Is The Market Topped Out? Or Is It Poised To Bounce From Here? | Lance Roberts

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**Lance Roberts** (0:29)
What it does suggest is that we're likely to see a rotation from value back into some of these beaten up growth names now.

**Adam Taggart** (0:43)
Welcome to Thoughtful Money, I'm Thoughtful Money Founder and your host, Adam Taggart, welcoming you here at the end of the week for another weekly market recap featuring my good friend, the Mercurial Portfolio Manager, Lance Roberts. Lance, how are you doing?

**Lance Roberts** (0:55)
Fine, I've not touched Mercury all week. I'm doing better.

**Adam Taggart** (0:59)
Okay. Well, I don't know if it's because Mercury's in retrograde or something like that, but the markets have been quite Mercurial. We have seen volatility return. This was one of your themes of this year, Lance, when you wrote your updated article, what this one was about, South Park. But yeah, so true to form, beginning of the year like last year has started off pretty bumpy. Let's talk about that. Love to hear what you think is driving it. A couple of big themes that are emerging, as you and I have noted for a good while, the markets have been range-bound for a good long while at this point. And I guess one of the questions I'm going to ask you is, at what point do you guys determine that it's consolidation versus topping? But one of the big, big themes that's arrived, arisen recently has been the software trade is really starting to degrade here. And it seems to be over concerns of agentic AI, the future of agentic AI, basically removing the motes of a lot of these software as a service companies. Curious to hear your thoughts on that. And also curious to sort of be like, if that's true, how come nobody saw this coming? Like that's probably something if you've been following AI like a lot of Wall Street analysts have, you should have come to that conclusion a while ago. Why is it mattering now?

**Lance Roberts** (2:31)
Right. Well, so is that where you want to start? I mean, there's 12 questions in there.

**Adam Taggart** (2:37)
So I know there's a soup, but they're all related. So just put whatever you want and go.

**Lance Roberts** (2:41)
Well, so first of all, let's just talk about the broad market in general first. And then I do want to talk about software as a service because I actually just wrote yesterday in our daily market commentary about software as a service, which was interesting because Goldman Sachs came out and echoed my sentiment today, which I thought was interesting. Just apparently, they're reading my work. Not really, but no.
But I think the comments on software as a service are just a function that people are going to start to come around to this reality. Anyway, we'll talk about that in a second. Talk about broad market as a whole. So this week, first of all, we had some rather stellar earnings from the big mega cap stocks, Google, Amazon, in particular, they're just absolutely knocked the cover off the ball on revenue and earnings growth. They're increasing their capex in the AI because that's where the future growth is, obviously, that's where everything's headed. So in a vacuum, those were really, really, really good reports. I mean, you've got a company the size of a Google or an Amazon growing income and revenue at 14-15 percent, sales at 29 percent. When you're a company of that size, it's very, very hard to grow revenues and sales that quickly. When you're growing sales, that's something you normally see in a smaller mid-cap company that's really just starting out and really getting their wind behind their cells. But when you're the size of a Google or a Microsoft or an Amazon, and you're growing those revenues at that rate, that's pretty outstanding. If you take a look, and we've talked about price to earnings growth in these companies, you take a look at a lot of these companies like in Nvidia, as an example, they're trading at 0.5 on a price to earnings growth basis. I could cut their earnings growth in half, and they're only trading at a one-times peg. That's a good value basis for that. So it was interesting that they had these really great reports, but these stocks were heavily sold off on that news this week. And a lot of that though really had nothing to do. Well, the headlines were, oh, we're concerned about their capex spending. We all knew the capex spending was going to be there. That was not news. That was just the rationalization for the sell-off. The sell-off was really just margin liquidation. We've seen a very big drop in cryptocurrencies. We've seen a big drop in metals this week. And so all those margin calls are getting kicked in. Well, if I've got to cover margin, I've got to sell assets to meet those margin requirements. And the more that I have to sell in my margin requirements, I have to now sell more because now I have less collateral to meet my margin. And it's kind of a self-feeding kind of cycle. And so that's why I saw a lot of that selling pressure this week. I think we might be getting kind of close to the end of it, at least for now. We might get a bounce. We're getting a decent, so here it is Friday morning. We're getting a decent bounce out of the markets this morning. In the same stocks that were getting sold off, like Nvidia is up like five or six percent today. So we're getting kind of a bounce in some of those same stocks, which really kind of goes to that idea that that was likely margin covering.