Is the Stock Market Sending a Warning?
Merryn Talks Money
Merrin Thumbs and John Stavik analyze the structural vulnerabilities within the current stock market, focusing on extreme concentration in t
Key takeaways
- The NASDAQ's recent performance is heavily driven by just four chip-making companies, including Nvidia and Microsoft.
- AI infrastructure faces physical limitations including electricity shortages, water usage concerns, and local protests against data centers.
Main topics
- Market Concentration
- AI Infrastructure Bottlenecks
Notable quotes
Everything else is kind of... basically irrelevant to this.
Conclusion
The episode highlights a growing divergence between digital market hig
Transcript preview
Speaker 5 (0:00) We don't just invest in cutting-edge companies. We look at companies with a history of steady growth. And companies whose growth cycle has come round again. Because in the real world, you have to look at growth in three dimensions. Monk's Investment Trust. Speaker 4 (0:14) Hey, it's Alec Baldwin. This season on my podcast, Here's The Thing, I talk to actor Stephen Root. Speaker 1 (0:21) I'm a people watcher. You see that guy going down the drain and go... Yeah, I can use that. Speaker 4 (0:25) And Open Igloo co-founder Alia Mohamed. Speaker 8 (0:28) I love staying on top of what is going on in our city, what is on renters' minds, and taking all of that knowledge to build a platform that hopefully is going to make New York City better in the long run. Speaker 4 (0:39) Listen to Here's the Thing on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Speaker 8 (0:47) You're not incurable. You're not broken. You're having a normal human experience, and we have a solution for that. Speaker 1 (0:52) And that solution is our podcast, Free Therapy. I'm Ben. And I'm Kevin. And every week, we talk to leading therapists in the country about relationships, work, family dynamics, and all of life's headaches. If you're trying to get rid Speaker 6 (1:04) of anxiety, you're actually fueling more anxiety. Speaker 1 (1:07) So listen to Free Therapy because therapy is expensive. But our podcast is free. Listen to Free Therapy with Ben and Kevin on the iHeartRadio app, Apple Podcasts, or wherever you listen. get your podcasts. Speaker 7 (1:17) Bloomberg Audio Studios. Podcasts. Radio. News. Welcome Speaker 3 (1:35) to the Merrin Talks Money Market Wrap, where we talk about the biggest moves in markets this week and what is driving them. I'm Merrin Thumbs at Web, UK money editor at large. Speaker 2 (1:43) And I'm John Stavik, senior reporter at Bloomberg and author of the Money Distilled newsletter. Speaker 3 (1:48) Okay, John, there's a lot going on. There's always a lot going on in the States. But listen, one of the things that I want to talk about, and I'm not sure that you agree with me that this is a big deal, but I do think it is a big deal. is about breadth in the market. So quite a few people have written about this week, including our very own John Authors, who points out that on Tuesday, NASDAQ went up quite a lot, right? But of that rise, more than half of the rise was down to four companies, all four chip-making companies, basically, Micro and SanDisk, Microsoft Micro, devices and video. So everything else is kind of... basically irrelevant to this. Huge concentration. Now we know that isn't new, right? But it just seems to be getting more and more intense that when the market moves, it's just being dragged along by a couple of big companies and everything else is either knocking around at neutral or going down a little bit or really just not doing very much. And that's not normal. It doesn't happen that... often. He looks at it and he says that in terms of this kind of really extended period of outperformance by a couple of big companies, you've got to go back to the late 1990s to see. We all know what happened then, right? The narrowing of performance. And the more you look at it, the worse it gets. And he actually, John points out a tweet that I was looking at the other day, which first made me think, oh, I'm a bit worried about this, which was... from one of the traders on X. And so there are two days in history like today when the S &P 500 rallies at least 1 % to as in 1 % of a new high and more of its stocks fell to new lows than highs July 23rd, 1929 and December 21st, 1999. So both before really, really, really epic, epic market fails, right? Now, as John says, and I agree, it's a very small sample sale, doesn't mean anything, but... It doesn't feel good, does it? Having the market led by companies like this and people constantly think, oh, it's a new high, it's a new high, it's a new high. Everything's fine. But underneath everything kind of isn't. Speaker 2 (3:46) Fundamentally, I agree. And obviously, I agree that the market is very, very concentrated. It's very pricey. And like any measure that you pick. really will show that the S &P is expensive and the Nasdaq is expensive. So I actually don't disagree at all with the fundamental. Well, one thing I should be proud of is that people talk about it a lot and quite often it then just goes on to widen out. So whenever you get down to talking about these things, which are almost kind of timing devices, and that's all because that's sort of Speaker 8 (4:17) the Speaker 2 (4:17) question like, does it actually tell us that in three months time the market's going to... start crashing or whatever. I mean, to be fair, you know, I've already got a marker. I've produced a little graph in my Bloomberg terminal to remind me that The Economist had Nvidia on the cover a couple of weeks ago. And so I've just got a wee note of that with Nvidia share price because that's my kind of chosen timing indicator. Glass houses, John, Speaker 3 (4:45) glass houses. Speaker 2 (4:46) Oh, no, no, no. This is not a criticism. It's because The Economist is so widely read and so widely respected that it works. It's not because it's a bad title. It's because everyone reads it. So, yeah, I'm sort of like on Crash Alert for at least six months from the publication date, which was about September earlier this month. So, yeah, this kind of adds to that feeling. It's just, I don't know, I've heard Breath is Narrow a lot. Speaker 3 (5:12) Okay, I'll give you that. But when Breath is Narrow... and when there are so many things to worry about with the companies that are leading it. Yeah. Right, and you've written about this this week yourself, right? I've written about it this week, yes. And what did you say this week? Is this a new worry, John, or are you just piling on top of our old worries about too much capex and not enough revenue? Speaker 2 (5:34) It's basically just the old worries, too much capex, not enough revenue. Chris Claudia over at Capital Gearing Asset Management wrote a white paper. basically showing what a wild level of spending is going into this and the correspondingly wild level of revenue that will have to come from it if it's actually to be to kind of make a reasonable return on capital and obviously chris's view is that well that's not likely to materialize and so at some point we're going to get a reality check although to be fair he's saying he wouldn't feel confident predicting a reversal inside the next 12 months whereas i must