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0:05 spk_0
Welcome to Stocks in Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blicker, your host, and with me is my co-host, Yahoo Finance senior reporter, Brooke De Palma, who’s here to connect the dots and to be that bridge between Wall Street and Main Street. Today, we’re gonna be talking about all things ETF from plain vanilla stocks to their leveraged cousins.To commodities like gold and silver, to more advanced products using derivatives, you know, the kind Warren Buffett calls weapons of mass destruction. Our phrase of the day, market concentration. Just because we’ve got lots of participation, doesn’t mean you don’t own too much Nvidia. And for market show and tell, we’re looking at a large cap energy ETF exploring the concept of trading ranges. As they say, the longer the base, the higher in space. What that means.For your energy plays. And this episode is brought to you by the number 13. When we look at leverage ETFs, that’s how much more the ETF crowd is long versus short. We’re gonna tell you what happened the last time we hit these eye-watering levels of bullishness, and today we are welcoming back Todd Sohn CMT. That stands for chartered Market technician. So you know we’re gonna be digging into some voodoo technical analysis. He leads ETF.Research at Strategis, where he works with institutional clients, and he writes some of the most innovative and actionable ETF flows reports in the industry. That’s why we’ve dubbed Todd here the ETF whisperer. Before we get into market concentration, Todd, set the table for us in 2026. What are we walking into? OK,
1:41 spk_1
so I, I, I, I think 206 is about, we’ll talk about concentration, participation.Right. How many stocks are in on the move and sensation. Uh, how bullish is the crowd getting leading into this year andListen, it’s a global bull market. Things are in still pretty good shape, but I, I have some concerns about the third part of that, the sensation folks are getting,
2:04 spk_0
and what does your rumination lead you to say?
2:07 spk_1
There’ll be a speed bump. The setup is eerily similar to the start of 2025, right? Coming off of a really great year. The backdrop of earnings and margins still really strong, but folks are gonna get very bullish because of how strong the markets have been in the equity space, so.Uh, I would not get too deterred. I don’t want to sound embarrassed or anything like that. I just would be mindful of that perhaps the potential to get tripped up at some point in the first half.
2:30 spk_2
Let’s stick with one of the phrases that you mentioned with our phrase of the day, and that is market concentration. That’s when a small group of big stocks drive a huge chunk of an index or your portfolio. So.You have broad participation and still be overexposed to one or two names, as Jared said in the intro. Just because lots of stocks are up doesn’t mean you don’t own too much Nvidia. And Todd, this is something you’ve really been focusing on recently, even saying that investors perhaps are forced into market concentration. So just walk us throughthat.
2:58 spk_1
I think there’s a confrontation with concentration ahead for investors, right? Um.This does not mean that it is a lack of market bread out there, right? You have 10 stocks that make up 40% of the S&P 500. That is multi-decade highs. That’s been the story of the last year and a half. Defensive sectors in the S&P 500 are at a 35-year low. That’s energy, healthcare, staple, Staples utilities. They’re only about 19% now.Uh, and so whenever you are buying an ETF, a large cap passive ETF, you’re gonna be allocating, uh, $40 out of $100 to those 10 stocks. It’s the same thing if you’re buying large cap growth, if you’re buying an AI thematic ETF, or even Momentum and Quality. They all own stuff like Nvidia, Microsoft, Apple, Amazon, that’s greatly benefit everyone, but I think now it’s a great time to say, hey, uh, how much of this do I actually own because there’s so many other opportunities abroad.
3:50 spk_0
We’re gonna get to that in a second. I love all the opportunities that you’ve laid out in your most recent report. I want to get to that level, that number you just mentioned, 40%. That is the, uh, the market weight of the 10 largest stocks in the S&P 500. You said, is it gonna, you, well, you wondered aloud, is it gonna go to 50% or 30% 1st? And just kind of walk us through that one.
4:09 spk_1
That isa very important question. If you go to 50%.Right, that’s getting more and more concentrated. Clearly that means
4:16 spk_0
AI. We’re gonna call it the Nvidia 500 or something,
4:19 spk_1
exactly. And that, that probably starts to bring in some sort of benchmark rules too, right? There are rules, regulated investment company rules that say you can only have a certain percentage of your assets in a certain amount of stocks. That’s a whole other category.If you went down to 30%, that means passive indices are probably going through some sort of hiccup, right? Maybe the earnings disappointed, but other areas are likely picking up steam. Maybe it’s healthcare, maybe it’s industrials or staples, for example. So there’s a lot of implications on what gets hit first. Now, the one I didn’t mention in that sentence and that you didn’t mention is what happens if we just stay at 40%. Well, OK, that’s, that’s fine too. That’s status quo, which, uh, I don’t mind, but I still think investors need to realize how much of the ingredient.that they have in their portfolios. Todd,
5:00 spk_2
Ireally like the way you phrase it. You said they’re at this point of confrontation for concentration. So for investors who are looking at their portfolio right now, what are some indicators they should be looking for to realize I’m at a, I’m at a confrontation right now?
5:14 spk_1
Yeah, well, just take a look at, say, do I own the S&P 500? Do I loan large cap growth? And then do I own a thematic fund that has a lot of tech in it? They need to do a deep dive, and there’s software out there. There’s people like myself that can help.And say, well, hey, what, what’s in my portfolio total? And then do I own international? Do I own small caps? Do I own alternatives out there to help kind of water down and dilute that exposure just in case you’re gonna need it at some point. This is just, yeah, you, you need to have insurance out there, right? Because you have benefited from large cap growth in AI, especially over the last couple of years, but too much of a good thing can be harmful at some point.
5:52 spk_0
Let’s talk about some of those names, some of those new ETF takers, and maybe not of them, not all of them are new, but that offer alternatives, and I would note that, um, I, I’ve, I’ve become a prize thanks to your work to buffer funds and their and their popularity, and that’s basically, you know,If the S&P 500 goes up 20% this year, you might be limited or capped at 10%, but also your downside is capped. That’s just one example. And that’s just one tiny slice of the ETF market. So tell us about the options that exist out there. There are
6:22 spk_1
so many. There are so, so many. It all depends on the type of investor, the demographic, right? Your age can be very important for buffer ETFs. They give you downside protection, say up to 20% of the S&P or the NASDAQ.And if you are maybe closer to retirement, or you’re about to make a large purchase, a home, a car, whatever it might be, uh, that buffer fund can help you if you’re nervous about the market taking a very large hit in the near term. Uh, the other options, you can buy a covered car fund where I’m going to sell options against an index to generate income.There are things like managed futures, which I know are near thinking dear to you, Jared. Uh, I love those because they can be crash protection in a sense, right? If the market were to take a hit, maybe some other areas such as commodities or fixed income get a boost, and that’s where that managed future space can offer you lower correlated returns. That’s, that’s the key word here,
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correlation, low correlation,
7:14 spk_1
looking for lowto uncorrelated, um, ETFs to fit into your portfolio to balance out US equities.
7:21 spk_0
So it takes a little bit of research here. All right, we got to get in.To today’s market share, uh, show and tell, and we are looking at trading ranges today. And we’re using the S&P Select Energy Spider Fund ticker, XLE as an example. So a trading range is when price bounces between a floor and a ceiling for a while. It’s not just, it’s not trending up or trending down, it’s coiling. And XLE has been in a big trading range going about, going back about 3 to 4 years. But if you max out the chart to the ETF’s inception at the very beginning of the century, we see that this isThe third time that XLE has tried to break through that $45 to $50 area. So it tried in 2008 and 2014, and it pretty quickly crashed down each each time. And now that XLE has spent about 3 years consolidating under the $50 level, I got to think, well, if this thing breaks, as Ralph Alcampori says, you know, the godfather of techno of uh technical analysis, the longer the base, the higher in space. So, what do you think about this one? And the
8:21 spk_1
energy is super interesting. OK, so.Risk is, is opportunity cost. Energy continues to just be nothing, right?
8:27 spk_0
It could be in a trading range another 1 year,
8:29 spk_1
yeah, 1 year, 2 years, but this goes back to the concentration aspect. If you’re looking for something different and lower correlated, energy makes a lot of sense. Uh, and I think this is a great risk reward for if you’re a more tactical investor to buy XLE for playing for that upside for that breakout, or use the options market, you know, if you, if you know, understand the options market, buy a call option to say, all right, I’m gonna limit my capital.But I’m gonna buy a call option out in the future to play for that breakout. Uh, and I, I like to put on my technical hat, big trading ranges, because you have very defined risks. Once you break out, you know you’re good there. If it breaks down, you’re out, right? Very much defined. It’s just more about the waiting game, but energy is the one that’s been on our radar.
9:13 spk_2
When you think about the overall rotation that we’ve seen within this market, utilities, industry, industrials, materials really gaining momentum. What do you make of that? And maybe when you’re thinking.as well.
9:23 spk_1
So industrial is all about power and defense, right? Power because of the AI story and then defense because we have these geopolitical events such as Venezuela that just happened popping up and you see that there is demand for these companies. So industrials have been a beneficiary of that and there’s a lot of industrial defense ETFs out there now. Um, energy to me is one way to play against.If, and this is a big if, if inflation were ever to come back, right? I can oil ever revive itself? Who knows, right? We’ll see. But that’s one way along with defense and metals and mining to play against a second wave of inflation, if that ever happens, we’ll see. Um, it certainly doesn’t seem like a problem right now, but if it’s a low bar for oil, you ever get WTIO back above 70, 75 bucks, then you can start to say, OK, that should benefit energy there.Um, and it’s also not very crowded. I look at sector ETF flows, and there’s been a ton of money out of energy because it’s been so frustrating. So I like that from an interesting contrarian perspective.
10:22 spk_0
I want to ask you about another sector. I think it was a year ago we were talking about healthcare, and healthcare really came alive at the end of 2025. You were.Talking about the opportunity and um it hadn’t set up quite yet. Technically, I, I mean, the price bottom was not quite in yet, but we had seen those negative flows and it was so unloved. And you know, at some point, it just had to pop and it had to click and it finally did. I wonder if you still like healthcare. Yes.
10:48 spk_1
Do I think it’s getting a little bit more crowded and leading consensus? Yes, but it has momentum, uh, and it has the trends are back now, so I don’t want to fight that.And there’s still a lot of names in healthcare, whether it’s Big Pharma all the way down to Super Eli Lilly
11:02 spk_0
just hit a record high
11:03 spk_1
andthat took a good half, second half of the year off. So from Eli Lilly to high beta biotech that have been off the playing field for the better part of the last 5 years, think about it that way. So you have the setup, the statistical extremes for healthcare, the really bad performance, the outflows, and now.The full market embracement’s coming, so I, I still think healthcare is worth it, especially in the concentrated world. Um, I, I, I’m, I’m very much enthusiastic on that space.
11:31 spk_2
I will definitely take a, keep a close eye on healthcare, but we do need to take a quick short break. But coming up we’re talking leveraged ETFs plus a Disney inspired runway showdown. Stay tuned.This episode is brought to you by the number 13. In leveraged ETFs, that’s the rough gap between how much more the crown is positioned long versus short, about 13 leveraged long dollars for each short dollar. Todd, you tracked this ratio over time, and what caught us within your report and your work is that the last time we were at these levels were late 2024, early 2025, which is right around the time that US stocks were peaking a few months before things really did melt around liberation.Day, then we sort of started to turn in the market. So tell us where we’re at now and what you think is going on to kick off this year. Yeah,
12:25 spk_1
it’s very similar, right? We’re at new highs. We have big flows in equity ETFs, and the great part about ETFs is I can get little clues on how investors are behaving. One of those ways is through levered ETFs. Take the ratio of levered long funds to inverse ETFs, and that’s a pretty good and kind of new sentiment barometer. So we’re at a new high on that, as you mentioned, 13 to 1.It is not a sell signal, but more a situational awareness that, hey, people are very enthusiastic right now. Um, if that is met with deterioration from market breath, that’s when you start to raise your guard and say, hey, are we going into some sort of environment like we saw from March to April last year. Uh, I just want to be very cognizant of that, that there’s a lot of use of leverage, um, from the everyday investor.
13:10 spk_0
I wanna, I wanna hit on that because we are in the 2nd era of leverage ETFs because I’ve seen.Uh, charts going, and they might have been, they might have come from you, going all the way back to like the uh mid-aughts. So like 2005, 2006, and there was a rise. So in 2007, 2008, 2009, 2010, even 201011, we saw all these leverage ETF products, and those were the first batch. But I think what killed them was the flash crash and then we had, you know, we had some tough markets back then. Liquidity was a big issue. A lot of big players went out of business. And then recently weWe saw this resurgence and as you noted in your work recently, 1 in 4 new listings for ETFs in 2025, they were levered. Does that give you any kind of concern about things overall?
13:53 spk_1
What’s
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your indication
13:54 spk_1
here? It makes me a little nervous. The leverage is, when not used properly, very dangerous, especially for folks who don’t understand what they’re getting involved in, right? You don’t buy a 2X or 3X ETF and expect it to hold it. It’s meant for day trading, right?Um, but there is this pervasive amount of launches using leverage, especially on single stocks now, and those are getting more and more volatile, um.If the US were to ever enter some form of a bear market, a lot of that will disappear, I suspect, right? The bear, the bull market in US stocks have kept the leverage space alive for people willing to take on that. Yeah, exactly. This is all about risk. This is totally all about risk, so.I think it’s something to be aware of. It’s not a case to say, all right, sell all my stocks, you don’t want to do that. But if you’re just looking for the bear case or the risk case in the near term, it’s this levered space that’s going on, the activity there, and you’re seeing the trading volumes too. They’re, they’re skyrocketing.
14:48 spk_0
You hit on something I want to expand on for just a second. We did an entire show, well, an entire segment, a few shows ago on leverage ETFs that it was, that was our phrase of the day. And what you pointed out just now is that these are geared towards day trading. When they say 2X or 3X, they are doing that on a daily basis. So, not over a month. So if Tesla goes from, you know, if it, if it 2X is over a month, you’re not necessarily gonna get that in the lever fund. In fact, ifTesla achieves that doubling of its price, but in a very volatile way, you can lose money even if you’re in the 2X ETF. So just kind of talk to us about that dynamic.
15:24 spk_1
Yeah, so they have a, a daily reset, right? Every day they have to reset the exposure from whether if the stock goes down, it might go below 2X. I got to bring it back to 2X or above, bring it back to 2X. There’s also fees involved here. These are expensive products. They’re expensive in terms of the management fee and then the fees to get the swap exposure.And as long as interest rates remain somewhat higher than they were in the QE era, which was nothing, um, it’s going to cost you to get that swap exposure. So the fees will eat away at your returns each day. I think that’s an important part of this too. Uh, and then also volatility, right? If, whether it’s Tesla or any other name out there, if it goes down 20%, that means the 2X is going down 40%. So you’re already getting crushed there. There’s a lot of cards stacked against you when you’re trying to hold these for longer than a day or two.Uh, so you have to be very, very mindful that, um, they’re great when the market goes.Get some momentum, especially coming off of the correction lows. Think of March 2020 or even April 2025. That’s when the leverage really picks up because people want to press their bets in a liquidity environment.Um, but again, they’re, they’re just not, you have to read the fine print. I think that’s so, so important. A lot of folks miss that because it’s, no one likes reading fine print.
16:36 spk_2
Todd, we did get an interesting stat out this Monday. The, the stat says that $700 million worth of inflows into US Bitcoin ETFs happened on Monday. That was the most since about October 7th. When you think about more and more firms willing to go.Into these Bitcoin ETFs. What do you make of it? And maybe we’re hearing about this risk on environment.
16:57 spk_0
So what’s do the flow? Yeah, let me, let me broaden that. Do the flows predict a bottom in Bitcoin because everybody wants to know if there’s a bottom end Bitcoin.
17:03 spk_1
So flowsto me aren’t necessarily a signal, but what is super interesting, Brooke, you mentioned that allocations are being opened up by large firms, Vanguard, Bank of America, Morgan Stanley filed for crypto products this week, their own.That is a massive amount of money, money of of US wealth to buy Bitcoin products. And so it makes you wonder.Advisors have had access to US stocks and international stocks for years, and that’s money going in every single day. Is that now gonna translate to crypto and kind of keep the, the bid afloat for, for crypto products? Of course, it’s not gonna work every time, but there’s so much money now being opened up to that space that I, I wonder if you’re putting in a bottom because of that, right? Um, I was a little deterred by how much random crypto products were coming out of the ETF space recently. 2X, Dogecoin and stuff like that. OK, you can have fun with it, but it’s hard to take too seriously.Um, but it goes back to this wealth channel that’s now being opened up to a relatively new asset class. So
18:00 spk_2
itseems like proceed with caution kind oftake. I,
18:03 spk_1
I think if you want to take a flyer on Bitcoin, it can be worth a shot here in a tactical sense. And I also think that if you’re looking to, if you have FOMO.And you don’t want to miss the next big rally, whenever that is. Having 1 to 3% seems to be what everyone, uh, agrees upon in a portfolio. And now you can buy it an ETF safe. You’re not gonna wake up and have zero unless the price declines. You’re not gonna get robbed like you would in a wallet to some extent. So, uh, I think worth a look and keep in mind there’s a lot of money coming to the space to help probably keep pricesafloat.
18:35 spk_0
Before we get to our runway showdown, I’m wondering anything on ETFs that we didn’t hit on here just yet that you think is important for the viewers.
18:43 spk_1
Let’s see, let’s see, so.I think take a look at small cap ETFs. Um, 2025 was the first time since 2011 that you had outflows from small cap ETFs,and there’s a
18:54 spk_0
and we saw new highs in, uh, you know, IWM 200.
18:58 spk_1
They are definitely back, right? You have, there’s a lot of healthcare in small caps that’s working, and there’s a lot of financials that are working in small caps. I think it’s the biggest sector, yeah, if you gave up on them, up your dosage, come back into the space. So that’s rare, and we’re also at this point.You met, we talked about buffers, uh, derivative usage is really escalating in ETFs. Just do your homework when you’re looking at one of these products because they’re very complex. They can be a really good solution, but they’re not just a, all right, I’m just gonna buy it. Make sure you understand what you’re getting involved
19:24 spk_0
in. Again, read the fine print here, not everybody’s cut out for it, but that’s why we have advisors. All right, now we’ve got a market’s take on a classic Hollywood gab show staple, who wore it better. And today we’re pitting physical versus digital gold, but with a twist. We’re going full Disney asTodd here is a huge fan of the franchise. So on the left catwalk, we’ve got Scrooge McDuck, who, who we all know loves his gold. He’s strutting in a velvet banker coat with metallic gold trim, coin cufflinks, and a solid gold cane. The style is pure store value, heavy, classic, built to last. When markets get weird, investors like their bullion, and Scrooge, he likes to wear it.On the right, we’ve got Buzz Lightyear repping Bitcoin and outfitted for infinity and beyond, which means to the moon in Wall Street bets parlances. He’s decked out in a glossy spacesuit, spacesuit jacket with neon edge glow, chrome accents, and a rocket pack that screams crypto liftoff. So Todd, who wins the 2026 return race? Is it Scrooge McDuck and his gold trade or Buzz Lightyear riding the Bitcoin juggernaut? I love
20:26 spk_1
that. That’sfantastic.If I’m picking right now, I, I will skew towards Bitcoin. Uh, I think there’s a little bit of metal mania, actually not even a little bit, a lot of metal mania going on right now.
20:38 spk_0
Um, so too far, too fast. Yeah, the underdog too late
20:41 spk_1
as well. I, yeah, it’s hard for me to want to chase gold, silver, and you’re even seeing like platinum palladium really take off, um, and you see in the activity, you see the inflows really esoteric levered metal ETFs are seeing massive volumes.Um, I don’t love that. It’s very frantic to a sense, and gold’s been on a great run, but there’s way too many statistical extremes there for me right now. If it resets, then we can revisit it. Meanwhile, the reset has happened in crypto, and I think that’s far more timely as much as if you’re looking at charts of the two, most will say, well, gold clearly has the better trend, but I think crypto is far more timely.
21:17 spk_2
What do you make of the current trends that are happening with all these firms like we just discussed getting in? Do you feel like that’s the opportunity as well? And so we had to, we had many gold guests on the show, and they say, OK, if we’re gonna play gold, play into ETFs. But you’re saying maybe move away from.That and in because gold seen at the safe haven here, Bitcoin a little more riskier,
21:38 spk_0
a risky safe haven. I love I, I crypto
21:41 spk_1
is definitely more risk on. I think gold seems to work almost in any environment. It can work in risk on, it can work in geopolitical risk off and inflationary risk off too. Um, but I look at this as purely what is more timely for a new allocation, and crypto has corrected.A meaningful amount over the last down
22:01 spk_2
from that 126,000.
22:03 spk_1
Yeah, I, I think folks, as much as it’s being opened up to the advisory community, kind of moved on to it, and you see all the trading volume going to the metals right now and it’s very frantic and a lot of call activity, a lot of inflows, tons of volume, and any sort, anything with metal on it is seeing super action, and I, I don’t love that. I never like because that tells me the herd is involved there.
22:23 spk_0
And I was waiting for that Time magazine cover featuring gold or something like that,
22:27 spk_1
or that’s probably on the way if it already hasn’t happened. So I never like when that starts. That makes me very nervous.
22:33 spk_0
I hear you. Well, Todd, uh, it’s been a pleasure having you back. Again. This is your 5th time here. So if we had a bigger budget, we’d get you a mug or, you know, a letter jacket, something. I
22:43 spk_1
truly appreciate it.
22:45 spk_0
I love doing it. And we learned a lot here. We talked, we started with market concentration and just as a reminder, Nvidia andNine other largest, uh, stocks in the S&P 500 taking up 40% of it right now. And Todd’s big question, does it go to 51st or does it go to 31st? And those, uh, particular scenarios have huge implications for what actually pans out in the market. We’re gonna have to wait and see exactly how it shakes out. But in terms of trading ranges, I’ve been looking at XLE for a while, and I could be looking at it trading sideways for another year here, but when it takes off, I think, uh, it’s gonna take off for a while.And uh, oh, on levered ETFs you gotta know what you’re getting into. These are for day trading. If you’re trying to make a long-term bet on Tesla, you’re better off probably doing it in another way. So, we have officially wound things down here at Stocks in Translation, but make sure you check out all our other episodes of the video podcast on the Yahoo Finance site and mobile app. We’re also on all your favorite podcast platforms. So be sure to like, leave a comment, and subscribe wherever you get your podcast, and we will see you next time on Stocks in Translation.