Why investors hate this bull market

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Ethan Wu (0:36)

Thank Pushkin.

In principle, these should be happy days for US investors. Stocks are up 20%, more than 20%. If you just look at the S&P 500, things are going great. But, and it's a big but, a lot of that is driven by just seven stocks, all in the technology sector and exposed to artificial intelligence. The market's narrow, it's a skinny market, and that puts investors in a bit of a weird position, makes them a little bit nervous. Today on the show, we're going to look at reasons investors hate this rally and why there's just a handful that believe the bear market is over.

This is Unhedged, the new markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in the New York studio, joined as ever on Tuesdays by FT Markets editor Katie Martin. Katie, you've been writing about this. Do we have an official name for these seven stocks? This seems like an important consideration.

Katie Martin (1:32)

There's some debate here. I'm going to go with Magnificent Seven.

Ethan Wu (1:35)

Silubrious Seven, but I feel like that's a little too cumbersome. I mean, Sexy Seven, maybe that's a little snappier. I don't know. Listeners should write in and tell us what they think the seven should be called.

Can you, Katie Martin, name the Silubrious Seven stocks?

Katie Martin (1:47)

Yes, because I've got them written down in front of me.

Yeah, so we are here talking about the real kind of big dogs of the US stock market this year. They are Apple, Microsoft, Alphabet, Amazon, Tesla, Meta, Enter Stage, right? Nvidia, come from nowhere to be a trillion dollar company. And first of all, these things are enormous. They have a market cap that's about a quarter of the entire index between them.

And then also they are up, each of them, somewhere between 40 and 180% so far this year. That's Nvidia.

Ethan Wu (2:21)

Nvidia, wow.

Katie Martin (2:23)

This is some scorching stuff.

And so they are big enough and the rallies are large enough. This is just like pulling the entire index out of whack. And so on the one hand, you've got an index that's saying, look at me, I'm up 16%, whatever, percent so far this year. Everything's well in the world.

But then you've also got all investors everywhere saying, I don't know, I feel like there's a recession coming. This is really bad. We just had a banking crisis, yada yada. So there's this really kind of squidgey zone going on in markets when no one knows whether to be happy or sad about them.

Ethan Wu (2:55)

You mentioned a lot of the reasons people are hating this, right?

It's not clear what the implications of AI tech is going to be. Is this something that's accretive to these big tech companies, or are they just going to have to spend to keep up their current competitive positions, and maybe it doesn't actually give them any advantage? That's unclear. Market narratives and new technologies tend not to mix that well. Investors are not the best assessors of the promise of a new technology. And then there's this whole question of recession, which we talked about in the podcast last week.

There are lots of very potent indicators saying that recession is coming. The classic indicator of recession, the inverted yield curve when short-term interest rates are higher than longer-term interest rates. This has never been wrong in history at calling the next recession. And it's been inverted for about a year now.

It feels hard to buy into a period of market optimism when you have indicators like that, and when it's just so narrow.

Katie Martin (3:50)

The yield curve, the yield curve. Could it be wrong this time? I mean, it's never been wrong before on a particular metric that you're thinking of, but that doesn't mean it can't be wrong in future. But if you look at some of the, just the scale of what's happening with some of these tech stocks, right? So Nvidia has added $640 billion in market cap this year. That's like you take an entire JP Morgan and you add in an entire Bank of America. And that's what Nvidia has added this year.