The S&P 500 Is Only 50 Stocks. 70% of the Index Is in a Correction. Did the Sell-Off Already Happen?

Space Exploration Technologies

Across the shows: 4 speakers in other episodes, 1 bullish and 2 bearish calls, past 30 days

• Paisley Nardini · Tema ETFsBullish

  SpaceX is the leading space company; TEMA holds its pre-IPO exposure and kept it after IPO.

  Nardini calls SpaceX the number one company when it comes to space innovation and exploration, the first name that comes to mind for the sector. TEMA's NASA ETF includes SPV exposure to SpaceX. TEMA did not sell SpaceX when it went public, since the firm makes longer-term strategic bets and typically holds companies after they list. Her firm therefore holds the stock in its funds.

  “Obviously, SpaceX in particular, I think we can all agree as it relates to space innovation and exploration, SpaceX is the number one company that comes to mind.”at 50:45

US stock market outlook

• Paisley Nardini · Tema ETFs

  Equities usually dip briefly after the first Fed hike, then gain strongly over the next twelve months.

  Citing data going back to the mid-1990s and several tightening cycles, she says markets usually digest the first hike with a pullback of only a couple percent in the broad equity market. The twelve months after the initial hike have historically delivered pretty attractive gains, and she applies this to the current cycle.

  “We usually do see a bit of a pullback, maybe only a couple percent in the broad equity market. But it's the twelve months following that initial hike that we start to see pretty attractive gains.”at 6:18

• Paisley Nardini · Tema ETFs

  Index calm hides deep breadth damage: most S&P stocks are in drawdowns far beyond the index's ~9%.

  The 2026 S&P drawdown has been only about 9%, well short of the typical 15 to 20% midterm-year drawdown. But breadth has deteriorated and many constituents are well below a 15% or even 20% drawdown. Mega caps are so large that they mask this weakness at the index level, so the average drawdown may already be playing out in the broader constituents.

  “If we look at a lot of the stocks in the S and P, they are well below that 15% drawdown, if not even a 20% drawdown.”at 8:44

• Paisley Nardini · Tema ETFs

  Six to twelve months after the midterms should be quite bullish once political uncertainty clears.

  Midterm years have historically had larger drawdowns, typically 15 to 20%. Markets dislike uncertainty, so once the midterms resolve and the market knows who holds power and what legislation looks likely, the period afterward should be strong. A gridlock outcome, which looks likely, would be read as certainty. She says that if history holds, the market should be constructive heading into early 2027, with geopolitics and Fed hikes as wild cards.

  “what we would expect is that we'll get through this, and then the six to twelve months after this mid term cycle should be quite bullish for the market because the uncertainty has been cleared.”at 9:37

• Paisley Nardini · Tema ETFs

  Market concentration is not unprecedented; a handful of stocks always drive returns, and this time won't differ.

  Even though the top ten S&P 500 names are more concentrated than ever, history shows that a handful of stocks usually drive index returns. Leaders have been cyclical, with the Nifty Fifty in the 1950s, tech in the 1980s, and telecom in the 1990s. The length of the current cycle is unknown and she argues the market is only starting to price it in. Microsoft is one of the few top-10 names that has held that position for more than a decade.

  “even though we are more concentrated today than we ever have been from a top 10 names in the S and P 500, it's typically only a handful of companies that drive the return within the market.”at 19:14

• Paisley Nardini · Tema ETFs

  Buy-the-dip keeps working for now, but sharper, faster drawdowns are the new norm.

  Policy support and trading activity keep buy-the-dip working, even though she expects it to stop at some point. Bear markets now move too quickly for investors to reposition, as the older long, drawn-out bear markets once allowed. Portfolios therefore need to be positioned at all times for sharp, sudden drawdowns, and she expects this environment to persist for some time.

  “I think again, it's like the buy the dip mentality continues to work even though everyone agrees and myself included, like at some point it won't.”at 25:51

• Paisley Nardini · Tema ETFs

  Small caps are far less profitable than before; buying unprofitable high-beta names is unhealthy.

  Around 40% of small-cap stocks now have negative earnings, against about 15% in the 1990s. Unprofitable high-beta small caps significantly outperformed profitable higher-quality companies at the start of the year, which she finds hard to square with a healthy, sustainable market. Small-cap premia can exist, but only with a quality component, and the small-cap factor is now in question. She reads the recent small-cap sell-off as a healthy correction.

  “Today, that number's 40% of small cap stocks have negative earnings.”at 33:24

• Paisley Nardini · Tema ETFs

  Small caps lag because higher rates hit unprofitable, externally funded companies; a quality screen is needed.

  Nardini argues higher rates explain the small-cap lag. Small caps rely more on external funding than large caps, which hold cash, and rates are much higher than over the last fifteen years. Many small caps are unprofitable, so their underperformance seems obvious. She recommends an active approach with a quality screen rather than wholesale selling of small caps.

  “So rates are much higher today than they have been over the last fifteen years. And it's a bunch of companies that are unprofitable. It starts to seem kind of obvious why this part of the market has lagged meaningfully.”at 34:53

• Paisley Nardini · Tema ETFs

  The S&P 500 is not diversified; concentration leaves an effective count of only about 50 stocks.

  Nardini says the S&P 500 is not diversified. Through increasing concentration in a few names, the effective number of stocks in the index is really only about 50, despite 500 holdings. Investors who think they get exposure to healthcare, industrials, technology and materials are mostly exposed to a handful of names, so people need to be more thoughtful about this.

  “due to the fact that some of these names are so concentrated and have become increasingly concentrated, the effective number of stocks in the S and P five hundred is really only 50.”at 1:04:42

AI infrastructure & data centers

• Paisley Nardini · Tema ETFs

  Hyperscaler AI debt and circular neocloud financing echo past leverage-driven crises.

  Hyperscalers have taken on more debt than ever. A year ago they had large free cash flow and piles of cash, but they have now shifted to negative free cash flow. AI financing issuance has reached about $450 billion year to date through Q3. Financial crises have usually involved leverage, and circular financing involving CoreWeave and other neocloud companies is starting to rhyme with past crises. She hopes the market prices this risk in.

  “AI financing, I think we've seen about $450,000,000,000 of issuance year to date through the end of the third quarter.”at 20:44

• Paisley Nardini · Tema ETFs

  AI spending is shifting from hyperscalers to supply-chain bottleneck suppliers, which gain pricing power.

  Nardini argues that the market has focused on hyperscalers and some chip companies, while the AI buildout needs many component pieces. The baton is starting to pass down the supply chain. Where demand exceeds supply, companies gain pricing power, higher margins and the ability to charge more, so the key question is which part of the bottleneck the trade rests on. She acknowledges this is still being figured out.

  “I think we're in the midst of trying to figure this out. I think there's been so much excitement, and the baton just started to be handed from the hyperscalers down the supply chain.”at 35:55

• Paisley Nardini · Tema ETFs

  The broader US AI data-center build-out is a huge opportunity, including power generation, giving AI beta plus industrial cyclicality.

  The data-center build-out is not only an AI trade. Nardini argues the US has a huge opportunity to build and produce power sources that support daily life regardless of AI. Photonics and data-center infrastructure carry beta to the AI trade, so an infrastructure basket lets investors keep AI exposure while diversifying away from concentrated mega-cap and chip names, and adds a broader industrial cyclical angle. She presents this as TEMA's view.

  “I would even go as far to say the broader infrastructure build out as it relates to AI data centers. We at TEMA actually view there's a huge opportunity just from a pure infrastructure play in The US that there's so much opportunity to build and produce power sources”at 39:25

US rates & the Fed

• Paisley Nardini · Tema ETFs

  Expects a slower Fed hiking path, which she sees as positive for markets overall.

  The Fed has started hiking again and the open question is whether this is a single hike, a pause, or an expedited cycle that pushes rates much higher. Monetary policy is data-dependent and inflation has been running hot, so policy reacts with a lag. She is optimistic the path will be slower, which she believes is positive for markets more broadly, while noting that the market is feeling pressure today from yields backing up and the Fed starting to tighten.

  “I'm actually quite optimistic that it's gonna be a slower hiking path, which I think is positive for more markets overall.”at 5:03

Sports, betting & prediction markets

• Jack Forehand · Validea Capital Management

  Election prediction markets beat polls because people with money at stake reveal their best forecast.

  He argues that prediction markets in elections have been more accurate than polls. The mechanism is that when people have to put their money behind a forecast, the market reveals their best prediction, whether or not they turn out to be right. He says investors can learn from this, and that the public often conflates betting on prediction markets with using them as an information source.

  “I think prediction markets, in elections have been better than polls, because whenever people have to put their money behind something, you get their best prediction.”at 13:34

Enterprise AI adoption & AI software

• Paisley Nardini · Tema ETFs

  AI agents are just starting; first movers like Muse won't win outright.

  A reporter asked whether Muse would be the winner-takes-all company in AI agents, and she said absolutely not. The adoption of AI agents is only just starting. First movers typically do not keep the advantage, but they open the door for other companies to improve on the product and come to market.

  “absolutely not. I mean, we're just starting to talk about AI agents and the adoption of them. Like, first movers typically don't have the advantage, but they open the door for other companies to improve and to come to market.”at 17:00

Market sentiment, positioning & volatility

• Paisley Nardini · Tema ETFs

  VIX below 20 understates risk because index-level dispersion offsets large underlying drawdowns.

  The VIX is sub-20, but that reflects heavy dispersion underneath the index, where names offset each other. Half or more of the index is in a meaningful drawdown or bear market, so the VIX cannot capture the volatility underneath. She says it is an inappropriate measure of the volatility the market is actually experiencing.

  “So I don't even think the VIX is an appropriate measure to consider the types of volatility that we're seeing.”at 23:45

US Treasuries & yields

• Paisley Nardini · Tema ETFs

  Bonds no longer diversify equity risk since 2022, but yields now make them attractive for income.

  Bonds have not diversified equity risk since 2022, which she attributes to positive stock-bond correlations in the current inflationary cycle. Bonds pay handsomely today, though, and may look more attractive than they have in fifteen-plus years. She argues they should be held for reliable income rather than for diversification, and that they should not be dropped from portfolios.

  “bonds have not diversified equity risk since 2022. But guess what? Bonds pay pretty handsomely today.”at 24:17

AI bubble & tech valuations

• Paisley Nardini · Tema ETFs

  AI valuations are mellow near 19-20x earnings, unlike 1999, but an AI bubble could still form.

  Compared with 1999, price and earnings multiples are not in bubble territory. Valuations are around 19 to 20 times earnings, which she calls pretty mellow to historical standards and not flashing red. The real risk is an earnings bubble. If AI companies' growth rate of change slows, the market will reprice, and she says the answer could be yes to whether a bubble occurs in the AI trade.

  “Valuations are actually pretty relatively speaking and to historical standards, pretty mellow. I think we're looking at around, you know, 19, 20 times earnings.”at 29:00

Earnings & corporate profits

• Paisley Nardini · Tema ETFs

  Stocks are priced for perfection; repricing comes when earnings growth decelerates, not from low levels.

  Companies have delivered extraordinary year-on-year earnings growth, around 30%, yet their stocks have fallen about 3% on the news. She reads this as markets priced for perfection. The key variable is the rate of change of growth rather than the level, and the market reprices when that rate of change starts to slow. Multiples have compressed to levels that she does not see flashing red.

  “the minute we see that rate of change start to slow is when it will be priced into these markets.”at 30:16

IPOs, M&A & deal activity

• Paisley Nardini · Tema ETFs

  A few mega IPOs like SpaceX, Anthropic and OpenAI could matter more than 1999's 500 tech IPOs.

  Over 500 technology companies came to market in the late-1990s IPO wave. Today there are fewer but far larger listings, such as SpaceX, with Anthropic and OpenAI on the horizon. Although they are few in number, their impact on the market could be far greater than the many small companies that listed in the late 1990s.

  “We obviously have had some mega companies come to market like SpaceX and on the horizon here, Anthropic, OpenAI.”at 31:33

AI chips & semiconductors

• Paisley Nardini · Tema ETFs

  Semiconductors are inherently cyclical; the recent selling is a healthy repricing of over-trusted blue chips.

  Nardini argues semiconductors have always been very cyclical and were volatile in the past. Once they were re-labelled as blue chips in the AI trade, investors took that for granted and bought the group indiscriminately. The early-Q4 selling and resurgent volatility are the consequences of that naivety, and she views the repricing as healthy.

  “We forgot that this part of the market, semiconductors in particular, are very cyclical in nature... I think it's actually healthy that we're seeing a bit of this repricing.”at 38:04

Commodities (broad)

• Paisley Nardini · Tema ETFs

  Real assets like energy, commodities and infrastructure are woefully under-owned and tethered to inflation.

  Nardini says real assets (energy, commodities, infrastructure, inflation-linked holdings) are woefully under-owned. Her years advising advisors show portfolios containing only stocks, bonds and perhaps 5% gold. Despite four or five years of inflation, advisors have not adopted a meaningful inflation hedge. Commodities are a natural extension of her firm's thematic infrastructure work, since data centers need commodity inputs, and new commodity exposure products are coming within weeks.

  “I think as an investor, having real asset exposure, exposure to energy, commodities, infrastructure, things that are inflation tethered are woefully under owned in most portfolios.”at 42:34

Power demand & the grid

• Paisley Nardini · Tema ETFs

  US grid underinvestment is coming due; regulated utilities with contractual cash flows look constructive.

  Nardini argues the US has underinvested in infrastructure for several decades and that reckoning has arrived. The timing coincides with AI and the power needs of data centers, which is why the issue is now getting attention. Grid-building companies are often government entities or regulated utilities, and she is more constructive on that part of the market because they have contractual cash flows from regulated industries that support the buildout. She frames the need as true irrespective of AI.

  “we're actually kind of more constructive on that part of the market because you have contractual cash flows from some of these regulatory industries that are helping support and build out this power play”at 44:31

Private markets for individual investors

• Paisley Nardini · Tema ETFs

  Pre-IPO exposure inside ETFs via SPVs is an exciting evolution for the industry.

  Nardini says her firm holds pre-IPO exposure through SPVs in several ETFs. She argues this is a legitimate evolution, not a marketing gimmick, since positions are chosen on fundamentals and held after IPO. She adds that SPV costs are marked into the price, with no extra management or financing fees, and that a 15% non-daily-liquid limit under the 40 Act makes such structures permissible.

  “I think this is an exciting part of the evolution of our industry.”at 49:26