00:00Even if we claw back some of the losses today we're still seeing this rotation. It looks like maybe out
00:05of tech into something else or maybe it's investors freeing up cash for big IPOs.
00:12How do you how do you explain the drops that we've seen today yesterday and especially on Friday. Yeah I
00:16mean I think so first of all we've had this concentrated market in the last month and it's part of
00:20this rotation that's been going on all year from one cyclical group to the next.
00:24And I will I would actually say it's from one commodity to the next. OK we can go through that
00:28in a minute. And so now what happened last week and you know we wrote about this this week in
00:33pretty good detail is that you know the earnings revisions that we've been probably the most bullish on I think
00:38than anybody this year have even exceeded our expectations.
00:41And they've gotten to a point now where the revision breath the leading indicator second derivative is now at a
00:45level that's unsustainably high. OK so I'll give you an example semiconductor revision breath that's a 70 percent.
00:51That's only happened three or four times in the last 25 years. The S&P 500 revision breath is close
00:57to 30 percent also very very high. So it's going to roll over.
01:01Now last week a couple companies report in the semiconductor industry they were fine but the revision breath started to
01:06roll over. So it's a second derivative and then there's leverage in the system in that trade and that sort
01:11of starting to unwind a bit.
01:12To me this is going to be a transition now to some new leadership. All right. Maybe it's a little
01:17too much math for my brain but I was looking at earnings revisions and since last time you were on
01:24you pointed out they were pretty much convex right.
01:26I mean just continued to climb. We have a chart of that. We'll probably pull it up in a second.
01:31It looks like we're getting near a plateau at least for 2026 earnings revisions.
01:36Which I guess makes sense. What do you what do you make of that. You know how much longer can
01:41we continue to head upwards with earning earnings revisions.
01:45And what do you mean by revisions breadth. Yeah. So revision breadth is just that the breadth of the revisions
01:50as opposed to the absolute level.
01:52And it leads the second derivative the rate of change on the actual growth. So I do not expect the
01:57first derivative i.e. the forward earnings growth to come down or fall.
02:01We're showing it here in in white 2026 in in blue 2026. That white line is going to continue to
02:07go. But the revision breadth is rolling over.
02:08So there's a deceleration a second derivative. OK. Which is what the market's picking up a little bit. That's a
02:14correction. That's not a change in the trajectory.
02:17So as we go forward into next year that NTM forward earnings is going to continue to rise. And that's
02:22our call. That's why stocks continue to rise until year end.
02:24And multiples don't have to rise. It's just a forward. You move forward into 2027 as you look forward for
02:2912 months. But the rate of change matters in the short term.
02:32It matters. And that's what's going on right now. That to me to me that's that's going to lead to
02:36some leadership change just like it did earlier in the year when we went from gold and silver stocks to
02:41metals to energy.
02:43And then we went into DRAM and semiconductors. By the way all four of those are commodities. I see. Yeah.
02:47Because you said earlier we're going from one commodity to the next.
02:49That's right. But semiconductors DRAM high bandwidth DRAM is the hot commodity of the moment. That's right.
02:57Are we going to shift out of that into something else. Well it's happening. I mean like I mean Friday's
03:01sell off is a sign that that's exhausted.
03:04And we did a chart this week. It was pretty interesting. We looked at silver stocks versus semiconductor stocks.
03:09And it's like right on top of each other. And we made this call at the end of January. We
03:13said gold's probably going to go down 30 percent.
03:14You know and that would be normal. That's what I would like to see because you can't stay at that
03:19pace.
03:19You know to your point you can't stay at that rate of change both on price of stocks or the
03:23revisions.
03:24The key is is there a place to rotate to that the market can kind of hold in.
03:28We think there is and we've highlighted as consumer some of the other industrial areas like transportation stocks and even
03:34the regional banks.
03:35And by the way all three of those areas were up yesterday in a down tape.
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