This Market Is So Full of It!
We've got a top-heavy market that's unprecented, and being propped up by the likes of Nvidia. When will it all hit the fan?
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The market's top-heavy condition is nearly unprecedented. In yesterday's session, for example, 80% of the S&P Index closed lower: 398 issues ended red, and only 102 issues ended green. But the S&P and Nasdaq surged to all-time highs.
Let me illustrate what's going on with a little story:
Two AI investors are walking in a forest when they come across a pile of sh#t.
The first AI investor says to the other, "I'll pay you $100 to eat that pile of sh#t."
The second AI investor takes the $100 and eats the pile of sh#t.
They continue walking until they come across a second pile of sh#t.
The second AI investor turns to the first and says "I'll pay you $100 to eat that pile of sh#t."
The first AI investor takes the $100 and eats the pile of sh#t.
Walking a little more, the first AI investor looks at the second and says, "You know, I gave you $100 to eat sh#t, then you gave me back the same $100 to eat sh#t, I can't help but feel like we both just ate sh#t for nothing."
"That's not true" responded the second AI investor. "We increased our stock price's value by $20 billion."
- Heard in Silicon Valley last weekend
By most metrics, equities today are pornagraphically overvalued:
Equities, based on traditional valuation metrics, are now in the 98%-tile:
Students of market history have been taught that improving market breadth is integral to a healthy Bull Market.
From Bob Farrell's Ten Lessons On Investing:
Lesson #7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.
Translation: Breadth is important. A rally on narrow breadth indicates limited participation and the chances of failure are above average. The market cannot continue to rally with just a few large-caps (generals) leading the way. Small- and mid-caps (troops) must also be on board to give the rally credibility. A rally that lifts all boats indicates far-reaching strength and increases the chances of further gains.
But, this is not our father's market - and exceptions to the rule are plentiful and divergences are being ignored. Ergo, I have been wrong and in a slump:
The S&P Index Should Be Renamed... 'The Nvidia And Friends Index'
Childhood days, lemonade, romance.
Many portfolios are wrapped into Nvidia
Met her at the World's Fair in 1900...
Ah, Nvidia, she was the most glorious stock under the Sun!
Amazon, Alphabet, Apple... rolled into one!
In other words... and please sing along with Groucho and me:
Lydia the Tattooed Lady
Oh Lydia, oh, Lydia, say have you met Lydia
Oh, Nvidia, the tattooed lady
She has sales that folks adore so
And GAAP earnings even more so
Nvidia, oh, Nvidia, that encyclopedia
Oh, Nvidia, the queen of tattoo
On her back is the Battle of Waterloo
Beside it (short sellers') Wreck of the Hesperus too
And proudly above waves
The Red, White and Blue
You can learn a lot from NVDA
La la la la la la
La la la la la la
When a robe is unfurled Huang will show you the world
If you stand up and tell him where
For a dime you can see Kankakee or Paree
Or Washington crossing the Delaware
La la la la la la
La la la la la la
Oh, Lydia, oh, Lydia, say have you met Lydia
Oh, Nvidia, the tattooed lady
When her muscles start relaxin'
Up the hill comes that cool cat Jensen
Nvidia, oh, Nvidia, that encyclopedia
Oh, NVDA, the champ of them all
For two bits she will do a Mazurka in Jazz
With a view of Santa Clara that no company has
And on a clear day you can see Alcatraz
You can learn a lot from Nvidia
La la la la la la
La la la la la la
Come along and see Buffalo Bill with his lasso
Just a little classic by Mendel Picasso
Here is Captain Bezos exploring the Amazon
And Apple's Tim Cook, but with his pajamas on
La la la la la la
La la la la la la
Announced NVIDIA HGX™ H200 with the new NVIDIA H200 Tensor Core GPU, the first GPU with HBM3e memory, Over on the west coast investors have Treasure Island
Here is Sifei Liu doing the rumba
And the company's $4.93 fully diluted earnings number.
Oh Lydia, oh, Lydia, say have you met Lydia
Oh, Nvidia, the tattooed lady
Lydia, oh, Lydia, that encyclopedia
Oh, Lydia, the queen of them all
She once swept an Admiral clear off his feet
The ships on her hips make portfolios skip a beat
And now the old boy NVDA is in command of the fleet
For he went and married Lydia
Groucho said Lydia (I said Nvidia)
Groucho said Lydia (Investors are buying Nvidia)
La la!
- Lydia (Nvidia) The Tattooed Lady, Kass Column on TheStreetPro Doug's Daily Diary - TheStreet Pro
Nvidia now represents a record 8% of the S&P Index — its been 50 years since one company so dominated the Senior Index (that was General Motors in the early 1970s):
Nvidia's market cap exceeds the economies of Japan or India and is closing in on Germany's GDP.
This morning you will be showered about the "top heavy" large cap tech dominance:
I continue to view this narrowness as unhealthy — but my view hasn't translated into lower stock prices as the strong equities get stronger, carrying the Indices to multiple new highs. My observations and warnings about weak breadth have populated my Diary this week:
I thought the chart I presented in my Diary of yesterday's performance of (XLK) (technology) vs. (XLF) (financials) was conspicuous and ominous... yet the averages flourished and closed near their daily highs:
OCT 28, 2025 3:54 PM EDT
XLK (Tech) vs. XLF (Financials)
On the shows we hear cheerleading. Here is something you will not even hear being discussed on the shows — a conspicuous divergence (and a measure of the narrowing of market breadth I expressed over the last 24 hours):
More broadly, aggregate breadth has had a bad odor of late:
Breadth yesterday:
Breadth Monday:
The three largest companies in the world (Nvidia (NVDA) , Apple (AAPL) and Microsoft (MSFT) ) all hit new all-time highs yesterday:
The disparity between the cap-weighted and equal-weighted S&P index have rarely been greater:
And the difference between (RSP) and (SPY) was the greatest since early April, 2025:
Finally, Bespoke's tweet will be distributed widely this morning:
Warren Buffett reminds us that over the short run the market is a voting machine but in the long run it is a weighing machine.
The Oracle's observation, however, can be questioned in a market that is dominated by passive investing (quants and exchange-traded funds), which prize momentum and worship at its altar and by options traders who are not really traders at all -- who operate more like gamblers (considering nearly 70% of daily volume represented by zero day to expiration options):
I am convinced that the market's top-heavy status and casino-like trading/gambling will be resolved by lower prices - but given how wrong I have been regarding the market's direction, it would be arrogant of me to say I know when the timing of the downturn may be.
It could be today, it could be tomorrow, it could be next week or it could be in the next few months.
At this point I have no freakin' clue.
This week I heard from two of the most knowledgeable market observers extant:
* The first investing icon — who has been as bearish as I have — wrote (from a calendar sense) that it is hard to fight the markets at this time of the year.
* The second investing icon — who has been a cautious (but almost fully invested) Bull — is convinced the market is making an important top this week.
In times like this, actually all the time, I try to remain unemotional — assessing reward vs. risk with a calculator in hand.
I remain skeptical of many of the aspects of AI (financing, usability, user sets, energy challenges, expected low return on invested capital, etc.) as represented by nearly 140 "More Tales From Nvidia" columns. (See "Heard in Silicon Valley quote at the beginning of today's missive!):
I also remain net short in exposure - as according to my analysis, risk dwarfs reward by numerous multiples.
That said (stated simply), I have sh#t on my face...
This commentary was orginally posted in Doug's Daily Diary on TheStreet Pro.
At the time of publication, Kass was short SPY common (M) and calls (VS), QQQ common (M) and calls (VS).
