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VRA Investing Podcast: Market Internals Remain Strong Despite Inflation Uncertainty – Tyler Herriage – April 9, 2024

In today's episode, we dive into the market's cautious stance ahead of the latest look at inflation with tomorrow's CPI data. Tyler highlights the positive internal market metrics juxtaposed against mixed external signs and notes ...

Posted On April 09, 2024Episode 1360
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About This Episode

In today's episode, we dive into the market's cautious stance ahead of the latest look at inflation with tomorrow's CPI data. Tyler highlights the positive internal market metrics juxtaposed against mixed external signs and notes the standout performance of small caps and tech sectors.

Transcript

Dont look back because the market is closed. Good Tuesday afternoon, everyone. Tyler Herriage here with you for todays VRA investing podcast. Hope you all had a great day out there today. It was a little bit better of market action than we saw yesterday. We had mixed action in the market yesterday, mixed again today, but just one major index lower the Dow and down just nine points on the day. So we’ll call that even flat. So not a bad day today.

We did finish off the highs, and I’ll get to our markets here more in a second. But it does seem to start the week this week like a lot of hesitation leading up to tomorrow’s latest look at inflation. I covered this a bit yesterday on my podcast, but we’ll get March’s CPI data out tomorrow at 830 Eastern time. And of course, we’ll get on Thursday, we’ll get the producer’s price index from March as well at 830 Eastern time. But first things first, CPI tomorrow morning and what I found so interesting leading up to this, and I was really looking for somebody, anybody out there calling for a beat on inflation tomorrow. Right now, expectations are for inflation to edge higher over February’s reading with CPI ticking up to 3.4% from 3.2% in February. And those expectations are just about across the board. Every major bank has about the same at 3.4%.

[00:01:40]:
Only bank of America stands apart there with 3.3%. So still, you know, a not, that’s a beat on expectations, but still a loss month over month there. So I think it’s really interesting that we see almost no one talking about the possibility, at least the possibility of what a beat tomorrow would look like, really coming in line with expectations. That bar is set pretty low. I covered that a lot yesterday as well. But at that big of a increase month over month, that bar is set pretty low. So even if inflation comes in in line at 3.4%, the markets will see it as a win. And from that point of view, it really may not matter too much at all.

But I do think it’s interesting that no one out there is seeming to consider the possibility of a beat tomorrow. We’ve already had two straight months of increases in inflation, January and February, so it would be good to not make this a streak of a streak is three. We would like for it not to be the case here and now. I don’t know where the number is going to come in tomorrow, but to me this looks like a great setup for a good number tomorrow. Again, just had two months of hotter than expected inflation data. But what we’ve talked about here from the beginning, since we saw inflation at high levels, we called inflation when the Fed was calling it transitory. Now, we called for disinflation, but we’ve said since the beginning here that it was never going to go down in a straight line. There are always going to be bumps along the road.

And if we did happen to get a third straight month increase in inflation here, our view would be absolutely unchanged. So regardless of the reading tomorrow, we, our view is that we have entered a disinflationary environment. We’re seeing that from China right now, where they’ve gone to full on deflation in their economy right now. And we think China is going to continue to export that here to the United States. Yellen was just on a trip to China to talk to them about these things to stop chinese goods from flooding cheap chinese goods from flooding our market. Considering the possibility of increasing the Trump China tariffs, right, these aren’t Biden policies. They know they work because they worked under Trump. Thank you for the Trump economic miracle there.

[00:04:12]:
Trump, if they have any sense about them at all leading up to the election, they would talk about making his tax cuts permanent as well. But that’s another topic. Back to disinflation. We think China is going to continue to export it here to the US. And most importantly, importantly has been one of our biggest themes is the innovation revolution. Innovation plays a massive part in lowering the cost of all kinds of different items. Right? We think that the number of goods that the innovation revolution is going to lower the prices on is only going to expand and continue to shock people. So back to this great setup, because from a market point of view for this number tomorrow, we’ve got plenty of room to run.

We’re nowhere near the range of extreme overbought levels for our major indexes. Kind of going back to the rotational rolling bull market that I talked about yesterday on the podcast as well. So there’s plenty of room to run for a big move higher in that regard. We’ve also seen sentiment pullback here as well. The fear and greed index went back to neutral last week, is still in the low levels of greed here. But until we reach extreme greed for weeks, potentially months on end, that’s not really a red flag to us. So the fact that it’s just in greed territory right now isn’t too bad. We’ve also seen the put call ratio, no crazy elevated readings, but we’ve seen session after session higher than normal readings of the 0.7 is usually looked as the base mark of people buying calls to puts anything above a one is exceed is seen as excessive bearishness.

So still anything over a .7 though is still a bearish look at going forward. And we finished today again like yesterday, above a one in the put call ratio. A lot of that might be just because we’re leading up to tomorrow’s inflation data again, kind of wrap it all up here, regardless of what we get tomorrow, although the situation is kind of primed for a good beat. Regardless though, if we did get a hotter than expected number, this does not change our outlook over the medium to long term. And I just want to make that point clear. As we see it, nothing has changed. Even with a hotter inflation number, we are still just in the early innings of a new bull market. The economy remains stronger than expected.

[00:06:51]:
I just saw a lot of people talking about the fact that a lot of these new jobs being created are government jobs. Yes, that is correct. But we’re seeing expansion in construction jobs as well. You usually don’t get expansion in construction jobs when the economy is on its way to weakening, right? It’s more in the recovery time and then the number of people working part time jobs as well. That number has been increasing, but it is still below historical trends here for, here’s the statistic to be exact. The part time employment for economic reasons is only at 2.6% of the labor force. That’s still below pre pandemic levels. So we’re nowhere near really dangerous levels on these economic data points, whether it’s jobs or especially the labor force type of view there.

I mean, we are just continuing to see an economy that powers on and in the face of tighter financial conditions. One other factor that has this setup looking good today was yields finishing lower. If really the smart money was looking for a hot print tomorrow, you might look for yields to be on the rise. Instead today, after making new highs yesterday, down 1.27%, now at a 4.36 on the ten year yield. And last point here on inflation, just remember, we’ve added over 40% to the US money supply since coronavirus insanity. Some of those numbers are starting to tick up again. So even today in an economy, we have an economy that is dealing with the impact of that level of money printing. So yes, we’re going to get bounces in inflation like I covered, but over the long run, we expect inflation to trend towards 2% in this market to head a whole lot higher.

It will be interesting to see what happens tomorrow with the CME’s Fed watch tool after the data comes out. This number of the probability of a 25 basis point cut in June has been dropping. Right now it’s still the highest probability at 56.2%, but it was above 60 just a week ago. So we’ll see after that data tomorrow. Stay tuned. I’ll cover that here tomorrow on the podcast as well. All right. That said, let’s take a look at some of our market action on the day because it was an interesting session and the strength continues here under the surface in this market.

[00:09:35]:
That was probably the most interesting aspect of today’s and really yesterday’s action as well. That even with the market negative this morning, the internals were just about positive across the board. This was at 11:00 a.m. Eastern time. The Dow was down 270 in every internal indicator except for the NYSE advance decline line was positive. And even the advance decline line was just barely negative by 01:00 p.m. Eastern time, when all of our major indexes were still lower on the day, the internals were positive across the board, and the numbers just continued to improve into the close today. Again, we saw the same thing yesterday where we had a mixed market but positive internals.

That for us is the sign of a strong market here, a market that continues to broaden as well. There’s no longer just seven stocks leading this market higher. This is a bull market again, that is broadening here. So I’ll cover the full internals here in a minute. But first to our markets on the day, small caps led the way. They were the first to turn positive just before the smart money hour, which we got a nice one of today for our major indexes to finish almost back to where they opened this morning, but closing close to their highs of the day here. Small caps up 0.34% to 2080 for the Russell 2000. Next up here at the Nasdaq, right in the same ballpark, up just over three tenths of 1% to 16,306.

And I want to point out here, we like the small caps here a lot. So good to see them lead the way. But what we talk about here often, for a strong bull market, you want to see tech leading and semis leading tech. And that’s what we got today. Sox, the semiconductor index finished up nearly 1% on the day today. Exactly what you want to see, semis leading the way higher after that. The S and P 500 up 0.14% to 5209. And one more factor looking forward.

[00:11:41]:
Don’t forget the S and P just wrapped up Q one with gains of 10.4%. When that has happened previously, Q two and the rest of the year have better than average gains, and the rest of the year is higher ten times out of eleven, with median gains of 8.2%. So that’s what we believe we have to look forward to for the rest of 2024. Then lastly for today, the Dow Jones, like I mentioned earlier, basically flat on the day, down just nine points at 38,883. And I’ll point out here quickly, the transports did manage to finish higher on the day for any fans of Dow theory out there. All right, going back quickly to our internals again. Good day here. Even better than yesterday.

Higher across the board. Advancing stocks beating out declining stocks. No two to one beats here, but firmly positive. 52 week highs and lows. Might have been a little lighter than yesterday, but so were the 52 week lows. So not bad readings. They are positive for both the NYSE and the Nasdaq. And lastly, volume was likely our bright spot here on the day, coming in just shy of two to one.

Positive for both the NYSE and the Nasdaq. Strong volume numbers today. Finally or not? Finally. Next up, our sector watch for today. The S and P finished with nine out of eleven sectors higher on the. Excuse me, let me get a sip of water here. All right, sorry about that. So the S and P finished with nine out of our eleven s and P 500 sectors higher on the day today.

[00:13:24]:
Real estate led again today. Led yesterday as well. Utilities were second here, highest level since July of last year. Followed their consumer staples, consumer discretionary, and then materials, with an all time closing high today just shy of its all time intraday high. But hey, we’ll take it. That is a new high there. Then our two laggards on the day were the financials and then the industrials. But if you would have just seen the sectors today, you might have thought our market was up even more than it was.

So not bad to see under the surface either. Finally here for today, our VRA commodity watch. Let me get a quick refresh of my screens here. Gold hitting another all time high today. At the highs today getting to 23 58 an ounce, up now nine tenths of 1% at $2,371 an ounce of just below those all time highs. And good to see the miners continue to lead the commodity higher. The miners up 1.7%, hitting another multi month high today there. That’s an eleven month high for GDX, the gold mining ETF.

That’s exactly what you want to see from this group that is just beginning a parabolic move higher. Next up, silver continuing higher as well, hitting another 52 week high today. Now up 1.67% at $28.27 an ounce. Copper. You might be shocked to hear it. The 52 week highs continue. Copper up 0.58% to $4.30 a pound. And then oil taking a little breather today.

[00:15:12]:
Back below $86 a barrel, down 1.27% at $85.33 a barrel. And finally for today, bitcoin now lower back below $70,000 of bitcoin today after starting the day at 71,000, but now down 3.65%, or $2,500 of bitcoin, to $69,074 of bitcoin. Folks, that is all 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 click the podcast link at the top and we’d love to have you with us. Thanks again for tuning in. Until next time, we’ll see you back here tomorrow for the close.

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Time Stamps

00:00 Concerns over inflation trend and future numbers.
05:06 Markets not overbought, room for big gains.
07:51 Economy remains strong despite financial conditions tightening.
10:23 Broadening market with small caps leading gains.
15:12 Oil prices drop, Bitcoin falls below $70,000.

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