Leveraged-ETF usage is at a record. ~$200 billion across a few hundred products; a proliferation because it's a profitable business (you can charge ~1%). Since COVID these were discovered — no margin account needed, you can do it on your phone/brokerage (it trades as a stock, one-click). The usage rate is huge and stair-stepping higher — that makes me nervous. Because these funds rebalance at the end of every day to reset daily exposure, they ADD volatility: on days a leveraged stock is up, they buy more to reset — serious volatility on certain days.
26:07 Levered SINGLE-STOCK ETFs (e.g. 2x Nvidia) didn't exist until 2022 — a newer game now being endorsed, hundreds of them, getting smaller and smaller in market cap (quantum names, small space names) — "kind of like a lotto ticket." Retail loves this (Robinhood/brokerage, no special account). Things are getting frothy.
27:37 "Chasing single themes can be detrimental" — thematic ETF universe drawdown vs volatility. Thematic funds blur sector lines (natural resources, nuclear, cybersecurity, space). People add them, but it's reflective of performance-chasing/herding. The three-year drawdown for all thematic funds: average ~32%, and they're very volatile (can decline 50%; cannabis is in an ~80% drawdown). Most single themes come with poor Sharpe ratios — 70% of thematic ETFs have a Sharpe ratio below 1 (high vol, mediocre risk-adjusted returns). Be careful — they can blow up part of your portfolio.
30:23 Short list of industry groups that have been more than a 15% weight of the S&P since 1990: tech hardware (tech bubble, semis were part of it then — got to ~30%), energy (mid-2000s, just above 15), and software (late last decade). Two of the three (energy, software) ended with not-so-great results for the market and the group. Not a prediction that this pops — just history as a road map for how far this can go.
31:47 "Broader flows climbing, but not extreme" — a sentiment measure: what percentile equity ETF flows are in over the trailing 1 year. Tech is the extreme part, no doubt — but broader flows are lukewarm given where the market is. Not a signal of a real top yet.
32:26 Cyclical vs defensive flows are subdued too. Take all cyclical sectors ex-tech (financials, industrials, materials, discretionary) minus defensives (energy, staples, utilities, healthcare) — a risk-appetite measure. Right now cyclicals vs defensives are not over-enthusiastic, because people are just buying tech. Within cyclicals: a lot of money to industrials (the power story — another form of tech), and NO flows to financials (unease from private-credit headlines scaring people — which I actually read as bullish/contrarian).
33:47 Healthcare appetite has cooled (it barely got hot — a brief moment). The most frustrating sector the last 3 years, without a doubt — unless you owned Eli Lilly or some good stocks (biotech's been good). A ton of money out of healthcare for forever; the setup is there to work, it just won't get its act together.
34:40 "Bull case for healthcare — long way to go for normalization." Healthcare has shrunk from 16% of the S&P to 8% (the joke: the healthcare sector had its own GLP-1, shrinking by itself). The performance is so bad you could make the case it's good — a reversion-to-mean candidate (same conversation a year ago, so it makes one sound foolish, but that's what the data says).
35:12 Small-cap flows up but hardly fully endorsed — no one really cares about small caps anymore (trillion-dollar IPOs are the exciting thing). Last year small-cap ETFs had outflows, the first time since 2011 — rare for an important asset class. Money's come back a little this year, but a lot of folks gave up after a rough 2021-to-a-year-ago stretch.
35:46 Energy is coming off the burner. (Context: ~June 15th, President Trump announced a deal on a Sunday, oil prices collapsed and energy stocks collapsed.) There was a massive sugar rush to energy from ~February 27th (the initial overseas move) — big momentum, money flooded in, and coincidentally oil started to peak. Now people are taking profits on energy.
36:24 Consumer discretionary — underperformance, bottom decile; the chart looks like we're in a recession. Discretionary is a barometer of consumer health and reflective of the K-economy (haves and have-nots) — awful performance. (This is equal-weight; cap-weight discretionary is skewed by Amazon and Tesla.) There are good discretionary areas though — hotels, a couple of the cruise lines, restaurants starting to come back, airlines.
37:33 Staples — do they matter anymore? Basically no. Staples were ~19% of the S&P at one point in the early '90s (the largest sector); now 4.5%, third or fourth smallest. Nvidia is double the size of the entire staples sector; Amazon/Alphabet/Microsoft each larger than it. Maybe a Gen-Z thing (people don't drink/smoke as much). It will take a market freak-out for algorithms to buy consumer staples again.
38:08 "Growth of derivatives and ETFs a hurdle for allocating to staples." Staples were great in the QE era (yield, lower vol), but because ETFs using derivatives (options, not leverage) have proliferated, I can buy an S&P 500 covered-call ETF (S&P exposure plus income) or a buffered ETF (downside protection) instead of staples for income/defense.
39:24 REITs were a diversifier during the tech bubble. I want to find a case for REITs — but they're ~2% or less of the S&P (the REIT index is ~30 stocks; you'd just buy one stock). The bull case: in another 2000-type environment, REITs actually went UP — they were the diversifier.
40:09 "Quality is wasting space in your portfolio." Quality is full of tech now — this ~$50 billion ETF's R-squared is near perfect to the S&P 500, so it's not a diversifier; why own it if it does the same thing as the S&P? Buy something that actually diversifies (or just buy the S&P).
41:09 Interest rates: the long end is too tough. The two-year yield has given a little boost — maybe the Fed will have to tighten (more in Don/Jason's lane). There's $8 trillion in money-market funds, ~25% of the bond agg — very elevated; money-market funds are taking share from other bond managers who could use that money when the rate environment changes.
41:39 GOLD — it's falling off, which interests me. Higher rates and a modestly higher dollar have been a headwind, but I see it more as a blow-off from "metal mania" earlier/last year (a massive amount of volume and money went to that asset). What's interesting: when the war started and rates were up and people were petrified of inflation, you'd have thought gold would be up — and it wasn't. It's changed, and I don't know why. (Chris likes to say pay attention when something that's supposed to behave one way doesn't.) I've seen a lot of money coming OUT of gold ETFs, which perks my interest — maybe this thing starts to bottom out.
43:01 BITCOIN — rough is the only way to describe it. Same setup as gold, where people are moving on from it / questioning it. (Thesis: the young people who used to trade Bitcoin are now on Kalshi — it's not cool; it got too ingrained, went from DeFi to traditional finance, which was death.) I'm also seeing money come out of Bitcoin ETFs. The bar's low for both gold and Bitcoin — what environment do you need for them to recover?
43:46 Final thought: pay attention to what you own. It's a bull market, but you might be loaded up on more exposure than you think in certain areas.
43:55 [Eisman's wrap-up] The meta message: tech has so dramatically outperformed that it's now almost 40% of the S&P — well over 50% if you add Google and Amazon (not technically in tech). If you own an index and think you're diversified, you're not, because tech so dominates. Flows into tech ETFs are off the chart; flows into everything else are moribund. On individual stocks, the Google chart still looks good, but Meta/Oracle/Microsoft/Amazon look "eh to bad" — partly software exposure or AI capital-intensity exposure. The groups of tech that have done best are NOT related to that — semis and tech equipment — plus power (GEV). Everything is one theme; the scary part is that if it ever reverses, there'll be no place to hide.