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VRA Investing Podcast: Consumer Strength, Job Growth, and Rising Yields – Tyler Herriage – January 05, 2024

In today's episode, Tyler Herriage takes us through the market's performance in the first trading week of the year, the unexpected strength of the December jobs report, and its impact on market sentiment. Tyler also covers insight ...

Posted On January 05, 2024Episode 1304
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About This Episode

In today's episode, Tyler Herriage takes us through the market's performance in the first trading week of the year, the unexpected strength of the December jobs report, and its impact on market sentiment. Tyler also covers insights into consumer strength, interest rates, and sector performance. Tune in to discover key takeaways for investors.

Transcript

Don’t look back because the market is closed. Good Friday afternoon, everyone. Tyler Herridge here with you for today’s VRA investing podcast. We hope you all had a great end to this shortened holiday week this week. Quick week back to start off the new year here. But next week we really will start to kick it into high gear here with the first full trading week of the year. We also have a little bit of earnings on deck. It’s going to be a couple more weeks until a Q four earnings season really begins to heat up.

But we hope you all had a great first week of the year out here. Obviously it was not a good week for the market this week. Our major indexes did finish lower across the board for the week, breaking the nine week winning streak that we’ve seen in the S and P 500. We’ll cover some of that today. We’ll cover the jobs report here as well. And why there’s a major asterisk next to this jobs report. Also some noticeable action in yields today as well. We’ll cover that and what it means when the market breaks a nine week winning streak like we just saw.

[00:01:16]
Here’s a little hint, though, it’s not exactly bearish. So stay with us here. We’ll talk about that all here today. But kicking it off this morning, we got back the December jobs report. And surprise, surprise here, all of the bears who’ve been waiting and waiting and waiting for their long predicted recession here in the US are going to have to wait a little bit longer here. Remember, going into 2023, there were almost zero economists out there who said that the US was not going to enter a recession in 2023, it was the vast majority calling for a recession in 2023. Not only do we not get that we got a phenomenal year in the market last year, and if they’re going to continue to wait, we think they’ve got some more time as we don’t see a recession on the horizon just yet for 2024 either. Here at the VRA, we’ve been quite the opposite in our call for a roaring 2020s.

But back to the jobs number here. Estimates this morning for December payrolls were for 175,000 new jobs. Instead, we got another beat here with 216,000 jobs created in the month of December, the unemployment rate coming in unchanged at 3.7% versus estimates of 3.8%. And now here’s where that asterisk comes in. I’ve got a little bit more to cover this here in a minute. But the two prior months, November and October were both revised significantly lower. But here’s the biggie from this report, and that is the consumer. We’ve talked about the strength of the consumer for some time now.

We’ll run through a quick overview of those stats that we’ve shared for the last few months now, really ad nauseam for the last few months, because we see no one else talking about them out here. But wage growth came in solid here at 4.1% year over year with beating estimates of 3.9%. So not exactly a red hot jobs report, but it was solid on the news, though. Futures fell and yields were on the rise here. And interestingly, the ods of a March rate cut in the CME Fed watch tool for a rate cut in March, the ODS fell from 62.3% just yesterday to 55% now. So still, the majority view is for a rate cut in March of this year. But the ods of the Fed staying put went up in a massive way, increasing from 33% now to 42% now. We’ve talked about this here a lot on the podcast as well, but I do want to reemphasize it for those who are calling for an early rate cut and calling for six rate cuts in 2024.

[00:04:12]
Sure, I get the reason the Fed went too far too fast. They could have done this in a much more controlled manner in my opinion. But I don’t work for the Fed, thank God. But point being here is that we don’t necessarily want the Fed to be cutting rates. Really? You’d like to see their higher for longer attitude stick, right? Just pause here. Maybe a couple fractional cuts along the way, but otherwise business as usual. When the Fed starts cutting rates and cutting rates aggressively, it’s usually almost always because something has broken. So we don’t want to see that either.

We don’t want to see the Fed having to cut rates significantly this year. If we get a couple, that’d be great. But really, we’re fine with the higher for longer theme as long as economic growth remains strong. I was just talking to some family members about it over the Christmas holidays. Even for the everyday consumer who’s out there looking to buy a home and you see mortgage rates at 7%. Yes, that seems high. Historically, though, that’s not out of the ballpark. Anyway, I heard a number of stories.

You’ve heard it from Kip as well. His first mortgage above 10%. Believe it was eleven or twelve. I heard a lot of eleven and 12% for first time home buyers 2030 years ago. Now we complain if we get anything above a 5% right. But most mortgages are locked in at a low rate right now. And now I’m kind of overlapping with some of our big picture themes that I’ll get to more of here in a second. But overall rates where they are, by historical standards, this is just fine.

[00:06:03]
This is par for the course and roughly where we were for most of the 95 to 2000 meltup. So no concerns here if rates do stay higher for longer. But back to the jobs report for one last point here. And this is the asterisk that I was talking about earlier that we need to point out. Like I said, we saw two revisions for November and October. This now makes ten out of the last eleven jobs reports that have been revised lower. What is going on at the BLS? A lot of speculation that are pulling future job growth into today to try to make the numbers look better certainly looks to be the case as we had a number of jobs reports coming in at crucial moments last year that came in better than expected. But the thing here about these revisions is they are not small revisions.

If you would have taken those numbers and gotten them last year, in November, in October, those reports would have actually come in lower than expectations were below expectation jobs numbers. But that’s the game here. So it’s really hard to tell sometimes what that true date is out there, which is why we say this here often. It’s not the news that matters, it’s the market’s reaction to that news. That’s where we’re always going to be watching. Because at the end of the day, only price pays. And so the reaction here, a little bit less than ideal. Nothing crazy though.

Remember, we did just come off of a nine week rally. So regardless of what you might hear from the mainstream media, economists, feds, talking heads know this. The consumer remains strong and continue to benefit from a rock solid US economy. Beyond these jobs numbers, this is what we’ve been talking about here for some time. Home prices at all time highs. Net equity in homes all time highs. 68% of Americans own at least one home with one third of Americans having paid off their homes. That’s also a record there.

[00:08:15]
Then getting to the consumer even more. Consumer net worth all time high. Credit scores all time high. Which means that we have a lot of room for americans to leverage up here if necessary, for businesses to leverage up here as well as over the last 15 years, both consumers and corporations have cut debt by 25% to disposable income and then for corporations to market cap. So we’ve got a ton of room to lever up there if need be. Then we’ve got credit again. Credit scores at all time high and mortgage defaults at all time lows. So this is what we see as we see it, the beginning of economic expansions rather than the end.

At the end, everyone’s all levered up. Stocks only go up fully exposed to the market. Could not be more bullish out there. That’s just not where we are right now. Yes, we’ve seen bullish sentiment be strong. We’re still at extreme greed on the fear and greed index. The AI bulls versus bears survey continued to come in with many more bulls than bears. We got another uptick in that this week as we now have 48.6% of investors bullish to just 23 and a half percent bearish here.

But something interesting that I picked up today was the put call ratio for all the bullishness out there in these sentiment surveys. This is what’s going on in the market on a day to day basis. And today the put call ratio came in, finished at a 1.2. That is excessive bearishness. It came in as I saw a print today as high as a 1.49. That is an extremely high print. And for new listeners here, the average is a 0.7. So you see what a large jump up that is to 1.2, to really a 1.5.

[00:10:13]
That is a very high number of bearish activity going into next week. So let’s take a look on that note at our markets on the day to day, and I’ll cover what this winning streak means for the market. But today we did manage out of the gate. The markets actually sold off on the jobs number shot up in the first hour of trading, and then that marked the highs of the day. But we were able to rally off of the lows, close really in the last hour of trading to get back to positive here. And we did manage to finish with three out of our four major indexes higher on the day. The SP up zero point 18% to 4697. And again, I know I’ve said it a bunch on this podcast, but last time here, I promise this does mark the end of the market’s nine week winning streak.

But here’s what matters most with that statistic, is that after a nine week winning streak, stocks are up one year later, 78% of the time, with average gains of 12.4%. So we all knew that winning streaks come to an end, right? Eventually they have to come to an end. But the good news is that going forward that nine straight weeks of gains, who knew? Was not a bearish occurrence. So we expect that to be the case this year. Maybe not as strong as we saw last year, but hey, we won’t rule it out, but we think we have another good year to look forward to in the market coming up. And after a big, we were at extreme overbought levels. Those have been worked off now in our major indexes. Now, we’ve just got a little bit of excessive optimism out there, but if we do continue to get more of a shakeout, know that we will continue to use it as a buying opportunity here.

Next up, the Nasdaq up zero, 9%. So just fractionally on the day to 14,524. And the Dow Jones up zero, 7%, or 25 points to 37,466. And finally here, the Russell 2000 was our laggard on the day, down just over three tenths of 1% to 1951. Not sure if I covered this here earlier. The ten year on the day did finish above a 4%. At a 4.4. Interesting day.

[00:12:42]
Very volatile in the ten year today. After that jobs report, we got back above four, then we ended up coming back down, and we also got weaker than expected PMI service readings as well. The initial reaction after that release was why the ten year fell below 4%. If you’re looking for a reason to explain it, at least there’s not always a perfect reason, but that’s one of them. Then it did rebound into the close there again, finishing at a 4.4. Next up here, looking at our internals on the day, we did manage to stay positive across the board here in the NYSE, but negative on the Nasdaq. So advancing stocks beating out declining stocks on the NYSE. Not by a lot, but hey, we’ll take it.

And then the opposite for the Nasdaq. Not losing by a lot, but we did have more declining stocks than advancing stocks. 52 week highs. Lows continue to come in positive on the NYSE with 55 stocks hitting 52 week highs to just 17, hitting 52 week lows. It was negative on the Nasdaq, but really not by too much. Just under two to one. But light readings here. Really light readings.

Lastly here on volume, similar story coming in, positive on the NYSE. Let’s get a quick number on that. I’m guessing about just under 70%. Upside volume at 61%. Upside volume, if my quick math is correct there. But not a bad day. Still coming in positive and then slightly negative on the Nasdaq. Now, looking at our sectors on the day today, we got a sell off here as well.

[00:14:29]
Very interesting. With about, I don’t know, an hour or about midday today we had about eight sectors positive out of our eleven. Then we saw that sell off that took us to the lows of the day just before the final hour of trading, which got us down to just three out of our eleven sectors positive on the day. But that nice little rally into the close really saved the day. We finished again with eight out of our eleven sectors positive on the day. And just what we want to see, we got a 52 week high today. Now it was not in one of our favorite sectors, but we’ll take it. The financials hit a 52 week high today.

Multiple names in the group also hitting 52 week highs. And now I say it’s not one of our favorite sectors. Certainly not. No love for these big banks at all. But in a healthy bull market, you want to have the financials participating. So as we say here, often new highs beget new highs. Even if it’s the financials, we’ll take it. Still a bullish sign there.

Next up, we had utilities and communication services. Tech also managed to finish higher on the day to day while our laggards were consumer staples, real estate and healthcare. Run one more screen here. Homebuilders were able to finish nicely positive on the day. Remember, the real estate sector, primarily made up of reits, does not include homebuilders. But the homebuilders, I mean, incredible run that they went on last year. They were at extreme, extreme, overbought on steroids going into year end. We’ve now pulled back from those levels.

[00:16:09]
This is a group we want to keep our eye on here. Two favorite sectors, housing and semis. That remains true for 2024 as well. All right, so finally here for today, our VRA commodity watch. Let me get a quick refresh of these screens as well. 1 second. All right, gold now up one 10th of 1% to $2,052 an ounce. Gold Miners managing to rally back to finish just about flat on the day to day.

Another group that we like a lot, this upward channel that really started forming in October here for this group looks very good. It looks to be holding here. So again, we don’t want to see it break its recent uptrenddle since October. But long term, this is a group that we do like a lot. Next up, silver up just over eight tenths of 1% to $23.38 an ounce. And copper down 1% on the day to $3.80 a pound. Finally, oil continuing with a bit of a volatile week, but still in the lower seventy s here, but up 2.4% to $73.94 a barrel. Finally here, bitcoin.

A lot of talk this week, right? Sec is supposed to either approve or deny next week. Well, the first application coming up will be for Arcs. That is January 10. It’s expected that if they approve Arcs, bitcoin ETF, they’re going to do it with the other ones at the same time. So January 10 is the day to watch for here. So we’re five days away from that decision. Bitcoin has had a great run leading up to this is down on the day now 1.2% to 43,886. Folks.That is all that we have time for here today. Please be sure to subscribe to receive our VRA podcast every day at the market close. You can sign up@vraletter.com click the podcast link at the top. We’ll have a new sign up form there, but while you’re there, check out the new website, and if you aren’t with us already, check out our 14 day free trial. You get full access to everything the VRA has to offer for 14 full days. You’ll get a copy of Kip and I’s latest book, the Big Bribe, while you’re there, as well as well as access to the VRA portfolio archives, everything that we have to offer. So thanks again for tuning in. Until next time, have a great weekend, and we’ll see you back here on Monday for the close.

Podcast Newsletter

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Time Stamps

00:00 Overview of wage growth and Fed rate cut.
06:03 Steady rates, revising job reports, BLS speculation.
10:13 Markets rally after bearish activity, ending streak.
11:06 Stocks generally perform well after winning streak.
14:29 Market rally with majority sectors ending positive.
18:06 Subscribe to VRA podcast, join free trial.

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