Adam Taggart hosts New Harbor Financial’s Mike Preston and John Lodra for a monthly macro/market update. Their core message is that the market has become extremely narrow, AI/semiconductors are driving a late-cycle style rally, and both valuations and earnings expectations around AI look stretched. They think the internet/tech analogy fits: the technology is real and transformative, but the market may be badly ahead of itself.
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This conversation centers on a single macro-market thesis: the U.S. equity market, especially AI and semiconductor-related names, appears to be in an advanced bubble phase where both valuations and earnings assumptions are increasingly detached from sustainable fundamentals. Mike Preston opens by saying they probably have “a valuation and an earnings bubble,” while stressing that the underlying technologies are real and transformative, “just like the internet was,” but that the market has “gotten way ahead of ourselves.” A major part of Mike’s view is that the current advance is both narrow and fragile. He says the market has been “a straight up move and it’s been a very narrow move,” with semiconductors and AI doing most of the work while sectors like financials and healthcare lag. He argues this kind of concentration is a warning sign, even if it is not an immediate sell signal. …
The immediate setup is bullish on price action but fragile underneath: AI/semis are carrying the tape, and a breadth rollover would be the first tactical warning. If leadership widens, the move can continue; if it doesn’t, a fast reversal is a real risk.
Over the next few weeks to months, the market likely needs broader participation and continued earnings support to justify the advance. If AI spend keeps ramping and estimates hold, the rally can extend; if guidance gets cut or breadth deteriorates, the narrative can flip quickly.
Structurally, the guests see a real technological shift that is being priced through a late-stage market bubble. The long-run implication is that AI may remain transformative even if the market’s valuation regime around it ultimately breaks and resets.
The current AI segment has both a valuation bubble and an earnings bubble.
The speaker argues multiples are inflated because forward earnings estimates are themselves overly optimistic, citing historical precedent.
We are in a valuation and earnings bubble, similar to the internet era but not transformative.
Speaker states this upfront as a framing thesis before explaining market conditions.
The market's current move constitutes a blowoff/parabola top that will mark the end of the prolonged bull cycle.
The speaker cites the S&P 500 gaining 500+ points in a few weeks, breaking out from 7,000 to 7,500+, as the signal he had previously identified as characteristic of a blowoff top.
What does the team at New Harbor Financial see currently going on in the macro environment and what is their market outlook?
Mike Preston explains that markets have been extremely narrow — only information technology and energy are driving gains, with semiconductors surging vertically. He describes their indicator-based system (bullish percents, point-and-figure charting, relative strength, moving averages) which recently flipped bullish again, causing them to remove a put hedge. However, they are capping equity exposure at roughly 48% because the environment feels insane, and they are willing to underperform in vertical up markets for short periods.
Are you concerned that the semiconductor-led rally won't broaden out and the market could reverse downward?
Mike says he's a little concerned if the rally doesn't broaden out quickly. He explains that earlier this year the committee thought the market couldn't move higher without semiconductors kicking in — and now they have, doubling in a few months, bringing the S&P into a massive reversal and what looks like a parabola/blowoff phase. He argues the move can't continue unless other sectors start participating.
John, do you have anything to add to Mike's commentary about the general market?
John shares a NASDAQ Dorsey Wright graphic showing the S&P 500 has had 8 consecutive up weeks — a streak that has only happened 20 times since 1950. He notes that while this is extreme (99th percentile for rally degree at 17% in 8 weeks), these extremity indicators aren't good timing tools; subsequent returns are generally positive. He argues that more nuanced breadth indicators are better for timing tops.
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