• Current read is 63 on the fear greed index vs 67 last week.

• Market is still greedy which means to be cautious! We just caught a HUGE move & you need to ensure ratios are in check & prepared for volatility (as always)

• Market Fearful = Potential Opportunity/Deals. (consider buy calls/sell puts/buy shares)

• Market Greedy = Potential Over Valuation. (consider buy puts/sell shares/take on less risk)

• I like to be bullish when there is extreme fear

• I like to be bearish when extreme greed.

• Opportunity is out there, just gotta find it!

• 30 year fixed mortgage rate increased to 6.46% Today, vs 6.20% last week.

• 10 year treasury bond yield increased to 4.59% Today, vs 4.36% last week

• 2 year treasury bond yield increased to 4.08% Today, vs 3.87% last week.

• Bond yields went up last week on the back of elevated inflation data.

• As I always say, interest rates are gravity!

• As interest rates/bond yields DECREASE, stocks become MORE attractive because bond yields go DOWN which makes the risk free bond look LESS attractive.

Hope everyone had a great week!
Here is the newsletter!

The market is finally taking a little breather after one of the sharpest rallies we have seen in a while. Over the last few weeks, the market basically went straight up. Nasdaq, S&P 500, high beta names, AI names, a lot of stuff just ripped. So when we get a red day after that, I do not automatically look at it like something is broken. The market just needs to breathe.

But there are a few things building under the hood that we need to pay attention to. The first one is valuations. After this rally, the market is not cheap anymore. I would say the S&P 500 and Nasdaq are roughly 10% overvalued right now. Not a bubble. Not dot com level crazy. But definitely not cheap either. And when the market is already a little stretched, the risk reward changes. It does not mean sell everything. It does not mean go hide in cash. It just means be a little more careful than you were 6 weeks ago.

The second thing is interest rates. The 10 year Treasury is around 4.59% right now, and that matters because the higher that number goes, the less compelling stocks become. Investors start asking themselves, “Do I really want to take stock market risk after this huge rally, or do I want to get a solid return from bonds?” That is why rising yields can put pressure on stocks.

Now, why are yields going up? Inflation fears. We had CPI and PPI this past week, and yes, inflation is still hot. I am not going to pretend it is perfect. But I also do not think inflation is out of control. My view is still that a lot of this inflation pressure is likely transitory. Tariff inflation created a big year over year step up. Oil created a big year over year step up. But eventually, once we lap those higher numbers YoY after they started, the growth rate of inflation should start to come back down.

The market right now is starting to price in a higher chance of rate hikes, and I think that might be wrong. I do not think we are going to get hikes. I think the Fed is going to look at this inflation as bumpy, but not permanent.

Could I be wrong? Of course. But my base case is that inflation stays bumpy for the next few months, maybe even the next few quarters, and then starts to cool as tariff pressure fades, oil stabilizes, and AI efficiency starts showing up more in the economy. That is something I think a lot of people are underestimating. AI should eventually allow companies to do more with less. Less labor. Less waste. More efficiency. More competition. And over time, that should help slow price growth.

Now let’s talk about earnings, because this is the main reason I am not screaming bubble. Q1 earnings have been very strong. Around 91% of S&P 500 companies have reported, and 84% have beaten EPS expectations. Around 80% have beaten revenue expectations. That is very good. S&P 500 earnings growth is around 27.7% year over year right now. That is massive.

But I want to be very clear. I do not think 27.7% earnings growth lasts forever. A lot of this growth is being helped by things like private AI investments, mark to market accounting, and massive gains from companies tied to AI. For example, if a company invested in an AI business and that private company’s value goes way up, that unrealized gain can flow through earnings. So yes, the earnings are real from an accounting standpoint, but not all of it is coming from the core operating business.

That matters. I still think earnings growth is strong. I still think the AI tailwind is real. But I also think this growth rate will normalize over time. Maybe we go from 27% to 20%, then 15%, then 13%. That would still be good. Just not as insane as what we are seeing right now.

And this is why the market is in an interesting spot. The economy is still okay. Earnings are very strong. Interest rates are a slight concern. Valuations are a little hot. That is the lay of the land. When I put all of that together, I am still bullish long term, but I am more cautious short term.

That is why I have done a little bit of de risking. Not because I am scared. Not because I am calling the top. Not because I think the market has to crash. It is simply because the setup today is not as compelling as it was 6 weeks ago. When prices are lower and earnings are still growing, I want more risk on. When prices rip higher and valuations get stretched, I want to pull a little risk off. That is just common sense.

Most retail investors do the exact opposite. They want max risk after the market already ran, and then they want no risk after the market already fell. That is how people get smoked. The goal is not to make the most trades. The goal is to make the most money. Sometimes that means doing nothing. Sometimes that means letting winners run. Sometimes that means trimming risk. Sometimes that means sitting in something boring for a little while until the next opportunity shows up.

Boring works. I know people want action. They want trades. They want excitement. But more trades does not equal more money. If more trades made more money, I would make 8,000 trades a day. I would do whatever it takes. But that is not what works best.

What works is staying focused on the big things. Valuations. EPS growth. The economy. Interest rates. And right now, those 4 things are telling me the market is still okay, but it makes sense to be a little more conservative.

This is not the time to panic. This is not the time to FOMO. This is the time to stay patient, stay level headed, and make sure your portfolio actually makes sense for where the market is today.

Keep your pants on. Keep your emotions in check. And remember, the stock market rewards people who can stay rational when everyone else is getting emotional.

Never forget… The primary goal is to beat the SP500 ROI in the long term. If you aren’t doing that, unfortunately you are wasting your time…

Onward and upward!

As always, I am rooting for you and want nothing but health & wealth for you and your family!

-Brandon

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Economic/Earnings Calendar For May 18-May 22:
(all times in pst)

Monday May 18:
Nothing major

Tuesday May 19:
Home Depot Earnings (pre market)
Cava Earnings (post market)
7a pending home sales

Wednesday May 20:
Target Earnings (pre market)
Lowes Earnings (pre market)
TJMax Earnings (pre market)
Analog Devices Earnings (pre market)
Nvidia Earnings (post market)
11a fed minutes

Thursday May 21:
Walmart Earnings (pre market)
John Deere Earnings (pre market)
5:30a Initial jobless claims
6:45a Services PMI
6:45a Manufacturing PMI

Friday May 22:
7a Consumer sentiment

Everything will be broken down in real time in Discord!