In today's episode, Tyler opens with a breakdown this morning's inflation data and what the VRA expects next from the Federal Reserve. He discusses the market impact of disinflation, highlighting expected outperformance from Tech and the Semis. Tune in as Tyler breaks down the critical trends, and what they mean for your investments.

Dont look back because the market is closed. Good Wednesday afternoon, everyone. Tyler Herriage here with you for todays VRA investing podcast. Hope you all had a great day out there today. It was another pretty good day for our markets here today, kicking off this morning with another round of inflation data following yesterdays disinflationary friendly PPI number. That’s the producer’s price index. And this morning we got back the consumer price index, both core and regular CPI, either beating or matching estimates for this month here. And really, the highlight of the day is the year over year number below 3% here on CPI.

Again, that’s regular CPI, not core, down to 2.9% year over year. Now that’s the lowest level since March of 2021. Now, I’ll pause here for a second, is, yes, this is a good number still far, far away from what would be a good number still, right. But the importance is that we continue to trend in the right direction. Right. Coming off from the peak of above 9%, which is a phony, made up government number, we all know that inflation was closer to 15 20% and today does remain higher, probably in all reality than 2.9%. It’s all manipulation through what they choose to include in these numbers. But point being here, what matters for the stock market and what matters for the Fed is the downtrend here in inflation.

[00:01:51]:
Again, a disinflationary number here, not quite to deflation, although especially where the Fed remains right now, it’s such a restrictive stance. I’ll get to that here more in a second. But we’ve seen deflation already taking place in China, and as we see it, they are going to export that to the rest of the world. Now, will we get into a deflationary environment here in the US? Tough to say. It’s not something that the Fed likes to see. So I would say unlikely, though, they would sooner open the money printer to full blast before they really wanted to get into a deflationary cycle. But again, the point being, we don’t focus too much here on any one data point, as much as we like to focus on the overall trend of the data, and it does appear to be heading in the right direction towards more disinflation. Now, after the data came out this morning, the views for a rate cut in September changed a little bit here.

Going into the report, it was about 50 50 whether we’d see 25 basis points worth of cuts or 50. So compared to what they did before, one or two kind of rate cuts. Right. We just saw the last few hikes from the Fed were 25 basis points. So looking at it from this point of view, what is the Fed done in previous recent rate cut cycles? They typically begin with 50 basis points worth of cuts. So if history is any guide, it will be a 50 basis point cut. That’s what we saw in January of 2001, September of 2007, and in 2020 during coronavirus and sanity as well. So what I’m talking about here with the 50 50 kind of numbers, I’m referencing the CME’s Fed watch tool, which, you know, keep in mind here, this is essentially another sentiment, style of indicator of what the market thinks the Fed is going to do.

So it’s certainly not infallible, but it’s very interesting to look at, especially when you have new inflation data being released, other economic news, or a Fed speaker for that matter. You know, this tool is very prone to big shifts. But after the data this morning, again for the September 18 FOMC meeting, the probability is firmly in the favor of a 25 basis point cuts. You know, that can change a lot between now and September 18, again, like we saw, 50 basis points has been the norm for other rate cut cycles. And overall, we think that’s at least what the Fed should be doing. That is the minimum that they should be looking at cutting in September. We’ve said it for some time that Jay Powell is now running the same risk that he, that he made to hiking rates, and that is waiting too long to do something for months ahead of the first rate hike in March of 2022. We said the whole inflation is transitory theme was bullshit, right? We called it like we saw it at the time, and as did many of you here listening to this podcast, right? We all saw where inflation was going.

[00:05:16]:
It was dangerously trending higher after we increased our money supply here in the US by 40% after coronavirus insanity took place. Naturally, we were going to see prices go up, right? Everyone saw it coming somehow, only the Fed didn’t. Right? Which makes you think, was it intentional? Right? There are so many other reasons why you can see it being intentional. It’s why we wrote the book, the big bribe here. And one of those factors being they needed more money to pay off the debt, right? They need cheaper dollars stealing from the future to pay off what we’re doing here today. That’s what we saw. Now we’re seeing a similar mistake taking place here, where Jay Powell and company have waited too long to cut rates, creating a very restrictive environment, and now run the risk of overshooting in the other direction. Now, like I said, the Fed’s biggest fear is not inflation, it’s actually deflation.

So I highly doubt they’ll let us get back to that environment. Have we got a couple of prints that show deflation? First of all, I’d be positively surprised and say thank you. I doubt that would be the case, because again, they would just turn on the money printers. Now, there is a lag in when that money really gets into circulation, just like we talked about on the hiking side. That’s why they waited too long. It takes twelve to 14 months for the effects of a rate hike or a rate cut to be fully felt by the market. So now that we’ve waited too long, you’re going to see it affecting the market as well. That being said, I don’t think it’s going to be in a way that drastically affects this structural bull market.

That’s not what we’re saying here at all, just that there will be some scares along the way. Minimum 50 basis point is our view, but it’s too soon to tell. Between now and September 18, we have Jackson Hole taking place next week. We do expect Powell to come out and be dovish, perhapsly, perhaps. Perhaps excessively dovish even, which would be a good thing. And then we have another round of inflation data, economic data also coming out before the September 18 Fed meeting. So there will likely be a lot of shifting in the CME’s Fed watch tool between now and then. But right on cue, the ten year yield is telling the Fed here that they’re overly restrictive.

[00:07:52]:
It’s telling the Fed here, hey, you can jawbone all you want about just doing a 25 basis point cut, but here’s what you need to do. You need to cut rates further. Right. The Fed funds rate right now remains at five and a quarter to 550. Well, the ten year is at just a 3.8 as it headed lower again today, down eight tenths of 1% to a 3.82. So it is above the lows that we saw earlier this month. That was about a 3.66 or so. But as we bounce back now that we started heading lower, we’re not at extreme oversold levels here yet.

So there is more room to run to the downside here for yields. And on the news, futures shifted to be a little bit higher this morning after the economic data came out. Inflation data came out. And interestingly, this morning, as you might expect, we were led by tech. As an interest rate sensitive group, they respond well to lower rates like this. We were led by tech and then after that, small caps. But there was a shift after this morning’s trading. We got a bit of a sell off from the highs of the morning.

And then when we came back, value and defensive names began to lead the way. So we were led higher today by those names. It stayed that way. So almost the exact opposite of the trading that we saw on Monday. Now, Monday finished with a mixed session, but it was Nasdaq and the semis leading to the upside today. Nasdaq and the semis lagged, while the value names that finished lower on Monday did finish higher. So no concerns there. Again, more of the rotation that we’ve seen so much of.

[00:09:36]:
Hey, you know, we got some major indexes today, like the Dow finishing near its highs of the day today, the S and P finishing off the highs, but near the highs of the day. And then the Nasdaq and small caps finishing well off the lows of the day today. So maybe not a huge win, but certainly a win. You always want to see our major indexes finishing closer to their highs of the day than the lows. So leading today, the Dow Jones up or 242 points to 40,008. Let me run a quick chart here. That is the first time we’ve been back above 40,000 since the beginning of the month here. And one more chart I wanted to run.

The transports did finish higher as well today. Not by much. They were up more earlier in the session. But we would like to see the transports continue to hang on here. Strong right at the 200 day moving average right now. We’d like to get above those levels. Next up, the s and P 500 up just under four tenths of 1% to 5455. And the Nasdaq pretty much flat on the day, up 0.03% to 17,192.

And lastly, the small caps were down half a percent on the day at 2084 for the Russell 2000. But here, as far as the Dow, Nasdaq, and the S and P go, and small caps as well, what’s really good to see is we’ve had a nice bounce off of lows, lows that we want to see hold from here, and we are nowhere near overbought levels. In fact, we’re very close to oversold levels here. So we have plenty of room to run on the charts. Next up here. Looking at our internals on the day today. Bit of mixed readings here, but NYSE coming in strong, positive across the board. So for the NYSE, advancing stocks, beating out declining stocks, not a massive beat here, but, hey, we’ll take it slightly negative, though, for the Nasdaq.

[00:11:42]:
52 week highs and lows did manage to come in positive. Nearly three. One positive on the NYSE and just slightly negative on the Nasdaq. Similar story from volume positive on the NYSE. Again, not a huge beat or anything, but we’ll take it. And lastly, slightly negative for the Nasdaq here. Next up, looking at our sectors on the day to day, we finished with seven out of our eleven sectors higher on the day, one unchanged. So three down on the day.

Today we were led by, again, kind of value names, defensive names. Financials led the way today, followed by energy. Tech as a whole did manage to finish up better than the SM r. Sorry. Than the Nasdaq did on the day to day. That’s XLK, the S and P 500 tech sector, etf. We also had healthcare higher on the day. Actually hitting a new all time high here.

So, hey, maybe not the sector you wanted to see hitting an all time high, but as we say here, often new highs beget new highs. One more sector chart I want to check out here. We’ve also got consumer staples very close to a 52 week high here. Finished just off of those levels today. Then we’ll take a look at our laggards communication services leading the way lower. A big part of that is Google finishing lower on the day to day on news that broke yesterday about the monopoly case there and potentially breaking up Google into separate pieces. You know, we talk about this, you’re often, you see big companies like this and being forced to have spinoffs. It actually can be very bullish.

[00:13:27]:
A lot of people reference the standard oil when they broke up. Rockefeller. Right? I can use a refresh on that story. It’s been a couple years since we’ve talked about it, but sometimes the sum of the parts is worth more than the whole. Instead of having one $2 trillion company, break it into ten $1 trillion companies. When you look at the assets that Google has and the potential growth there, right? Not saying that if you separate them, they become a $10 trillion company, but over the course of years and predicted growth, you can see a lot of their spin off products have a lot of value there. However you feel about Google, they have a lot of attention. And in the digital economy, attention is everything.

All right, next up here are finally for the day, our VRA commodity watch. Red on the screen here. Gold, you know, tried to get back to an all time high, was just $4 away from it this morning. Now lower on the day by nine tenths of 1% to 24 86. It got up to 20, 518 earlier in the day, again just shy of the all time high of 2522. Renalize, here at the close, we did see gold miners hold up a little bit better, but nothing to write home about. Silver also down on the day by six cents of one percent to twenty seven dollars. Sixty one cents an ounce.

Copper now down a quarter of 1% at $4.04 a pound, and oil down 1.5% to $77.19 a barrel. Finally here for today, bitcoin tried to rally earlier in the session as well. Got up to 61,500. Has since fallen back below 60,000, down 2.39% at 59,136 of bitcoin. Folks, that is all that we have time for here today. Please be sure to subscribe to receive our VRA podcasts every day at the market close. You can sign up@vraletter.com comma, click the podcast link at the top. We’d love to have you with us.

[00:15:37]:
Thanks again for tuning in. Until next time, we’ll see you back here tomorrow for the close.