Is The Market Hitting Its Breaking Point? | Jesse Felder

Lululemon Athletica

• Jesse Felder · The Felder ReportBullish

  Lululemon is a great brand deeply out of favor at potentially its cheapest valuation ever, an opportunity.

  Lululemon and Nike are great brands that are so deeply out of favor they trade at what may be the cheapest valuations they have ever had. Apparel is a sector he is looking at right now, and he sees opportunity in names like these. He is not going all in right now, but he sees contrarian value in out-of-favor names that trade at cheap valuations.

  “You look at stocks like Lululemon and Nike, and you know, are great brands that are so deeply out of favor and trading at the cheapest valuations they've maybe ever traded at.”at 1:01:18

Nike

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

• Jesse Felder · The Felder ReportBullish

  Nike is a great long-term opportunity despite trading below its 200-week moving average most of this year.

  Nike is one of the out-of-favor great brands trading at very cheap valuations. Following Munger's approach of buying wonderful brands when they trade below their 200-week moving average, Nike has traded below that level for most of this year. He notes that this does not mean Nike is not a great long-term opportunity, and he sees deep contrarian value in names like it, though he would not go all in right now.

  “But Nike's traded below that kind of a level for a long time now, for most of this year. But that doesn't, you know, mean it's still not a great long term opportunity.”at 1:02:39

US Treasuries & yields

• Jesse Felder · The Felder Report

  The 10-year yield breakout points to a target close to 6%, with momentum still up.

  The 10-year Treasury yield held in a sideways range for two to three years after the post-pandemic rate hikes and only broke out in the last month or two. Felder reads that breakout technically, and it leaves a target close to 6%. He says upside momentum in rates remains strong. He ties this to the lead-lag relationship: gold, commodities and inflation have already moved higher, and rates are only now catching up to that inflation picture. That suggests there is still plenty of upside in yields. He does add that real yields, about 3% on 10-year TIPS, are near 20-year highs and unlikely to go much higher, so the rise is mostly nominal and tied to inflation expectations.

  “We only recently broke out of that move in the last, you know, maybe a month or two ago... And that breakout just from a pure technical standpoint leaves a target close to 6%.”at 4:18

• Jesse Felder · The Felder Report

  Treasuries are losing their safe-haven status, so recession-era supply may overwhelm demand.

  Felder thinks the usual pattern, where yields fall in a recession and Treasuries rally as a safe haven, will not hold this time. Foreign holders, some of them sanctioned, no longer treat Treasuries as safe assets. The deficit could widen from about 6% of GDP to 12% in a recession, with the annual shortfall rising from about $2 trillion to $4 trillion. That would bring a flood of new supply that outstrips any demand from investors seeking a 5% bond during a downturn. He concludes that the Fed would almost certainly have to step in to support the Treasury market, as it did in the repo and pandemic episodes. This argument is about the Treasury market's ability to absorb future issuance, and he presents it as a worry that keeps him up at night.

  “Treasuries are not seen as safety any longer, right, by foreigners, you know, who've been sanctioned.”at 31:08

• Jesse Felder · The Felder Report

  T-bills yielding about 4% offer attractive optionality as cash to deploy over the next eighteen months.

  He likes cash because T-bills earn around 4%, which gives him liquidity and the option to take advantage of opportunities as they arise over the next eighteen months or so if markets become more attractive, such as in gold or out-of-favor value names. He is not going all in on those right now.

  “I also like cash. I think you can buy you know T bills earning you know, 4% or something right now. And that there's terrific optionality in having cash right now”at 1:03:07

Gold & precious metals

• Jesse Felder · The Felder Report

  Gold likely trends sideways for a stretch until the Fed turns to cuts; not a decade-long dead market.

  Gold has led the rally in the 10-year yield and inflation, and it trades on the expected path of Fed policy. It rallied on expectations of multiple rate cuts, but the market is now adjusting to a new hiking cycle. Felder thinks the Fed is most likely to follow the middle path: hike, then cut once unemployment rises, rather than a Volcker-style squeeze. Inflation is re-accelerating (nominal GDP near 8.5% annualised in Q2, with ISM prices-paid pointing higher), and he thinks the Fed was wrong to cut in the past couple of years. Real yields are already near 20-year highs, so much of that move is behind us. Until the Fed pivots, gold should stay under pressure. He compares this to the sideways stretch after the 2022 hiking cycle and expects gold to bottom a few months before the next cut cycle. Gold's longer-term upside depends on the Fed's policy path, which he thinks makes a sustained peak unlikely this year.

  “I think we could be in another kind of pattern like that where gold kind of just trends sideways for for a period of time before it starts to anticipate another rate cut cycle.”at 24:24

• Jesse Felder · The Felder Report

  Gold should do very well in a recession where the Fed backstops Treasuries and the fiscal room is gone.

  Felder argues the Fed will almost certainly intervene in the Treasury market in the next recession, as it did in 2019 and 2020. Foreign holders now see Treasuries as less safe, so the usual flight-to-safety demand may move to gold, which other central banks are already buying in place of Treasuries. The Fed's repeated rescues have built investor expectations of ever-larger backstops, which he says makes intervention close to unavoidable even with inflation above target. Gold would benefit from that balance-sheet expansion. Felder also expects that a fiscal response would be limited by the lack of fiscal room. If the Fed caps yields while the government still spends, the dollar would fall and inflation would rise, which he sees as very bullish for gold and other hard assets. The strongest case for gold is a scenario in which the Fed caps long yields. In that case he sees gold rising toward very high levels.

  “And it's hard to not see gold really doing well in that type of a scenario.”at 34:15

• Jesse Felder · The Felder Report

  Gold will keep preserving purchasing power as hugely inflationary policy lifts hard assets, and could overshoot in a speculative phase.

  Gold's core strength is preserving purchasing power rather than generating real gains, which is what it has done over time. The policy mix of printing money to send to households and capping yields is hugely inflationary, so hard assets such as gold should rise. Gold has also done far better than TIPS at preserving purchasing power, and he personally prefers gold to TIPS. He is cautious about the TIPS comparison because TIPS rely on government-reported inflation, which he thinks has been adjusted to look closer to 2%. In the near term, gold would mainly be preserving purchasing power, but in a later speculative phase it could overshoot. He suggested gold could need to reach 10,000 to preserve purchasing power, but could go higher in a speculative fervor, and that silver could move far beyond anything justified by inflation. He sees the speculative mania as not yet close.

  “...kind of policy choices that we just discussed a minute ago of printing money to send to households and capping yields and these types of things are, like I said, hugely inflationary, which is why, you know, the value of hard assets will go up.”at 39:20

US stock market outlook

• Jesse Felder · The Felder Report

  Weak breadth and fresh highs point to a market top, likely in Q4 2026.

  Felder says a new S&P 500 high in October, after months without one, is unusual and has not historically been as bullish as new highs usually are. Breadth has been poor throughout the rally from the 2022 low and has steadily worsened. Hindenburg omens have hit record counts, and past spikes came just before the 2025 Liberation Day decline. Recent highs came with less than 30% of S&P 500 components above their 50-day moving averages, which he says has never happened, even at the peak of the dot-com bubble, where the only comparable reading was at the March 2000 top. Semiconductors peaked in June and have not made a new high. Consumer discretionary and staples are down about 10% this year. He concludes that the market is losing leadership and that the fourth quarter is when the deterioration should become clear.

  “there's a good chance that this the fourth quarter here, we start to really see it.”at 6:50

• Jesse Felder · The Felder Report

  Value stocks and defensive sectors have a real opportunity as growth's rate-defying run unwinds, like the 2000 dot-com turn.

  Value stocks are reminiscent of the dot-com peak, when internet stocks peaked and rolled over while the value factor bottomed and did phenomenally well over several years. Value's relative performance is highly correlated with interest rates, and rising rates typically favor value. Growth has dramatically outperformed value over the last two or three years even as rates rose, which has only happened once before, in 1998 to 2000, so the setup looks anomalous. He cautions that many tech names, such as memory stocks at four to six times earnings, are cyclical and only look cheap at the top of the cycle, so they are not true value. His value picks are defensive sectors such as consumer staples, utilities, and healthcare, which investors have left for dead for a couple of years and which suit the economic cycle.

  “there's some opportunity in value stocks, right? It's really reminiscent to me of the peak of the dot com bubble is you had internet kind of stocks peaking and rolling over at the same time, the value factor itself bottomed out, and did phenomenally well over a period of years.”at 57:45

AI infrastructure & data centers

• Jesse Felder · The Felder Report

  A closing capital window (postponed IPOs, wider tech CDS) is the biggest red flag for AI bulls.

  Felder argues that large investment booms continue only while capital is available to fund them. He sees the capital window closing in several places. Many IPOs have been postponed or cancelled, and investors are backing away from funding them, including a Softbank-backed neocloud that delayed or withdrew its offering and an Australian IPO. Pulled IPOs are rare because of the time and money involved, so he reads them as a clear sign that demand is not there. CDS spreads on technology credit are blowing out, and rising nominal yields are tightening lending further. He sees the same signal in credit and equity markets, which is an important demand indicator for the overall AI investment boom.

  “...It's very clear that the capital window to me is closing. And that should be the biggest red flag, I think, to the AI bulls right now.”at 10:10

• Jesse Felder · The Felder Report

  Stock prices, not capex, will signal the AI build-out peak, since markets top 9-18 months before capex peaks.

  Adam notes the AI build-out is the largest capex wave in US history, roughly twice the dot-com bubble. Jesse responds that the stock market always peaks well before capex, nine to eighteen months ahead of the capex peak, and stock prices already discount that. So investors should not look at capex expecting it to give a signal, because stock prices will. He points to semiconductors peaking and the Korean market peaking in the second quarter, with Wall Street profits down since then, which may mark the peak in speculative activity.

  “The stock market always peaks well before the capex, nine months, eighteen months in advance of the peak of capex, and stock prices already start to discount that.”at 1:07:41

US inflation

• Jesse Felder · The Felder Report

  Inflation is re-accelerating and the Fed is slow to respond, having cut rates when it shouldn't have.

  Felder cites data pointing to a renewed inflation surge. Annualised, last quarter's GDP implies an 8.5% nominal growth rate. He links the inflation impulse to AI-driven activity and says the ISM reports, including prices paid, all point to another surge higher in inflation. He argues the Fed is slow to recognise this and that the rate cuts of the past couple of years were probably ill-advised. The Fed may have to undo those cuts. Until it does, gold will remain under pressure, since gold is priced around confidence that the Fed will control inflation.

  “if you annualized last quarter's GDP, you have an eight and a half percent nominal GDP rate for last quarter for q two... all the ISM things, prices paid for you, they're all pointing to another surge higher in inflation.”at 23:26

• Jesse Felder · The Felder Report

  US inflation is still running hot, so the inflationary cycle has not yet ended.

  The US has been in an inflationary environment for about five years, and he sees no reason to think it is over. Inflation ends only when the central bank commits to not tolerating above-target inflation and fiscal authorities commit to bringing the deficit down to a sustainable level near 3%. Neither is happening. Instead, GDP growth is running around 8.5%, ISM prices-paid data suggests inflation is starting to take off again, and there is a push for helicopter money such as $5,000 checks to households. Everyone's expectation is that inflation will end on its own, so he believes the cycle is still far from over and will persist until policymakers become determined. He thinks inflation could move to 6, 7 or 8%, requiring a fiscal reaction.

  “...it's pretty clear, we've been in inflationary environment for five years now. And there really is no reason to believe that we're out of it yet.”at 44:48

US deficit & government debt

• Jesse Felder · The Felder Report

  The US has no fiscal room for a pandemic-style response; a debt crisis and austerity are coming.

  Felder argues the US cannot repeat its pandemic-era fiscal stimulus because it no longer has the fiscal room, and the bond market would not allow it. If the authorities tried to fund spending while capping yields, the currency would take the strain, as the yen has in Japan, and the result would be monstrous inflation and a plunging dollar. He expects a path toward a sovereign debt crisis that requires austerity. He points to populist backlash over widening inequality, including the data center backlash, as the political force that will drive the response. The most likely austerity targets are reversing the corporate tax cuts and taxing AI. Bill Gates and some VCs have floated taxing AI, and Felder sees that as a likely way to pay for future support.

  “I think that they can't do fiscal anywhere near the way they did it during the pandemic. They just don't have the fiscal space to do that.”at 35:52

• Jesse Felder · The Felder Report

  Fiscal space is shrinking and the bond market will force deficit reduction, since deficits near 6% cannot continue.

  The deficit needs to come down toward 3% with real growth near 3%. At about 2% real growth and a 6% deficit, debt is simply blowing out and it cannot go on. The bond market is starting to impose discipline, with the long end of the curve beginning to take off, and Warsh's dislike of QE and balance-sheet intervention means the long end could force austerity. Fiscal space is shrinking. Neither party is likely to embrace discipline proactively: Congress will be forced to react to bond-market stress and rising inflation rather than choose fiscal discipline.

  “I think the bond market is starting to try and impose some discipline right now, right? Where we see the long end starting to take off.”at 47:28

US growth & recession risk

• Jesse Felder · The Felder Report

  The old economy is in recession and the AI-led new economy can't carry the market much longer.

  Felder cites a report from Jim Paulson that says the old economy is in recession while the new economy is doing very well. Equal-weight consumer discretionary and staples stocks are down about 10% this year, which he reads as consumers flagging. This split between an AI-driven new economy and a weakening old economy has held up the overall market and index levels, but he says it can only persist for so long before the new economy can no longer carry everything. Under current nominal rates and rising inflation, the old economy is suffering and is unlikely to recover. He expects both parts of the economy to weaken, not just one. He thinks the economy is very close to that point.

  “And that dichotomy can only kind of persist for so long before the new economy essentially cannot can no longer hold up everything by itself. And I think we're really close to getting to that point.”at 8:20

International equities

• Jesse Felder · The Felder Report

  Speculative unwinds in Korea, Turkey and India warn that a bigger US stock market peak is coming.

  Felder points to a string of global market breakdowns: the Korean market crashed and has not recovered, Turkey's market fell after fraud and manipulation came to light, and India saw a speculative unwind in options trading. He says these events are global and in the past have preceded bigger US market peaks, citing the collapse of Long-Term Capital Management and the Asian financial crisis. He thinks these developments are culminating together now, which is a warning for US stocks.

  “A lot of this stuff is global and when you see these kinds of speculative unwinds, it's really a good warning as we saw it with the demise of long term capital management, the Asian financial crisis, a lot of these things kind of lead up to a bigger stock market peak in The US.”at 9:28

Oil & fuels

• Jesse Felder · The Felder Report

  Energy supply-demand is the tightest in years; oil has a floor and a multi-year bull case.

  Energy executives say supply and demand won't normalize until 2027 or 2028 at the earliest, and emergency reserves have been drained while demand keeps running strong. Restocking of those reserves adds excess demand for at least two years, which Felder says sets a floor under oil prices, since any price drop would trigger buying. US drilling is also weak: drilled-but-uncompleted wells are at multi-decade lows, so little new supply is coming. Inflation-adjusted oil is still below its 25-year average, and Felder says oil could rise a lot and still look cheap versus commodities, the S&P 500 and gold. He ties this to a capital cycle: there has been essentially no new investment in supply since the 2014 price crash, and the bull case rests on that, so he calls it a multi-year trend rather than a trade. Investors' neglect of energy (about 3% of the S&P 500) adds to his bullishness.

  “I think the supply demand dynamic for energy probably hasn't been this bullish in many, many years.”at 15:39

AI chips & semiconductors

• Jesse Felder · The Felder Report

  Memory stocks are weak because the market expects a flood of new memory supply.

  Felder ties the weakness in memory stocks to the AI capital cycle. Money flowing into AI is creating large amounts of compute, chips and memory supply, and the market is starting to anticipate an oversupply of new memory coming online. At the same time, AI companies are working to use less memory, building more efficient chips and models that need less memory for inference. Those two forces together weigh on memory stocks. Semiconductors as a group peaked in June and have not hit a new high, so he sees the chip sector as losing leadership.

  “That's why the memory stocks have been weak lately, is the market is starting to anticipate an ungodly amount of supply coming to the market of new memory.”at 18:40

US rates & the Fed

• Jesse Felder · The Felder Report

  Fed most likely hikes, then cuts once unemployment rises; not a Volcker-style squeeze.

  Felder sees three possible Fed paths. In a Volcker scenario, the Fed raises rates through a painful recession to bring inflation to 2%, which would be bearish for gold. In the most likely scenario, the Fed hikes to slow growth but gives way as soon as unemployment rises, the pattern of Powell and his predecessors. In the most bullish scenario, the Fed hikes at the short end but caps long yields through yield curve control. Felder thinks the middle path is most likely. The current chair, who he calls [Kevin Warsh], is somewhat more hawkish than his predecessors but has not shown he would tolerate real economic pain, and he avoids using the balance sheet. He also says the Fed's past rate cuts were probably ill-advised and may need to be reversed, and that the bond market, not the Fed, will drive policy if long yields keep rising.

  “I think probably the middle scenario is the most likely. I don't think [Kevin Warsh] has demonstrated that he's any kind of different than...”at 29:36

US tax & spending policy

• Jesse Felder · The Felder Report

  A Democratic sweep would make repealing the corporate tax cuts almost a no-brainer, a risk to equities.

  Democrats would like to undo the corporate tax cuts, and if they gain control of the White House and Congress, reversing them is almost a no-brainer. Trump's veto power makes this less likely in the near term, but a full Democratic government would be a clear risk. Because corporate profit margins are at record highs, this tax risk is tied to the margin argument, and investors in equities are underpricing it.

  “if you do get, kind of democratic control of the White House and Congress, undoing the corporate tax cuts is almost a no brainer.”at 48:38

Earnings & corporate profits

• Jesse Felder · The Felder Report

  Record corporate profit margins are vulnerable to populist backlash and are underpriced by equity investors.

  Profit margins are at literally record highs and still expanding, and the forecasts assume they keep rising. Much of that is the mirror image of the fiscal deficit, since government spending flows into corporate coffers. Labor share of income is at a record low, and populism is rising in response. Buffett wrote in 1999 that corporate profits at 6% of GDP could not be sustained without creating political problems, and they have since roughly doubled to about 12%. Populist pressure will therefore demand a greater labor share that comes out of profit margins, through measures such as taxing AI or undoing the corporate tax cuts. He argues investors in equities are underpricing this risk.

  “...we're already at like literally record high corporate profit margins, we've never seen anything close. And a lot of that is just the mirror image of the fiscal deficit.”at 48:44

Market sentiment, positioning & volatility

• Jesse Felder · The Felder Report

  Current market speculation, from single-day options to 20x leverage, signals one of history's greatest speculative bubbles.

  Speculation is everywhere: investors use single-day expiry options to express long-term views, margin debt is off the charts, and there are options, leveraged ETFs, perpetual futures with 20-to-1 leverage, and sports gambling. Buffett called the gambling zeitgeist unlike anything seen before. Speculation began in semiconductor stocks earlier this year, and the Korean market peaked in the second quarter, with Wall Street profits down since then. He argues that years from now the euphoria will look obvious, and it can be seen in real time.

  “I do think right now there are so many signs that we are in the midst of one of the world's greatest speculative bubbles of all time.”at 1:03:58