I hope you are having a nice summer even though they always seem to go by too fast.  Below are my thoughts and related charts on the markets/economy. 

For decades, the key to a comfortable retirement for most was to save a portion of your earnings, invest it in the markets and let compounding do its thing.  Generation Z has a different idea as they are allocating more dollars towards sports betting as a part of their long-term financial plan.

The above chart shows survey results from Betterment that illustrate that 52% of Gen Z have redirected funds at least once in the past year towards sports betting and 26% of them use sports betting as a part of their long-term financial plan. Sports betting and prediction markets such as Polymarket and Kalshi have exploded in popularity over the last few years. Why have so many younger investors turned to sports gambling? A combination of overconfidence, ease of use and a rejection of the traditional career ladder. Research from Stanford University shows that most bettors expect to break even but end up losing 7.5 cents for every dollar wagered, with the most confident bettors utilizing parlay bets (multiple bets that must hit to win the bet).

I am all for throwing some pizza money on a couple of longshot bets for fun but outside of a small percentage of bettors who do this for a living, I would not recommend trying to do sports betting as a part of your long-term financial strategy; the game is mostly rigged against you. One of my closest friends is an excellent football bettor who has a consistent track record of making money. What separates him is that he is disciplined on price and betting size, understands that parlays are bad bets and that the “house” wins most of the time. He sounds more like a good investor to me!

ETFs, or exchange-traded funds, have exploded in popularity over the last six years as investors yearn for more targeted and levered ways to invest in different themes, sectors and stocks. ETFs are funds that trade daily like stocks and track an underlying index or stock. The chart below from Strategas shows the growth in the number of new ETFs in the marketplace. 

The increase in the number of new ETFs has coincided with the decline in the number of mutual funds as investors desire lower costs and greater transparency/liquidity. The chart below shows that the number of mutual funds in existence today is the same as it was twenty-five years ago.

Investors can now buy an ETF that invests in robotics companies or an ETF that invests in Google with two times the daily price movement of the stock. I worry some of these leveraged ETF products (using debt to amplify returns) are creating more market volatility which can be harmful to investors. Greater transparency and lower costs are good for investors, but we may be getting to the point where having too many investing options will make investing harder.

If you want to find a way to hedge against A.I. related stocks, the best way to do so right now is to own stocks that have little to do with them. According to a recent report from Evercore ISI, the number of stocks with a negative correlation to the overall market is at its highest point ever. There are currently 121 stocks in the S&P 500 that have a negative correlation to the index. The second largest spike came after the 2000/2001 dot com bubble burst.

The study cites more defensive stocks such as Costco, Coca-Cola, and Chevron as names that have become negatively correlated to the market, meaning these stocks go up when the market goes down and vice versa. Most of the gains in the S&P 500 this year are related to A.I. stocks so what we are seeing now is a pronounced rotation out of the best performing A.I. stocks and a rotation into other areas of the stock market.

Sports minute: I give credit to the Cleveland Guardians front office for the aggressive trades they made a few weeks ago, but the coaching staff and players look lost. On paper, this team is better than last year but cannot seem to put it together. The clock is ticking on their season. Cleveland Cavaliers GM Koby Altman missed out on LeBron James and is now focusing on tertiary options that won’t make the team that much better than last year. The Cleveland Browns have the worst QB room in the NFL and are building a roster that is a year away from competing. There are some good building blocks but until they find a franchise QB, this team is going nowhere. I predict the Browns win five games this year as their schedule is easier than last year.

Thanks for reading!

Raz