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VRA Investing Podcast: Market Rally Despite Hotter Than Expected Inflation Data – Tyler Herriage – March 12, 2024

In today's episode, Tyler breaks down the market's reaction to this morning's CPI report, discussing how the market defied expectations and rallied in the face of hotter-than-expected inflation data. He also covers the day's marke ...

Posted On March 12, 2024Episode 1341
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About This Episode

In today's episode, Tyler breaks down the market's reaction to this morning's CPI report, discussing how the market defied expectations and rallied in the face of hotter-than-expected inflation data. He also covers the day's market performance including; key sectors, internal readings, commodities, and the status of major indexes.

Transcript

Don’t look back because the market is closed. Good Tuesday afternoon, everyone. Tyler Herring here with you for today’s VRA investing podcast. Hope you all had a great day out there today. It was a good day for our markets today that might have surprised a lot of people after this morning. CPI report came out hotter than expected ahead of the open this morning, futures were mixed and then CPI came out again warmer than expected, coming in at 3.2% year over year on inflation and 3.8% on core CPI, which a lot of people say that’s what the Fed looks at more closely there. But what is the sign of a strong bull market? Well, one of them is a market that goes up on bad news. And right on queue today, futures reversed higher after the inflation data came out, which is why we say here often it’s not the news that matters, it’s the market’s reaction to that news.

On a more micro level. You can see it in earnings reports quite often, depending on who you’re watching, where you’ll see a company miss estimates and then come out with a big rally. Maybe it’s some guidance that they gave going forward that the market likes, or just a good rationale for why it was a slow quarter we’re looking to pick up next quarter. Those are the signs that you look for in a strong company when they miss on an earnings report and the stock continues to go higher anyway. Well, that’s exactly what we got today on a macro level here with economic data. Again, a market that heads higher in the face of bad news, that’s not a bearish occurrence there. This is a pretty big rally today that our major indexes, three out of four of our major indexes, not only finished significantly higher on the day, but also finished at or near their highs of the day today. So I’ll cover our market watch here in a minute.

[00:02:12]:
But first here, the one downside to today’s action would be, of course, that after getting hotter than expected inflation data, you would expect to hear a lot of people saying the Fed can’t cut rates yet. That’s exactly what we got today. Heard a lot of that in the financial mainstream media today. And the ten year yield was up 1.24% on the day, still at a 4.15, so below its recent highs. And in a bit of a downtrend here, nothing remains unchanged in our view there that yields are going to continue to head lower again. Today’s data did not change that, although if you looked at the CME’s Fed watch tool, we did see a decline in expectations for upcoming rate cuts here. For example, just a month ago, it was the majority view that the first rate cut would be in May with 52% expectations. That’s only one month ago.

You go back a little further. Excuse me. The first rate cut was expected for March. That timeline just seems to be pushing back and further back now. That number for May, which was at 52%, has fallen to just an expectation from 16 and a half percent likelihood that the Fed will cut rates with an 83% chance that the Fed will stay put again in May. I know that’s a lot of numbers, tough to visualize on a podcast, but suffice to say the expectations for rate cuts has gone down dramatically here. Now, it is still in the majority view that there will be rate cuts at the June meeting, but those numbers are falling as well. What was interesting is that just a month ago here, the majority view, basically the majority view was that the Fed would have cut rates by 50 basis points by June, meaning they had their first rate cut in either March or May and their second in June.

That’s the anticipation that a rate cut will be 25 basis points. So again, that would be two. If we’re looking at 50 basis points here. Now, there is actually still some market view here that the Fed might cut by 50 basis points. It’s just a 10% likelihood for June, and we don’t think that’ll be the case here. But what was interesting after today’s reaction was a lot of analysts from the financial mainstream media saying that there will be no rate cuts in 2024. Well, remember, at the beginning of the year, everyone on TV was saying there’s going to be six rate cuts this year. They changed their tune pretty quickly there.

[00:04:58]:
Kib and I have said for some time, Kib thinks there’ll be three to four rate cuts this year, as he covered on his podcast, I believe yesterday might have been Friday, where he said, I myself would say two to three. Not that big of a difference there, but that was kind of the view of that’s the goal, right? If they’re cutting rates six times this year, then something’s broken, something’s gone off the rails. That’s really bad, right? You don’t want to see that. Usually when the fed starts cutting rates, it’s not good for the market. But then they could have a controlled rate cut type of timeline where they do one, two, or three rate cuts, and they say, hey, all right, we’re going to pause and see how that works from here. That won’t make the market freak out or should not, depending on how it’s presented. So that’s kind of the case for looking for two, three, four rate cuts this year, is that it could be done in a more controlled fashion versus let’s just get to know if we just got one or two this year, we think that would be fine. And that’s mostly because the Fed went too far on the rate hike side.

Again, I said this a lot at the time. Kip said a lot at the time as well. Why couldn’t they just pause given that there is a twelve to 14 month lag on rates impacting the market? Why couldn’t they just pause for a little while earlier on? But thank God I don’t work for the Fed. Those aren’t the problems that I have to deal with. But one final point here on the Fed, that I might get some pushback on this one, but I’m going to say it anyway. A lot of people think that later this year the Fed can’t cut rates. They’ve got to do it now because any later this year it will look political if they’re cutting rates into an election year. Sure, that is a valid argument there that the Fed is known as being independent.

They don’t want to look political here, but I don’t really think that an election year is factoring that much into their decision making right now. We’ve already seen a Fed chair in Jay Powell that has made many unprecedented decisions from a Federal Reserve chairman. So what would make cutting rates during an election year any different? Right. I mean, they did it in early 2020. That was COVID. And that’s basically almost past where we are now. Hard to believe that that was four years ago, but kind of going back to what we would see, that, yes, it would look political if they cut rates in November. But if you have a market that’s falling, an economy that is weakening, which as we’ve seen it, is the jobs report data on Friday.

[00:07:55]:
Now, these aren’t weak numbers, just signs of less strength, but when you have ten jobs, numbers that are revised lower each one, they were overreported jobs created in 2023 by 380,000 jobs that they overreported. Right. So the data under the surface might be a little bit weaker than a lot of people think. So if the market is falling, economic data is bad. They have perfect clearance here to stick to what Jay Paul has said throughout his entire tenure as a Fed chair, which is, we’re data dependent. Right. He could come out, we’re not political, we’re data dependent. Here’s why we’re doing this.

Here’s the case. I think that they could get away with that. Absolutely, they could get away with that. And no one would say, oh, this is just because they’re politically motivated. The fact of the matter is we all know that the Fed is clearly biased towards Democrat. They hide behind this veil of saying, oh, they’re independent from the government, right. Independent from political parties, while some 75% to 80% of Fed governors and fed presidents are openly registered as Democrats. What about this institution seems unbiased to you, right? They might do things to try to not seem political, but it’s a very political animal here.

So I see no reason why they wouldn’t cut rates just because it’s a presidential election year. In fact, you could see a federal reserve made up of 80% Democrats cutting because it’s an election year. Right. They could do the opposite of what you would expect them to do and make up an excuse like, oh, well, we’re data dependent. Right. That’s the only thing. I really don’t see this as that big of a deal to stand in their way, no matter how biased commentators will say it’ll look, even though most of the financial mainstream media is made up of the left as well. So why would they critique an institution that has their back? I just don’t see it.

[00:10:04]:
It might be unprecedented. But if there’s anything the Fed has done in the last six years that is precedented, what is it? Because they’ve done all kinds of things that no one else has ever done before under J. Powell. So stay tuned. We’re just eight days away now from the Fed’s next press conference. And the good news on that is that we’ve entered the Fed blackout period, so we don’t have to hear from any Fed speakers until after the next fomc meeting, where we’ll get the fomc presentation next Wednesday. I believe it’s always about 02:00 p.m. Eastern time or the release at 02:00 p.m.

Eastern time, press conference at 230 eastern time. So stay tuned. We’ll be reporting on that here leading up to that and next week after as well. All right. So next up, let’s take a look at our markets on the day today. Again after inflation data this morning. Our markets reverse higher semis opened up nicely this morning, up one and a half percent, briefly looked back after the open, and then it was off to the races. Tech leading the way today and semis leading tech I’ll just go ahead and call it out now.

Semis up 3.16% today for SMH. Those are the last print I got here. Yeah, 3.16 a little bit below its all time high there after Friday’s sell off, but a strong day today. So Nasdaq, as I mentioned, leading the way here, up one and a half percent on the day to 16,265. Next up here, the S and P 500 up 1.12% to 5175. That is an all time closing high. We were just shy of the all time intraday high during the session today, but again, an all time closing high here. So we’d love to see that.

[00:11:59]:
After that, the Dow Jones up six tenths of 1% to 39,005. And finally, the small caps finishing flat on the day today. Our only major index not to finish at or near its highs of the day today, although try to get positive just before the close down just 0.2% to 2065 for the Russell 2000. Next up here, taking a look at our internals. On the day today, we were slightly negative just about across the board, everything but 52 week highs to lows on the NYSE was negative just with a couple of hours to go in trading today. But much like our major indexes, we did get back. There’s probably the highs of the day for readings from our internals as well as we actually managed to finish positive across the board for the NYSE. Well, the Nasdaq took a little breather today as far as the internals go.

We had a lot of our mega cap names finishing higher on the day today. Oracle just released great earnings yesterday, was up 11% on the day today. I believe that’s a new all time high from Oracle. Then. You had meta up 3.4%, Amazon up 2%. Right. So the mega cap names came back and you can see why we finish up so nicely on the day with the internals kind of mixed on the day today. All right, so covering it here, we did get more advancing stocks than declining stocks on the NYSE.

Not by a whole lot, but we’ll take it reverse on the Nasdaq. More declining stocks than advancing stocks, but also not by a whole lot there. So no big red flags. 52 week highs, lows came in positive. Actually with a refresh here, we got positive for both the NYSE and the Nasdaq. NYSE leading, though, with 180 stocks hitting 52 week highs. That’s a little lower than recent readings, but we finished with just 25 stocks at 52 week lows. So we’ll take it there.

[00:14:03]:
Nasdaq at the close was exactly even for 52 week highs to lows. Now coming in with 15 more 52 week highs than lows. 140 stocks hitting 52 week highs to 125 hitting new lows. So we’ll take that as a win here as well. Lastly here, volume managed to come in slightly positive on the NYSE today, similar to advanced decline, though slightly negative for the Nasdaq. But again, no real red flags, although you’d like to see positive internals on the Nasdaq on a day when we’re up one and a half percent. So a little bit of a yellow flag there, something we’ll be paying attention to and continuing to report on here. Next up, taking a look at our sectors on the day to day.

We finished with seven out of our eleven SP 500 sectors higher on the day to day. As you might expect, we are led by tech, which if I had a second longer here, I could do this pretty quickly. Yes, this does look like, yes, a new all time closing high. Again, not an intraday high, but a closing high from the tech sector today. Very good to see. We were followed there by communication services, consumer discretionary, consumer staples hit a 52 week high today just by a couple of pennies. After that, healthcare, industrials and then financials were not a lagging sector but up, the least of any of our up sectors on the day today. But the financials hitting an all time high today.

And what we talk about here often, we’re no big fans of the big banks, right? That’s a topic for a whole nother podcast there that we could do. We’ve got no love for these companies, but as far as a healthy bull market goes, you want to see the financials participating. So getting an all time high today does not hurt anything about this bull market, which we said for some time. We are in a new bull market here still in the early innings. One fact that I haven’t shared as much recently, but bears repeating here, is that going back to, I believe it was 1950, I’d have to double check this exactly, but it’s at least to 1950 that every bull market that has gone for at least one year has gone on to finish higher in the second year 100% of the time. So we like those kinds of stats here, especially as we’re heading into year two, just year two of a bull market. Bull markets on average last at least four years, so we should have a lot of room to run. That’s been our case here, our base case here for some time.

[00:16:55]:
Finally, our laggards for the day today for our sectors, utilities make sense as yields were up on the day, followed by real estate, energy and materials. Finally here for today. Let’s take a look at our VRA commodity watch. Let me get a quick refresh of my screens here. We’ve got gold now down on the day by 1.12% to 1000, to 2164. Next up, silver down one and a half percent to $24.0.34 an ounce. I want to take a look at one screen here. Still at the highs of the day.

Today hit its highest levels since for the year. So not a terrible day, even though now down 1.5%. Next up, copper up a quarter of 1% to $3.93 a pound. And finally, oil up zeroteen percent to $78.06 a barrel. Finally here for today, bitcoin having a little bit of a pullback here. But as Kipp has said, this is a group we remain extremely bullish on here. He’s talked about this a lot in his last few podcasts. I’m going to repeat it here one more time as the market cap of bitcoin is now $1.4 trillion, making it the 8th most valuable asset in the world here, just passing silver’s $1.3 trillion valuation.

Silver is another group that we also do remain bullish on here. We recommend buying physical gold and silver, but at $1.4 trillion market cap for bitcoin, that is only one 10th of the size of gold’s market cap here at over $14 trillion. So a few benchmarks here to keep an eye on. Kip’s been talking for some time about bitcoin going above 100,000 by the April having. Once we get to that point, we’ll start to look at bitcoin overtaking some of these other groups as well. So at $105,000 of bitcoin, it’ll pass. Saudi Aramco’s current valuation of 2 trillion would make bitcoin the fifth largest asset. At $137,000 of bitcoin, it would pass Nvidia and Apple to break into the top three most valuable assets.

[00:19:18]:
And then at $153,000 of bitcoin, it would pass Microsoft, making it the second most valuable asset in the world. But you can see there that’s just a $3 trillion valuation. If cryptocurrency and bitcoin specifically do what they say they’re going to do and become the digital gold, it’s got a long way to go before it gets overvalued on a market cap valuation, considering gold is ten X what bitcoin’s valuation is right now. So for bitcoin to overtake gold, you’re looking at bitcoin 750,000, right? I’m sure gold would go up in that same time frame as well. So you’re really looking at bitcoin about a million before it breaks into the most valuable asset class in the world. That’s just the kind of room to run that we think bitcoin has in the long term here. But, folks, that’s all the time that we have for 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. You can also find all of our transcripts and other notes for the podcast there as well. So thanks again for tuning in. Until next time, we’ll see you back here tomorrow for the close.

Podcast Newsletter

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Time Stamps

00:00 Stocks rally despite earnings miss and guidance.
04:58 Predicted 2-4 rate cuts for controlled impact.
07:01 Election year not major factor in decisions.
11:59 Dow Jones up, small caps finish flat. Internals slightly negative but finish positive. Nasdaq takes a breather.
15:40 Healthy bull market, no love for banks.
19:18 Bitcoin's potential to surpass gold as asset.
20:17 Sign up at vraletter.com for podcast. Access transcripts.

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