Jeff deGraaf: Erase Chips From Your Memory

Finance-Focused Summary

Market Outlook and Breadth

Jeff deGraaf described the market as fragile and top-heavy, though not necessarily on the verge of a broad collapse. Cap-weighted indexes can continue rising while the average stock weakens, as passive flows and momentum give the largest companies increasingly large weights.

He prefers the equal-weight S&P 500 as a gauge of the average stock. At the time of the discussion, it was nearly 5% below its peak, below a declining 50-day moving average, and only about 17% of constituents were above their 20-day average. The share above the 200-day average was cited as roughly 43% a week earlier and about 48% more recently.

His approach is to respect prevailing market trends rather than turn broadly bearish prematurely, while reducing exposure to groups whose charts and credit signals are deteriorating.

Credit, Rates, and Market Risk

DeGraaf treats credit markets as a key leading signal for equities. He said stress was most visible in lower-quality credit, especially CCC-rated debt. BB-rated credit had improved slightly over the preceding week, which he viewed as too short a period to draw conclusions.

The pattern he watches is stress appearing first in weaker borrowers and private credit, then in rate-sensitive stocks, and later in aggregate demand and earnings. He cited a typical 3–6 month lag from higher rates to broader effects, though the effects were taking longer to emerge in this cycle.

He also pointed to weakness in speculative areas, including SPAC and IPO indexes, and signs of topping in private-equity-related assets.

In RenMac’s historical framework, the current combination of high inflation and moderate growth has been associated with very weak annualized stock returns—quoted in the subtitles as about 71 basis points, though the figure may be mistranscribed.

Semiconductors and AI

DeGraaf warned that AI may be transformative, but that this does not make every AI-linked company a good investment. He stressed the distinction between good companies and good stocks and cautioned against extrapolating rapid growth indefinitely.

One example, based on data from a RenMac podcast guest, compared annual AI spending per employee: approximately $8,500 for the top 1% of companies, $650 for the top 10%, and $12 at the median.

He argued that exceptionally high semiconductor and memory margins can attract competitors and eventually compress profits. He cited memory gross margins of 85–90% as a potential warning sign, referring to earlier cycles in 1996 and 2000. A stock priced at 7–8× earnings may not be cheap if cyclical profits are near a peak and the multiple later rises to 25–30× as earnings fall.

His stated trading discipline for bubble-like sectors was to avoid trying to call the exact top: wait for a break, a recovery attempt, and renewed weakness rather than selling too early, buying back out of FOMO, and ending up more exposed near the peak.

He said only two semiconductor companies had reached new highs in relative strength and that he supported them on that basis: “STMC” (as rendered in the subtitles; the intended name or ticker is unclear) and Advanced Micro Devices (AMD). Micron and Nvidia were described as somewhere in the middle, while some other memory and semiconductor names looked weaker.

Seasonality and Earnings

Seasonality was a modest positive, not a reason to override the broader market outlook. DeGraaf said it tends to work about 8 years out of 10 when applied consistently. In the historical data he discussed, December had about a 73% chance of a positive result, while November had the strongest median return.

He said the third-quarter reporting season was especially important for market stability. Expectations were high and early results were broadly in line, but he was particularly focused on banks’ loan books and credit quality as a potential “canary in the mine.”

He cautioned that strong results from technology companies might produce only a short-lived rally if the stocks could not sustain their momentum.

Favored Sectors

• Energy was described as the sector with the strongest risk-adjusted momentum, despite investor reluctance to own it and concerns about oil prices. DeGraaf liked the sector’s “mistrustful” or under-owned upward trend. He said positions could be trimmed or traded around if a breakout became overheated.
• Healthcare was another preferred area, partly as a counterweight to technology weakness. He noted potential AI-related productivity and earnings benefits, including in life sciences and biotechnology, while cautioning that some healthcare stocks had become overheated.
• Consumer staples were also mentioned as a sector that can perform relatively well in this type of environment.

Treasury Market, Real Yields, and the Dollar

The discussion cited U.S. federal debt above $40 trillion and a deficit above 6% of GDP. DeGraaf attributed higher long-term yields to a combination of inflation expectations and a larger term premium demanded by investors to hold longer-dated debt.

He put forward inflation expectations at roughly 42–43% of the nominal-versus-real yield difference, with real yields accounting for the remaining 57–58%. The 10-year real yield was approaching 3%; he called real yields above roughly 2.5% generally bearish for stocks.

He said TIPS can lock in a real return and provide protection against inflation. He also compared the real equity-risk premium with bonds, citing a spread of about 170 basis points and saying that was not enough compensation for stock risk relative to bonds.

A recent Treasury auction was described as unusually strong: dealer take-up was just 2.5%, the lowest since 2008, with buyers showing demand around a 5.30% yield. DeGraaf said this was reassuring but not proof that yields had peaked.

The Treasury General Account (TGA) was discussed as a potential tool to support longer-term bonds and restrain yields. DeGraaf characterized its capacity as limited, particularly if the government faced debt-ceiling constraints. The conversation cited an $800 billion TGA, a possible debt ceiling near $41.6 trillion in about six weeks, and a greater-than-35% chance of a government shutdown by December 12. These timing figures are as stated in the subtitles.

DeGraaf said higher real rates support the U.S. dollar and tend to pressure gold. A stronger dollar can also reduce imported inflation, but tightening financial conditions may eventually weigh on demand and risk assets. He pointed to fiscal concerns in France, the U.K., and Japan as additional support for the dollar.

Assets, Sectors, and Companies Mentioned

• Indexes and instruments: S&P 500 (cap-weighted and equal-weighted), semiconductor index, SPAC and IPO indexes, Treasuries, TIPS, private credit, junk bonds, and the U.S. dollar.
• Companies and stocks: AMD; Nvidia; Micron; SK Hynix; Samsung; Western Digital; Applied Materials (rendered as “A Mat” in the subtitles); Devon Energy; EOG Resources; Gilead; Eli Lilly; and Moderna. The subtitles also mention “STMC,” whose intended reference is unclear.
• Sectors and markets: Semiconductors and memory, AI, software, financials, energy, healthcare, biotechnology and life sciences, utilities, and consumer staples; also French, U.K., and Japanese government-bond markets.

Explicit Cautions and Disclosures

Key cautions included not assuming AI growth or unusually high margins will persist, not confusing attractive companies with attractive stocks, and monitoring credit deterioration and real yields.

Seasonality was presented as a secondary input, not a standalone forecast.

The episode included sponsored segments for ClearBridge and ClearStreet and promoted RenMac research. No explicit “not financial advice” disclaimer appears in the subtitles.

Presenters and Sources

• Presenters: Danny Moses, host; Jeff deGraaf, RenMac.
• Sources and people referenced: Renaissance Macro Research (RenMac); Mike Green; Ara Garagozlu of Ramp; and RenMac analysts Neil Dutta, Howard Mason, and Steve Pavlik. Other figures mentioned included Scott Bessent, Bill Clinton, and Jeff Bezos.