PodcastThe Real Investment ShowLance Roberts

8-3-26 The Momentum Crash: Is It Over?

The episode stresses caution: seasonal weakness heading into midterm elections and geopolitical risk with Iran increase the odds of near‑term volatility. Tech's differing cash‑flow profiles and massive hyperscaler capex—about $700bn in 2025–26—mean depreciation is compressing reported earnings even as revenue growth cushions concerns. Elevated margin debt (~$1.5–1.6tn), a leveraged hedge‑fund unwind, and technical signals leave momentum stocks deeply oversold but risky without clear breakouts; hosts frame explicit bull and bear paths tied to moving averages, yields, oil, and hyperscaler behavior.

Market VolatilityTechnology StocksTechnical Analysis

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Key Takeaways

Elevated oil risk and seasonal weakness argue against chasing near‑term market strength: the two months before the midterms (Aug–Sep) are seasonally weak and ongoing tensions with Iran could re‑ignite, while WTI near $79 means oil‑driven volatility can reprice inflation and growth expectations and pressure leveraged momentum trades.

Mega‑cap tech free cash flow diverges sharply and is tied to hyperscaler capex cycles: Apple reported ~ $32.1bn FCF, Microsoft ~ $9.6bn and Meta ~ $8bn while Google and Amazon showed negative FCF, reflecting combined hyperscaler capex of roughly $700bn in 2025–26 and large depreciation charges that compress reported earnings.

Wall Street already prices much of the depreciation impact, which helps explain expectations for slower earnings after a near‑term peak: analysts are factoring depreciation into 2027 forecasts as hosts expect Q3/Q4 to be near peak earnings following an exceptional beat rate and very high EPS growth (e.g., +27% Q1, +45% Q2 including other income).

Concerns that AI deals create circular, non‑economic revenue are overstated, so investors should focus on valuation and cash‑flow quality: UBS estimates the OpenAI–Nvidia arrangement at ~13% of Nvidia’s projected 2026 revenue, and the hosts recommend holding AI at target weight rather than overweighting amid skeptical arguments about manufactured demand and depreciation‑inflated earnings.

GEO-POLITICS

Election Risk — The guest cautions that the two months before the midterm elections (August–September) are seasonally weak and that renewed tensions with Iran could re‑ignite. Together these factors increase oil‑driven volatility and argue against chasing recent market strength near term.

“You don't chase it. Why? Well because we're in two months of the year that typically tend to be weak prior to the midterm elections.”—

TECHNOLOGY

FCF Divergence — Speakers highlight markedly different free‑cash‑flow profiles across mega‑cap tech: Microsoft (~$9.6bn), Meta (~$8bn) and Apple (~$32.1bn) reported meaningful FCF, while Google and Amazon showed negative free cash flow. They tie this divergence to capex cycles and valuation implications.

“Their revenue growth was so exceptionally strong, especially on Microsoft's side with Azour. Amazon is doing great with AWS.”—

Capex & Depreciation — Hosts note hyperscaler capex is large—combined roughly $700bn for Microsoft/Google/Amazon/Meta in 2025–26—and warn that depreciation is a non‑cash charge compressing reported earnings. They add that revenue growth and the ability to turn negative FCF positive mitigate some concerns.

“So here's hyperscaler capex. This is what everybody's kind of pointing their finger at right now. So this is 2025 and 2026. So $700 billion…”—

ECONOMY

Margin Leverage — Margin debt is elevated at roughly $1.5–1.6 trillion and has accelerated since April. Net investor credit is materially negative (~‑1.06), creating a levered retail/professional structure that can amplify volatility when deleveraging occurs.

“Margin debts at 1.6 trillion right now. Roughly 1.5 1.5 1.6 trillion. And net investor credits negative 1 about negative 1.06.”—

Earnings Peak — Hosts say reported earnings have been very strong—with high beat rates and exceptional EPS growth recently—but expect Q3/Q4 to be near peak earnings and slower growth into 2027. Markets will react to whether companies keep beating adjusted estimates.

“Remember we talked about just a few minutes ago, I showed you the chart and I said, "Hey, we're likely at peak earnings right now…”—

MARKETS

July Seasonality — July produced a slight monthly loss (~‑0.1%), and historically when both June and July are negative the rest of the year averages roughly ‑2%. This pattern has occurred about 68% of the time, implying a higher chance of a muted remainder but not certainty.

“Statistically a weak month of the year along with September. So, we'll see what the markets have in store for us…”—

Rates & Oil — Speakers highlight current yields—30‑year ~5.25%, 10‑year ~4.67%, 5‑year ~4.38% as of the cited Friday—and WTI near $79 as key macro variables. Rising yields raise discount rates and cost of leverage, while oil swings can reprice inflation and growth expectations.

“Over the weekend we got news headlines out from the Trump administration that they are working around the perimeters of a deal that has now basically kind of sparked a…”—

Momentum Setup — Momentum names endured a deep correction and are deeply oversold. Hosts recommend waiting for a defined downtrend break and buy signal—or a retest of the 200‑day that holds—before scaling in, since timing materially affects risk/reward versus the S&P.

“You really need to see before making a bet on momentum that is coming back, you really need to see this downtrend break to the upside…”—

FORECASTS

Conditional Paths — Speakers lay out conditional scenarios: a bear path where a failed rally at the 50‑day (head‑and‑shoulders or continued semiconductor downtrend) leads to a retest of the 200‑day (about 20% downside), potentially amplified by a hyperscaler capex cut or 30‑year yields above ~5.25%. The bull path requires the July 29 low to hold, the 30‑year to fall below 5%, oil to decline, and breadth to return—under that set of conditions hosts cite as much as ~30% upside.

“So the first is that the bounce which ran to the 50-day moving average last week but actually the you know it's got a little bit more to go to…”—

INTRO

INTRO: Host opens with banter and frames the show as money news and guidance for readers, mentioning RAIA Advisors sponsorship and seasonal context.

Markets End a Negative July

Markets End a Negative July: Host notes July closed down about 1%, explains historical patterns after negative June–July and cautions about a sloppy second half of the year.

Maybe Not the Buy-the-Dip Opportunity

Maybe Not the Buy-the-Dip Opportunity: He argues markets are choppy, 50-day/20-day moving averages matter, and the current environment isn't a clear buy-the-dip for broad indices.

Is the Momentum Crash Over?

Is the Momentum Crash Over?: The host addresses listener emails about semiconductor/momentum drawdowns and frames the key question of further downside versus buying opportunity.

The Retail Side of Levered Trade

The Retail Side of Levered Trade: He explains how high leverage—swap-based hedge funds and retail margin/leverage ETFs—amplified the selloff and triggered liquidations.

The Cap-ex Spend is Real

The Cap-ex Spend is Real: The hosts describe hyperscaler capex (2025–26 at roughly $700B) and explain that investment spending is driving fundamentals despite negative free cash flow.

Proportion of S&P 500 Co's Beating Earnings Estimates

Proportion of S&P 500 Co's Beating Earnings Estimates: Earnings season beat expectations with a record proportion of companies topping estimates and unusually rising analyst estimates into the quarter.

Is the Correction Over?

Is the Correction Over?: He lays out bearish and bullish paths for momentum and semiconductors: a 20% downside test to the 200-day vs a 30% upside reclaim to new highs.

Bet on Nothing - Trade on Environment You're Given

Bet on Nothing - Trade on Environment You're Given: Host recommends trading the environment, balancing risk-reward (about 30% upside vs 20% downside) and avoiding conviction bets during seasonal weakness.

Sector Analysis

Sector Analysis: He discusses diversification benefits of equal-weight vs cap-weight, suggests scaling into momentum on a retest and tightening risk controls and stop levels.

The AI Bear Case - Three Arguments

The AI Bear Case - Three Arguments: The host summarizes three skeptic arguments—earnings are fake, demand is manufactured, spending won’t earn returns—and says two are partly right while one fails.

Hyperscaler Cap-Ex

Hyperscaler Cap-Ex: He reiterates hyperscaler investments and notes depreciation is a non-cash charge, analysts are already factoring depreciation into future earnings projections.

Circular Financing Myth

Circular Financing Myth: He examines circular-financing claims, shows most hyperscaler revenue is arms-length and only a minority is potentially circular, so the circularity argument is overstated.

Is AI Revenue Fake?

Is AI Revenue Fake?: Quarterly AI revenue has outpaced AI capex depreciation so far; the host urges separating hyperbole from data and focusing on operating cash generation.

Positioning for Either Outcome

Positioning for Either Outcome: Practical guidance: hold AI/hyperscaler exposure at target weight, favor cash generators, keep defensive allocations, set trim/add levels, and protect capital with tight risk controls.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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