Is the US consumer healthy enough to justify this?

Added: 2026-05-19

[00:00:03]All right, quick uh update to a story that's uh been making headlines. Open AAI CEO President Sam Alman has been found not liable for breaking contracts he made with Elon Musk when they founded uh together uh the startup. Uh Musk uh excused Alman of unjustly enriching himself and others in the process of building the company. Uh we know those two men have been at odds. Of course, OpenAI is not publicly traded yet. Tesla shares it down just a little bit.

[00:00:29]Meanwhile, there are two questions that are indirectly correlated. Uh, one about household debt. Now, we see it's edging just a little bit higher. You add on to that, gas prices hovering at about four-year highs, and many are wondering if the US consumer is healthy enough to justify the stock market rally. Uh, now considering that the top 10 stocks in this market are responsible for 87% of this rally, many people are wondering just how healthy the rally itself is.

[00:00:54]So, let's bring in Chris McMahon, CEO of Aquinus uh, Wealth Advisors.

[00:00:58]Uh Chris, you know, you're you you point to you put out a piece and you had two restaurant stocks in there. You have McDonald's and and Shake Shack and you know, they both are ugly charts. But I'm wondering is it is it an indictment? Is it a reflection of consumers or just could it actually also just be like we're not eating burgers anymore?

[00:01:17]>> It's a great question. I think it's it's really a reflection of two things. the bifurcated economy. If you look at uh Capitol Grill, you know, all these other ones, Del fresco, they're up 12% 8% year to date. So, people are eating red meat, but it's that it's that bifrocated economy. I think the working uh working folks are really suffering in this economy. We're starting to see I think a little bit of that either AI layoff or AI, you know, that's the cover story to make these layoffs. So, people are hurting. Interest rates are high. So, it's really a we got to hope that worst does some when he's able to make some cuts. So, so, uh, could this help him make the argument then, you know, I mean, retail sales came in better than anticipated, uh, you know, of course adjusted for inflation. Retail sales haven't done anything, but they haven't done anything for years. Could he actually use that for leverage, do you think? Uh, because he's got to do some serious arm twisting.

[00:02:03]>> Yeah, I think the president will certainly help him and at all costs. He won't look to oil prices. He'll say, "Look away from those oil prices." But I think we need to see we need to see at least I I think it's going to be relatively quick. I think within 30 days of this thing ending, I people are saying it might be 6 months or 8 months.

[00:02:16]I think within 30 days of this thing ending, we got to get oil prices down and once we have oil prices below maybe 80, I think we absolutely could see hopefully two cuts by the end of the year. A lot of criticism about this rally, right? So you've got 10 names 87% of the move, right? Nvidia, Alphabet, Micron, uh Broadcom, Apple, Advanced Micro, Amazon, Intel, Exon Mobile, and Cisco. Is that is that okay with you? I mean, listen, for me, I think there's always I think what people don't realize, there's always just a handful of names. I don't think there's ever been this pronounced, but there's always typically just a handful of names doing the heavy lifting.

[00:02:48]>> Yeah. This maybe the dispersion is even greater this time around. Does it bother me? Yes. Does it keep me up? No. Because I think what's what's going to happen, I think likely we're going to see those numbers on Wednesday. Unfortunately, we're clinging to those numbers so much, but that Wednesday announcement from Nvidia, I think, is going to drive these prices and continue to keep this thing rolling uh because they keep blowing out of the water. I think you've said it so accurately. We're not sure even if they blow it out of the water what that does to the stock price, but I think there's opportunity particularly as you know, if you take those 10 stocks out, what happens to the market? It's up 5%.

[00:03:16]There's val there's there's money to be made in large cap stocks.

[00:03:19]>> So, so you're you're you're kind of licking your chops for to do some rotating here.

[00:03:24]>> Absolutely.

[00:03:24]>> You also, you know, that maybe it's time for some of the um the PE ratios of these semis are just a little bit high.

[00:03:30]Now, we always kind of talk about Micron, which is like single digits, but Broadcom 23%, Intel 71%, Texas Instrument 34%. You think they can give up some of that and be okay?

[00:03:41]>> I think we can have a 20% adjustment and be fine by the end of the year. I think what is it? Socks was at 58 times PE ratio. And when it compared to the weighted S&P at 20 times PE ratio, I think there's some room in there to give that back, let everybody take a breath and uh maybe I think disperse their assets across regular non uh non-top 10 stocks. But you are you are making an exception it looks like for KLA Tenor.

[00:04:03]What makes KAC so special?

[00:04:04]>> The world has lost its mind. I mean they everybody said it you know um Hang was in uh he did an a commencement address at CMU last week and he said it's all about memory and it's all about storage.

[00:04:14]He I he told those kids at Carnegie Melon don't worry about your engineering degree go learn AI is what he said. And who who's going to supply this stuff? We think they're you know certainly we think they're a unique position and they are well they're undervalued. They're underperforming compared to the sector.

[00:04:27]I had a chart I started to show with uh with all these dots that represented 8.1 billion people and like that this one little red dot is where we it's already caused all all of the bottlenecks.

[00:04:38]Imagine what happens as this is pushed out. So one other area then you know because people are watching now they're saying okay if I start taking profits on some of these high flyers where do I put the money? How do you feel about soft uh I mean small caps which were crushing it out the street out of the gate. They crushed it in January. things turned around and with the Iran conflict, but they're acting better now.

[00:04:59]>> We're not really rotating towards small caps right now. We're saying that if you take the mag seven out of those stocks as top at least seven six of them, and you say what's in the large cap area that's undervalued, we like there's too many things that are underperforming in that sector first before we have to pivot to small cap.

[00:05:13]>> So, so here's the bottom line then is you're you're saying more or less stick with what works, but you think maybe a pause for the cause kind of thing. Does that mean you take a few chips off the table and buy the next dip?

[00:05:23]>> Absolutely. I think it's a good time to maybe consider trimming those things.

[00:05:26]Get back to your ass allocation model.

[00:05:27]Great time to never a bad idea to to go back to your model. Take five, six, 7% off the off the top, put it in cash, and uh see what see where we are in August.

[00:05:35]I think is a good example.

[00:05:36]>> Well, we'll have you back before August.

[00:05:37]>> Thank you, sir. They shall.