CAPITULATING

Added: 2026-05-22

[00:00:00]Welcome to the great bull capitulation of 2026.

[00:00:04]Yeah, that's what it's being called and it's absolutely wild. In this video, we are going to break down what the fund manager survey just said over at Bank of America. What are people actually doing with their money? Then we're going to see what's going on a little bit with Iran, but we're also going to see what's going on with flash PMIs. the initial reading of what's actually happening in the economy for the start of May based on what companies are reporting in their surveys. And of course, we'll look at the Federal Reserve's minutes. We won't do a standalone video on the minutes because some of it is predictable, but there are some parts that we will point out. So, let's get started in this. I do want to shout out there is a mystery stock I'm going to be making a special video on probably if not later today than tomorrow. Highly encourage you pay attention to it. Uh we shouted this out as having a potential for a meme rally or some really big momentum because of the hardware rally on Tuesday and since then it is up 33% since we shouted this out in the course member liveream. If you're not part of this yet, make sure you join us over at meetke.com. You can see all of the sort of short-term callouts, medium-term callouts, and long-term callouts. I always like to separate the three because there's three totally different types of investments. This right here I have as a short to medium-term play. So, it kind of sits in the middle with the hardware cycle and it's just now turning around, which is really exciting. Sort of a left behind one. So, stay tuned that video. I'll make a public video on it. But if you want those early heads up, make sure you join. Use that Memorial Day coupon code over at mekevin.com. Okay, without further ado, Bank of America fund manager survey indicates that we are sitting at a bull capitulation that is almost complete.

[00:01:55]They do say this is driven by a surge in EPS optimism and a forecast for Fred Ray cuts. I put no on this because there is no forecast for Fed rate cuts. So, I'm not exactly sure where they're getting their data from. like it kind of a little bit makes me question their sanity a little bit when they say that oh yeah, you know, optimism for rate hikes. Maybe that's just like a mental optimism. I mean, I could be optimistic that 20 billion are going to land in my my lap next year. I mean, who knows?

[00:02:22]Maybe maybe that'll happen. Uh but but let's uh let's talk realities here. By the end of the year, we have a uh over 57.9% chance of actually getting rate hikes. a 14% chance we get two rate hikes. And if we go towards uh roughly the let's go to that's December of 2026. Let's go all the way out to June of 2027 for example.

[00:02:47]We also have no rate cuts priced in. We only have rate hikes priced in. So I don't know where you know the Bank of America people are getting this from.

[00:02:55]But what I do think is very interesting is they say that their bull bear indicator is now at 7.8. They actually say that this is very close to a sell signal because it's a way of saying that pretty much everybody who was bearish during the geopolitical buy the dip time which we called geopolitics are usually a buy the dip and I said this was going to be the most hated rally because people are going to be like what the hell where did this come from and show sure enough here it is. But what's interesting is Bank of America is going as far as calling this bull capitulation. essentially people who have been sitting on the sidelines waiting and they throw all their extra cash going whatever it's just going to keep going up let's just throw all our money in. We have to remember there is still this sort of meltup attitude of low breath that's actually going on in the uh stock market and it's mostly just hardware right now. Uh you can see here that on risk and allocation 73% say long semiconductors is the way to go. That is also the number one most crowded trade and the tail risk right now is inflation with 42% uh voting that inflation is a tail risk. Shadow banking credit event 42% uh and then uh AI hyperscalers having a 34% chance of uh of creating a risk that could sort of derail the economy. uh but over here I thought this was very interesting on a month-over-month basis according to fund managers we are at the highest fund manager capitulation that we have seen really in in the history of this chart I mean you could go back to the depths uh the market did still fall after March of 2002 we really bottomed out in about September to March of 2003 so September 02 to 03 so this is a little excessive this was really before the real bottom August 09 was after the bottom of February of09. July of 19 was about 8 months after the bond market crisis of December of 18, which was actually the bottom. Uh and uh and and so right here you have fund managers plowing in again. Not the best track record for nailing the bottom, but you know, still pretty decent times, relatively close to bottoms, which hopefully this means this will be relatively close to a bottom as well.

[00:05:06]Maybe just in this case like 6 to 7 weeks late. Uh which is unsurprising.

[00:05:10]Again, that's why I say this will be the most hated rally. Uh, and we can also see here, I wrote this on the side here.

[00:05:16]We've got basically zero cushion in cash. People are pretty much all in. Uh, at least fund managers are pretty much all in. So, you've got May of 2026 here level almost at the Bank of America sell trigger. Uh, they trigger a sell. I believe it's at 3.7 and or might be under four. It might be under four given that they wrote triggering sell signal. Cash at 3.9 triggering sell signal. They kind of modify their sell signals every so often. So I usually see like 37. I feel like maybe that was one of the earlier lows that we were looking at. Uh so maybe that's just what I remember. But anyway, so that's a little bit on what fund managers are doing with people's money. And I find that kind of interesting to pay attention to. What else is fascinating is that Bank of America suggests what really would push us to actually getting rate hikes would be the unemployment rate falling under 4%. This is entirely possible. It's worth remembering that uh labor force participation is plummeting which is helping stabilize the unemployment rate.

[00:06:18]And if the actual labor market stabilizes and the participation rate falls even more, yes, the unemployment rate could actually fall under 4%. So think about that for a moment. Uh you could see for a moment, you could see the labor market, you know, firing 100,000 people, hiring 80,000 people, but then the Bureau a Bureau of Labor Statistics comes through and says, "Well, we think 120,000 people left the labor force." So now, ordinarily, you'd be like, "Okay, you guys fired 100. You hired 80. That's cool. You're hiring some, but we still lost 20,000 jobs."

[00:06:54]But then they go, "Well, we actually think the labor market shrunk 40,000 more than we hired. So now all of a sudden, you get a positive unemployment read and the unemployment rate falls, WHICH IS JUST LIKE LIKE statistically maddening." Well, I guess it's technically statistically their version of accurate, government accurate. That should be its own phrase, government accurate. But it's maddening to us who look in from the outside like that's still net losing jobs. It's kind of like the seasonal adjustments that they do.

[00:07:23]Maddening to try to understand from a statician point of view. It makes sense why they do seasonal adjustments. After all, there's a back to school season, which is probably one of the greatest examples of why you would have fluctuations in educational hiring and jobs disappear. Duh. Right? Okay. I'm getting I'm getting tangential here and I apologize. I just know sometimes if I don't explain it, I'll get comments of people asking. And that's not because people aren't dumb or are like, you know, clueless or dumb or whatever. It's just sometimes I don't explain it because I assume we're on the same page because, you know, we've been hanging out for the last 9 years on YouTube talking. So, sometimes I'll take a little sidebar and do a little more explaining like what's going on with Iran. Iran suggests that uh or actually Robelbank suggests that Iran has made a new proposal and instead of demanding war reparations, Iran might consider economic concessions which could be the removal of sanctions or some form of other investments into Iran, something probably much more palpable to Donald Trump. And of course, Iran could agree to some form of longerterm pause to the nuclear program. Now, Robbo Bank says that the New York Post says that this is not likely to happen. That Donald Trump is not open to anything right now. I think that's full bull crap. I think Donald Trump is really open to things right now. I think Donald Trump is extremely frustrated with this war.

[00:08:43]Donald Trump, you know, Monday night is like, you know, we were going to attack them tomorrow. We put a pause on those strikes. He literally tacoed his own taco. It's It's crazy. Like, taco sales should be through the roof. If if I could buy tacos right now and invest just in tacos, I feel like that'd be the play. And I think right now that's probably like the NASDAQ 100. Uh which we did this morning have a target that we would go from red up to 7:15 just like yesterday. And yeah, well yesterday we were 714. Today we were 715 is what we wrote down. Yesterday we came in within 80 cents of that after moving up like $8, which is really directionally like solid. Uh, and then today, well, the market's still open, but you could totally see this recovery we had. We actually blew right past it all the way up to 717 over here. Now, we're also bobbing around in that 713 range. That is an example of like a short-term day trade call, which I make in the alpha report every day. That mystery stock that I'm going to be talking about uh either later today or tomorrow is an example of a short to medium play. You know, something where you could buy like 100 day call options on, right? That's obviously very different from like a 10-year play, which you don't touch with options.

[00:09:54]Anyway, in my opinion, Donald Trump is going to settle on something like this.

[00:09:58]Slightly better than the Obama deal is all he needs to declare victory. Now, we also have the Federal Reserve minutes we got to hit, but let's hit this for a moment. This is the S&P 500 global flash PMIs, which indicate that we have a sluggish service sector. And the only reason the um manufacturing side is doing well is because of temporary stock building. In fact, stock manufacturing output has risen at its fastest pace over the last four years because of precautionary stock building. The problem with this that they see is that it won't last. They actually say the damaging economic impact from the war in the Middle East is becoming increasingly evident in business surveys. Data from May recorded only modest growth of business activity as demand was again squeezed by a further spike in prices and jobs were cut as firms worried over rising costs and the economic outlook.

[00:10:51]May PMI indicates the economy will struggle to manage annualized GDP growth of more than 1% in the second quarter.

[00:10:58]That's really low. So if we're only pushing 1% that's not great. And then they say, "But even that 1% may not last because over the past 3 months, order book growth has slowed to its weakest level in two years, only getting temporarily boosted by a boost in stock building to try to get ahead of higher costs because of the Middle East war."

[00:11:21]So in other words, they're like, "Current data in manufacturing looks good. Current stuff on services does not. That looks really weak." The only thing that's popping up manufacturing now is this adrenaline shot of fear that prices are going to be up soon. When that fades, we're going to be left with slow times slow, which is slow squared, which is bad.

[00:11:44]Now, hopefully we could still have the um you know, hardware rally go. I really don't think we actually top out on a hardware rally until you have IPOs that show you how much money these freaking companies lose. like Anthropic, OpenAI.

[00:11:58]Anthropic, by the way, potentially making twice as much money as OpenAI, which is crazy. Uh on a you know, on the second quarter basis, I think Anthropic is coming out to annualize to like 44 billion a year, which is crazy. And OpenAI is still like 21 22 billion a year, which all of it obviously a fraction of their capex spending, which of course is not being revealed, to be determined. That's where we get into the circular nature, blahy blahy blah. Now, despite this S&P flash PMI, I want to balance that with good news. Uh the Atlanta Fed GDP disagrees. They have 4.3% as the latest GDP now estimate which is pretty incredible. Uh that's that's very good. Uh now in addition and on the note of the Fed, we should talk about the Fed's FOMC. And let me just give you the highlights on this. So they talk about first inflation expectations remaining still stable and they're observing that yes markets are starting to price in the odds of a rate hike coming up. What I wanted to do is I wanted to go look at inflation expectations on the 10-year and uh I'm going to pull that up really quickly so you could see that the 10-year inflation expectation.

[00:13:07]Uh wrong button again. Memorial Day 2026. That's the coupon code for meet Kevin. My bad. It's actually that's expiring Memorial Day, I think, like right after it. There it is. Okay, here's the 10-year chart on inflation expectations. And uh what you could see is that we are indeed higher than where we have been. We've had this trajectory up since about October of last year. You could even draw it pretty much back to the beginning of the Trump presidency.

[00:13:34]The average here has been up, but before the Iranian war, things were actually chilling out like towards the end of last year, which was good. But this rise is okay. It's still relatively stable.

[00:13:48]You know, we're within a quarter of a percent over here, right? This is 2.5.

[00:13:51]This is 2.25. It's really long-term indistinguishable from being an issue. If it starts going off this chart, that's when we really have more of a problem, but we're not seeing that right now. So that's good news for the Fed. I honestly I think Kevin Worsh is going to be an anchor. I do not think they're going to cut rates and I don't think they're going to raise rates. Several participants commented that recent low rates of job growth were not necessarily indicative of labor market fragility as they are commensurate with the slow growth in the labor force. In other words, the reason we're seeing less hiring is because we deported a bunch of people and there are fewer people available. Uh Barkin today noted that uh there is there are actually encouraging signs of recent job growth, but it is possible that we're going to see more layoffs first for labor. Make sure you watch my labor video this morning on the three types of workers and which worker or like which of the three types you want to be in.

[00:14:46]There are two you want to be in and one you don't want to be in. If you didn't watch that video yet, it is probably one of the most important for your own personal wealth if you're still employed to watch because it's going to help you adjust to what you should gear your skill set to so you don't end up getting replaced. You don't want to be a measurer and you won't know what that is until you go watch the video. Uh, all right. Uh, so, oh, surpassing 40. No.

[00:15:13]Yeah, it's neared 45 billion. Okay, that's what I thought. Yeah. Okay, we just talked about that. Okay. So then we've got uh delayed or reduced hiring because of overall economic uncertainty due to AI. All this was uncertain. Uh generally observed that uh spending had been resilient. Credit contraction is the big fear regarding private credit.

[00:15:32]Everybody gets this wrong. Every time I make a video about private credit, I say the biggest risk isn't that these private credit companies lose money or go bankrupt. The biggest risk is that it triggers a credit contraction uh of credit availability from banks, from credit cards, from BNPL's, whatever.

[00:15:51]Basically, all of a sudden, BNPLs can't get the cycle of money flowing anymore.

[00:15:55]So, they stop lending and then people stop having access to debt. People stop having access to debt. That's what slows everything down. So, they rightfully point that out here. And this is why I still like reading uh the the FOMC notes because they make a very good point here. Alternative financing s sources could become challenged should investment sentiment in the private credit sector deteriorate further which could generate broader financial market disruption. Yes, absolutely. So private credit absolutely does affect the normal person because of credit availability.

[00:16:28]Valuations in stocks and housing remain at historic highs. Household balance sheets are strong. significant homeowner equity. This is not a real estate cycle.

[00:16:38]Uh you know that we're going through right here. Uh ongoing deceleration in housing prices. This is related to overbuilding in places like Florida, Texas, and the Sunb Belt. It's not just those areas. It's even like Atlanta.

[00:16:50]You're seeing some uh housing disinflation is probably the better way to put it. Uh several participants commented on recent low rates of job growth. Okay. Yeah, we already read about that. Higher for longer was commented on as well. Where was my higher for longer here? Anyway, somewhere they get to where they talk about I don't know where I put it, but basically there was a point here where they talk about, hey, we don't necessarily need to keep going uh on um this this rate cut trajectory right here. Uh here there it is. A majority of participants highlighted, however, that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%.

[00:17:32]to address this. They wanted to remove the language in the post meeting statement to basically remove any kind of downward bias. In English, they're essentially telling you if we if inflation keeps up keeps it up like this, we will raise rates a little bit.

[00:17:48]Some policy firming would likely become appropriate if inflation were to continue. Those are important words because they're not saying if inflation were to rise. They're saying if it were to continue where it is, some rate hikes would be appropriate. Some firming, which would be one or two rate hikes, which that would suck. Some air out of uh markets. Markets don't want to hear that right now. Bond yields are already popping off, which isn't fantastic uh in itself. Uh let's go take a look at bond yields quickly. Here we've got, let's see, 10year little changed. I want to know what it's at. Oh, there we go. 4.56. Oh, well, good. See, it's right back under 4.57.

[00:18:32]That's sort of my threshold line for it.

[00:18:34]We keep kind of rejecting that. Uh, which is good. And that can help enable that 715 we called for in the alpha report this morning in the mechan membership. I'm just being transparent about it. It's literally written in black and white in our alpha report along with the company that we think is well since Tuesday, I called it as a, you know, likely momentum play. I went as far as saying buy call options on it and the darn thing is, you know, shooting up even more today. It's pretty impressive. Anyway, uh I'd love for you all to be a part of it. We'll see you in the next one. Goodbye and goodbye.

[00:19:08]>> Why not advertise these things that you told us here? I feel like nobody else knows about this.

[00:19:12]>> We'll we'll try a little advertising and see how it goes.

[00:19:14]>> Congratulations, man. You have done so much. People love you. People look up to you.

[00:19:18]>> Kevin Praath there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.