AI “Locomotive” to Stock Market, Institutional “Catch-Up Trade” Adds Fuel

Nike as this turnaround has been taking a lot longer than the marketicipated. Welcome back to Morning Trade Live. It is now time for the big picture. So welcome in Nate Peterson director of derivatives Analysis, Schwab Center for Financial Research. Good morni Nate. We've got some records for the S&P the Nasdaq and Nvidia at an all timeigh today. Brant looks supportive. Tell us what you're thinking this morning. Yeah good morning Sam. You know it goes back to you know obviously we know the AI theme is powering. It's the live. If you go back a couple of weeks ago, Sam we talked a AMD raising prices. The Sox broke out technically above its 50 day estimate. Then you get AMD also hit a fresh all timeThy leading indicator. The Sox being a leading indicator. Nvidia follows all time high Taiwan semi all time high. And then you've got the S&P now market cap weigh That is making fresh highs. And if you're short you know it's an unspoken rule. But you got to cover if your thesis is wrong. If the S&P has been within 76 to 7800 in this sideways channel and it's going to resolve one way or the other, well, it looks like it's resolving to the upside here. You just kind have to cover. And then if you're a fund manager who's been cautious on the sidelin or has a high percentage of cash, there's that tendency to have performance chasing. And so it really is this AI dominant theme. We know t it's earnings and it looks like this. You know, the estimates are not only firm, but they've actually been creeping higher. And you know, there is a lot of tail risk out there. We can talk about the yields. We could talk about the Iraq war, oil prices, the AI disruption, the, younow, any of that stuff could happen. But until it begie consumer or until we get signs that this AI economics is what we thought it was, then the marke just going to respect the dominance ofhe greatest, largest CapEx binge inthe greatest technical renaissance, you know, displacement that has ever happened. And what what is when the S&P is making new highs here, who is that good for the top half of the consumer. So it kind of reinforces that theme as well. So Sam there's just you got to respect thend. You got to respect these technical kind of breakouts here. Absolutely.'ve got to appreciate that. As you mentioned. I mean stocks have continued to rally to these records through a hot war, through yields being elevated through a lot of the AI growth scares, if will, with slowdown talks. You've continued to see, as we mentioned, the mag seven getting its mojo back and Nvidia an all time high AMD as well. It is interesting that semis are lagging tech Do we know what that's about or is this just kind of rotation into what has been working lately? so it's real simple if you think about it in the sensehat semis led, this was all the price increases, AMDaks out to a new high, etc. so that leads. And then when you out to a new high like this, what happens is , investors, traders who say, okay, wh moved? And then they begin to look for that relative a if you will, the catch up trade. Because if it looks like technically things are intact, I want to go grab theerformers , I'm looking I understand the Russell doesn't look great today. The price action is not great. S&P equal weight is not that. But within tech it's the relative outperformers Look at software IG 11 a month high. Look at Microsoft 11 month high. Let's go back to the middle of the summer when Microsoft and Alphabet and Amazon reported AI acceleration in terms of their cloud services growth. We have that to look potentialook forward to here in a couple of weeks. But that's like an encouraging indicator to see acceleration on Azure and AWS, etc. So within tech, we'll just keep it within tech that where's that relativelpha? What is not performing. So software could be one of those, you know, we' seen space X break out to the highest level since June, for example. So there's a lot going on in terms of that money. That's just looking for a placefind alpha and grow. Yeah. And you mentioned it really just comes down to the consumer. I mean, if we start to see crackshere, but as I mentioned to Jake Dollarhide in the previous segment, I mean, I was l at these charts this morning of companies like Home Depot, Lowe's, Mickey D's, Pepsi. Ipsiy yesterday going into earnings this week. You look at your Walm mean yes Jake says that obviously Walmart's had an okay year. But these are all fos that telling us anything about the consumer or are we going to get a lift. Do you suspect from these Q3 earnings? Once again, I just think they're perceived as higher risk t the the earnings growth story. And by the way, Walmart has a really historically high p e. I don't know if it's still above 40. But just in of the consumer, the potential so that as oil prices are remaining stubbornly high, as interest rates are moving higher, such, the potential for the bottom half of the K toorate evd therefore potentially impact earningsrowth from discretionary retail, etc.That'y sloshes over to okay, where is the relative safety? Oh, it's AI they're raising prices there and they don't even haveugh power. They don't even have enough plumbers, you know, so that money just goes there and just it's always about risk reward, Sam. So that money's just looki for the safest place to grow the most. Yeah. And right now it's all about tech, as we can see here. Nate. appreciate it. Thanks so much for the breakdown for us th