AI Is Driving the Market Higher - But the Economy Is Sending Warning Signs

Martin (0:00)

12 months ago, if you buy a company from S&P 500, the average earnings multiple you pay was 22x multiple. And today, you are paying like lower price for those, the same companies. You are paying just 19 multiples today, which means that the prices really don't catch up to the earnings. So the companies are growing faster, but they are cheaper these days.

LGDU (0:24)

What's up, everybody? It's LGDU Set here, and welcome to Milk Road Stocks, the daily market show that hasn't seen an actual bear in my neighborhood in over a week now, despite seeing them all over the timeline. Today is October 6th, 2026 Listen, something feels wrong in the market. We should be ripping. The fundamentals are good. We do all these podcasts about being bulls, and everything looks good, and earnings look good. Yet, there's something wrong. And when we look at the macro charts, it seems obvious. Today, we're going to look at a compressed view of those charts using the Milk Road Macro Index, which is something that our lead researcher, Martin, has developed over the past year that helps us take all of those macro charts, all those indicators, all that stuff, and compress them into just a few charts to understand why, despite earnings showing us all-time highs and all these stocks looking really good, or at least the top AI stocks, the top tech stocks looking good, things are not continuing to go higher. And also, unfortunately, why things may continue to struggle from here. It's a bit of a technical episode with lots of charts, so if you are on the podcast apps, you could also switch to YouTube to look at some of these, and make sure you listen carefully, because Martin is also going to tell you why he's in 20% in cash right now, why he raised that over the last couple of weeks, and also what it would take for him to redeploy that into his portfolio, which you can see for just a dollar at Milk Road PRO. Otherwise, like, subscribe, and enjoy the episode. What's up, Martin?

It's Tuesday, October 6th. It's almost Canadian Thanksgiving, which usually marks the unofficial start of Q4, only for me, for nobody else. And Q4 usually has a lot of volatility in it. I think Q4 is usually a quarter that people expect numbers to go up end of year.

And a lot of people are wondering why maybe that's not happening for AI stocks. And I feel like we're going to get a bit of a breakdown on that today.

Martin (2:16)

Yeah.

Hey, LG, good to be here again. Yeah, I agree. I think that a lot of people want the markets to go up and up only and I'll show you some charts that are saying that it might actually be a case for that. But I also want to point out the other side of the whole kind of perspective that it might not be that easy. And maybe that the whole rally is really driven just by a few contributors while everyone else is not doing that great.

LGDU (2:44)

And when you say everyone else, are you talking about the entire stock market, the S&P, like bottleneck stocks, like who are you referring to overall?

Martin (2:51)

Yeah, I'm referring to pretty much everyone outside of the big tech companies or maybe even general, like outside of the tech. So it's like retail, utilities, home builders, like everything else is doing decently but not as good as everything, as those giants.

LGDU (3:11)

Right. And that's a story we've seen the whole year too, right? It's like I remember those headlines at the start of the year that it was like X amount of S&P growth or even just X amount of the S&P is just these like six companies, it was the hyperscalers and then also the growth was being driven only by a small handful of companies. And I think that's kind of a disconnect people have been wondering about, but I'll let you walk us through it.

Martin (3:33)

Yeah. I think this chart just tells the whole story. Earnings, this is for S&P 500 companies. Earnings are up 37% and yet the prices are up only 16%.

So this would suggest that prices still has some catch up to do. But I'm going to show you some other signals and indicators that it might not be that easy. And so that's the whole kind of premise or like the whole presentation I have here today.

So on this one chart, like I want to go all in, I'm super bullish. Yes, sounds good, but you need to look underneath the whole index and see what is going on. If this is really like sustainable and robust, so it can sustain and if there is still like up, it should show some positive data underneath as well. And if not, you should be a bit cautious and like at least know about the risk that you are getting into.