The Stock Market is SELLING OFF... (We have a Problem)

So, the stock market is kind of crashing today following Google's earnings. We also have bad news via the Iranian conflict. And really what we're seeing there just doesn't look great. Oil is skyrocketing today. 10-year Treasury yields are breaking out. We got a lot of messy things going on. We're going to break it all down in today's episode. We do have some big catalyst coming today in after hours as well. I will give you a preview of those in today's video. Ladies and gentlemen, I don't want to waste your time at all. The name of the game on this channel is to help you beat the markets. To get rich at the end of the day. Hit that like button if that's something you're interested in for the YouTube algorithm. Hit that subscribe button if you guys want to follow the journey and come beat the markets alongside of us every single day. Now, first and foremost, let's talk about the obvious here. Google today down over 6%. I've been warning about this on the channel for a while now. The the more these companies spend, the more their stocks are going to get punished. The fact of the matter is Google has never had a negative free cash flow quarter and they just were negative $6 billion for free cash flow. In 2022 and 2023, Google allocated between 83% and 99% of its leveraged free cash flow for buybacks. Now, they have negative free cash flow. They're spending all of their money, going into debt to fund CapEx, which some would say long-term this is important, right? You need data centers, you need AI infrastructure. If Google and hyperscalers aren't going to build the data centers, who's going to, right? I get that argument. Are the neo clouds going to provide enough compute to meet AI compute demands? Probably not. But the fact of the matter is Google was once a shareholder friendly company. Google was once a company that was very high margin, selling digital ads, right? And now they're transitioning into a physical you know, company, right? A very large physical ownership company. And that's changing the investment calculus for Google investors. And it's unfortunate for Google investors because if Google continues to spend, the stock will continue to fall. Well, this is raising fears today that other hyperscalers are also going to raise guidance. So, Google obviously down over 6% today, but Meta's down 3%. Amazon's down 4%. Microsoft only down about 1%. I think that's notable. Partially, some of that could be like ServiceNow, you know, ServiceNow had good earnings. Um Microsoft also a part of the uh you know, software sector. Maybe that's an indicator that may maybe Microsoft doesn't raise CapEx as much. We'll have to wait and see, but the point is hyperscalers, they're selling off because Google raised CapEx, but AI stocks, they're not really going up either. Besides Micron up about 3 and 1/2% today. Nvidia's down. AMD, Intel barely in the green. Broadcom down today. Texas Instruments, Qualcomm, other names are actually down today. Why? This is something I warned about. Hyperscalers raising CapEx is largely expected. You didn't get like a 250 billion CapEx number from Google. So, what's happening? AI stocks, well, you don't really have a surprise to bid up AI stocks. And Mag 7 selling off. So, the net impact is the markets moving lower on this. Now, you can also see on the heat map today other areas are catching a bid like uh I hate to say this, your war stocks. Lockheed Martin's up 11 and 1/2% today. RTX up 9 and 1/2% today. This is a solid indicator that this war is probably not ending anytime soon. Oil is skyrocketing today. We will get into that in just a moment. 10-year Treasury yields, that is putting pressure on financials, cyclicals, small caps, other areas of the markets. So, you have Mag 7 that's not working today. You have AI stocks that are barely working today. It's not like you're going to have some kind of massive AI rally from these CapEx numbers. And you have the rest of the market selling off because of what's happening with Iran. So, if you take a look at your indexes today, the Russell 2000 is down 0.73%. Nasdaq 100 down 1.36%. Nasdaq itself down 1.8%. S&P's down 1, and the Dow is down about 1% as well. Look at oil, up 6% today at $91.86 per barrel. This is bad for inflation expectations. This is bad for what the markets are expecting for the Fed. It's just bad all around for other areas of the markets. Like, is this bad for Mag 7? No. Is this bad for AI stocks? No. But, for the rest of the markets, it's bad. So, what do you have right now? You have Mag 7 that's spending, one would say, irresponsibly. So, you don't want to own Mag 7. AI stocks, they've already priced in a lot of good news, so it's not like they're impressed by a $15 billion CapEx raise from Google. And now you have oil going up again, problems with the Fed, this conflict that looks like it's going to be dragged out. There's not really anywhere that looks super attractive, or areas that are not big enough to save the markets. Like, your war stocks, they're not going to save the markets. Oil's not going to save the markets, oil stocks I should say. So, you do have this very large net drag on the markets today from both sides of the trade. From the oil side, the small cap side, the cyclical side, the areas that are hurt by the Fed, and from the hyperscalers and the AI trade. And I think the bigger problem at least for this point where we are right now is actually what's happening in Treasury yields. So you're hitting a new 52-week high today in 10-year Treasury yields. It's the velocity, the momentum that's starting to pick up here. You're almost at the highest level you've been at for 10-year Treasury yields in the past 5 years. You have to go back to really 2007 to see 10-year Treasury yields this high. And the velocity has really picked up since June 26th, you were at 4.37%. You're now at 4.71%. So on top of this signaling the Fed is going to be raising rates and all of that, it is actively putting more restriction on the economy. So to a certain extent, 10-year Treasury yields rising means the Fed probably doesn't have to do anything, even though it's signaling the Fed is going to do something. Kind of a weird situation there, but it's putting pressure on the economy in real time. Like it's pressuring lending, it's pressuring consumer activity, but it's also saying that the Fed should be hiking. So that's not great. And a lot of Wall Street is kind of fearful around this 5% number for 10-year Treasury yields. If the volatility continues to the upside for 10-year Treasuries, you're going to be at 5% in no time, and then you risk kind of a runaway rally in 10-year Treasury yields, which could really add some unnecessary, I would say, pressure on the economy. What's actually interesting today though is for the Fed meeting next week, the probability yesterday was 36.5% chance of a rate hike. Today it's actually down to 35.4%. But Wall Street's saying, "Look, longer term, the Fed's going to have to be more hawkish because of what's happening with oil. Because of what's, you know, happening with this war. So, the duration of this is being extended. Not necessarily uh for next week and the Fed meeting for next week, but for, you know, the next couple of months, the next couple of years potentially. For December 9th, that is the last Fed meeting of this year, you are now sitting at a 38% probability, the highest probability by the way, of two rate hikes. So, the markets are pricing in two rate hikes by the end of this year. Which that is actually very interesting because we have seen your labor data actually start to come in pretty bad. Even today, you had initial jobless claims that came in um at 187,000. I mean, that's a little bit better, but there are some indicators that are not as great like continuing jobless claims. But, I mean, look at the last jobs report we had. We missed expectations by about 50%. Your ADP employment change, your weekly numbers, have fallen from about 40,000 per week down to like 17,000 per week. Less than 20,000 per week for the last couple of weeks. The labor market is actively getting worse, but oil's going up. Markets are pricing in a more hawkish Fed. I think we're at a really weird fork in the road kind of a moment. Now, tomorrow we are going to get the S&P Global Composite PMI, manufacturing PMI, and services PMIs. You're also going to get the Kansas Fed Composite Index and Manufacturing Index, as well as new home sales for June and uh new home sales month over month. Also, in a little bit of disappointing news today, Nokia reported earnings. Stocks down 4% following their results this morning. And as far as Nokia earnings are concerned, they beat analyst estimates by about 1 euro or or 1 cent euro. I don't really know how to say that. Basically, 1 cent. So, they beat on EPS. Um operating profit rose 18% year-over-year, um beating estimates, okay? Um it came in at 434 million. The estimate was 382 million. So, that was a solid beat. Revenue actually missed expectations by about 10 million dollars, coming in at um 4.82 billion euros. This was an 8.3% increase year-over-year. So, not really enough to ignite euphoria around AI stocks from Nokia, either. Today in after hours, you are going to have earnings from Intel that will be coming out. And And now, Intel's one of those weird kind of turnaround stocks. Like, if Intel has great earnings, that's that's going to be good. That's a good sign for semiconductors, but like, I don't think it kills AI stocks if Intel has bad earnings. So, I think it's one of those weird ones. We'll just have to see how Wall Street takes them. Next week, we are going to have your hyperscalers that will be reporting earnings, and that's going to tie this whole piece of the puzzle together. And if they spend more than expected, well, you're going to find yourself in what could be a stock market crash pretty soon. I mean, technically, if you're looking at the Nasdaq or the triple Qs at least, you're already down 7% from highs. So, one would say you're already in a correction at this point or very near one. The next levels to be watching for are the 100-day moving average and the 200-day moving average. And honestly, best-case scenario at this point would be the US and Iran have like a ceasefire or get back to talks or something, but again, that's looking less likely following today, hence the rise in oil and bond yields and war stocks. Trump says the US will hold Iran responsible for Houthi attacks after oil tankers were targeted in the Red Sea. So, a couple of days ago, the Houthis basically said they were going to blockade Saudi Arabia and Saudi ships from leaving Saudi Arabia with oil. Well, the Houthis have attacked two ships now in the other side of the Strait of Hormuz, the El Bab Merian Strait or however you say it. So, that's also causing oil to rise today. Trump said, "Quote, since that time and during our conflict with Iran, they have acted very responsibly. Unfortunately, now they are starting up again, shooting at two Saudi Arabian ships last night. Please let this truth serve to present that if they do this again, the US will hold Iran responsible in that the Houthis are a surrogate and or proxy of Iran and major military punishment will be inflicted upon Iran and of course the Houthis themselves, who I am very disappointed with in that they have until now acted very professionally and smart," he added. So, looks like the conflict is spreading and no signs of dying down anytime soon. Also in the news today, Iran sent Revolutionary Guard commanders and missile-related equipment to Yemen's Houthis this month. So, let me bottom line what is happening today in the markets for you. Number one, what I've been warning about for weeks is happening. CapEx guidance went up, but not enough to ignite AI stocks and not enough Well, CapEx going up is going to cause hyperscalers to fall. So, you have hyperscalers falling and not enough juice to say, per se, to cause AI stocks to go up. The net net is downside in the markets. The same time, you have 10-year treasury yields skyrocketing and oil skyrocketing as well because of what's going on in the Middle East and it looks like things are getting worse and not getting better. So that's putting pressure on the rest of the markets, the broadening trade per se outside of Max Evan and AI stocks which are kind of their own trade kind of independent from the effects of oil or the Fed or the Iran conflict. You do have Intel earnings today and after hours which are going to be a major catalyst to potentially reignite AI stocks or cause that trade kind of fizzle out here as well. Next week you are going to have hyperscaler earnings from Meta and Amazon and Microsoft and what they say about CapEx is really going to determine what happens to the markets here. Nasdaq's already down 7%. If they raise CapEx as well, but again, not enough to ignite AI stocks, you're going to have a full-blown correction or crash on your hands in no time. And in the next video, we're going to talk specifically about this correction, what could happen to the markets over the next couple of weeks, and the seasonality behind a midterm election. We're also going to talk about opportunities out there in the markets because our job on this channel is to yes, keep you informed about what's happening in the markets, what is going to happen in the markets, but most importantly to help you beat the markets. This information means nothing if I don't show you how to potentially beat the markets. And again, I'm not a financial advisor, I'm not a financial planner, come to your own conclusions. I share my thoughts, perspective, and ideas. It is up to you to make final decisions on what you choose to invest in or what you choose to trade. But I do think this is a place you want to be. Hit that subscribe button if you guys find value or perspective out of today's episode. Hit the like button for the YouTube algorithm. If you guys want to take it a step further and come trade and invest alongside of us, that link is down below in the description of today's episode. Have a fantastic rest of your day and I will see you in the next one.