In this July 2, 2026 morning briefing, host Kenny Polcari delivers a comprehensive market update ahead of the Fourth of July holiday. He starts with a quick index snapshot— the Dow hit a fresh intraday high before slipping 14 points, the S&P fell 16 points, the Nasdaq dropped 173, while the Mag 7 outperformed with a 2.3% gain. The focal point is Caterpillar (CAT), which has become an AI‑infrastructure darling, trading at a 37x forward earnings premium versus a 15x industry norm. After a 7% pullback that erased 437 Dow points, Polcari examines why the stock may be overvalued and references famed investor Michael Burry’s recent short positions in CAT, Nvidia, Tesla, and Applied Materials. He weighs Burry’s track record, noting his past correct call on the housing crash and a later mis‑timed Tesla short, and advises listeners to consider fundamentals versus short‑term valuation swings. Polcari then reviews macro data: yesterday’s Prices Paid report (73 vs. 82.1 estimate), a slightly weaker ADP, and the upcoming Non‑Farm Payrolls (NFP) expected to add 120k jobs. He discusses Fed Chair Kevin Walsh’s Portugal speech, emphasizing a data‑dependent, no‑forward‑guidance stance, and the resulting bond market reaction (yields up, TLT down). Commodity moves are noted— oil down $1.65, gold up $40. He cautions against over‑reacting to volatility, urging investors to stick to their thesis and discipline, and offers a complimentary portfolio review. The segment closes with a detailed grilled ribeye recipe for the Fourth of July celebration, complete with peppers, onions, mushrooms, and serving suggestions.
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Well, good morning. Yes, it's me, Kenny Polcari, your host of the party. And today is Thursday, July 2nd, 2026, and we're just about to go on the holiday. Happy birthday to America, 250 years. It is really unbelievable. But here are the things you need to know to get your day started today. Well, yesterday, cat got slammed. Michael Burry, the famed investor, calling out valuations. NFP, well, that's out at 8:30 this morning, so we're going to watch for that. Kenny Polcari speaks in Portugal, no hints of any policy change. Oil is lower this morning, gold is rallying, and yields are just a bit higher. And what do we have for dinner tonight? We're going to have the grilled ribeye with peppers, onions, and mushrooms for the big birthday bash. Well, good morning class, because let's go, because there's a lesson in what happened yesterday. The Dow kissed another fresh intraday high at 52,742. Before Caterpillar, the newest AI darling, which has been on an absolute tear this year, up 73% as one of Wall Street's newest AI beneficiaries, he got slammed yesterday. The stock fell 7%, wiping 437 points off of the Dow, leaving that index just 14 points lower on the day. So what happened? One word, valuation. Look, today Caterpillar sits at the center of one of the biggest capital spending cycles we've seen in decades. The company supplies power generation equipment for AI data centers. It provides heavy machinery used to build those data center campuses. It provides mining equipment needed to produce the copper and critical minerals driving electrification and equipment supporting the grid expansion, infrastructure investment, and the reshoring of American manufacturing. But success has come as a price. As it sometimes does. CAT now trades at 37 times forward earnings versus an industry average of closer to 15 times. That's an extraordinary premium for what has historically been viewed as a cyclical industrial company. But now you have to ask a question: is it a cyclical industrial or is it something different? My argument is it's not a cyclical industrial company anymore, and that's exactly why investors have been willing to pay such a premium. Then yesterday this happened. Famed investor Michael Burry, the man who correctly called the housing collapse ahead of the Great Financial Crisis, he revealed bearish positions— think short positions— in Caterpillar, Nvidia, Tesla, and Applied Materials. Those 4 companies touch virtually every corner of the AI buildout, right? It's chips, it's semiconductor equipment, it's electric vehicles, and it's the physical infrastructure powering all of it. These are crowded institutional trades and core holdings in many of today's most popular ETFs. So when a headline like that crosses, it doesn't just move one stock, it ripples through the entire AI ecosystem and parts of the market. Now, do I think Burry's completely wrong? No. Could CAT have become a bit extended? Absolutely. The stock was trading at roughly 18% above trendline. So some mean reversion shouldn't surprise anybody. But remember, Burry also called Tesla wildly overvalued in the summer of 2021 when it was trading at $200. The stock then doubled to $400 over the following months, squeezing his boys pretty hard before eventually collapsing in 2022. So was he right? Yeah, eventually. But being right eventually is very different than being right today. So here's my take. If you've owned CAT for a while and you're sitting on significant gains, what has fundamentally changed? Absolutely nothing. Could you trim your position? Of course you could. Should you? Well, that's your call, not mine. If you just bought Caterpillar way up here because you believe in the long-term AI infrastructure story and the thesis is still intact, then don't let one famous investor shake you out of this position. In fact, If the stock continues to correct, and I suspect it might, consider adding on weakness. Technical support sits down at the trend line down at $9.10. It's about 9% below current levels, so use that as a guide. On the other hand, if the fundamental reason that you bought the stock has changed, then that's a whole different conversation. Then of course you should consider selling it. Michael Burry shorting Caterpillar isn't a fundamental change in the story. It's simply one guy's opinion about valuation, and that's the lesson. Now here's how the other indexes fared. The S&P lost 16, the NASDAQ lost 173, the Russell gave up 12, the Transports added 120— excuse me, the Transports added 210, the Equal Weight closed flat, while the Mag 7— remember them? Well, they gained 760 points, making it the clear winner, up 2.3% in the day. Now here's why yesterday wasn't really as bad as the headlines suggest. While CAD and the semis grabbed all the attention, money continued flowing into— where? Financials, communications, software, cybersecurity, and economically sensitive sectors. The equal-weight S&P held steady, confirming that investors weren't abandoning. They were simply once again rotating into different parts of the market. Now remember what I said, we're in a vacation week. It's a start of a new quarter. Volumes will fade, so moves will be exaggerated. And yesterday, I think some of them were exactly exaggerated, so you shouldn't be surprised. Now, on the Ego Data front, we got a great prices paid report yesterday, something that I told you to watch yesterday morning because it speaks to what manufacturers are paying for raw materials that they use in, uh, the manufacturing process, right? It came in at 73. Down from 82.1 and below the estimate of 77, and that's bullish. There's nothing negative about it. ADP came in a touch weaker, but I don't really pay much attention to this one data point. It's the NFP— today's NFP report— that the market's going to pay attention to, and it's expected to show an additional 120,000 new jobs. I think it comes in a bit stronger, but let's see what happens at 8:30. Unemployment is going to remain anchored at 4.3%. Average hourly earnings month over month and year over year expected to be in line. Now again, I'm going to say it's a holiday week, many people are gone from their desks, volumes will remain subdued, moves will be exaggerated. Do not make any big decisions today on the back of this report or on the back of any moves that you see happening. Fed Chair Kevin Walsh, well, his first appearance in Portugal was at a major international, uh, speech hosted by the ECB. Right, he reiterated that inflation risks have eased but made it crystal clear that the Fed remains committed to its 2% target. He also refused to provide any forward guidance, saying policy decisions will remain meeting by meeting. Bonds reacted, interpreting those comments as more hawkish. The TLT fell 1%, the TLH lost 8/10, and that sent yields higher. The 2-year is now yielding 4.17%, the 10-year is yielding 4— is kissing 4.5%, and the 30-year is kissing 5%. Again, not a disaster, but we're entering the cautious zone once again. Now gold, it had a different reaction this morning. It's up $40 at $4,065 because gold bugs are betting that Warsh is not going to raise rates, thus the move back into gold. I too do not believe that Warsh will raise rates in September, but nor do I believe he's going to cut them either. Right, but we do have 3 months of data to consider. We got July, August, and early September before that September meeting, so it could all change. But also remember this: the election is in November, the midterms. The Fed should not make a change in policy just weeks before the election, which doesn't mean they won't. It just means they shouldn't for fear of being seen as partisan. Let's not forget what happened in September '24. JJ cut rates by 50 bps just 7 weeks before the presidential election. At the time, many questioned the timing because JJ maintained the decision was driven by the data, not by politics. Many questioned that. Fast forward to today, and Kevin Walsh is taking a very different approach. He's refusing to provide forward guidance, emphasizing that every meeting will be data dependent, and going out of his way to avoid creating the perception that the Fed is steering policy around market or political expectations. I think that's good. Oil is trading lower, down $1.67, $1.65. That's also good. We're now well below the trend line of $70. Next stop for oil should be in the low $60s, so just sit tight. European markets are all higher this morning. U.S. futures are mixed. Dow futures are up, uh, 75 points. The S&P's are up 3, the NASDAQ's down 100, and the Russell is up 4 points. Now the S&P closed at 7,483, down 16 points yesterday. Trend line supports down at 7,378. With the all-time high at $7,060 being resistance. Here's the takeaway: don't confuse volatility with a change in the story. Caterpillar didn't suddenly become a bad company yesterday. NVIDIA didn't suddenly become obsolete. One famous investor expressed an opinion, traders took some profits, the new Fed chair made some comments, and the market did what healthy markets do— it rotated. The key, if your investment thesis hasn't changed, then neither should your discipline, right? You can give me a call at 561-931-0190 to discuss your goals and your timeline. Let's assess the risk in your portfolio and have versus your tolerance. And I'm always happy to do a complimentary portfolio review to see where your risk is and where you are. Okay, so what do we have for dinner? So this is a great weekend barbecue dish to go with your hot dogs and hamburgers and all that. It's a simple grilled ribeye. With peppers, onions, and mushrooms. So happy 250th birthday to America! So let's go. For this, you're going to need the ribeyes, uh, you need olive oil, salt and pepper, sliced bell peppers, sliced onions, sliced mushrooms, and a couple of cloves of garlic that you're going to slice. And of course, you need some butter. You're going to take the steaks out of the fridge probably 45 minutes to an hour before cooking, going to pat them dry, season them with salt and pepper, massage with a little bit of olive oil, let them sit. Now in a large pan, you're going to cook the veggies, right? You're going to heat a large cast iron skillet over the medium-high heat. You're going to add some olive oil, add the onions first, cook those for about 5 minutes. Then you're going to add the peppers, you're going to cook those for another 5 or 6 minutes. And now you're going to add the mushrooms. You're going to season the whole thing with salt and pepper. When the mushrooms begin to turn brown, then you're going to add, you know, a dollop of butter and the garlic slices. You're going to cook that another 3 or 4 minutes. You're going to keep it warm, turn the heat down to simmer, and just cover, keep it warm. Now you're going to get ready to grill the ribeye. Get the grill screaming hot. Place the steaks over the direct heat. Add the steak. Cook it 4 minutes on one side, then 4 minutes on the other, depending on the thickness. This should give you a perfect medium-rare steak. Remove it. Let it rest for 5 minutes. Don't skip this part because the juices redistribute, the steak becomes dramatically better. Serve it with the peppers, onions, and mushrooms on the plate, and And then serve it also with a large mixed green salad or anything else that you have on your barbecue table. Maybe that tortellini salad that I gave you the other day or the watermelon avocado salad I gave you yesterday. Look, it's gonna be a great weekend. It's gonna be hot, sunny. It's really gonna be hot along the, I guess, the Northeast. In any event, have a great Fourth. Happy birthday, America. Until Monday, take good care.
