This Market Is Directionless (And That Should Scare You)

Robert Armstrong, U. S. financial commentator for the Financial Times, fills in for Scott to assess the state of the markets at the halfway point of the year. He and Ed look back at the biggest stories of the past six months and explain why they believe investors may be approaching a nervous top. They discuss why the Magnificent Seven have begun to lose their grip on the market and which sectors are emerging as the new leaders. Finally, they look ahead to the second half of the year, making predictions on inflation, interest rates, and whether or not the bubble will burst. Subscribe to the Prof G Markets Youtube Channel Subscribe to the Prof G Markets newsletter Order "Notes on Being a Man," out now Note: We may earn revenue from some of the links we provide. Follow the podcast across socials @profgmarkets Follow Scott on Instagram Follow Ed on Instagram, X and Substack Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra because it's not just a superior light beer. It's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

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• 1:40Ed Elson?

  Welcome to Prof G Markets. Scott is wrapping up his week in Cannes. So joining me today is our very good friend, the one, the only Robert Armstrong, U.S. Financial Commentator for the Financial Times. Rob, thank you for joining me. It's been a while since we've had you on.

• 1:58Robert Armstrong?

  Yeah, it's and it's been wild times in markets. So it's good where we're back and able to talk. My only question for you is how I, how do I get Scott's job? How do I get the job where you get sent to Cannes? You know what I mean?

• 2:12Ed Elson?

  That's my question too.

• 2:13Robert Armstrong?

  Not that I don't like hanging out with you, but like starlets and. Negronis or whatever they drink in can. That sounds all right.

• 2:21Ed Elson?

  I agree. Yeah, he's partying it up at the Spotify party and the Snap party after he made fun of Evan Spiegel on our previous podcast and somehow didn't get the invitation rescinded. But that's how it goes. Um, yeah, he's partying it up with the influencers. Next year, you and I will make our own trip to Cannes and we'll pay out of pocket and that's okay.

• 2:43Robert Armstrong?

  I know. We'll stay in a youth hostel.

• 2:47Ed Elson?

  I can't wait. Well, I'm very glad to have you on the show. Uh, and this is very timely because we are exactly at the halfway mark. This is our official halftime report. So without further ado, I'm going to launch us into our H1 review.

• 3:06Speaker 06

  Now is the time to fly. I hope you have plenty of the well at all.

• 3:13Ed Elson?

  A volatile first half of 2026 is coming to a close. It's been a six month stretch defined by the AI boom, the war in the Middle East and an ongoing obsession with one big question. Where are interest rates headed next? Still, markets have largely moved higher. The S and P 500 is up 8% year to date. The MSCI World Index minus the US, which tracks international stocks, has gained 13%, so it's actually above the US markets. But there are plenty of unanswered questions hanging over the market and the next six months could end up being even more consequential than the first. So we're going to tackle some of the biggest debates facing investors right now

• 3:53Ed Elson?

  and see if we can come to any reasonable conclusions about where things might go from here. So, Rob, first off, I want to just quickly review what's happened in 2026 so far. Uh, what have been the big moments that either moved markets or surprisingly didn't? I think the first big moment that we saw was the invasion of Venezuela and the threatening of invading Greenland, which didn't end up happening. But we had that and that was, I think, less consequential than people might have thought, but that's. Sort of set the tone for the year. I can't really believe that it was this year, but it was. We then saw an acceleration in the AI build out. We saw

• 4:36Ed Elson?

  a memory chip shortage, which was seeing play out in real time, a massive surge in memory stocks. We saw SaaS apocalypse, which was triggered by a big influx of new AI products from Anthropic, which got everyone very scared about names like Adobe and Salesforce and ServiceNow and all of these sort of legacy software companies. We also started a war with Iran, which led to significantly higher inflation. We apparently came to a deal with Iran, but we'll see SpaceX went public. We learned that Anthropic and OpenAI might go public. Those were sort of the big market events and S and P performance has been

• 5:16Ed Elson?

  pretty good, although we've now hit something of a wall because for the past month or so, we're flat. But year to date, we're up around seven and a half percent. But in the past month, we've been stuck there. So lots to unpack. Let's just get your reflections on what we've seen so far.

• 5:36Robert Armstrong?

  Well, first of all, I feel like I lived an entire lifetime just in your summary of the first six months of the year. There's so much there. I mean, I'm just looking right now at the chart of the S and P 500. And there's kind of, I would say, one, two, three, four, five phases. So the year through March, it's like Venezuela AI worries or whatever. The S and P, which had been rising vigorously is kind of flat. So first three months of the year, we're kind of going sideways. All the noise you just referred to is maybe stopping the market from going higher, but it's not falling.

• 6:17Robert Armstrong?

  March through April, war. We don't know what it means. It seems bad. Energy crisis. How is this going to resolve itself? And then that's phase two is the scared section of the war. April through May, it's like, actually, it's going to be fine. And I don't know how the market foresaw that it would be fine, but the market. As of right now was right. It said these two sides are going to figure out a way to get the Strait of Hormuz open. It may not be everlasting peace, but we're just going

• 6:57Robert Armstrong?

  to kick the ball into the high grass and have a temporary peace that allows business to do business. And the market just rockets up to a level higher than it was before. And that coincides with a return of animal spirits around AI. That's phase three. It's like, yippee. The war's gonna end. Either Trump's gonna chicken out, or the Iranians are gonna chicken out, or everyone involved is gonna chicken out. And then you get to May. And since then, we're flat. And I think that period, this last phase, kind of like first, second week of May through now, we're in a, we're on a volatile path sideways that

• 7:40Robert Armstrong?

  I frankly don't really understand very well. Obviously, the AI story, and in particular, the microchip story is very prominent part of it, caused a lot of volatility. We've seen that in the last few days.

• 7:55Robert Armstrong?

  There are some mild questions about the US consumer. Maybe those are resolved now that the oil price is coming down, but there's worries about that. And also, the market is just expensive. The SpaceX IPO has not exploded upward. It did it first, but then it's sort of weakened. There's questions about the further IPOs going. So we're like at a nervous top right now, kind of heading sideways.

• 8:25Ed Elson?

  That is exactly how I would characterize it too. Nervous top sounds right to me. And we will get into what we think will happen next, because that is obviously the question that everyone wants to answer. But let's just linger for a moment on the history of 2026, because it is a fascinating one. And let's just go through how some of these different sectors have have performed. I'm going to go back to my predictions that I I laid out at the beginning of the year and sort of check in on how they're all going so far. And then we can sort of get into it. And by the way, we had you on the show as well, and you also made some predictions. So we're going to go back to those two.

• 9:05Robert Armstrong?

  Oh, God, this is horrible. I can tell you're a young journalist because you actually keep track of your own predictions. Very unwise thing to do.

• 9:16Ed Elson?

  The good news is you mostly did well.

• 9:18Robert Armstrong?

  Most predictions, they make good copy, but then they're wisely forgotten.

• 9:23Ed Elson?

  Well, that's what this show is all about. So just going back to my prediction. So my, my big prediction was that returns in 2026 would be meh. And my, what my number for meh is low, single digit growth returns.

• 9:41Ed Elson?

  My view was that we had an AI bubble that was forming, but that it wouldn't be as spectacular of other collapses. Most people would think. My view was valuations were expensive. We were kind of due, but also we had this big deficit spending that was coming in. I also thought interest rates would come down. That is no longer true. So that changes the whole story. But ultimately, my view was we would see kind of meh returns. So far, we've seen pretty good returns. So I would say that that prediction so far isn't correct, though I will hold to it at the end of the episode. Some of the more specific predictions I made, I thought that the equal weight S and P would outperform, that you basically have outperformance from the rest of the S and P aside from the top 10. And so far, that is true. That has happened.

• 10:24Robert Armstrong?

  Yes, it certainly is. And I have stuff to say about why that's happening. Actually, I think that's, that's a particularly interesting one.

• 10:30Ed Elson?

  Please, let's, let's hear it. Let's hear it. Equal weight is up eight and a half percent this year. It's outperformed the regular S and P, which of course, for our listeners, that is more dominated by some of the big names, the big tech names like Meta, like Google, Nvidia, Microsoft, et cetera. And those companies, those stocks have not been doing very well in comparison to the rest of the market. Let's hear your views.

• 10:53Robert Armstrong?

  Something really big happened back in the first or second week of May, which was that the companies that have been leading the market for five years or more. Whenever the market has gone up, it's been led up by the magnificent seven. Apple, Alphabet, Tesla, Microsoft, Amazon. You'll remind me the ones I'm forgetting. Meta, yep. That has been the consistent pattern. When the market is strong, those stocks are strong. When the market is weak, those stocks are weak. That changed in May and the leadership of those stocks just completely fell away. And we can talk about them individually, but none of them are doing especially well since then.

• 11:36Robert Armstrong?

  And they have been replaced in market leadership by silicon stocks.

• 11:43Robert Armstrong?

  And if you think about where our heads are at about AI, this makes perfect sense, right? This is actually quite a rational change in leadership because we know for a fact that the next two years is going to be all about building artificial intelligence infrastructure. And we know for a fact that's going to require a lot of memory chips and a lot of networking chips and GPUs and everything else. Those companies are making out like bandits and there's no reason to expect they will stop making out like bandits anytime soon. Whereas the implications of AI for the business models of the magnificent seven,

• 12:27Robert Armstrong?

  in particular, Microsoft, Alphabet, Amazon and Meta, far from clear, could be great for them, could not be so great, right? And so like, you know, I would hate to make any predictions about that. And I think the market in general, after having made a bundle of money in those names for years, it's like, what's the next step? And they're spending a lot of money. They used to be free cash flow machines. They're not free cash flow machines anymore, right? And so like part of the nervous top here is about that change in leadership, which I think is super interesting.

• 13:00Ed Elson?

  It's super interesting and I like the point that you make that it actually is rational because they're basing it off of free cash flows, which I don't know if you saw this chart that went viral. I forget who put it out, but basically just shows what's going to happen to free cash flows. And what has been happening in the last year or so, and what will happen next year or maybe two, is the free cash flow for the big tech names just falls off of a cliff. Meanwhile, the rest of the S and P continues, not because they're not making lots of money, but because they're spending ridiculous amounts of money on these data centers specifically. And those names have been falling. So just going through like, how has the AI trade gone so far?

• 13:40Ed Elson?

  I think the way we would say, we would put it is it's gone quite badly for some names and incredibly for others. And just to put some numbers to the narrative you're describing here. AI infrastructure stocks have risen 27% year to date. AI chip stocks have risen 104% to that year to date. And memory stocks, so companies like Micron, SanDisk, Samsung, those memory chip manufacturers. Those stocks have risen collectively 270% year to date. The hyperscalers, big tech, they're down 8%. So it's a total, total switch.

• 14:17Robert Armstrong?

  So let me tell that same story in a slightly different way.

• 14:20Ed Elson?

  Yeah.

• 14:21Robert Armstrong?

  I have a list from me, this is since May the 14th, right? So about a month ago, and I'm looking at the S and P 500 stocks. Who are the biggest contributors to gains in the market and the bigger losses? So the top 10 dollar contributors is not percent change, but dollar contributors to the market. Micron, number one, chips, applied materials, number two, in the chip industry. Dell Technologies supplies servers to data centers. Then somebody from the outside, JP Morgan Chase, maybe you could argue they're financing this whole thing, who knows? Number six, Lam Research. Number seven, supplying drugs to the President of the United States, Eli Lilly and company.

• 15:04Robert Armstrong?

  Number eight, SanDisk chips again. Number nine, Marvel Technology SanDisk again. Number 10, Intel Corporation chips. 11, KLA. List goes on like this. Now, let's go to the opposite end of that list. Who are, who's contributing losses? Dollar losses since May 15th. Here are the bottom five. The biggest dollar loss contributor, interestingly, also a chip company. Nvidia, sad, a lousy month. This is kind of the exception that proves the rule that it's total chip leadership here. But after them, Alphabet, Amazon, Microsoft, right? The, you know, these companies are going backwards right now.

• 15:44Ed Elson?

  It's fascinating to see it and, and, and, and a total reversal of the trend that we've, that we thought was going to happen. But I mean, in a funny way, many of us kind of expected this because these valuations had gotten very high and we were kind of expecting some level of pullback. I don't think we were expecting to see that all of that would be made up for and then some by different companies in the AI trade. I certainly did not say anything in my predictions episode at the beginning of the year about how you should buy chip stocks and memory stocks. But if I had, then everyone would be very rich.

• 16:20Robert Armstrong?

  Oh, boy. I mean, this is the horrible thing about, you know, massive, successful trades is they always look so obvious in retrospect. It's like, it's a gold rush by the picks and shovels. It's a cliche, just do it. And you're sitting there like being all smart, like, oh, I'm looking at all these different charts or whatever. Like, sometimes it's like, just do the obvious thing, you idiot, you know?

• 16:48Ed Elson?

  Looking at hot charts, nerding out, talking about free cash flow. Yeah, exactly.

• 16:53Robert Armstrong?

  Just like, they need a lot of chips. Why not buy the chip companies, you know?

• 16:58Ed Elson?

  But that does beg the question of, will it last? And I would argue probably not. I think, I think we saw that in the level of volatility that we, that we saw basically in the past week where those names, SK Hynix, Micron, Sanders, they just got obliterated. Then, of course, Micron comes out with these incredible earnings and suddenly the optimism's back. But it certainly is a question. How will these chip stocks keep performing?

• 17:27Robert Armstrong?

  I mean, I was talking about this with my partner in crime, Katie, on our podcast.

• 17:31Ed Elson?

  Yes, big fan of hers.

• 17:32Robert Armstrong?

  Watching Micron's stock going into earnings was like a real time look into the emotions of the market.

• 17:43Ed Elson?

  Hundred percent.

• 17:44Robert Armstrong?

  Do you know, it was like, it was down, it was up, it was in between. It's like, we know that coming down the pike, we're going to get earnings out of this thing, and it's probably going to be really good news. But if it's only just good news, the market's going to freak out. And it was like, that line was all over the place. You could see the vacillations between greed and fear happening in real time.

• 18:05Ed Elson?

  Exactly. Which seems like that will be the characterization of the market going forward over the next few months. That's, that's May. As you said, that's the, the final stage of H1. If I could just keep us moving through some of my other predictions here and evaluate them. So I said the equal weight one, boom, I'm right, great. We'll see what happens at the end of the year, because that was what the prediction's about, but we'll see. Moving on, I, I had two sector picks that I thought would outperform, because I thought you'd see a rotation out of tech. My picks were consumer staples and healthcare. Consumer staples was true. We saw this huge bump at the beginning of the year. So it immediately proved right, at which point I actually decided to rotate out of it a little bit. But it's

• 18:50Ed Elson?

  still strong, up around nine percent. Healthcare, wrong, down less than one percent. So it's roughly flat, but given the fact that the rest of the market has, has grown, that wasn't, that wasn't right, or at least it hasn't proven to be right so far.

• 19:05Robert Armstrong?

  I like that as a long-term call, though. I feel like the sector of the economy. That can, has the most to gain from efficiency improvements from AI is healthcare. It's a third of the economy. It's an inefficient mess. Like, we've been waiting for AI and healthcare our whole lives in some way, you know? So I, I, I like the, the healthcare call. And everything from hospitals to insurers to drug companies to the rest, like, you know, this could make a difference.

• 19:38Ed Elson?

  And one of the few, one of the only sectors in the markets right now, which is cheap, which is actually trading as a sector below its five-year price to earnings average.

• 19:52Robert Armstrong?

  If you're gonna make a big bet on healthcare, you have to think about populism in healthcare. Right? And like, both parties are quite populist right now. And one thing populists like to do is beat up on companies in that industry, whether it's insurance company, drug company, or whether, Trump is the same way. You know, we, I was at the FT Weekend Festival last weekend and I was watching Rahm Emanuel talk. He's running. You know, and, you know, he took out the stick and had a couple of whacks at the insurance industry, you know, because why wouldn't you? So anyway, that's one to think about as you invest in healthcare in years to come.

• 20:34Ed Elson?

  A hundred percent. That incredibly tied to policy and that's what we saw last year. I would argue that's kind of what's been priced in, is that overhang from, from political pressure, but it's a hundred percent. I mean, that, that's what you have to focus on if you're investing in that sector. Just going through again, my prediction, small caps outperform. So far, it's true. Russell 2000 is up 19% year-to-date.

• 21:02Robert Armstrong?

  That's been a great call. And it makes you think, and if the Russell 2000 is doing well, and the other small-cap index is doing well, that makes you feel a bit good about the US economy, actually, because those earnings streams are very much tied to the US economy. The Russell index has a lot of wild speculative stuff on it. S and P 600 is less speculative, but it's up too. You know, and something we have to talk about when we talk about 2026 is that earnings have been good. And that shows up in your small-cap bet.

• 21:35Ed Elson?

  We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts.

• 21:53Speaker 00

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra because it's not just a superior light beer. It's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch in Bev Michelob Ultra Beer, St. Louis, Missouri.

• 22:21Speaker 01

  Are your ad campaigns lighting up the dashboard, but not the pipeline? That's bullspend and marketers are calling it out in dashboard confessions.

• 22:30Speaker 02

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• 22:38Speaker 01

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• 22:52Speaker 03

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• 23:26Ed Elson?

  We're back with profty markets. Final prediction here. I thought that non-US equities would continue to outperform. So far that has been true. The MSCI World Index is up 13%. So international stocks are outperforming, but As Michael Semblis pointed out in his recent research note, the reason that the international stocks are outperforming is basically because of three stocks, TSMC, Samsung, SK Hynix, all chip stocks. So that's another story of the chips are the ones that are pulling up the rest of it. And if those, those didn't exist, you would not see that level of outperformance. So correct, but not necessarily for the right reasons there.

• 24:11Robert Armstrong?

  Yeah, but they all count in investing, you know, right is right and wrong is wrong. So good for you. I think, I think you accounted yourself pretty well there.

• 24:22Ed Elson?

  I think, I think I did not bad. Now I'm going to go to a couple of yours.

• 24:27Robert Armstrong?

  Oh God, I'm like dreading even hearing.

• 24:30Ed Elson?

  Don't worry, don't worry. You're good. You're good. You only got one wrong.

• 24:34Robert Armstrong?

  Okay, good.

• 24:35Ed Elson?

  You said, we are in an AI bubble, but it won't pop this year. So far, that's been true.

• 24:42Robert Armstrong?

  But I'm feeling a little queasy about the second half.

• 24:45Ed Elson?

  We will see.

• 24:48Robert Armstrong?

  God.

• 24:49Ed Elson?

  You said US stocks will not underperform non-US stocks. So far, that has not been true.

• 24:54Robert Armstrong?

  But it's that special phenomenon. Yeah, yeah, yeah.

• 24:57Ed Elson?

  Exactly. You said Fed, the Fed funds rate will not end the year below 3%. So far, that is definitely true. And you also said, and this is probably your biggest win, that the biggest risk in 2026 will be inflation. And so far, that has been very true and more true than a lot of people would have predicted because it has risen kind of spectacularly after, after Iran. Now there's a question of will this last? Will it continue? But so far, that's very true. And it's especially reflected in the interest rate conversation, which of course has been the biggest shift. Everyone thought interest rates were coming down into 2026. Now everyone believes they're either going to stay where they are, or they

• 25:42Ed Elson?

  might go up because of inflation.

• 25:44Robert Armstrong?

  Energy inflation is a special case. And it's of course, the price people pay. You can't just put it aside. It affects the economy. It, you know, if that, if, if energy inflation is high, that eats into real incomes and drags on growth. But in terms of things like rate policy, sustained inflation, et cetera, et cetera, it's core inflation that we're worried about taking energy out. And that thing will not go away. Right? It's sort of like some you have a hopeful month, you have a bad month, but it just service inflation in particular, we're above target and we're not moving in the right direction. We're moving sideways at best, maybe worse than sideways, depending on which

• 26:29Robert Armstrong?

  month you're talking about.

• 26:31Ed Elson?

  So this gets us to the, the, some of the recent data we've seen, obviously CPI hit 4.2% in May. The PCE, which is the Fed's preferred inflation measure, just bolstered the point. It just came in at 4.1%. And then I think what's really, I mean, a big question has been, say inflation goes up or that it sticks around and that was your prediction and it appears to be playing out. What does that mean for people? Why does that affect? I mean, we know what it means for consumers. We know that it means that your life is more expensive, especially if it outpaces wage growth, which it is right now. But the question

• 27:12Ed Elson?

  that investors are asking is, what does this mean for stocks? Is this a bad thing for stocks? And I'd be curious to hear your views on, because this was one of your predictions is, you know, one of the biggest risks to the markets, not to just American people, but to investors is inflation. And we all seeing that kind of play out. So how do you view it at this point?

• 27:34Robert Armstrong?

  Huge amount of different stuff to unpack. But let's just start with the history. The history is that of the last, going back 25 years, whatever it is, when you have a rate hiking cycle, which if you have inflation, you will eventually get a rate hiking cycle. The Fed, you know, probably is not going to put up with this forever. That has coincided or correlated with ugly market corrections.

• 28:07Robert Armstrong?

  If you look at the last three or four corrections in the last three or four rate hiking cycles, they do, I'm not saying anything about, I'm being very careful not to talk about causation here, just talking about correlation. It's an important point to make. You know, the last big correction we had was, was a trickier case though, right? Because it was the COVID correction and we'd been, the rates had been coming up and then COVID hit and there was a collapse. So there's a question, would that rate hiking have sunk the market anyway, virus or no virus? Open question. But if you just look at a chart of the federal funds rate superimposed on the S and P 500, you start to worry about this stuff, whatever the correlation is, right? So, big question, the, the massive

• 28:51Robert Armstrong?

  question is, here we are bumbling along above target, above the 2% target of the Fed, but not, you know, it's like on a good month, you strip out energy and you're like, you do trim mean or whatever statistical package you want and you get kind of, inflation is like 2.7 and in a bad month, it's like 3.5. And we're kind of going along sideways in this clearly above target by call it roughly on average, a percentage point, right? And, you know, the markets can probably live like that. You, you know what I mean? The difference between two and three, you know, there's these discussions like when the Fed says

• 29:33Robert Armstrong?

  two is the target, do they mean two is the first number of the target? Or do they mean two with 2.0? Anyway, the question is, if it goes up again, I think that's a disaster. I think markets can live with, in core inflation, that's a percentage point above target. It has been living with it. It's not ideal or whatever. But if it gets loose from there.

• 30:03Robert Armstrong?

  I just can't see how, given what we know about the historical relationship, given the instability that brings, I just can't see how markets can stay at this high level if inflation is above target and rising again. And I don't know, you know, if I could predict inflation, I wouldn't be sitting here talking to you, that's for sure. But, uh, but like that's, but like, so it's, it's bad. If it stays the level of bad, it is now okay. We can live with that. If it gets to another level of bad, I'm scared.

• 30:36Ed Elson?

  And I think this ultimately does, this is where Iran comes back into the mix. Because yes, we can strip out energy as much as we'd like, but supposedly the strait is open. The question of how long it will remain open, I think is an open question because I think we're dealing with a president who is irrational and has a tendency to exaggerate to the point of basically nearly lying, especially when it comes to how done his deals actually are. We have the fact that this isn't really a deal. It's a pause that they violated within like a day. And so how, how, you know, strong is this?

• 31:19Ed Elson?

  And then there's also Israel, which is another giant question mark, was not involved in this deal. And if Israel strikes Lebanon or continues to strike Lebanon, then does that mean that America violated the deal? Does that mean that Iran will then get angry again and say, no, we're going to use our leverage, which we just realized in the past year, which is that we can either close the strait or just charge everyone who comes through it, which they could easily do, which would also increase oil prices. And all of those questions go back to your big point, which is that could increase inflation. And if it does, it could mean that inflation remains above 4%. And if that happens, interest rate hikes,

• 32:02Ed Elson?

  which as you say, are kind of go hand in hand with bear market.

• 32:06Robert Armstrong?

  I think the reason the market was so confident all along that there would be some kind of resolution in the strait was recognition that

• 32:20Robert Armstrong?

  Look, the, the, both sides

• 32:26Robert Armstrong?

  needed the hot war to turn into a cold war for a while. And so, you know, I think the market is probably right that the central hypothesis is that an uneasy peace continues for a while. I might, if I was Iran, I might want, I don't know, what do I know about Iran? But, you know, I might want the uneasy peace to last until there's a different president, maybe. And the president might want the uneasy peace to last until there's another president, by the way. So like, I agree with you. It seems like a fake peace. But for the market's purposes, fake peace might be enough. Right? Do you know what I mean? We're refilling oil inventories, whatever. But I agree with you. It's unstable and it's a question mark. And I would, I would say your point is generalizable.

• 33:12Robert Armstrong?

  That, you know, if you start saying, well, if you don't count on, count this shock, oh, we had the COVID shock, we have the oil shock, we have the AI shock, we have this shock. Well, we seem to live in an age of shocks. And they, you know, they seem to be, you know, supply shocks of one sort or another, sometimes demand shocks, and they keep happening. And of course, if you specify at the outset that you're not counting every unexpected thing that happens into the economy, into your inflation calculation, you're probably going to end up with a low, a view that inflation is pretty low. But shocks happen.

• 33:50Robert Armstrong?

  So anyway, I, you know, I think, you know, inflation followed by higher interest rates is the big risk. But I'm not predicting it, but it's the easiest way to see things coming off the rails.

• 34:04Ed Elson?

  And to your point, I mean,

• 34:08Ed Elson?

  just looking at the price of Brent crude right now, it's down to around $74 a barrel. It's higher than it was before the war, but barely higher. It's basically where it was. And yet, we are living in a time where, to your point, the uncertainty around that straight is inarguably higher. There is certainly higher confusion, higher uncertainty, which could lead to a problem. But what we're counting on is the optimism of traders to keep that price low. And that's how they feel, and it actually works in preventing inflation from getting worse.

• 34:48Robert Armstrong?

  Yeah, I think we did learn some things during the crisis about the flexibility of the world energy system, and those things are mostly encouraging. You know, I mean, it would have looked a lot different if the Strait had stayed closed for another couple of months and we really hit the end of oil inventories. But we were able to burn inventories, supply chains moved around, there was some demand destruction. So, you know, you have to say that the world energy economy performed pretty well under strain. And so I think that's a little good news coming out of a rather dreary period in our history.

• 35:26Ed Elson?

  I'm going to move us on to our thoughts on what might happen in the second half, and it's certainly related. I have a list here of the biggest question marks for H2 2026. And the first one on my list is what we're talking about. It's Iran, specifically when and how the Iran conflict will be resolved, or if it won't. On when we look at the probabilities on Kalshi, the chances of a quote, real deal are very low. It's 23% happening before

• 36:04Ed Elson?

  September, 46% happening before 2027. So that's people betting on, will we come to an actual resolution where we sign and the war is over? But that might be a different question from will the Strait remain open?

• 36:21Robert Armstrong?

  I mean, my prediction on this is, you know, I wouldn't bet my house on it, but we're gonna keep faking it, right? We fumble through, we kick the ball in the high grass, we grope our way along. It's never resolved, but it doesn't heat up again. That would be my guess. But it's no better than a guess. I don't want to even call that a prediction.

• 36:45Ed Elson?

  Yeah, I think that's right. I also have here, uh, will inflation get worse? And this is of course related.

• 36:53Robert Armstrong?

  I refuse to predict. You make a prediction and I'm gonna watch.

• 36:56Ed Elson?

  I'm not, I'm not, I'm not gonna predict, predict. Well, I kind of will predict. My prediction at the beginning of the year was that inflation would hit four and a half percent or not beginning of the year. It was, it was just as we were getting started with Iran. My view is that this was gonna last a lot longer. I thought it would hit four and a half percent by the year end. We're at 4.2. I think I hold to that prediction. But I, I, I mean, you know, I was listening to Mark Zandi, who we have on the show. I think you've appeared on the show with, uh, with him. And he, he believes that we're close to a top in, with inflation.

• 37:36Ed Elson?

  That it probably won't get worse. I don't buy that personally, but that is kind of the big question. It sounds like you believe that it might get a little bit worse as well.

• 37:44Robert Armstrong?

  I'll tell you one thing. If you're planning on buying a MacBook, you're gonna get more than 4% inflation. I mean, we got that news from Apple today and I'm gonna now say something that is an idea that I'm outright stealing. And let my, let me credit the person I stole it from was a guy I had a cup of coffee this morning. Former Reuters journalist called Rob Cox and he pointed out that it's not just, you know, Apple comes out and says, you know, the memory chips are very expensive. We have to increase the prices on the phones and the laptops and the tablets and so forth. Fine. The price of Apple goods are a very important price in our economy. Right? That is a very salient price in people's minds is, you know, we all, a lot of us use iPhones. A lot of us have iPads. A lot of us are Mac people.

• 38:29Robert Armstrong?

  And that is there that like, that's a price that everybody can see and knows going up. So I wonder if that is like a signaling one. It's not just computers when Apple does it. Cause Apple's Apple. You know what I'm saying? Anyway, I'm just throwing that idea out there because I thought it was a good idea from Rob and I wanted to repeat it.

• 38:49Ed Elson?

  I think it's important and also important in the context of how the American public views AI, specifically how much they dislike it. Because what we know and what Tim Cook has said outright is the reason that we're increasing the price of our computers and our phones and our chips, or excuse me, our Mac minis, is because the price of memory chips has exploded to a degree that I've never seen before. And the reason that's happened is because everyone's trying to build a data center. And so that is another link.

• 39:20Robert Armstrong?

  Every word of that is true, by the way.

• 39:22Ed Elson?

  All of it's true. And if you're, if you don't like AI, this is another reason to not like AI even more because the reason your iPhone, if you wanted to upgrade, has gotten more expensive is literally because of AI. It's because of data centers.

• 39:36Robert Armstrong?

  So the machines that are coming to get you fired and make electricity more expensive are also making your iPhone more expensive. Now, I wonder why people wouldn't like that technology. What a mystery. What poor misinformed people.

• 39:53Ed Elson?

  That's exactly right.

• 39:54Robert Armstrong?

  The you're fired machine that makes everything expensive.

• 40:01Ed Elson?

  That's exactly right.

• 40:03Robert Armstrong?

  I don't know if any of that's true, but that's the perception very clearly, you know?

• 40:07Ed Elson?

  We know that it's true in terms of making things more expensive. That much has been proved. We'll see about the you're fired thing. Exactly. So on that, by the way, and we can get to AI in a moment, but that could be a huge obstacle in AI's way. In fact, it seems it already is. But I'm just going to keep moving through my list of question marks. I think that this is the biggest question mark. And no one is able to agree on this, is what will happen to interest rates. We

• 40:37Ed Elson?

  We've seen different predictions made by different banks. J P Morgan Global Research said that they believe that the Fed will hold rates for the rest of the year. Goldman Sachs also said they're not expecting any cuts. They think that they will hold or they don't think it'll rise either. Bank of America said they expect three interest rate increases this year.

• 41:02Robert Armstrong?

  So there's dispersion in the predictions. That's what makes our job fun, right? We're not, not everybody is on the same, is seeing the same stuff here. And part of that is simply because got a new guy in charge of the Fed and we don't know, we don't really know who he is and we're going to find out over the next few months.

• 41:21Ed Elson?

  I'd be interested to hear your views on this. Like, I think that is a big piece of what's going to happen to interest rates, which, as we said, as you pointed out, that basically could determine what happens to the stock market in the second half of the year.

• 41:34Robert Armstrong?

  If history is any guide, it will be. I mean, I think Kevin Warsh, who's the new head of the, the, uh, okay. How I describe him, and I don't mean this to be as critical as it sounds, but I call him the dog who caught the car. And what I mean by that is he's literally spent most of the last 15 years criticizing the Federal Reserve. He was on the Federal Reserve back in the financial crisis. He parted ways with the Federal Reserve, partly because of disagreements about balance sheet policy or whatever, back in like 2010, 11 or something like that. He left the Fed and since then, he's been suing a fair percentage of his time, giving

• 42:16Robert Armstrong?

  uh, speeches about how the Fed is screwing everything up. And now it's like, oh, thanks a lot, wise guy. Here's the keys. You know what I mean? So as a journalist, I'm very sympathetic to people who sit outside of the game criticizing the players. That is basically my job. So, uh, I don't want to criticize such people out of court, but this is a case where he's going from thinking he knows the right way to do it from the outside to being on the inside and being under all the pressures that go with actually running the thing. Point number two is of course, there is a question about whether he will be bullied by Trump. As I've been saying all along, I think I've said it on the, the show here before, I don't think that's an issue.

• 43:00Robert Armstrong?

  Two reasons. One, Donald Trump tried to bully Jerome Powell and it really, really didn't work. You know what I mean? It was a complete failure, right? His bullying efforts probably made things worse from his point of view, right? So that didn't work. And two, the chairman of the Federal Reserve is not gonna be, it doesn't matter whether the president likes him or not. What matters to someone who has that job is who am I in the eyes of history? And if you are the chair of the Federal Reserve, under whom inflation got out of control, you, your grandchildren will be hearing jokes about what a crap Fed

• 43:45Robert Armstrong?

  Chair you are. You will be reminded, this is Arthur Burns, is the Fed Chair who famously let inflation get out of control in the seventies. You don't want to be that guy. So I think he's gonna have his eye on the ball in terms of inflation. Does that mean he managed it perfectly or anything like that? I don't know. But I don't think the president is gonna intimidate this guy into doing anything.

• 44:09Ed Elson?

  We'll be right back. And by the way, Scott is going live with his predictions mid-year check-in tomorrow, June 30th at 3pm. Become a Prof G plus subscriber on Substack to tune in. If you want to do that, visit profgmedia.com/subscribe.

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• 46:05Ed Elson?

  We're back with Profdy Markets. So if you're watching on YouTube, Robert was just kicked out of his office at the FT, I guess. I guess they don't respect you enough over there. So that's why he's got a bit of a different background. But I was asking you, Rob, about Kevin Walsh's anti-fedishness and also the fact that he has signaled that he does not want the Federal Reserve to be communicating as much to the public about what they're actually doing, which has been a large point of controversy. I personally can't figure out why any of that actually matters on the big decision, which is basically interest rates.

• 46:42Robert Armstrong?

  Possibly interest rates in the balance sheet. Call it those two together.

• 46:45Ed Elson?

  Yeah. What are your views on his, I guess, anti-fed philosophy?

• 46:51Robert Armstrong?

  The communications thing is a bit weird. And let me give you first the case against his approach. His thing is, we don't want to give the markets guidance on what we're going to do. We want to say what we have done. But we don't want to talk about the future. We're going to take what they call forward guidance out of the statement, which is the kind of slightly coded language in the press release that comes with every interest rate decision that sort of gives you a way to predict which way they're leaning the next time. He doesn't want to explain what they call the Fed's reaction function, which is, he doesn't want people to have the thought,

• 47:34Robert Armstrong?

  if the employment report does this, the Fed will do that. You know what I mean? They don't, he wants you to know less about what we're doing. And he said this thing in his first press conference about this, which was complete nonsense and not true, which is, he said, we want the market, we want to know what's going on by looking at the market. And we can't do that if the market is filtering all the incoming information through their idea of what we're going to do. So it's this idea that like the signals the Fed is getting about the economy will be distorted by the fact that we give forward guidance. To me, this makes no sense whatsoever because you can be damn sure

• 48:18Robert Armstrong?

  the markets are, no matter what the Fed does, how the markets respond to the economy is going to be conditioned by who they think the Fed is and what they think the Fed's going to do. It's always going to be a muddled signal. So I think that is just a silly story that he's telling to justify himself. This is what I think is really going on. He is a person who thinks the market counts on the Fed as a backstop, and he wants less of that to be happening. He wants the market to be more volatile and more scared because he thinks the market is too dependent on the Fed put and Fed put like stuff. If we get in trouble, if we leverage ourselves too far,

• 49:03Robert Armstrong?

  if we whatever, the Fed will always bail us out. And he wants to take that anesthetic out of the system. And I think the communications policy is part of that. Like you guys figure it out for yourselves. And if you find that scary, if you find it scary to operate without us telling you what we're gonna do. Good, I want you more scared. That's how I like it. You know, that that would be my interpretation of that. And we will see how that goes. So there is a kind of, there are no atheists in foxholes. Aspect all this like it's all very well and good. To say you want more volatility in the markets until the shit really starts to fly.

• 49:47Robert Armstrong?

  And then we'll see how you feel about volatility. In other words, when there's a crisis and institutions are falling over and they're begging for lines of credit from the Fed. What's the Fed gonna do? When you start shrinking the balance sheet, which is something that he wants to do. You know, he's very keen on shrinking the, I should say more shrinking the balance sheet more. And there's a crisis in the money markets. How much of a tough guy are you gonna be then? You know, so we, you don't really find out what kind of Fed chair you have and what kind of Fed board you have. Until they're in a difficult situation. And then you take the measure of of what they're prepared to do and not do.

• 50:28Ed Elson?

  Which is all makes it scarier for Wall Street in the scenario where there is some sort of shock or crisis or extreme bear market. Because what we had in previous crashes was what was of course, the Greenspan put. Alan Greenspan, who recently died, who this was kind of his doing is this idea that the Federal Reserve can come in and prop up asset prices such that the prices don't go down. And it became a theme. We saw it from Ben Bernanke, we saw it from Jerome Powell. And to your point, if you've got this guy coming in saying, we're not doing that anymore. So if you guys wanna go have your AI bubble and things crash, I'm not saving you.

• 51:12Robert Armstrong?

  Now, he's not saying this explicitly. But I think this is the subtext. That's my interpretation of the subtext of what he's saying. New sheriff in town. We want to let markets be markets.

• 51:23Ed Elson?

  Yes, which is a really interesting interpretation, which brings us to the next big question mark on my list here, which is, will the bubble burst if we believe that there is a bubble? And it does seem this was a conversation that was being had in the fall of last year. And there were a lot of question marks around this. Our view was that a bubble was growing, but it wasn't about to burst. And it wasn't quite like what we saw in the dot com era, because you didn't see these prices. But I have a new view, which is that actually prices are like what we saw in the dot com bubble. And that is, we can look at the Shiller P E ratio, which is the cyclically adjusted price earnings

• 52:07Ed Elson?

  of the S and P. It's currently at forty one. And during the height of the dot com bubble, it was forty four. So it's it's in it's in that territory. And the historical average is seventeen point four. Granted, it's it's been a lot higher in the last several decades because stocks have just gotten more expensive. But the reality is, this is the second most expensive stock market of all time is now. The only time it was more expensive was right before it crashed from ninety nine into two thousand. So this is now a real question to contend with. What do you think?

• 52:44Robert Armstrong?

  As I'm sure I've said on the show before, because I repeat it whenever I get a chance just to humiliate myself, the thing I have done that has cost me the most money, you know, with my personal investments and my savings, is try to get out of the way of bubbles. Right? Trying to anticipate a bubble can turn into an extremely expensive hobby because you miss out on a lot of gains. And so I would never, if the price momentum was still headed up and to the right.

• 53:16Robert Armstrong?

  I would say, Ed, you're crazy. You know, there's no point predicting a bubble this year. It's not happening soon. What makes me slightly nervous is the determined sideways movement of markets over the last six weeks or so, that the market tries to rally and it kind of can't. And that now, that means we're between trends. We're not in an uptrend and we're not in a downtrend. And let me give you a metaphor for this that actually has a nice resonance with a standard market metaphor. When I was a young and very stupid

• 53:56Robert Armstrong?

  man, I went to the, to the running of the bulls in Pamplona, which is a kind of classic thing for a dumb young American to do.

• 54:05Ed Elson?

  That is stupid. I love it. But I love it. Yeah.

• 54:08Robert Armstrong?

  It's first thing in the morning and you're like, you know, had an hour of sleep and you're, they're about to release these bulls into this narrow road and you run along with them and you're starting to have second thoughts. And I remember asking the, the Spaniard I was with for advice. And he said, don't worry, this is all very safe as long as the bull is just running down the road. A bull that's going one direction, you can just run along next to it and you're fine. If one of those things falls over, get out of the way as fast as you can because you don't know what direction it's going to go when it gets up. Right? As long as the bull is pointed one direction, you are good. Right? But like literally, because they'll, one of them will wipe out, you know, going around the corner

• 54:51Robert Armstrong?

  and it could start coming back the other direction. And it's the same thing with markets. A market with no trend is a bit unsettling, right? And I feel like right now we're in a market with no trend. You know, look, it's not going to change my approach. You know, I have a fixed allocation. I stick to it. You know, I'm, you know, I'm only in ETFs. I'm diversified, et cetera. But as an observer of the market.

• 55:17Robert Armstrong?

  A trendless market is a scary thing and there's a good example of this just today. So we discussed how the markets were very nervous heading into the Micron earnings. Micron earnings finally land and they're terrific. Micron is up, I don't know, 15% or something as we speak, I don't know. The NASDAQ today, still down. So we got the good piece of news that everybody was looking for. It was better news than even everybody expected. That stock, I'll just look at it now, is up 17%. NASDAQ is down slightly. What's a man gotta do to get this market up? So that makes me think we are, we are, we don't have a trend and it could go either way.

• 56:00Ed Elson?

  I think it's a really important point, yeah.

• 56:04Robert Armstrong?

  I mean, and this is a, this is a mathematical point, by the way, made about, you know, all markets everywhere by the famous Benoit Mandelbrot. And if I can recommend any book about markets to your readers, it's The Misbehavior of Markets. And, you know, his point is this is the pattern of markets. They have a trend, they have momentum, they don't move randomly. You know, if they're going up, they're more likely to keep going up. If they're down, they're more likely to keep going down. And then the trend breaks and there is a moment of chaos until the new trend forms. And that's true at the micro level, like on a given day, a given trading session. It's true over 10 years. It's a, it's kind of the fractal pattern of markets.

• 56:47Robert Armstrong?

  And we're at one of those intermediate periods right now, I would argue.

• 56:51Ed Elson?

  It's a really, really good point. And it reminds me of something that Barry Ritholtz said when we had him on the pod a couple of weeks ago, where I laid out to him my views on this feels like it's where we actually are in dot com territory at this point. And he said, sure, but SpaceX just went public and it absolutely exploded. And as long as people start, are feeling good and things are going up, to your point about the trend, then, you know, you can keep predicting the bubble as much as you want, but price is going to keep going up and you're going to lose out on all of that.

• 57:22Robert Armstrong?

  All you're doing is getting poorer.

• 57:24Ed Elson?

  But. What have we seen in the past week, two weeks? SpaceX came crashing back down. And, and if we're, we're thinking that the, I mean, at this point, I think we can all agree that asset prices are very pricey right now. Um, I, I don't, I don't think that's up for debate. I mean, you look at every sector, you look at tech, you look at energy, industrials, materials, consumer, everything is expensive. Everything is trading on a multiple basis, a lot higher than, than they historically did. Yes, earnings are growing, but those multiples are growing too.

• 58:05Ed Elson?

  And so if we're waiting, we're waiting on something to break the momentum. And it does seem that we're in that moment where the momentum is wavering.

• 58:17Robert Armstrong?

  And, and the momentum can resume. You know, if you told me Micron is going to crush earnings and the market's going to take off flying again on Thursday morning, I would have believed you. But that's not what's happened here this morning. You know what I mean? So it could go either way. I am, you know, it is reassuring that the US economy is okay, US consumer is okay, and that profits are good. That is a more helpful background than you would otherwise have.

• 58:41Ed Elson?

  Although there also seems to be a little bit of wavering on the consumer front. We did just see the revision for the consumer spending in the first quarter.

• 58:47Robert Armstrong?

  Consumption's a little softer. Yeah, yeah.

• 58:50Ed Elson?

  And if that continues again, I think this goes back to Iran. I mean, then that's the real question for, for, for corporate earnings. And it does remind me of 2022, uh, where you had, stocks were expensive. Just going back to the Shiller P E, it hit 40 in, in January of 2022. Then you did see a drop off in consumer spending and it was really triggered by the inflation shock that we felt coming out of COVID.

• 59:25Robert Armstrong?

  And the Fed's finally started putting the hammer down on rates. It was like for the for the 70 30 portfolio was the worst year anybody alive can still remember. Basically is because your bonds, because it was inflationary, your bonds were no good. And the stock market was going down. So you lost coming and going. It was a terrible year.

• 59:45Robert Armstrong?

  You know, like if you'd said, you know, the market is going to lose a third of its value.

• 59:52Robert Armstrong?

  You know, I mean, it wasn't a third, but 2022, we survived, you know, and we could survive another crash year. I mean, this is maybe a question for another hour, but there's kind of crashes and crashes. You know, if the market goes down a third, let's just say from where it is now, which would bring it back into its normal valuation range historically or whatever. As long as there's not awful second order effects, that's kind of fine. It happens once in a while. A lot of those are paper profits. You know, some hedge funds will go out of business, but like that's a totally survivable event. You know, the question is, is it a is it a third in the style of 2008? Where there are massive second order consequences that affect the real economy.

• 1:00:38Robert Armstrong?

  You know, that in that case, there was massive second order consequences because the locus was the housing market, which is the main asset of every American family. So it caught but so like, you know, like, you know, for a young investor.

• 1:00:54Robert Armstrong?

  And I think you probably are a young man yourself. You probably have listeners who are your age. The market falls by a third. As long as you have a little bit of savings in cash, you should be getting up and cheering.

• 1:01:06Ed Elson?

  Exactly.

• 1:01:06Robert Armstrong?

  Right. You know, that would be awesome. Right. You know what I mean? So, you know, as long as you're not 100% in stocks anyway, or you can access the little money to start some savings at the end of the crash. It would be a great thing. Right? So that's something to keep in mind. Old people, you have to worry. We need the money now.

• 1:01:25Ed Elson?

  Yes. Yeah, that's right.

• 1:01:30Robert Armstrong?

  But but for you, it's different.

• 1:01:31Ed Elson?

  I think this is a really important point. And I I think that ultimately, and this is where I'm beginning to land on this. I think what we'll see, I think we will see a correction. I think it is as close to imminent as you can get. I think it will look a lot more like 2022 than it'll look like 2000. Because to your point, I think that

• 1:01:52Robert Armstrong?

  Knocking on wood.

• 1:01:54Ed Elson?

  But I think that a lot of, I mean, it's a lot less. I mean, it's hard to hard to argue that this bubble isn't systemic. It is systemic, but at the very least, it's far less debt financed. At least the AI build out, which has been highly dependent on

• 1:02:12Robert Armstrong?

  Equity, even though they are issuing debt now, it's still mostly an equity story.

• 1:02:17Ed Elson?

  Yes, and these big tech companies have the cash to pay for this stuff. They're starting to issue debt financing and it's starting to look a little weird. But if you literally just look at their their net debt, specifically, you know, Meta, Google, Amazon, you know, those really big players, they have they have cash and they can do this. They can take these risks, which makes me think that we'll see a correction more similar to 2022, which doesn't collapse the whole thing. I think it results in a year that's kind of shitty meh for investors. That would be my prediction going into second half.

• 1:02:56Robert Armstrong?

  No, I'll join you in that prediction, and I certainly hope it's true. I think the argument you've made for it is very good. The only caveat to this is you mentioned that this is not as leveraged a financial bubble as the bubbles we saw in A08 or possibly A01. Now, the thing about leverage is you don't really know where it is until asset prices start to fall. And then you have these awful experiences like, who lent what to? What what are you talking about? So it was like in 2008, you were like, European banks have a lot of leveraged finance in American houses? I remember finding that I was like, what is happening right now? You know what I mean? German banks, you know?

• 1:03:41Robert Armstrong?

  And so it's like, Let's just hope there is not secret leveraged love affairs going on in financial markets that we don't know about. And, uh, you know, every once in a while, I write a column about how leveraged is the financial system. And every expert you talk to, they tell you the same thing. You can get a sense of it, but you can never know quite the extent of it. So this is the ultimate example of Warren Buffett's, you know, you see who's swimming naked when the, when the tide goes out.

• 1:04:11Ed Elson?

  To the extent that you can even, even know, given what you just said, how leveraged would you say we are? My understanding is that on the AI side, for the, for the ones that matter, not so leveraged, but maybe that's not including a lot of other stuff.

• 1:04:29Robert Armstrong?

  So there's a famous data series you can look at from FINRA, which is the industry's kind of self-regulatory body, uh, which is the amount of debt in securities, margin debt in securities accounts. And that line is up and to the right hard, right? So there is a lot of leveraged speculation in markets. I think you can find similar proxies for the leverage being provided by trade, trading desks to hedge funds and so forth. So I think there is quite a bit of that.

• 1:04:59Ed Elson?

  It's not good.

• 1:05:01Robert Armstrong?

  You know, I was looking the other day at leveraged ETFs. There's a couple of these. They're not huge. You know, we're talking in the 10s and 20s and 30s and 40s of billions. But like your, your NASDAQ three X leveraged ETF has grown its ATM. So I think we can conclude that there's appetite for speculative leverage out there. And, you know, in a crisis, what that, what's happens with that is it, the valence reverses and it goes backwards. And that's going to happen.

• 1:05:31Ed Elson?

  So maybe I'll, I'll need to rethink that one.

• 1:05:34Robert Armstrong?

  Yeah.

• 1:05:36Robert Armstrong?

  Well, I don't know. I think I think you're right within the circle of the AI part. That it's but it's a question is people outside of that circle speculating on what happens in that circle. Are they using borrowed money to do so?

• 1:05:50Ed Elson?

  Yeah, the answer to that question is yes. And I wonder the the next question becomes which one matters more, or do they both matter equally?

• 1:05:57Robert Armstrong?

  Yeah, yeah. Well, I mean, like I said, I, you know, if if it wouldn't be finance if you could predict these things in advance. It's a dynamic system and it's really tough.

• 1:06:07Ed Elson?

  My final question on on my list of question marks, and then we'll wrap it up, is what will happen at the midterms?

• 1:06:17Ed Elson?

  Seems like Democrats are gonna win, but who the fuck knows?

• 1:06:20Robert Armstrong?

  Yeah, not me, not me. And will the market care? I don't even I'm not even sure it's a market event.

• 1:06:27Ed Elson?

  Right.

• 1:06:28Robert Armstrong?

  Do you know what I mean? Here's what I would say about the political side of things. And I was talking to this to be very senior editor at the FT about this, that the I don't know if this is even the right word, like, the amplitude of political madness seems to be going down. So like, a year and a half ago, we were like arguing about global trade rules and, you know, tariffing our allies. Six months after that, there was like masked government thugs arresting Americans and non-Americans alike in the streets.

• 1:07:06Ed Elson?

  That was crazy. I forgot about it.

• 1:07:08Robert Armstrong?

  And now what we're doing is arguing about the reflecting pool. And like, so as a direction of change, I kind of like this. You know what I mean? Like, I I think this is actually, it's funny, but it's actually quite a serious point. Like, yeah, let's freak out about the swimming pool. Great. Stick to that. Love it.

• 1:07:26Ed Elson?

  It is very interesting, but part of me feels worse about that because I'm almost like, are we just sort of, have we gotten bored about the fact that we've launched a war in the Middle East again, from the guy who said that we wouldn't launch any wars? I mean, I I wonder if that's almost worse, like with, I mean, by the way, it's not like the tariff thing is no longer a debate. That's still playing out in the global stage.

• 1:07:49Robert Armstrong?

  Yes, but it died down. You know what I mean? It's whatever happens in the midterm. Trump is a lame duck. So it's, you know, all of that stuff is kind of happening. And maybe what we're seeing is. You're quite right to mention the war in this context. You know, that's that that is true. But like I said, maybe things are calming down a little bit. It's, you know, if there's anything I hate to predict, it's the interplay between politics and markets, you know, because you have to be smart about both and nobody is.

• 1:08:24Ed Elson?

  Well, I will just to your point on will it even affect markets? I think my view is it it won't. And for one crucial reason, which is that the midterms are about what happens in Congress. And what we've learned about this new Trump presidency is that he doesn't give a shit about Congress and he'll basically just do whatever he wants. And here is our very interesting data to just support this point. Trump has issued more than twice as many executive orders in this term than Congress has passed bills. And that never happens. You look at the Biden presidency, it was flipped. He passed four times fewer executive orders than Congress passed bills. In Trump one, also four times fewer. Obama, five times fewer. Bush, six times fewer.

• 1:09:10Ed Elson?

  Suddenly it's reversed. Trump is just spraying executive orders. Doesn't matter what Congress does. He's still going to do whatever he wants to do.

• 1:09:17Robert Armstrong?

  Now, I would guess that the next presidential election might be very consequential for markets because based on what we saw in my home state, it could be a race between extremes. You know, the recent congressional races here in New York. You know, if that's a race between the Trumpian right and the AOC left, markets are going to have no choice but to care because it's going to be wild. Right. But that's, thank goodness, a few years away. So that's probably more important than midterms, but it's farther in the future.

• 1:09:48Ed Elson?

  Well, at the very least, midterms might be sort of the the canary in the coal mine on what the direction will actually be. Well, that's my list, Rob. I we've covered a lot of ground.

• 1:09:59Robert Armstrong?

  Yeah, I think it's a good list. And I agree with your predictions. I think a significant correction, you know, whether it's, you know, this year or in the next couple of years is perfectly likely for the reasons you laid out. I think it is perfectly reasonable to think it won't be catastrophic for the reasons that you laid out. And, um, you know, here's hoping that we're all, you know, okay on the other side.

• 1:10:24Ed Elson?

  Let's take a look at the week ahead here. We will see earnings from Nike. We'll also see consumer confidence and the employment report for June. Rob, this is usually where I ask Scott for a prediction, but we've made a lot of predictions.

• 1:10:39Robert Armstrong?

  Yeah, I'm exhausted.

• 1:10:40Ed Elson?

  But I guess let's just get your final reflections on first half of 2026. I mean, you've been writing about the markets for a long time. You're one of the most respected voices and commentators in this space. I mean, how is it shaped up for you? What are your final takeaways?

• 1:10:55Robert Armstrong?

  For me, the most important thing is the transformation of a huge trend, which was the Mag 7 trend into something different. And so like, and that could switch back, right? We have, you know, it could be we're looking at a six months aberration and we're going to get back. But like, we knew what third of the market was kind of in the driving seat. What eight or 10 companies were in the driving seat of markets and finance generally. We're in this interregnum period now where we don't know who's driving the bus. And so it's exciting because like, you know, we could talk in a month and the story could be very different.

• 1:11:35Robert Armstrong?

  So where the, where the first six months have left us is like wondering. It's a terrible cliche for a journalist to say it, but we're standing at the crossroads here. It's a fun moment to be observing what's happening.

• 1:11:47Ed Elson?

  Robert Armstrong is the US Financial Commentator for the Financial Times. Rob, I missed you. It was great.

• 1:11:54Robert Armstrong?

  This is fun. Well, let's do it again. Let's do it again in six months. We can be wrong in our predictions again.

• 1:11:59Ed Elson?

  Exactly.

• 1:12:03Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Dan Shalun, Isabella Kinsel, Kristin O'Donoghue and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and tune in tomorrow for a fresh take on the markets.