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VRA Investing Podcast: Market Resilience in the Face of Economic Headwinds – Tyler Herriage – April 25, 2024

In today's episode, Tyler dives into the rollercoaster ride of today's stock market action as we got back weaker-than-expected economic data this morning. Despite the initial reaction our major indexes fought back to finish off of ...

Posted On April 25, 2024Episode 1372
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About This Episode

In today's episode, Tyler dives into the rollercoaster ride of today's stock market action as we got back weaker-than-expected economic data this morning. Despite the initial reaction our major indexes fought back to finish off of their lows of the day with notable outperformance from the semiconductor sector. Tune into today's podcast to learn more!

Transcript

Don’t look back because the market is closed. Good Thursday afternoon, everyone. Tyler Herriage here with you for today’s VRA investing podcast. Hope you all had a great day out there today. On the surface today, it may have looked like a rough day for our market. If you’re just looking at the headlines, looking at the major indexes, including some of our major sectors, you would have thought, oh, man, that was a pretty rough day out there today. But if you’re watching the markets today, the action from when we got the economic data this morning, earnings data from yesterday and into this morning as well, you would have seen that this morning looked a whole lot weaker than where we finished up today. And that’s going to be the theme.

A big part of this podcast today is resilience, resilience from huge tech companies, our major indexes, our major sectors, just throughout the day. We saw it over and over again, but it all kicked off today with economic data this morning. Well, we could even take a step back and say this morning’s action kicked off yesterday at the close when meta reported earnings and reported an earnings beat. But in the inverse of what we saw from Tesla, which missed expectations and was up over 10% yesterday, meta did the opposite. They exceeded expectations and were down 10.5% today. I’ll get to more of that here in a second because I have a few interesting points on meta there, on Tesla as well. But really going off to what got our markets going today, even if it was to the downside, and that was weaker than expected economic data here. So first quarter GDP disappointed.

[00:01:59]:
We got the first advanced look at it today. And now I want to be clear here. This wasn’t a negative print, just worse than expected here. GDP still grew in the first quarter at not a bad 1.6%. That would be the annualized growth rate. You know, so not great, not what you want to see, but this is still far from a recessionary reading. The big miss here was that growth expectations were for 2.4%. So coming in at 1.6, obviously less than ideal.

We also got a little bit of the first look at PCE inflation with this as well. So PCE, excluding food and energy prices here, rose by 3.7%, 7% in the first quarter, well above expectations of 3.4%. So that really more likely even is what got the market upset. Here was another, yet another year inflation reading higher than expected. And it doesn’t help that we’re now less than a week away from the next FOMC meeting. Jay Powell and his merry band of money printers will be speaking next Wednesday, so we’ll be reporting on that here, see what the latest they have to say in, you know, is the higher for longer theme. What they’re looking for here. Do they still see a soft landing they’ve missed on so many of their calls in the last few years that it’s tough to take them seriously on anything here.

But right after this was interesting. Not I’m sure this wasn’t so much the GDP data as it was the inflation data, but the ten year yield was up 1.16% on the day now at a 4.7. That is another new high for the ten year yield since the beginning of November last year. Now, you know our view, there is significant resistance at about the 5% level. That’s where we topped out last year at a 4.99. So we’d love to see a double top. It wouldn’t bother us if we got back to those levels and got a double top. Our long term view remains that yields will continue lower.

[00:04:12]:
And at these levels, even at a 5%, we don’t see it as enough to derail this market here. As we talked about here often between 1995 and 2000, the.com melts up. When the Nasdaq rallied 575%, rates averaged well above where they are right now in the six to just below 7% range. So no yields in the 4% range don’t bother us. And now if we continue to head higher, we’ll reevaluate. We’re not there yet. We got a ways to go still before we get back to those October highs and then ten year yield that we saw from last year. Again, though, that Fed meeting next week has everyone a little bit on edge.

Of course, the CME’s Fed watch tool, after this morning’s data continued to push back the first rate cut expectations depending on where you’re looking for market probabilities. I like following the CME group’s Fed watch tool. I look at it more as a sentiment type of indicator. Remember, going into the year, the market expected six to seven rate cuts. We told you from the beginning that was never going to happen. We were in the camp of three rate cuts roughly expected for the year. Now that still does is starting to look to the high side. If we continue to get weaker than expected economic data, though, the Fed could pivot quickly.

Now that being said, if you tuned in with us here for a while, you know that’s also not what we want to see. If the Fed is reacting to data in order to cut rates, it’s typically not a very good sign. Doesn’t bode well for the market going forward if it’s a more planned out, you know, hey, we’re going to cut rates. We’re going to do 225 basis point cuts in the next meeting and then we’ll reassess from there and go forward. The market can react nicely to something like that, but if it’s a surprised rate cut, usually doesn’t bode well for the market. So that’s not what we want here. We want yields to move lower in a orderly fashion going forward. But so on the news, the GDP and inflation data from this morning, us markets took a hit again.

[00:06:32]:
Rates rose there. Then, though shortly after the open, it started to look like the lows might be in for the day. And 30 minutes into trading this morning, just running some screens, you might have been surprised to have seen the Nasdaq was down over 2% earlier in the session. The semis were positive on the day. That’s exactly what you want to see. We talk about this so much here. You want to see tech leading and you want to see semis leading tech. Now, we might not have gotten tech leading today, but the tech sector did manage to finish positive on a day where the Nasdaq was down six tenths of 1%.

But the key point here about the semis, the semis were the first major sector that began this pullback after their all time high in early March. It was March 8, I believe semis pulled back the Nasdaq. And the Nasdaq 100 didn’t top out for another 13 days after that, maybe ten sessions or so after that. So the semis lead to both the downside and then to the upside as well. And now we’re starting to see the semis leading to the upside and showing strength on a day when our major indexes are lower across the board. And the semis were, not only were they up, they were up 2% on the day, wrapping up four positive sessions in a row. That, folks, we call that textbook bull market action from the semis right there. And one last interesting point here, kind of a side note on the semis is that April is actually the second worst month of the year for the semis, with average losses of 1.1%.

Now, we’ve lost more than that this April. We’re down just over five and a half percent even after today’s gains. But also look back on the chart here to get some perspective. We finished the last five months positive on the Nasdaq with gains even at today’s close, we still have gains in the last five and a half months or so over 50% in the semis. Same thing with meta here. Kind of jumping ahead of where I, where I was. Let me finish my point here. The good news is April 2, worst month of the year for the semis.

[00:08:55]:
Good news, May is the second best month of the year for the semis with average gains of 5.5%. So we talk about your often sell it may and go away. We may not see that at all this year. But again, so back to this point of the semis, had fantastic gains over the last six and a half months or so. Again, up over 50%. Meta, a lot of people talking about this today. Oh man. This is the third session that meta has had in the last year or two years where they’ve lost over $100 billion off of their valuation.

Okay, wow, that is shocking. That is a big number there. And meta saw revenue growth of 27% from the same quarter last year and was down over 10%. What happened here, you know, that’s raising some red flags certainly on the surface. And so it’s hard not to read too much into that, but we got to remind ourselves here that we need to zoom out. Meta is up over 98% from 52 weeks ago. From the end of April last year. Yes, I’ll say it again, Meta is up 98%.

I mean, this is a one $1.2 trillion company here. So it was a, you know, 600 million billion dollar company a year ago. And so it’s doubled since that time. That’s massive growth. So yes, a 10% down day hurts, but again, Meta was up 160% or so from last year until the month of April. So, no, this pullback here doesn’t concern us. Yes, you don’t want to see it, but now we’ve reached extreme oversold levels here, and that’s about the time when we begin to look for a bounce. And so let’s continue the earnings train going here because we got some more big ones here today after the close.

[00:11:01]:
Mostly the big ones here, mega cap tech. After the close today, we had Microsoft and Google. But leading up to these reports today, both of the stocks were down. Microsoft down just under 2.5% on the day. Google down just under 2%. Coming in though with earnings. Microsoft beating on top and bottom line estimates, showing better than expected growth in their cloud division. That’s an area a lot of people are watching right now for the future of a lot of these tech companies.

They saw what happened with Amazon and AWS, Amazon Web Services, and they know what an impact it can make to a company’s bottom line. So they want to see growth investors do in the cloud divisions. We got that for both Microsoft and Google today. But Microsoft, after their report now up over 4% in after hours trading. Google big beats here beat on both the top and bottom line as well. But that wasn’t even the biggest news. Well, there was one really big piece of news there. Total revenue for the first quarter, 93.5 billion, I believe I saw that was their best first quarter in history.

And then they also announced today, for the first time in the company’s history, dividend, a 20 cent dividend there. And I know there’s just so much good news here. They also issued a $70 billion stock buyback as well. This is the financial engineering we wrote about in the big bribe. Expect to continue to see it from major companies. Google up 13.5% in after hours trading. I’ll cover that here more in our sectors. One last point there, so stay tuned.

[00:12:51]:
One last point here for Meta and Google. When I get to our sector watch as well. We had intel today also reporting having a slight miss here. Let’s see what it is now down eight and a half percent and after hours trading. You know, we follow the semis here closely, and intel is one of those names, but they’ve really had less than impressive innovations compared to some of the newer chip names out there. So no real big concerns for us here that demand for semis in general is still there, still expanding if intel can’t capitalize on them. Sounds like an individual company problem, not a market problem here. Now, one last earnings report that I do, not a company that I may, I’ll probably cover it two, three times a year, maybe on the podcast.

And it usually is around earnings time here. And that is Snapchat, which had an interesting day. You know, like I said, we don’t cover here often. It’s not a small company, though. It’s a $20 billion company. But what was interesting today during the session at the open this morning, Snapchat went from down 5% to finishing up 2.89% on the day before reporting earnings. And they posted a beat here on growth expectations and on revenue as well. The stock is up 24.9% in after hours trading.

So while it’s a company we don’t follow here a whole lot, it still is good to see the market’s reaction to these earnings reports being big to the upside. We like to see that here. All right, before I get to our markets, we just got some really interesting data back today. We’ve talked about this for the last few weeks. We’ve seen sentiment continue to deteriorate since our highs from March, which makes sense. We’ve been on a hell of a run from this market. But what’s so interesting here is that with this pullback, investors are scrambling for the exit. That is not the sign of a market top.

[00:15:01]:
The sign of a market top is when we get a pullback from a pullback, like we’ve seen here, and sentiment actually improves during that time. Cause everyone’s buying the dip then. We are nowhere near that point now for, you know, irrational exuberance, if you will. It’s not. We’re not seeing it show up at all. One of them. We cover here a lot, the AAIII investor sentiment survey. All year for all of 2024, we have seen more bullish investors than bearish investors.

And that goes back into November of last year. That’s all the data I have in front of me. It could go back even further than it could go back to October, probably when we saw the 2023 loads. October 2023. We called the October 2022 loads. So not to get those confused there. So for the first time in 2024, we now have more bearish investors than bullish. That is.

I don’t even know how to be more emphatic about how bullish. We look at that here as contrarians. Again, when investors are running for the exit like this, it does not mark a market top. Combined here, between neutral and bearish investors, 67.8% of investors are either neutral or bearish on this market right now. We still have the fear and greed index at a 40, which is a fear mode indicator there. So to wrap it all up as contrarians, this makes us love this pullback even more. And our theme here remains unchanged from the October 2022 lows. And that is that the smart money move here continues to be to buy the dip, buy pullbacks, dollar cost averaging into your favorite positions.

[00:16:53]:
There will come a day when that strategy has run its course. I’m telling you here right now, that day has not come yet. And this pullback could very well likely be the best buying opportunity for the rest of 2024. That’s how we’re looking at this year. We’ve started to add positions as well. All right, so let’s take a look now at our market action on the day to day. Not a great day for our major indexes. But again, the theme of the day resilience, because these losses could have been much worse.

We opened the day negative across the board. Nasdaq down over 2%, Dow Jones down over 630 points. That marked the lows of the day today. Exactly what you want to see on a day, even if we didn’t get back to finishing, finishing in positive territory. You love to see your major indexes finishing at or near their highs of the day, even on a day when you’re lower. So let’s take a look here. We were led lower today by the Dow Jones down just under 1% or 375 points, again rallying from being down over 630 points, though, earlier in the session, now at 38,085. I also want to point out here the transports have had a bit of a rough few weeks here, you know, transportation stocks having some not so stellar earnings.

But on a day when all of our markets were lower, the transports managed to finish up 1.4%. We want to see that continue here. Next up, we had the Russell 2000 down just over seven tenths of 1% to 1981. After that, the Nasdaq down just over six tenths of 1% to 15,611. But I got to reemphasize here, the semis up big on the day today, 2% is exactly what you want to see. And lastly here, the S and P 500. Our leader on the day, if you want to call it that, still down 0.46% to 5048. Next up here, looking at our internals on the day to day.

[00:19:01]:
You know, we’ve been covering this a lot here. We always cover our internals, but we’ve been covering here that we’ve seen much better internals lately, even on some down days. And while it wasn’t a strong day for the internals, again, resilience is the key word here. It’s really, when I look at these numbers, it’s all I can think of, because it wasn’t a strong day for the internals. But if you looked at the readings from 09:00 this morning, central time, you know, ten eastern, and then where they finished today, you might be very surprised. So the fact that these internals weren’t much worse is actually, we would call that a win on the day to day. So we did have more declining stocks than advancing stocks, and we did finish two to one negative roughly right at that for both the NYSE and the Nasdaq. But earlier in the session, we saw three to one, four to one readings.

So to finish at two to one, you know, basically at the highs of the day, we’ll take it. 52 week highs and lows just came in really pretty much even on the NYSE today, worse on the Nasdaq. But some of those names in the Nasdaq, as we talk about here, often really aren’t quite up to par. And on top of that, you know, when you have a down day like today, you’re going to see stocks hitting 52 week lows. So it’s a bit of a lagging indicator and also a cumulative indicator. So these stocks could have hit their lows in the morning and finished positive on the day, and it would still show up here on 52 week lows. So no big concerns. There is my point.

Lastly here, volume was negative, but just barely. So making it our bright spot on the internals here. Just barely. No two to one beats here or anything, just fractionally negative for both the NYSE and the Nasdaq. Next up here, looking at our sectors on the day to day, we finished with five out of our eleven s and P 500 sectors higher on the day to day. And it has been continued action from some of the more defensive sectors. We were led today by materials, followed by energy. And I will point out tech stocks did manage as a sector to finish just slightly positive on the day, but we’ll take it.

[00:21:18]:
And then back to what I was talking about earlier. I want to bring up Meta and Google here one more time is for our laggards on the day, communication services leading the way lower. But if you look at the holdings in this sector, it makes sense. Meta and Google make up something like 40% of this sector. And so on a day when you have meta down, what was the final down? Over 10% on the day. Google down over 2% on the day. Yes, you’re going to see communication services lower. So if you were surprised by that, you know, no big surprise there.

But now with Google up big in after hours trading, we should get a very strong day here from the communication services tomorrow. After that, healthcare, real estate and financials for our lagging sectors on the day. Finally here for today, our VRA commodity watch. Some green on the screen here. Now, gold up a quarter of 1% to 23 44. Got some good earnings here today as well. Newmont mining up over 13% in reaction to its earnings report. Its best day in a few years, and best earnings reaction in over 20 years since 2001.

And what I really want to point out here is that gold miners continue to outperform gold here in the recent action. We haven’t seen this that much lately, but now GDX has begun to rally up another 3.65% on the day, approaching a 52 week high here. That’s what you want to see, outperformance from the mining stocks versus the commodity. And we’ve seen it a lot now in the last couple of weeks. We remain extremely bullish on both gold, physical gold, and the miners. Next up, silver, up just over or just under half a percent today to $27.46 an ounce. After that, copper, excuse me, up almost 2% on the day. Up 1.95% on the day.

[00:23:25]:
And I will point out that is a 52 week high from doctor. Copper should signal some signs of actual economic strength. Copper goes into basically everything tech related, so when it’s in high demand, it means that people are producing things. Now, the supply side of the story is another issue, maybe for another podcast. Next up, oil, up 1.16% on the day, still in the lower eighties range at $83.77 a barrel. And finally here, bitcoin, now higher on the day, up about nine tenths of 1% to 64,960. Another one that we remain very, very bullish on here going forward, folks, that’s all 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 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.

Podcast Newsletter

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Time Stamps

00:00 Podcast discussed resilience in tech sector's performance.
05:39 Fed reactions and market impact explained briefly.
07:12 Semis lead market movement, showing strength.
12:51 Intel's earnings report shows slight miss. Market unaffected.
16:04 Investors embrace pullback, opportunities despite market fear.
19:01 Despite challenges, market shows internal resilience.
19:55 Stocks reach highs, lows even, some concerns.
23:25 High copper signal economic strength, oil, bitcoin up.

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