Oh Sh*t.. Nobody was Expecting This..

The stock market is having another bad day today. And there are a couple of reasons for this. There is actually some good news today, but there's a lot of bad news as well, including new threats from Iran, Netflix that had some pretty bad earnings last night, and a new model coming out from China that is comparable to Fable 5. We also have some economic data that we will talk about in today's episode. as well. But I want to start with this new Chinese model. This new Chinese model is called Kimmy K3. And you guys can actually see it is ranked number one by quite a large margin above Fable 5 for coding. This model actually ranked number one in six out of seven different domains, including brand and marketing, reference-based design, data analytics, consumer products, simulations, and content creation tools. landing only number two in gaming behind fable. Now this model is massive. Within this model you can upload your entire software codebase into this model in one query. You can upload booklength documents and weeks of chat data into a single prompt. This has a parameter count of 2.8 trillion. This model also has a hybrid linear attention mechanism that drastically speeds up decoding time and reduces memory requirements. But here's the real kicker. The K3 API is compatible with OpenAI's SDK. So it can do the same things as OpenAI, plug into the same kind of applications, but the input token pricing is $3 per million input tokens and $15 per million output tokens. Fable 5 is going to be $10 per million input tokens and $50 per million output tokens. So, this is more than three times cheaper than Fable 5. Now, let's be honest with ourselves. I don't think many American corporations are going to trust a Chinese model much like DeepSeek. Deepseek just reported in the last couple of days they have a re a revenue run rate at this point around $500 to $600 million per year. That's nothing compared to where Enthropic is. So I don't really think this is like a competitive threat per se for American AI to a c small degree. Sure. Are some people going to use it? Of course. What I think this really highlights, why are US companies spending so much more than Chinese companies, but beginning to fall behind? While we don't have publicly disclosed information on how much this Kimmy K3 model costs to actually train, we know the Kimmy K2 model cost $4.6 million. This model's three times larger than Kimmy K2. So even if it went up 10x, you're only at $46 million to train this model. Why are we spending billions of dollars to train models and just lost the top spot to Kimmy K3 in six out of seven domain areas, including coding, which again, by the way, this is quite an improvement above Fable 5. So I do think above anything else this really just throws into question why are hyperscalers spending so much and not seeing the kind of results that Chinese companies are seeing. I I I think it means companies need to be more efficient. Now what does that actually do to capex? What happens with with that? I I don't know if Kimmy K3 is going to change much of that but it is a wakeup call for everyone. Me personally, I don't care about this all too much. This reminds me of the Deepseek moment where Deepseek came out and AI stocks fell like 20% in two days. I don't think this matters for the AI trade at this point. But again, from the capex perspective, it does raise question. You can see today the hyperscalers like Microsoft down 2%, Google's down about 2%, Meta's down over 5%, Amazon down 0.6%, 6% Tesla down 2.61%. Which is notable because these are the hyperscalers. These are the spenders on AI capex. You can also see that AI stocks basically across the board. Nvidia Broadcom AMD Intel Marll uh Texas Instrument, AAT, Lamb Research, KLA, pretty much across the board, these stocks are moving lower today. Memory seeing a little bit of a bounce. SanDisk and Seagate and Western Digital. They're up between two and 3% today. Same with Micron, but those stocks have really taken it hard in the past couple of days. So, I'm not super surprised by that. For anyone that is interested in the link down below in the description of today's episode, I have launched a new tier to the Patreon where you will get dis discord access. Now, I'm not going to share every trade like I do with with the higher tier and all of that, but I will be in that. Others will be in that. You can debate, collaborate, share ideas, have early insights into different trends and different stocks and areas that could accelerate. There's going to be things like newswires over here and different API tools for stock research. And that's why we had to charge something. Initially, I wanted this to be completely free, but APIs are expensive, so it would cost me a lot of money to have a free Discord and actually provide like valuable tools, right? And we're still in the process of putting the tools together um and getting the right APIs. So, if you guys want to come join it, that link is down below in the description of today's episode. For now, it's $10 a month. We'll see how much all of the APIs cost and what makes sense to add over there. It it might go up over time a little bit. I I kind of rough guesstimated um how much the tools will cost to try to at least cover the cost of that. But I think this is going to be the best value product period in financial YouTubia. Okay. I don't think there's anything that's even going to come close to this. And it's called the 1enter because that's the idea is with something like this, it will help everyone grow into the mentality of the 1% investor. And that's the idea. If you guys want to come join us, that link is down below in the description of today's episode. Now, Netflix did report earnings last night, and I think that might be having some effect on some of your advertisers today like a Meta, even though I don't think it should. I think there is some kind of sympathy reaction, especially with Meta today. Revenue was up 13% year-over-year. They missed by $20 million. Operating margin was 1 percentage point lower year-over-year. EPS was at a 1 cent beat. 2026 guidance revenue came in at 13 to 14% that's lower than expected operating margin at 31.5% so they are expecting margins to come down the company missed on free cash flow by about $600 million and again this is causing concerns about the advertising market today I think in some stocks like Meta but Netflix is really dropping the ball on content creation outside of uh his and hers. I can't remember the last show that I watched on Netflix. It's been months, right? Um, that's the problem here. It It seems like a very specific Netflix problem. Also in the news today, Iran is warning US forces. Iran's Revolutionary Guard said it is closely monitoring US military movements in the region, warning that American forces are approaching the zero hour for potential operations against Sentcom naval units. The statement ended with a stark message. Quote, "Wait." Also in the news today, the US is sending dozens more refueling planes to Israel ahead of a possible escalation. And we can see today oil is up to $8144 per barrel. That is up over 3% today. So that is definitely putting some pressure on some areas of the markets, although not all areas. Cyclical definitely coming under some pressure. Some of your financials are doing a little bit better. Some of your communication services are doing okay. Again, some of your AI stocks like your memory are coming back today. Healthcare seeing a bit of a a bid today. Some of your defense contractors, GE, RTX, companies like that are doing better. And then obviously oil and gas. But generally more of a riskoff day today. We can see your indexes. The Russell 2000 is down 0.56%. NASDAQ 100 down 1.2%. NASDAQ itself down 1.3%. S&P is down 0.75%. And the Dow is down 0.3%. We did have some economic data today. Building permits came in lower than expected and housing starts came in a little bit better than expected. Actually, quite a bit better than expected at 1.427 million. The estimate was 1.31 million. So maybe a little bit of good news for the real estate market, but like how good is it? It's not really going to do a whole lot for the markets in general. We did get the Michigan Consumer Sentiment Survey. Um the headline number came in at 54.4. The forecast was 51. 5-year inflation expectations came in at 3.3%. The forecast was 3.1%. So that was a little bit on the high side, unchanged from last month. Consumer expectations came in at 54. The expectation was 51. So that was a beat. Current conditions came in at 54.9 versus the expectation of 48. So that was a good beat. And one-year inflation expectations came in at 4.2%. The expectation was 4.3%. That is down from 4.6% last month. So that was definitely better than expected. 10-year Treasury yields today are down about two and a half basis points today. And I think that does have to do with the Michigan consumer sentiment data that we just went over. Two-year Treasury yields today though are actually up about one basis point. At one point today, they were actually down a couple basis points, but it does seem like this Iran escal escalation um kind of news today is driving up two-year Treasury yields. Yesterday, the probability of a rate hike by July 29th, which is about 2 weeks or so from today, was at 8.9%. Today, it's at 12.2%. So, it's going up a little bit because oil is going up and bond yields are going up, especially on that 2-year Treasury yield, but you're still pricing in almost a 90% chance of a pause in July. For September, it's neck and neck here. 46.5% chance of a pause, 47.8% chance of a hike, and a 5.7% chance of two hikes by September. So, you're basically 50/50 between a pause or a hike in September. October is when you start to price in an actual hike. 47.5% probability of a hike, 15.4% chance of two hikes, and a 1.3% chance of three hikes. And then by by December 9th, there is a 24.5% chance of a pause, 43.8% chance of a hike, 25.6% chance of two cuts, 5.8% chance of three cuts, and around a half of 1% chance of four hikes. I think I said cuts, I meant hikes. So markets are pricing in a greater chance of two hikes by December than a pause, which is pretty bearish. I do think the markets are generally overestimating how hawkish the Fed is. I don't think we're going to have any change in the federal funds rate this year. And for cyclicals and small caps and nonAI industrials and regional banks and some of these areas maybe even software that is uh they're mispriced right so some of those areas are going to do a lot better if we don't have rate hikes after all next week we are going to have a lot of important earnings specifically Wednesday and after hours is the big day you have Tesla you have Google, you have Service Now, IBM, Texas Instruments, and some others reporting Wednesday and after hours. The big question is what's going to happen with the capex trade? And Google's going to be important to clarify this for us. And this is just my opinion. I am very bullish on AI stocks, but I'm I think the pace is going to slow down. I think we're going to go from 700 billion in spending this year to about 900 billion in spending next year. That is increasing $200 billion from this year to next year. But I just don't think we're going to be at like 1.2 1.3 trillion as some of these AI stocks were priced for. And I do think that is a big reason why a lot of AI stocks have come under pressure recently because look, when there's FOMO, people start to go crazy with their expectations. And FOMO stocks, they price in too much good news. This is simply a rerating of AI stocks to account for less explosive capex growth. But you can see today following some of these headlines that it looks like the Iran war conflict is going to escalate from here. You are seeing AI stocks actually catching a bid from this. SanDisk is now up 6% today. Why? If you have going wrong, bond yields going up, oil going up, you know, problems with the Iran war, you have seen this trend of money that flows into AI stocks. Why? Because who cares if the Fed is raising rates? The capex trade is kind of independent to that to for the most part, right? AI stocks are not the first ones that are going to be vulnerable if the economy goes to or you know the consumer goes to because what's happening in the Middle East or what's happening with oil markets. So on days like today where it looks like the war is about to get worse, AI stocks are going to catch a bid. Now, also next week, you are going to have earnings from Intel, which that one's going to be very interesting because Intel went from like $20 to over a hundred. It's it's back down to like a hundred now. So, you've you've reset a lot of that upside that you've seen that blowoff top kind of a move. What does Intel say about demand, you know, production of chips? That's going to be key as well next week. That is Thursday in after hours. Fed Hammock says, "Today, I'm hearing conversations with business and community leaders that inflation isn't coming from only one source. It's broad-based." Fed Hammock says, "Hearing from businesses who say they think we need to take action to curb inflation and from consumers who can't make ends meet without a growing sense of despair. So, it doesn't sound great what we're hearing from the Fed today, but again, it's just one opinion and we'll see what happens. I do find it interesting. I don't think any business ever has said, "Yep, we need rate hikes." So, I I don't know who's telling Fed Hammock this, but they might just be pulling that out of their ass. From a technical perspective on the markets, the NASDAQ today was really entering a danger zone at the low of the day today. That would have made almost a lower low. That would have been almost as low as where we were on June 9th. That would have looked really bad. Now, you're not out of the danger zone here. You've broken the bull flag pattern to the downside, but it does look like you are holding support at this general range about at about 695. You do want to stay above 695 on the triple Q's. If you do fall below that, which I think we're all just kind of twiddling our thumbs until we get hyperscaler earnings. Um, if hyperscaler earnings send the markets lower, then you're going to be targeting that 100 day moving average. At this point, you don't want to have any high convictions anywhere. Nobody knows what is going to happen. And it could come down to one or two sentences on an earnings call to what you know moves stocks higher or lower AI higher or lower right so nobody knows what's going to happen you have to be prepared right now for anything to happen and again I will just say the technicals don't look great on the triple Q's do look a lot better on the S&P you're still in the bull flag pattern you did break below the 50 and 20-day moving average But it does look like you crawled back above that to end out the day and you are still in this bull flag pattern. And to me, it does look like you're about to move pretty big on the S&P. I would say the same for the NASDAQ. Either way, you're kind of uh in this small little corner here of the bull flag pattern. You're either going to break to the upside in a big way or likely break to the downside in a big way. But definitively, the NASDAQ looks a lot worse than the S&P from a technical structural perspective. But then again, if the war with Iran does, you know, kick back up again and and and continue, there is going to be a tailwind into technology, into AI, all else equal. Because simply put, what would you rather own? Would you rather own Nvidia or Delta Airlines or restaurants or whatnot if oil goes back above a 100? You'd rather own Nvidia. You'd rather own AI stocks. So, it it would make sense why AI would would go up if this war does get worse. Although, I think at the end of the day, it really comes down to the capex numbers in which I just think we're going to have a slowdown in the acceleration of growth in capex. We're going to go up from 700 billion to 900 billion in capex for next year. That's my thought. That's still lower than where AI stocks are priced for. So, it's not like, oh my gosh, the capex trade is over with. It's yep, we priced in too much, you know, crazy spending and we're coming back to reality a little bit, but we will talk about that more in the next video. Ladies and gentlemen, that is going to do it for this one. Hit that like button and subscribe to the channel if you guys have not done so already. Have a fantastic rest of your day and I will see you in the next