Everyone's Too Bearish: Why the U.S. Economy Keeps Defying Expectations

**Chris Galipeau** (0:00)
Polish, that negative narrative is completely false. It's been for the last two or three years. It's still not true. The world, in fact, doesn't end that often. What really matters is corporate profitability, i.e. corporate earnings.

**Maggie Lake** (0:20)
Hi, everyone. Welcome to Wealthion. I'm Maggie Lake. Joining me today to discuss the outlook for global markets is Chris Galipeau, head market strategist at Franklin Templeton. Hey, Chris. Great to have you on with us.

**Chris Galipeau** (0:31)
Hey, Maggie. Thank you.

**Maggie Lake** (0:32)
Welcome to everyone tuning in. If you're not already a Wealthion member, a member of our community, hit the link in the description.
Somebody pointed out that some of those earnings were stakes that companies had in some of the big IPOs, SpaceX, et cetera, and a lot of it is sort of connected to AI revenue, you know, the AI buildout. Are we too reliant on one sector? Does that worry you when you sort of look across the health of the US equity market?

**Chris Galipeau** (1:00)
Not one management team mentioned that on the earnings calls this morning.
So there's another narrative that probably is not accurate. Look, the big book runners for SpaceX, Goldman and Morgan Stanley, did they benefit? Definitely. Is it disproportionate? No. What the management teams talked about, really what they focused on is the strength of the US consumer spending.
They did talk about their capital markets pipelines as being robust. So, it's a lot more than just AI. They talked way more about using AI within their own organizations to improve their workflow, to use AI specifically to help us, like the bank customers, in dealing with questions or getting questions answered or protecting us from fraud and other ways to help with risk. That's really where their focus was. Then the final point there would be, if you look at earnings power in the United States, now I know AI gets all the headlines, right? And GDP, a big chunk of it, well, two-thirds of it's the consumer, but a big chunk of it right now is the AI cap expense. I totally agree with that. But if you look across the stock market in the US, large cap stocks, mid cap stocks, small cap stocks, growth-oriented companies, more cyclical or value-oriented companies, what you'll see is the earnings power for this year and next year is very broad and it's very robust. Ask yourself this, why have the MAG 7 stocks been underperforming for 18 months? It's very noticeable year to day. Why is that? And why is the rest of the market, going back to January of 25, the leaders in the clubhouse are Russell 2000 and Russell large cap value?
Could they have something to do? Is AI helping there? Yes. But are other things helping there? Definitely.

**Maggie Lake** (2:56)
Yeah. That's so interesting. I'm going to dig into that a little bit in a minute. I want to ask you that you just mentioned you talk to clients all over the world, which is I think so helpful and gives you really unique perspective.
We have heard, again, another narrative just out this week that investor sentiment is really stretched. Another bank warning that global investor sentiment reaching its highest level since February, bold bear showing extreme greed off the charts, setting up for, is that something you worry about? I'll put in parentheses, given the fact that so many investors have access to leverage products now.

**Chris Galipeau** (3:37)
Yeah.

**Maggie Lake** (3:38)
I've heard that some folks who've been in the business a long time are a little bit concerned just because we haven't really seen this before. So do you feel like sentiment is stretched in any way based on what you're seeing in your discussion with clients?

**Chris Galipeau** (3:53)
Yeah. So I wrote about this two or three weeks ago. Specifically, I wrote about all the money piling into the double and triple lever ETFs. Most of the vast majority of that is tech centric, really skewed toward semiconductors, which in the last two months, that's a parabolic move. I told our clients, watch out, the froth needs to come out there. It's coming out now.
But that is a concern.
That, not to mention single day options, as a percentage of all options traded, that's gambling, really. That's not investing.
People got reminded of that in the last week or so. So I peaked the trough. You had the SOX index come in about 30%. You had the DRAM ETF that went from zero AUM to 25 billion in a couple months come in 30%. So if you're exposed there and you don't know how to manage your risk as a, quote unquote, professional trader, you're gonna get knocked out and knocked out fast. There's a big article this morning on that happening in Korea overnight, which is a semiconductor play. So I think that is definitely true. That has worried me in the last month or two. I've written about it a couple of times now. I feel like the froth is starting to get knocked out. Net net that's bullish. And oh, by the way, at the same time, while that's getting knocked out, the S&P is about 1% from its all time high. So money is rotating. That's good. To your question on sentiment, there's many ways to measure it.