The Best Mag 7 Stock Is Also the Cheapest VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - The Fed may have a new “shadow chair”
- Jeff Clark’s is warning of a “false premise” on homebuilders
- Google’s wins the first of two big antitrust cases
- Here’s why it’s just as much of a buy after its 10% surge
- A powerful combination of TradeSmith strategies
- And the one way to access everything we offer
Did Trump just appoint a “shadow chair” to the Fed? Yesterday on Capitol Hill, the Senate Banking Committee grilled Council of Economic Advisers Chair Stephen Miran. He’s President Trump’s new nominee to fill a Federal Reserve governor seat, opened up by a surprise resignation from Adriana Kugler on August 1. Fed independence is a big question mark right now. And Miran happens to be a longtime economic adviser to the president. Against the backdrop of Trump announcing he’s firing Fed governor Lisa Cook… and an ongoing lawsuit challenging this firing… Miran swore to uphold the central bank’s independence as well as its dual mandate – price stability and maximum employment. As he told Senators: In my view, the most important job of the central bank is to prevent depressions and hyperinflations. Independence of monetary policy is a critical element for its success. Some see Miran as Trump’s “shadow chair” at the central bank. The idea is he’ll push for the lower rates the president has been looking for. The baseline forecast is for a quarter-point cut later this month when the Fed meets. But whether or not that happens isn’t really in our control. What we can control is our understanding of how investors are chasing this rate cut narrative… and the flaws in their thinking. | Recommended Link | | | | Up to 500 professionals from JPMorgan, Barclays, and Morgan Stanley monitor one man’s work. He’s not famous. He doesn’t run a fund. But in 2025, his method went 18-for-18, with upfront payouts up to $1,000. And thanks to the latest tariff chaos, it’s only getting better. Meet the trader here. |  | | One popular “rate cut trade” right now is homebuilders… Homebuilder stocks have been racing higher over the past few months. The S&P Homebuilders ETF (XHB) is up 22% from the June lows. The thinking is that when the Fed cuts rates, it’ll make housing more affordable… and this group will benefit. But our master trader, Jeff Clark, says getting excited about that “rate cut trade” wouldn’t fit with recent history. Here’s Jeff… When the Fed started cutting short-term interest rates last September, long-term rates moved higher. In other words, buying a new home was less affordable. And the homebuilding stocks fell… hard. It’s all in Jeff’s chart of XHB… Jeff points out that when the Fed cut rates back in September, that marked a top in the homebuilders: 
But why? Back to Jeff… Housing stocks peaked in mid-September, trading around $124 just as the Fed started lowering short-term interest rates. Three months later, XHB was trading near $102. Just about all the gains leading up to the rate cut evaporated. The rally was based on a false premise. Housing stocks rallied on the mistaken belief that if the Fed lowered short-term rates, then long-term rates would fall as well. The idea of lower short-term rates leading to lower long-term rates is, as Jeff puts it, a false premise. The Fed only controls short-term interest rates – the kind that drive yields on savings accounts and bank loans. Longer-term rates – especially the yield on the 10-year Treasury – are set by market forces. They’re what determine mortgage rates… the biggest affordability factor in the housing market. As the Fed cut last year, the yield on the 10-year T-note went in the other direction: 
But here again, investors are expecting a lower short-term rate will lead to a lower long-term rate. Short-term Treasury yields have fallen since Powell’s Jackson Hole speech on August 22. But the long-term yields have traded mostly flat. The 30-year yield, in particular, is near 5% and is close to its highest levels in decades. Homebuilders and other sectors sensitive to longer-term rates just don’t look like a great trade here. Not to mention, the homebuilding sector has one of the least healthy internals of any sector right now. Check out this list of the S&P 500 sector ETFs sorted by their Health distributions. Health is TradeSmith’s proprietary indicator of positive trading conditions – measured in Green, Yellow, and Red Zones. The Real Estate sector has the lowest number of Green Zone stocks of the list… and the highest number of stocks in the Yellow: 
For the thousands of stocks we track in our database, we check each one’s price action against its historical volatility. If a stock is trading in an uptrend compared to that volatility, then it’s in a healthy Green Zone state. The Yellow Zone is a warning zone – it’s what happens when a Green Zone stock falls halfway between its recent high and the Red Zone. The Red Zone is our measure of poor trading conditions – stocks that have fallen further than what’s “normal” according to their historical volatility. That’s yet another reason Homebuilders are not the rates trade to make right now. Instead, look at the Utilities sector. It has the highest number of Green Zone stocks, along with the fewest in the Red Zone. And with that sector having some of the highest dividend yields, it will be easier to compete with short-term Treasurys if rates fall. In other news, Google has escaped the ire of regulators… On Wednesday, regulators said Alphabet (GOOGL) can hold onto its popular Chrome web browser and its Android smartphone software. Chrome holds nearly 70% of the web browser market. You more than likely use Chrome as your browser. What may surprise you is the Android market share. Android is not as popular in the U.S. as Apple’s iPhone, holding a 41% market share to Apple’s 57%. But globally, it dominates at more than 70%. The case came about because regulators think Google’s dominance in these spaces makes it a monopoly. Google’s lawyers clearly proved otherwise. Google can’t rest easy… Another case challenging its ad services – the company’s most important business, making up 75% of its $350 billion revenue in 2024 – is coming up later this year. But investors clearly saw the ruling as a dark cloud parting above the company’s head. The stock rose more than 10% from Tuesday’s close, its best single-day performance since the announcement of the tariff pause on April 9. It’s a good time to reflect on what an effective business Google really is… Among the Magnificent 7, it may be third in revenue behind Amazon ($637 billion) and Apple ($391 billion). But in terms of profitability, Google keeps $100 billion of its revenue… the highest of the Mag 7. At the same time, it’s priced the most cheaply of this group, at a price-to-earnings ratio (P/E) of 24. The next cheapest is Meta Platforms (META), at almost 27. Those are just the textbook comparisons. TradeSmith’s tools give us an even deeper look at why Google is a great stock. Take Jason Bodner’s Quantum Score. As regular readers will know, Jason used to work on Wall Street placing multi-million-dollar – and even billion-dollar – trades for wealthy investors. After quitting Wall Street, he developed a system that scans the market for the best stocks by fundamental and technical measures. Not only this, the system also factors in the likely presence of institutional buying pressure. Right now, it shows us that Google is fundamentally superior and technically strong with a top-tier score of 95.1. That’s the highest Quantum Score of the Magnificent 7… despite having the lowest valuation: 
Google is an enormously profitable company. It just got a big win for helping it keep parts of its core business intact. And there’s an upcoming catalyst – the second antitrust case involving its ad business – that it’s walking into in a position of strength. If you’re going to buy any Mag 7 stock, Google is probably the best one. Finally, a trade idea that fires on multiple cylinders… I’m not a “car guy”… But even I know the difference between a Toyota Camry and a Ford Mustang. The Camry gets you where you need to go – point A to point B. There’s nothing wrong with a Camry… but it’s never gonna surprise you. Nobody has a genuine need for a Mustang. They’re just more fun. They roar to life, peel away with a screech, and reach 60 miles per hour almost twice as fast as their mass market, four-cylinder counterparts. In the financial world, we hear all the time about stocks that are “firing on all cylinders.” It’s when a stock has a lot of factors going for it, whether it’s the quality of the business or the trend in the stock price. But do you want to own a Camry firing on all cylinders? Or a Mustang? Here at TradeSmith, we know how to quickly find those Mustangs. Our company employs dozens of data scientists, engineers, and analysts whose primary task is turning data points into strategies that can beat the market. And they’re not just great at what they do – they’re prolific. Every other week I learn about a new strategy we’re brainstorming, testing, or releasing to our subscribers. A unique feature of our platform is the ability to track which stocks are active in which strategies at any given time. Sometimes, stocks with multiple strategies active at once can paint a picture of an interesting trade setup. Take Oracle (ORCL). This tech and software company has four strategies in play. And as they work together, it’s like watching a Mustang rev up at the start of a drag racing track: - Best of the Billionaires: This strategy isolates stocks that are trading in the Green Zone, have relatively low volatility, and are held by at least one of the top 10 performing billionaire portfolios we track as part of our Billionaire’s Club.
- Money Movers Up: This strategy finds the stocks with unusual insider buying activity, pulled from SEC filings, along with strong technical momentum.
- Value: These are stocks with relatively low VQ (but strong upside potential) that also have strong fundamental metrics.
- Bollinger Bands %B Strategy: This strategy finds stocks that are trading low in their Bollinger Band, a technical indicator that shows a stock’s recent trading range. Stocks that trade at the bottom rung of this range can quickly recover, offering a trading opportunity.
These four strategies suggest a unique setup in ORCL shares. The %B strategy shows us the stock is in a short-term pullback within a longer-term uptrend. And the Value, Money Movers Up, and Best of the Billionaires strategies show us that the stock is a favorite of institutional money while also having lower volatility. That’s just one of thousands of setups you can find in TradeSmith Finance by tracking these strategies. And if you’re not a Platinum member, then upgrading now will give you everything TradeSmith offers now… and in the future. Someone who purchased a Platinum membership when we introduced it in 2019, for example, now has access to 24 total tools and advisories with MegaTrends and Earnings Season Pass and Jeff Clark Trader joining in 2025. Not to mention all the improvements and upgrades we’ve made to Predictive Alpha, Trade Cycles, Options360… the list goes on. For as long as you’re a Platinum member, that would be the case. Every new advisory, tool, update, and feature will automatically show up in your TradeSmith dashboard. Every week, you’d get a quick bulletin on any new additions to TradeSmith and insights from our analysts in a “Roundup” email on Saturday afternoons. And every quarter, CEO Keith Kaplan holds a Platinum Master Class, featuring what’s new and upcoming at TradeSmith – all of which is yours once it’s released. If you don’t have access to all of TradeSmith – but would like to – call 888-576-1562 to discuss with us. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily P.S. Yesterday just before the close, I sat down with TradeSmith Daily contributing editor Lucas Downey and Inside TradeSmith editor Mike Burnick for a talk on the biggest themes in markets… and the biggest questions on your mind. Tune in to tomorrow’s Daily for the latest TradeSmith Roundtable. And as always, keep those questions coming to Roundtable@TradeSmith.com. (Disclosure: Michael Salvatore held shares of GOOGL and META at time of writing.) | 
