Juggling Dynamite

A few charts to illuminate the start of another week.

First, another look at the record overvaluation in tech and tech-related companies (dark blue below via topdowncharts.com) versus the S&P 500 traditional cyclicals (light blue) and defensive sectors (black) since 1973. Again, the conclusion here is not that traditional and defensive stocks are cheap but rather that tech and tech-related sectors have never been so inflated. This makes the entire index and all the portfolios that track it the most vulnerable to mean-reversion losses in at least 53 years.

Fresh highs in stock market indices (S&P 500 shown below in dark green) have opened a glaring gap between “Wall Street” sentiment and the University of Michigan Consumer Sentiment Index (red below) since 2024. Finance is supposed to be a service that supports and feeds off the real economy. When finance is euphoric, and its customers are depressed, something is fundamentally broken and unsustainable.

Current market conditions are so extreme that the masses believe they are normal and durable. Such assumptions have historically proven painful.

There is a reason that young people are unable to launch and fertility rates have plummeted. Since the tech wreck in 2000, governments and central banks have repeatedly bailed out the finance sector and asset prices at the expense of everything else. But in the end, a shrinking pool of customers is a recipe for stagnation and eventually deflation.Aging asset owners increasingly need buyers to cash them out. The widening spread between would-be buyers and would-be sellers suggests that transaction prices lie somewhere below the current ask.

The segment below offers a worthwhile macro update.

DiMartino Booth with Competent Investor’s Tom Bodrovics: Warsh’s Fed Takeover-A Quiet Coup Brewing? Here is a direct video link.

Happy Friday!

The S&P 500 has soared over 12% since the start of April, and 7% since the start of the Iran war, thanks to a +40% rebound in chip stocks. Half the rally has been accounted for by five companies — Alphabet, Nvidia, Amazon, Broadcom, and Apple.  At the same time, broader sectors like financials have posted near-flat earnings growth, and healthcare has negative growth. If we weight all 500 companies equally, the index has actually fallen slightly.

Consumer sentiment in May fell to a fresh record low of 48.2 as the US 30-year fixed mortgage rate rose above 6.5%. Homebuilder stocks are off about 20% from their 2024 highs, and consumer companies are feeling the gloom. Consumer discretionary bellwethers like Whirlpool are down 58% since last July, and McDonald’s hit a new 52-week low today, -18% since February and now back to the same level as April 2023.

“War in Iran resulted in recession-level industry decline in the U.S. as consumer confidence collapsed in late February and March.” — Marc Bitzer, CEO of Whirlpool, May 7, 2026

Consumer staples companies are generally more defensive, but the sector is down 6% since February, with companies like Heinz down 18% since last July. Kraft Heinz CEO Steve Cahillane cited struggling consumers in his earnings call this week:

“They’re literally running out of money at the end of the month. We’re seeing negative cash flows in the lower-income brackets while they’re dipping into savings.”

Gains in semiconductor stocks have pushed high-beta shares to record outperformance relative to the lower-volatility, more economically sensitive sectors of the S&P 500 (as shown below since 2014, courtesy of The Daily Number).

The market cap of so-called “defensive” sector stocks has fallen to a record low 15% of the S&P 500 market cap (below since 1975, courtesy of Augur Infinity). It’s not that defensive sectors are deeply discounted; it’s that the 8 most expensive companies, all in tech, have distorted the index so much that they account for a bloated 38% of the S&P 500 market cap.Another way of looking at it, market breadth is unusually weak, with the share of S&P 500 companies outperforming the index average near the lows seen in other tech-led manias in 2021 and 2000 (below since 1990, courtesy of The Daily Shot).The S&P 500’s Cyclically Adjusted Price-to-Earnings ratio (CAPE) at over 41 times is a level seen just once before at the internet-inspired bubble peak in March 2000 (shown below, since 1870).On a forward price-to-earnings basis, things are not much cheaper (as shown below, since 1960). The masses are either oblivious or don’t care because they believe that valuations no longer matter. This belief was also widely (and wrongly) held at the market peaks in 2021 and 2000.For an excellent overview, see Greg Ip’s, AI Is Distorting Practically Everything About the Economy;

Start with the broadest measure of growth, inflation-adjusted GDP. It grew a respectable 2% annualized in the first quarter. Beneath the surface, though, are two economies: AI and everything else.

Personal consumption, the biggest component of GDP, grew a relatively muted 1.6%. Investment fell in housing, business structures such as office buildings and factories, and transportation equipment like trucks and aircraft. Meanwhile, investment soared 43% in tech equipment, 23% in software and 22% in data-center buildings.

My back-of-the-envelope estimate is that the AI economy grew 31%, the non-AI economy just 0.1%.

It’s unclear how long Artificial Intelligence can replace human workers and sustain an economy dependent on growing consumer demand. AI certainly doesn’t buy financial assets and homes. Something’s gotta give. Ponzi schemes can only continue until a growing share of investors ask to sell or make withdrawals. And with each passing day, more and more people are.

The housing bubble and unaffordable pricing have thwarted the launch plans of new households over the past decade.

The National Association of Realtors (NAR) reported the typical age of first-time buyers climbed to an all-time high of 40 years in 2025, down from around 28 years old in 1991. The share of first-time buyers dropped to a record low of 21%.

Aging baby boomers (now ages 62 to 80) own the majority of the higher-end homes, and all boomers will be 65+ in 3.7 years. By 2030, nearly 25% of Canada’s population will be over 65, up from close to 20% in a 2024 Statistics Canada report.

During the 2019-2022 FOMO (fear-of-missing-out) frenzy, some elders mortgaged their homes to give downpayments to children and grandchildren and co-signed on loans with family members.

Borrowers who secured mortgages in 2020–21 at rates under 2% are now seeing renewal offers in the 4–5% range. Equifax Canada has noted that non-mortgage delinquencies have reached levels not seen since 2009.

As of the first quarter of 2026, non-performing mortgage loans in Canada reached approximately $7.2 billion — an increase of about 150% since 2022. These are “Stage 3” loans, meaning they are more than 90 days overdue and considered in default. (source: JDL Realty).

The Office of the Superintendent of Canadian Financial Institutions (OFSI) predicts that rising residential mortgage arrears and defaults are the number one threat to Canada’s financial system (OFSI 2026-27 annual risk outlook report, April 2026).

Far from ‘free money’, the housing bubble and now bust have consequential impacts for all of us. Bubbles give, and then the busts take back.

Three-quarters of those age 55+ surveyed in an online Angus Reid Forum indicated that supporting family is cutting into their retirement savings, according to research from Bloom collected last September. At the same time, falling home prices and weak sales are thwarting downsize plans. See, ‘Not the right time’: Retirees delay downsizing plans as housing market slumps.

The kids are moved out and all that extra space in the house just isn’t worth the upkeep.

It’s an opportunity to move somewhere a little more practical, maybe a condo or bungalow, and bank the savings.

For many, that was the ideal retirement plan. But for now, it may not be a realistic one…

“Probably the biggest challenge that we’re seeing right now is really just the fact that home prices are off so much from their 2022 highs,” said Ben McCabe, founder and CEO of Bloom Finance, a Canadian fintech company that helps homeowners access home equity in retirement.

While economic forecasts predict a rebound later this year, a sizable chunk of would-be buyers want to be sure the market is at its lowest before they make their move. For sellers, these circumstances have delayed their plans.

Marco Pedri, a broker with Shoreline Realty, said many retirees he works with have been “cautious if now’s the right time” to move to a smaller living space.

“One of the biggest risks some seniors or older individuals need to consider is that the equity might have shrunk due to the prices of these homes and what they could likely sell the property for in today’s market,” he said.

“What we’re seeing is if a lot of these seniors don’t necessarily need to downsize, then … maybe now’s not the right time to sell.”

How long can they wait? As people get older, the urge or need to downsize maintenance and overhead naturally grows. The question is, who can/will buy and at what price?

Pedri said he expects an eventual uptick of seniors looking to “rightsize” their living arrangements to better fit their reality, especially with many not having the “luxury” of waiting for the market to pick up. He said some may simply feel maintenance of the property has become too much for their lifestyle to delay the move any longer.

The demographic train is chugging and will not change course for several years to come. Those who hold off listing this summer may well find lower prices and less demand next.

A wild card is how much governments and central banks step in with more ‘free money’ in the next recession, and how much that can revive demand.  With property taxes, insurance, utilities and under-employment on the rise, an urge for more efficient housing is unlikely to recede.