Stock Market Worsens as Consumer Spending Weakens and AI Disruption Looms

Well, hey everyone, me Kevin here coming to you from some kind of rest stop slash McDonald's outside of Oslo in Norway dressed in Minecraft basically top to bottom going to a Viking festival and here to tell you about why the NASDAQ seems to be rotating and what's going on with the NASDAQ versus the equal weight because that all totally makes sense. Huh, so well, with that said, let's get into it. All right, so here's what's going on. First thing one of the things that we're seeing today is this rotation from technology stocks into consumer stocks, which you might think that's been going on for a while. That would be true if

you've looked at Target stock, which we'll talk about in just a moment, but if you look at the last 3 months on an ETF called XLY or consumer discretionary ETF still down 7% over the last 3 months, which is not as bad as the sell-off that we have seen in memory over the last like 3 weeks since the suckening began. But let's talk about that for a moment. Target was very interesting and I think it's one you should have on your radar. When it was $86, we probably spent about 2 weeks doing multiple course member live streams on it during the time it was bouncing around in the 80s. What we found was that Target was offering a 5% dividend. They're dividend aristocrat.

They're extremely unlikely we assumed to cut that because it would lead to a significant stock sell-off when a dividend aristocrat decides to cut their dividend. That's usually kind of the death of the stock. So really unlikely to happen. And so Target was actually in my opinion a really good kind of medium-term play and it's almost doubled since then. And today we're seeing Walmart, Target, Home Depot. Home Depot has been absolutely battered because of high interest rates. We're seeing a lot of these consumer names pick up. I don't necessarily think that goes on forever.

I don't think they're a 10-year play mostly because of this irony that the more artificial intelligence does really well, not the stocks but AI, the more of this sort of um what we'll call, and I'll describe this in a moment, Engels' pause are likely to see in the labor market. That's a really important concept that I think you ought to stay to the end of the video to understand. It's actually what gave rise to Karl Marx and well, Marxism back in uh 1848, which was literally right at the end of the Engels' pause. Talk about that in just a moment though. Uh but first, we're obviously seeing this rotation out

of artificial intelligence stocks today. Hardware stocks are getting beaten up, but a lot of stocks, I mean, even the finance stocks, which were doing well for a little bit of uh time there until Robinhood dropped below 100 again, you know, nothing has really found stability since SpaceX. And this has been a theme. If you go back, run them through AI, run my last like 6 weeks worth of videos through AI in case you missed it, but I think you'll agree with my summary here. It's been pretty clear. We said that SpaceX has a risk of being a top for the market. Mostly because it's a liquidity suck, right?

This massive 75 turned 85 billion dollars suck, then Google comes in with 70 turned 75 billion dollars of suck. Actually, I think it might even be a little bit more than that. Uh and what's actually remarkable is that Bloomberg is reporting right now that every hyperscaler bond raise is actually upside down right now. Now, that doesn't mean they didn't raise their money. It just means that the hyperscalers who sold these bonds are seeing on secondary markets those corporate bonds trade at a negative value, so a discount. In other words, more people are wanting to sell those hyperscaler bonds right now than are willing to buy those hyperscaler bonds, which is interesting because some

of them were paying pretty good yields. Uh you know, most hyperscalers seem to pay somewhere around 80 basis points above the equivalent Treasury yield. So, that'd be like a 5.3% on something like a uh you know maybe a Google bond. But then you look at SpaceX, they were paying like double that. They were paying close to 150 basis points of premium over the equivalent treasury. So, on a 10-year, that's like 6% to hold a SpaceX bond. And I mean no surprise, I mean now you know the stock has tanked off of its highs quite substantially and now Apple is the most valuable company in the world as even Nvidia has been struggling. Which is so weird because Nvidia GPUs truly in price have basically doubled a

lot of them in value over the last year just because there is truly a shortage of them. But this move into the consumer today I think is honestly just like a little bit of a pain trade where people are like, "Okay, yeah, you know, we're a little too aggressive here on AI. What are we going to go into? Well, what's the most non-AI? Oh, let's go into consumer discretionaries." Yeah, well, there's there's some macro problems there as well. I mean you can look at Nike and call their warnings idiosyncratic, but they're not really happy about the consumer right now. And then on top of the Nike warnings, you should look at what's happening in the credit card markets and delinquencies and chargebacks. Chargebacks are up 29%

since 2021, which is way higher than the growth of credit card transactions and that typically happens when people start getting a little bit more desperate when real wages fall relative to you know the richest getting richer. So, people kind of see chargebacks as a way to stick IT TO THE MAN, IF YOU WILL. ANYWAY, then when we actually look at credit card delinquencies, we see 13% of credit card balances are currently 90 days delinquent as of the first quarter of 2026. That is the highest rate in 15 years per the Federal Reserve Bank of New York and consensus estimates for UBS's charge-offs have nearly doubled for 20 for by the end of 2026, which is an indication that, you know, there are

actually expectations that this consumer is likely to struggle more, not less. Making consumer plays really a cool like medium-term like hide from AI, but dude, if AI tanks like this is more than just like a shorter-term dip. If AI goes to crap, the consumer's going to go to mega crap. It's going to be even worse. Um so, but anyway, one thing to watch right now is that RSP, which is an ETF that tracks the S&P 500 equal weight, uh is actually doing pretty decently. Now, it uh sort of down weighs how heavy uh Nvidia and uh AMD and Micron and these memory chips uh and some of these larger tech stocks sit, hence being called the equal weight. Uh and it's actually up. I mean, it's at like all-time highs, which does indicate

some broadening is happening, which is good and it's healthy, but we really lack any kind of sectoral leadership to really push uh certainly the technology stocks to new all-time highs, and we are seeing a push on the Dow thanks to Apple, but some of that is also this escapism from CapEx spending. That's where we get into Netflix. So, obviously, uh Netflix missed uh I think on revenue they missed like 0.6% and on um their uh EPS, they missed uh somewhere around 3.8%, which was not as great. Uh not great. People are worried about slowing engagement, slowing growth there. I still think that is a sleeper stock for advertising. I expect their advertising uh revenues to frankly double for multiple years in a row, and

I think that advertising, frankly, recession or not, is going to be one of those sectors that just absolutely dominates with the power of artificial intelligence to really extract any kind of penny out of the consumer that they have left. So, obviously that sounds aggressive when I phrase it like that, but advertising is a glorious sector, so I'm really bullish on things like AppLovin or Meta. Uh and that Netflix advertising side, you know, you're going through a transition where you've got the law of large numbers on the user side, but then obviously the advertising side is sort of a new growth vertical that is still considered insignificant uh when you compare it to the total

revenue that Netflix has. So, it's going to take some time to really see that money come through. Google, another fantastic advertiser. Which another thing that I find very interesting is I'm hoping during this down cycle we get cybersecurity stocks move at a discount. Couple days ago we talked about cybersecurity stocks and how desirable those are though their valuations are pretty high. CrowdStrike for example sitting at a six bag. I went through their uh their earnings call and I'm going to be posting a deep dive analysis on that for course members, but a lot of talk about endpoint management for agentic artificial intelligence. Basically, uh on what devices are these agents running

on and how do we secure those endpoints? An endpoint is a thing like a phone, computer, a desktop, a laptop, whatever. Uh securing these endpoints and eliminating shadow AI is really important. And what's fascinating is at the same time I was studying CrowdStrike, Google actually comes out with the Gemini Enterprise agentic beta starting literally yesterday. So, I signed up for that. I'm going to try that out. Now, obviously the stock doesn't freaking care yet and the stock is tanking. Why? Well, because Gemini 3.5 Pro that was supposed to come out in May is still not out and they're talking about how they're disappointed in its performance with coding. And all of the LLMs want to sell you coding assistants

cuz that's where the money is. Because that means businesses in the business of coding are paying money. And when businesses pay money, they're the ones you can extract the most value from. Business-to-business is always where the money is. Business to consumer is a lot lower margin and a lot harder. So, that's why I think there's some frustration there. But, it could create an opportunity for Google because it's now selling for a 1.3 PEG. Uh which is pretty cheap. Somewhere around where Netflix is, too. Although, Netflix has a little bit of an asterisk because, you know, if their growth rate continues to fall, then their PEG is actually artificially higher.

Uh now, uh we know the Space X suckening, which uh were the big warnings that we've made, continue. I'm still bearish memory and still bearish a Space X. Uh we already know that we've priced in the selling out of memory hardware for the next year or two. In addition to that, we've got Trump ramping up the attacks in Iran. And then we got to talk about the Angles pause. So, uh Iran, Donald Trump is now hitting civilian infrastructure. He started with hitting bridges, six bridges, uh around the only uh nuclear energy power plant that Iran has. But, it is a sign of escalation uh in the region. At the same time as Donald Trump is worried about China stealing 2020 election data and re-litigating the 2020 election,

which wasn't great. Bloomberg also uh oh, yep, we already talked about that. Okay, now. This There are two interesting leftover pieces here. Number one, if artificial intelligence kills white-collar jobs, which I think it'll kill jobs before it creates new jobs, that's all the research that history tells us and the research we've done on this channel, including the Ramp Capital study that we broke down. And everybody missed this. We're almost done, Max. Um Max and I are going to a Viking Fest. Uh obviously why I'm dressed like a Viking. Anyway. Um Anyway, where was I? Oh, yeah, yeah, yeah. So, uh this is an interesting take. If artificial intelligence kills white-collar jobs, tax revenue

could end up plummeting for countries, leading bond yields to go higher as people worry countries are going to default because they receive less tax revenue. Really interesting. Could lead to some social policies in the long term. Found that really interesting. We could talk a lot more about that. Not necessarily right now. Instead, what I want to talk about is the Angles pause. So, here's how this worked. Between 1801 and 1841, productivity per worker in Great Britain surged as we got the steam engine, we got uh mechana mechanized sewing, uh we basically got machinery powered by the steam engine, right? That transformed factories and massively boomed the productivity per worker. But, guess what happened?

Who made the money? And I've warned about this since the beginning of artificial intelligence. You know this if you have been on this channel. You know I'm not just BS-ing you to say, "Hey, you want my perspectives, go to the link down below. Go to meetkevin.com. Use code vacation red because that's the true reason the stock market is red." And guess what? Biggest catalyst calendar, you get the calendar of the vacations that I'm on and when I'm back. No, obviously you get a lot more people write off the courses on their taxes. You get the fundamental analysis, the trading analysis, the Alpha report every day, the course member live streams when I'm not on vacation, the vacation calendar,

all of the courses that we've made all bundled together inside of the Alpha membership. So, join that at meetkevin.com. But, no, what's actually very interesting and we've been warning about this for a while is that it's not the workers who made money. Workers productivity skyrocketed through the Industrial Revolution over this 40 to 60-year people period people say. Companies extracted the profit. Companies made the money. So, the stock market basically made the money. The individual workers did not. The individual workers only started making money at the sort of the turn of the midpoint of the 1800s. So, around 1850,

that's finally when real wages started rising again and you saw sort of a similar spread between people making money and companies making money. But, for the first 40 to 60 years, it was companies extracting profit. Now, maybe that'll go faster this time, and this time will be different. You know, maybe the cycle will take 10-20 years, where you go through AI-led job losses, and then you get new AI jobs on the turn of the next recession, right? Maybe. We don't know. I think it's too early to say that we're net creating jobs. A lot of things messing things up right now. A lot of funky studies that are biased and are wanting to prop up AI. And then, of course, we got immigration problems

or policies that are, you know, skewing data. Uh but anyway, this guy, Frederick Engels, he was a Marxist collaborator. He found this. And he found that real wages stagnated during the productivity boom. And there was really no way to tell somebody who used to weave clothing in 1790, "Hey, get ready to use machines to sew better and become a seamstress." Uh because you just didn't really know where that new job was going to come in 50 years if you were even still alive. So, uh problem with that is it you end up with more social policies because the workers lose now, and the companies win now. And that's a

really bad combination, which then eventually flip-flops in the future. So, talking about flip-flopping, uh my belief is that there's no reason to panic. Uh if you've been following my mantra, which my mantra for the stock market has been buy the dip. But, buy the dip on quality names that you are comfortable holding for the next decade. In other words, you should really have a thesis that you can battle test, where you say, "Look, if we go through a recession, you're comfortable holding those names for the next 10 years. If we don't go through a recession, do you think you've got an up shot, whether you believe interest rates are coming down, like I do, or you think where interest rates are going to be

forever higher?" You should have that thesis. None of this short-term volatility on margin requirements changing in Korea, uh you know, a sack of rice falling over in China, and then the stock market going down. None of that should affect your long-term thesis. And if you want more of my fundamentals, going to be Kevin O'Leary. I love you all. Let's go have some fun, Max. You ready? He says he's ready. You want to be in my video? You want to say hi? He's shaking his head, no. Are you sure? All right. We'll see you in the next one. Goodbye and good luck.