Compressed Market Poised To Break Hard: The Key Question Is Which Way? | Lance Roberts

Anthropic

Across the shows: 43 speakers in other episodes, 24 bullish and 44 bearish calls, past 30 days

• Lance Roberts · RIA AdvisorsBullish

  Anthropic's business is stronger than headlines show; its $80B loss was mostly a valuation accounting change.

  Anthropic went from zero to about $16 billion in revenue in three years, which Roberts says is beyond historical norms and more than Intel, Uber, Coca-Cola, Netflix, Salesforce and Nike make in a year. Its operating loss improved year on year and is nearly breakeven. The widely reported $80 billion net loss came from the change in fair value of convertible notes and other instruments, not from operations. Roberts says the company is spending heavily on models while cutting its losses, and that the media ignored this. He says he isn't invested in Anthropic and won't buy the IPO, but may buy it later.

  “That operating loss improved from last year. It is barely running at an operating loss. The net loss, this 80,000,000,000 that everybody was so focused on was just the change in the fair value of convertible notes and other instruments.”at 24:39

Amazon.com

Across the shows: 15 speakers in other episodes, 11 bullish and 3 bearish calls, past 30 days

• Lance Roberts · RIA AdvisorsBullish

  Amazon is a better AI play than frontier labs because it owns and monetises AI with other revenue.

  Roberts says he avoids buying the AI model builders and prefers the companies that will own and generate revenue from AI. He names Amazon as one of these. He also notes that the companies he buys have so much revenue from other sources that their AI investment could go to zero and they would still be profitable, which limits the downside if the AI boom fizzles.

  “I'm buying the guys that will own them ultimately and generate revenue from them. So that's the Microsoft's, that's the Amazons.”at 26:46

Microsoft

Across the shows: 9 speakers in other episodes, 8 bullish and 0 bearish calls, past 30 days

• Lance Roberts · RIA AdvisorsBullish

  Microsoft is a better AI play than frontier labs because it owns and monetises AI with other revenue.

  Roberts says he avoids buying the AI model builders such as Anthropic and OpenAI and prefers the companies that will own and generate revenue from AI. He names Microsoft as one of these. He also notes that the companies he buys have so much revenue from other sources that their AI investment could go to zero and they would still be profitable, which limits the downside if the AI boom fizzles.

  “I'm buying the guys that will own them ultimately and generate revenue from them. So that's the Microsoft's, that's the Amazons.”at 26:46

iShares 20+ Year Treasury Bond ETF

Across the shows: 3 speakers in other episodes, 2 bullish and 1 bearish calls, past 30 days

• Lance Roberts · RIA AdvisorsNeutral

  After a strong TLT rally there is little left to gain near term; take profits and rebalance to target.

  Lance's firm added 20-year Treasury exposure (TLT) to its 60/40 model about three weeks earlier. The trade has rallied strongly and the fund is back in overbought territory after clearing key moving averages. He sees little more upside from here, so the plan is to take some profit and trim the position back to target allocation size. The longer-term view that rates will fall is not enough to add now.

  “But I think near term, if you've been on this side of the trade, it's time to probably get ready to take some profits, rebalance your risk a bit”at 55:10

US stock market outlook

• Lance Roberts · RIA Advisors

  Value stocks are extremely extended versus growth; a switch back to growth is close.

  Technology and AI-linked stocks led for a long stretch, then sold off, while value sectors (banks, financials, utilities, real estate, materials) rallied after being beaten up. Roberts says the market is building a narrative to explain the tech selloff, and that tech and semiconductors are now becoming extremely oversold. He says the market is close to, but not yet at, the point of switching from value back to growth, and expects a new narrative to follow that flip. His portfolios have already rotated from growth to value through rebalancing.

  “Well, now those stocks are getting extremely oversold and we're actually very close. We're not there yet, but we're getting pretty close to switching from value back to growth.”at 5:41

• Lance Roberts · RIA Advisors

  Markets are oversold and sentiment negative, so a rally from here is more likely than a further decline.

  Bollinger bands have tightened sharply around the market, and a tight compression usually resolves in an expansion, up or down. Roberts pairs that with a decently oversold market and fairly negative investor sentiment, which he says typically precedes a rally. He allows that a further decline is possible but expects the setup to favour an end-of-year run after the midterm election, helped by portfolio rebalancing and positioning in November and December. He also notes markets tend to perform better after midterm elections.

  “But with markets decently oversold and sentiment getting fairly negative... that typically augurs for a rally from this level... Now, could you have a further decline from here? Absolutely.”at 7:48

• Lance Roberts · RIA Advisors

  Market breadth is recovering from low-30s toward 46%, but remains below a healthy bull-market level.

  In a healthy bull market roughly 60-70% of stocks should be advancing. Breadth was in the low thirties a couple of weeks earlier and is now about 46%, with improvement in the share of stocks above both their 50-day and 200-day moving averages. Roberts notes that extreme negative breadth is a contrarian signal rather than a continuation signal. The improvement is a positive sign, but breadth is not yet at bull-market levels.

  “We should have about in a bull market, we should be between 60-70% advancing. We're at 46, but that's up from the kind of the mid thirties or actually low thirties just a couple of weeks ago.”at 14:53

• Lance Roberts · RIA Advisors

  Earnings growth of 12-15% next year should compress the market P/E toward 15-16x if prices stay flat.

  The market trades around 19 times earnings, and valuation concerns are easing because earnings are rising while the market consolidates sideways. Earnings are expected to grow about 12-15% next year, so if the market goes nowhere, the multiple should fall to roughly 15-16 times. Roberts says the media still cites a 40x multiple and ignores this. He adds that most of the earnings growth comes from tech, with the rest of the economy growing around 6-8%, so the market's earnings strength depends heavily on tech.

  “earnings are expected to grow by about 12 to 15% next year, which if the market goes nowhere, we're going to see valuations potentially in the 15 to 16 times range.”at 33:36

• Lance Roberts · RIA Advisors

  Earnings growth is still rising and supports stocks; a correction comes only if earnings start declining.

  Technology earnings are growing about 30%, which drives most of the earnings growth. Estimates for Q3 and Q4 are still rising, and expectations are for 30% earnings growth in 2026 and 20% in 2027. Lance argues this supports the market, and that he is willing to pay 19 times earnings today if 20% growth follows, since the multiple grows into earnings. He concedes a correction is still possible if earnings start to decline rather than advance.

  “Expectations are for 30% earnings growth in '26 and twenty percent growth in 2027.”at 36:41

• Lance Roberts · RIA Advisors

  Markets statistically end the year stronger after midterms, once political uncertainty clears.

  Adam describes Lance's default assumption that markets finish the year more strongly after the midterms remove uncertainty. Lance agrees that the statistics support it. He also notes that the risk of renewed military action against Iran after the midterms is one his firm weighed before selling energy. The support is thin: Lance agrees with the framing and cites statistics without giving figures.

  “Statistically, that's what the statistics say, yes. Yes.”at 55:57

• Lance Roberts · RIA Advisors

  Technology's outperformance has reversed; rotation into healthcare has made healthcare extremely overbought.

  Lance's firm sold its technology stocks a couple of weeks ago after technology's relative performance reached an extreme and was due to reverse. The proceeds went into healthcare, which has moved from oversold to extremely overbought, and staples and financials have also run strongly. He says factor rotation identifies sectors that are extremely overbought or oversold and helps reduce risk in the overbought ones. Energy has not rotated yet, which is why he is selling it.

  “And if you sold your technology stocks and rotated into health care, which has now gone from here up to this upper right corner, healthcare is now extremely overbought.”at 1:05:59

US Treasuries & yields

• Lance Roberts · RIA Advisors

  Ten-year yields should trade 4.5%-5.25% next year, then fall over three to five years on debt and slowing growth.

  Lance says the 10-year at 5.3-5.4% was never justified. The spike was driven by oil prices and an abnormally high term premium, and history shows a very tight correlation between rates and inflation expectations. Over the next year yields could range 4.5-5.25%, depending on oil prices and CapEx spending, which are both boosting activity and prices. Over three to five years he expects lower rates from debt and deficits, weaker growth, demand destruction from high oil prices, the end of the CapEx boom, and disinflationary population trends.

  “longer term over the next three to five years, rates will be lower because of debts, deficits, weaker economic growth, demand destruction through high oil prices”at 56:48

• Lance Roberts · RIA Advisors

  Bonds stop hedging stocks during oil-driven inflation shocks; the stock-bond correlation is turning negative again.

  Stock-bond correlation is negative during growth shocks, when bonds hedge a portfolio. During inflation shocks, such as oil prices surging, bonds fail to keep up, so stocks and bonds fall together. That positive correlation has persisted because of oil prices. Lance sees the reversal starting, with yields about three standard deviations below their long-term means. He would still take profits until the inflation shock fades, which requires an Iran resolution that lowers oil prices and then demand destruction.

  “The stock bond correlation is negative when you have a growth shock, right? ... In an inflation shock, when you have oil prices surging off to the moon, bonds don't do a very good job of that”at 1:01:32

Oil & fuels

• Lance Roberts · RIA Advisors

  Energy stocks are overbought and due to reverse; he sold the whole energy position to lock in gains.

  Energy is one of the best-performing sectors this year, and its relative performance against the S&P 500 is at an extreme. Lance says extreme deviations like this have set up reversals before. Oil prices remain sticky, so he sold the entire energy holding today, partly to book tax gains after losses elsewhere. Energy stocks are tied closely to oil, so a peace deal could cut oil 10% in a day and energy stocks 15-20%, with no warning. He plans to rebuild energy exposure later at lower prices, in refining and in data-center power production, or buy small entry positions after the midterms.

  “So we're taking our profits out of energy and eventually we're going to get a reversal in energy just like we see up here.”at 1:06:34

• Lance Roberts · RIA Advisors

  Energy stocks will correct, and oil prices will fall once any Iran military conflict ends.

  Roberts expects energy stocks to correct even if the US goes kinetic against Iran right after the midterm elections. His mechanism is that any conflict-driven rally is temporary: once the conflict is over, oil prices drop. He therefore plans to buy only small entry positions in energy stocks regardless of price for exposure, and to add on a later pullback. He frames the timing as a matter of patience.

  “Look, energy stocks are going to correct. Even if we go kinetic on Iran right after election, that's going to be over at some point. And when it's over, oil prices drop.”at 1:11:41

Market sentiment, positioning & volatility

• Lance Roberts · RIA Advisors

  Weak liquidity from rising rates and negative fund flows is holding the market back.

  Roberts says liquidity has been fairly weak, which explains why the market has gone nowhere lately, because interest rates are rising. Flows into various asset classes have been slightly negative, so liquidity has been draining out of the market. He argues that a rise in liquidity would give a meaningful boost to the market on the upside.

  “Liquidity has also been fairly weak. This is why the market's not been going anywhere as of late because interest rates are going up.”at 13:23

US growth & recession risk

• Lance Roberts · RIA Advisors

  US economic data is strong, with capex supporting earnings and a tailwind into year-end.

  ISM manufacturing and services reports have been good. Roberts argues this supports earnings growth into year-end, especially given the capex spending flowing into many companies. He describes the economic backdrop as a tailwind heading into year-end.

  “Economics remain pretty strong. ISM reports have been good, manufacturing services, etcetera. So from an economic regime, the underlying support for earnings growth going into this end of the year remain still remains pretty good, especially with CapEx going on.”at 14:15

IPOs, M&A & deal activity

• Lance Roberts · RIA Advisors

  Anthropic and OpenAI may delay IPOs until market sentiment improves, since issuers want the highest price.

  Roberts compares the situation to selling a house: if buyers offer less after rates spike and sentiment sours, many owners pull the listing rather than sell at a discount. He says companies going public sell shares at the highest price they can get, and that timing an IPO matters as much as the company itself. Given the drop in expected valuations for Anthropic and OpenAI, he would not be surprised if both delayed their IPOs until sentiment is better.

  “I wouldn't be surprised if we don't start to see Anthropic and OpenAI, etcetera, delay their IPOs until the market environment sentiment wise is more favorable.”at 21:03

AI bubble & tech valuations

• Lance Roberts · RIA Advisors

  Even if AI-bubble warnings are right, real market impact could take five years, so investors should not act on them.

  Roberts argues that bearish AI-bubble commentary, such as Fred Hickey's view that earnings are suspect, may be right, but the consequences could take years to reach the market. Even if the bears are right, the timing could be five years away. He treats the opportunity cost of sitting out the AI trade as real, and says investors are better off focusing on what the market is signalling than on headline commentators.

  “let's just assume that Fred Hickey is absolutely right. It might be five years before the market has any substantial impact. That's why I mentioned opportunity cost.”at 34:44

GLP-1s & obesity drugs

• Lance Roberts · RIA Advisors

  GLP-1s cut food volume but won't cure obesity unless people also change diet and exercise habits.

  Lance says GLP-1s work mainly by suppressing appetite, so people eat less and food volume falls. Many people who lose weight on the drug do not change their habits, and the weight returns quickly when they stop taking it. He argues the medical community must teach people to fix diet and exercise alongside the drug. Otherwise the drug is a treatment, not a cure. The food-volume point connects to Craig's earlier point that consumer shipments are weakening.

  “The GLP-one isn't a cure all be all end all solution. It's not gonna cure obesity if we don't change the way we eat as a culture.”at 46:35

Middle East & Iran

• Lance Roberts · RIA Advisors

  A grand bargain ending the wars would help stocks and bonds and hurt oil.

  Adam asked how a Trump-Xi-Putin deal that ends the Ukraine and Iran wars would affect markets. Lance says it would be good for stocks and great for bonds, because it would remove the risk premium. War-related assets such as oil would fall, and oil prices would drop quickly on any agreement. He also argues that an Iran resolution would bring oil prices down, eventually causing demand destruction and then slower growth and lower rates.

  “Good for stocks, great for bonds, and you know, not so good for other war related assets, obviously, like oil, etcetera.”at 1:04:35

AI infrastructure & data centers

• Lance Roberts · RIA Advisors

  Fears that data centers use all the water and power are overstated; many recycle water and run own power.

  Lance calls the claim that data centers use all the water and power a misconception. He says data centers recycle their own water, and gives a nearby example in which a large data center has a retention pond it recycles. Many data centers also have their own power sources. He cites this as a reason his firm wants to rebuild its energy holdings in data-center energy production.

  “one of the misnomers about data centers is data centers are using all of our water. Data centers are using all of our power. That's not really true. Data centers recycle their own water.”at 1:09:52