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VRA Investing Podcast: Deja Vu. Textbook “Roaring 2020’s” Bull Market Action Continues – Kip Herriage – February 23, 2024

In today's episode, Kip breaks down the market's performance and shares his insights on the latest all-time highs in various indices, the performance of small caps, the impact of falling bond yields, and the influence of AI and te ...

Posted On February 23, 2024Episode 1329
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About This Episode

In today's episode, Kip breaks down the market's performance and shares his insights on the latest all-time highs in various indices, the performance of small caps, the impact of falling bond yields, and the influence of AI and technology on the current bull market. Kip also discusses the potential for continued growth, the significance of the cryptocurrency boom,

Transcript

Don’t look back because the market is closed. Good Friday afternoon, everyone Kip Herriage here with the daily VRA investing podcast.

Hope you had a great day today. Hope your week is fantastic as well. Let’s get right to it. Yesterday, well, it’s kind of deja vu. Yesterday, all time highs today, all time highs again. Yesterday marked all time highs. S&P 500, Dow Jones, Semiconductors, Nasdaq 100 and 4 of eleven S&P 500 sectors. It looked very similar to that today. But we had one addition to the all time high list, and it was Nasdaq, believe it or not.

Yeah, Nasdaq 100 has been at all time highs for some time. Nasdaq finally joined the bull market party today. And I say that because my first mentor, Ted Parsons, used to love to say bull markets don’t really even start until you hit all time highs. He made a great point. We’ve been making this point for some time, and now it’s playing out.

So, yeah, welcome to the party. Nasdaq, it’s great to have you with us at all time highs. Guess what that leads, folks. I think, you know, I’m going to say here, small caps, rust 2000. Rust 2000 now is our only major index that is yet to hit all time. Now, Nasdaq did not close at all time highs, to be clear, but it did hit all time highs today. That makes rust 2000 small caps our only major index that is yet to hit all time highs, folks. It’s still 18% away from all time highs.

[00:01:22]:
There’s a lot of making up to do there. It’s a tricky one, though, I got to tell you, because the actions in tech, the action is in big tech. We’ve seen this time and again. Yeah. The markets broadening out, and I do have some data on the small caps. I think it’s very enlightening. We’re on the topic now. Let me share now, before I forget.

Okay, from the, this phase of this bull market began on October the 27th of last year. The market bottom was in October 22. But this phase, this melt up parabolic phase of the bull market, started on October the 27th. That was the fourth quarter bottom that then everybody was all beared up again. People were panicking, marketed, had a pretty good tumble from the July highs. And so people got really bearish. And of course, that marks the lows because that’s how this works from that date. I find this very interesting because it feels like small caps haven’t done anything, does it not? Well, they had been a two year bear market.

[00:02:24]:
Okay? But look at a chart. You’ll see what I see chart is very constructive. We’re only right now, what, 3% away from a new 52 week high, but again, still 18% away from an all time high. But here’s the data that I think is really telling, because facts over feelings, right? Here you go. From the October 27 lows of last year, Nasdaq, the leader, is up 27%. Okay. Pretty good return in, what is that, less than four months? SP 500 is up 24%. So just 3% less than Nasdaq.

Another fantastic start to this from post October lows. Guess what? Small caps are exactly tied. Exactly tied with the S and P 500 with gains of 24%. Actually, I’m sorry. Small caps have 25% gains. SV 100 has 24. So they’ve actually done better than the world’s largest and most important equity index, SV 100. And it only trails Nasdaq by two percentage points from the October Q, four lows.

[00:03:35]:
Again, I just find that very interesting, because here’s what happens with small caps. They move, and they move in a hurry. They’ve always done this. They get hot and they get red hot. I do feel like that’s about to happen here, frankly. Look at the numbers. It kind of already has been happening, but I’m talking about a period of at least maybe some outperformance coming up. And I think today’s action was instructive.

Russell 2000 only put up slight gains, but it was up. Nasdaq was down today. But what we saw today, the turn in the small cap started when bond yields started falling, and the ten year yield today fell from a 4.34% to close at a 4.26%. Men, it sound like a lot. It’s a pretty decent percentage gain reversal, lower for rates. And again, whether they cut at the March meeting or the May meeting, it’ll be one of the two, because we are seeing signs of an underlying weakness in the second America that we talk about here. Unfortunately, that’s just the way it is. And, yeah, we’re starting to see late payments rise in credit cards.

[00:04:43]:
We’re starting to see balances grow. We’re beginning to see a rising foreclosures in the housing market. Now, even as I say that, please don’t get me wrong, these are still minuscule amounts in the big picture. Okay. Regardless of what you maybe hear in the mainstream media, we are at near historic lows on all these late payments and credit card balances. Really? As a percentage of disposable income, as a percentage of market cap for companies get 50 year lows, debt to market cap for us companies. But things are beginning to tick up a little bit. And I’m telling you straight up, all it’s going to take is a couple of weeks of bad data, right? Maybe it’s a weak CPI report, a different inflationary report, maybe it’s economic data, maybe it’s upcoming jobs report, which we’re going to have before the March meeting.

All it’s going to take is one, and the narrative is going to shift. And my point is, I think with small caps, I think we’re seeing the evidence here. I don’t think Nasdaq, I don’t think tech stocks care. They didn’t care during the 1995 to 2000 melt up. The average on the ten year, during that five year run up was historic bull market. The average on ten year yields was like 5.3%. Again, we’re 4.2% now. During that melt up, ten year yields spent quite a bit of time above 6% yields.

[00:06:14]:
But again, tech stocks did not care. Most of the market didn’t care. Now, we’re seeing some evidence here that if rates continue to fall as they have today, and frankly, as they’ve done from last fourth quarter highs, again when the ten year popped over 5%, then I think you’re going to see. My point is, I think you’ll see a more sustained move higher in small caps because, yeah, these higher rates are impacting the ability for smaller businesses to access to credit markets. And of course, they are impacting at least some degree initially. Now, the consumer, that’s what the Fed will be paying attention to. My point is we are long small caps, they have done very well from the October lows. We think they’ll continue to do well.

And that’s been our call. And that remains our call. We continue to be buyers of dips on small caps. Chart is pretty instructive, too. IWM, the Rust 2000 ETF, if you look at a chart, it is exactly sliding up the 50 day moving average. Every time it hits the 50 day moving average, it bounces off of it. That is a series of rising of higher lows. And I think it’s very instructive for small caps.

[00:07:27]:
But again, the actions in tech stocks, there’s no question about that. We did see some weakness today in the semiconductors, which closed down 810% to 1%, but they were up almost 7% yesterday. So we’re going to give them a pass today. Here’s what the broad market did. Dow Jones today up 62 points. That’s just under two tenths 1% SVF 100, essentially flat on day, up two points on the day rust 2000, again up two and a half points, almost also flat up just right at just better than one 10th to 1%. Nasdaq Today, a little bit of a get back again, been red hot. Nasdaq today finishing down three tenths of 1%.

Again, semis today finished off eight tenths of 1%. Every major index was up for the week. This was an important week, primarily because of Nvidia. We’ve talked about it to her, blue in the face. But this is deja vu. This is deja vu for me, back to 1995, to 2000. We would sit and look at our screens that I wrote this morning to our folks. We sit and look at our screens kind of in awe of trying to make sense of what was happening.

Here were companies that had essentially no revenue. They had a sexy.com idea, but they were light years away from earnings. But they were trading with market caps bigger than our best known blue chip stocks. It didn’t equate. Does that sound familiar to Nvidia? An example, Amazon. I don’t remember the day, but I remember when Amazon market cap surpassed Kmart. That was a big day because no one thought it could continue. Everybody called it a bubble, and it was just the beginning because remember, at the time, Amazon didn’t have online shopping except for books.

[00:09:13]:
They were an online seller of books. That’s all they had. But their market cap was bigger than one of the largest retailers at the time, which probably was the largest retailer at the time, which is Kmart, if you can believe that now. So we really had to force ourselves to have some faith that this bull market was based in something. And it was, it was based on what’s happening today. It was based on what’s going to happen going forward. And that’s the reality we find ourselves in now with the AI automation innovation bull market we have underway. You’ve probably heard this, but it really is kind of mind blowing.

Nvidia, yesterday on the earnings report, just grew their market cap by more than $250,000,000,000 in a single day. They added the market cap of Netflix to their stock in a single day of trading. And again, you look at this, it doesn’t make sense. It sounds very bubbish. And of course, maybe it is in the big scheme. We don’t know that. We’ll know in the future. But what I remember from 1995 to 2000 was looking around every time we sold the winner, we regretted it.

[00:10:24]:
Every time we thought we called a market top. We were wrong. And that’s the other thing. There are a lot of people, I’m sure you’ve seen this, too. A lot of people say, oh, this is a bubble, it’s a top. It’s thinking, market is going to crash. They’re still out there. And that’s the distinction, because when we actually have a real top, by the way, markets don’t top when you’re hitting all time highs.

That’s not how this works. This is when markets accelerate higher. But we’ll know that a top is in place when it’s almost impossible to find anybody that’s saying that. So again, we believe we’re very early innings, and as we’ve said for a long time now, it’s an interesting time and a pretty special time to be an investor. This market is just getting started. And we have some other good data, too. Again, only 64% of the SPF hundred is above the 50 day moving average. The peak was 93% in January, just 75% turning above the 200 day.

[00:11:19]:
That was 84% in January. So until these readings pop top 90%, we have room to run. And that’s been our approach and will continue to be our approach. AI is not a fad. It’s the modern day reincarnation of the.com melt up. But this time we have the cryptocurrency boom with it. Again, that’s financial engineering. And that tells us this bull market is just beginning and that shakeouts should continue to be bought and that buy the dip will continue to be the smartest of smart money strategies.

We’ve uttered those exact words now for a very long time and see no reason to change it today. Let’s take a look under the hood today. Not great internals. They really weren’t that great yesterday. They’re positive across the board, though. Let’s talk about it. Nasdaq today was a positive advanced decline by just 400 issues. It was positive, though.

[00:12:07]:
Volume for Nasdaq, also positive. No, I’m sorry, it was actually flat on the day, just slightly negative, but we’re going to call that a push. NYSE positive advanced decline 1.7 to one. And the volume positive NYSE by about $600 million worth of trading we did have today. And this is the number that continues to build. And this is good. It shows you the broading is taking place. Let me run a quick refresh here.

Talking about 52 week high low. 551 stocks hitting a new 52 week high today to just 174. Hitting a new 52 week low. These numbers continue to get better. And let me just make a note of that for the records, because sometime they shut this down before I have a chance to calculate it. There we go. Yeah. 551 stocks in the 50 week high.

[00:13:05]:
That is quite bullish. All right, let’s take a look at our sector watch. Remember yesterday four sectors hit all time highs. Yesterday we had two more join the party today. Altogether today we had seven sectors finish higher on the day, four finished lower. Led the upside by utilities of seven tenths 1%, materials of five tenths 1%. Not a lot happened today, really more of a consolidation day. Fridays are kind of like this.

Again, just a lot of nervous people, rightfully so. Like, what if something goes wrong over the weekend? I have exposure. That’s why we’ve seen so many Mondays that have been positive, because people are nervous as a cat on a hot tin roof and they’re selling on Friday and they’re forced to buy back in on a sharply higher Monday morning. Open Monday. That wouldn’t surprise me at all. Again, Nvidia, what’s happening? AI? This is game changing, folks. This is not the end of it. This is the beginning of this revolution that’s taking place in technology.

It is the beginning of this, and it’s going to be incredibly exciting as the excitement builds. And really what’s going to be really exciting is as new technologies begin to roll out. Like bitcoin. Like cryptocurrencies, right? Like AI chips. Like all the advances you’re seeing in medicine and space exploration. Again, we’re in such a period of negativity. It just surrounds us, does it not? The media is negative. Everything’s negative.

[00:14:38]:
I mean, look, it’s easy to understand that. Look who’s president. I get it. The Russia Ukraine war. Now what’s happening with Israel and Palestine? It’s easy to see why people are so fearful and so pessimistic. But again, that’s not the environment of a market peak. That’s not the environment of an economic peak. This is when bottoms take place.

This is what we’ve been reporting to you now for a year and a half. And those facts are starting to only get stronger as the economy moves forward. Again, I would not be surprised at all this year, folks. We have a full year gdp of 4%. Yes, under Joe Biden. And I wouldn’t be surprised at all if that continues to be the case, because we’re seeing a productivity surge. This is happening again because of technology. The move lower in rates we believe will continue without question.

[00:15:31]:
We believe this. And that’s again, because of technology innovation disruption, this brings down the cost of most everything that we have to buy, and that is disinflationary rates cannot go up in that environment. So it’s a great setup here for a market that continues to exhibit this kind of unbelievable strength. And I’ll just repeat it one more time. Keep buying dips, folks. That’s just been the strategy that’s made more sense than anything else. Okay, let’s look at our commodity watch today. Gold today.

And again, lower rates, lower dollar now. Precious metals starting to get a little wind beneath at their cells. Gold today at $15 an ounce, $2,045 an ounce. Even though everybody’s buying cryptocurrencies, gold should not be forgotten about. This is probably when gold is going to have its biggest move. Higher, when no one’s talking about it. Again, that’s how this happens, how this works. Silver today, up also about the same percentage, about eight tenths to 1% at 22, 97 an ounce.

[00:16:35]:
What’s up next? Copper down two pennies a pound today at 387 a pound. Crude oil down $2 a barrel. That’s two and a half percent at 76, 61 a barrel. Finally, of the day, bitcoin, 51,100, down four tenths, 1%. Again, a little bit of consolidation happening here from the 52 week highs we hit this week and from, again, the SEC approval of these various bitcoin etfs. So the having takes place in 60 days. We’ve covered that often here. We believe you want to continue to be long and strong into that having.

I’ll just share the results one more time. The first having took place in 2012. Every four years to take place. The first having took place in 2012. One year later, bitcoin was up. You would have made 79 times your money in one year. The second having was in 2016. And 18 months later, from the having, you would have made 29 times your money.

[00:17:33]:
The most recent having was in 2020, and in 18 months, you would have made seven times your money. So again, the having takes place in mid April. That’s probably going to be sped up a little bit. Wouldn’t be surprised in the first week of April. But again, that’s going to put a floor underneath because so many people are buying it. Of course, these ETFs are buying it hand over fist and with limited supply, with about 70% to 80% of people that hold own bitcoin, not selling it, Hodlers, if you will, as they call themselves, lovingly and adoringly, then it’s just a beautiful supply. They may set up with scarcity value built into this. Again, it is genius financial engineering that has gone into the creation of these cryptocurrencies again, bitcoin remains our focus.

All right, folks, that’s it for the day. Hey, I hope you had a great week. Have an amazing weekend. We’ll see you back here again Monday after the close.

Podcast Newsletter

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Time Stamps

00:00 Bull market phase began on October 27.
04:43 Housing foreclosures rising, but still relatively low.
06:14 Tech stocks and market not affected by rates.
10:43 Markets accelerating, early innings for investors. Good data.
13:33 Nervous people drive positive Monday stock gains.
17:33 Bitcoin having in mid-April fuels scarcity value.

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