The Real Economy Comeback No One Saw Coming

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If that wasn’t bad enough, we have to remember that many investors went into the year with significant exposure to the Mag 7, but those stocks have significantly lagged the performance of the 493 other stocks in the S&P index. The good news? The month of July has been the best performing month in the stock market over the last 20 years, according to Ryan Detrick . The folks at OddStats show that positive performance in the first half of the year during a midterm year has historically led to positive performance in the second half of the year. The second half median return has been 2.8% when the first half was green. Interestingly, Jim Bianco shows that non-AI stocks are starting to be negatively correlated to AI stocks. He points out “over the last week or so, the $SPX is down ~2% (black). AI-related stocks (red) have slumped ~4.52%. This is ~50/75 of the S&P 500. Non-Al stocks (orange) have soared ~2.31%. This is ~425 to 450. Is this market telling us it is bullish for the economy if AI stocks get crushed?” This is only short-term performance, so we need more data before we can conclusively determine how to use this in an investment process, but the recent development is worth continuing to watch. In the least shocking news ever, the permabears are out in full force predicting the next great Dot Com bust from AI. Of course, none of the permabears want to acknowledge that forward P/E multiples are lower today than they were at the start of the year. Boring Biz write s: “A lot of people continue to compare the AI cycle with the dot-com bubble, without realizing that the run-up has been driven by fundamental earnings growth, while the 2000s was mostly just hopes and dreams Forward P/E multiples in tech have contracted even as stock prices have gone up this time around.” I guess don’t let pesky facts get in the way of some fear porn to scare everyone into believing you are smart. Before I go off on a passionate tangent about the permabears, let’s get back to the potential performance of the stock market going forward. We don’t need to look at history to get excited about the next six months. The US stock market is performing well because the underlying fundamentals of the leading businesses have been growing at a rapid pace. James Thorne put it nicely when he wrote about the End of Financial Engineering : “For the first time in over a decade, the center of gravity in American capitalism is shifting from financial engineering back to the real economy. For years, the dominant corporate playbook was simple: keep capital expenditure lean, recycle excess cash into share buybacks, and let multiple expansion and shrinking share counts do the heavy lifting. Capex was treated as a drag; buybacks were hailed as shareholder discipline. That framework is now colliding with a new political and strategic reality. Scott Bessent has given that shift its intellectual anchor, invoking Alexander Hamilton’s dictum that every nation ought to endeavor to possess within itself all the essentials of national supply. The point is not autarky. It is that a nation cannot remain prosperous, secure, and sovereign if it outsources the foundations of industrial power.” If financial engineering is not going to be rewarded like it has been in the past, then where should investors look to put their capital? Thorne continues: “The AI buildout makes the investment case obvious. Markets may punish rising capex and reduced buybacks, but that capital is not disappearing. It is moving into concrete, steel, copper, power, logistics, and machinery. The same is true of energy security, agricultural capacity, and domestic supply chains more broadly. Investors who cling to the low-capex, high-buyback playbook are effectively betting on a shrinking productive base in a world that is relearning the value of physical capacity. The better opportunity is to invest where capital is now flowing: the companies and sectors building the real economy.” The real economy. Companies building real things. Solving hard problems. That is where value has historically accrued. The days of financial engineering are evaporating and being replaced by productive assets that continue accelerating. That is why the AI trade has been sustainable. This isn’t some woo-woo nonsense. It is being driven by real companies that are solving one of the biggest problems in society. Fade the trend at your own peril. Hope you have a great start to your week. I will talk to everyone next time. - Anthony J. Pompliano Founder & CEO, ProCap Financial (Nasdaq: BRR) Why Are Bitcoin & AI Stocks CRASHING?! Jordi Visser is a veteran macro investor with 30+ years of experience and the author of the VisserLabs Substack . 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