VRA Investing Podcast: Navigating Q3, Inflation Data, Q2 Earnings, and All Time Highs – Tyler Herriage – July 09, 2024

In today's episode, Tyler dives into the latest market action, and continued all-time highs, following the July 4th weekend. We will also break down J Powell's first day of congressional testimony, what to expect from the latest i ...

Posted On July 09, 2024Episode 1417

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About This Episode

In today's episode, Tyler dives into the latest market action, and continued all-time highs, following the July 4th weekend. We will also break down J Powell's first day of congressional testimony, what to expect from the latest inflation data, and upcoming Q2 earnings. Tune into today's podcast to learn more!


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 today and hope you had a great extended July 4 weekend as well as we did not have a podcast on Friday or yesterday as well. But it is good to be back with you here today. And it was also good that while we were gone, we continued to hit all time highs on Friday. Then yesterday, we had a good start to the week as well. There’s a lot of green on the screen yesterday.

And again, another round of all time highs. And then we had today. And we might have finished a little bit mixed on the day, but the S and P 500 and the Nasdaq notched another round of all time highs today. Once again now making, I believe, 36 days of all time highs for the S and P 500. Now in 2024. That makes 26 all time highs for the Nasdaq on the year, this year as well. And as we’ve pointed out here, that actually does bode very well for the future of the market as well. As we say here, often, new highs beget new highs, and we had no shortage of new highs recently.

I’ll point out a few of them here on the podcast today, and I’ll get to more of our market action here in a second. But first, let’s cover what we can expect from another exciting week in this market. Now, just a few trading sessions here into Q three. Now, I almost said Q two there, but with that, we’ll have, well, first off, let’s start just laying it all out here. So we will have another round of earnings here coming up soon. We’ll get Q two earnings, which I’ll cover more here in a second. Suffice to say, we expect them to be very good, but it kicks off unofficially is what they kind of call the first Friday of earnings, which is the big bank earnings, which we’ll get this Friday. And, of course, all eyes will be on the latest rounds of inflation data.

And who specifically will be watching? One of the closest, that would be the Federal Reserve. But today we had Jay Powell testifying in front of Congress. That will be today, and tomorrow he’ll testify in front of the Senate and in front of the House. So it began today and continues tomorrow on Capitol Hill. You know, after today’s meetings, tough to say if Jay Powell will have anything new tomorrow. They’ll grill him with questions, but he’s pretty good at sticking to the script, I guess, when he has to, when it comes to their own FOMC meetings. We talk about it here all the time. If he could just stick to the script and get off the stage, he would do everyone a major service.

So it seems like that’s what he’s going to do in these testimonies here, at least today. That’s what he did. He emphasized nothing out of the ordinary, staying true to what he said, that the Fed will stay data dependent until they see the signs that it’s time to take action. And he stated that, that inflation data has yet to support the path to rate cuts. But there’s a big but to this one. In classic fed double speak, he also said that, oh, well, yes, we can’t cut rates now, but if we cut rates too late, then we could unduly weaken the economy. It could be even worse if we do that. So kind of damned if you do, damned if you don’t hear is what he’s making it seem like.

But what we’ve said for some time here, and we’ve had a lot of people who have disagreed with this, was that we have seen cooling economic data. We’ve been talking about it here for months on the VRA investing podcast. We’ve seen a cooling jobs market. Again, we got ridiculed for this at the beginning of the year that we’ve had, oh, twelve straight employment increases show up in the jobs data. They conveniently leave out that the revisions have been revised down every single time on those reports as well. So, key point, we are still expanding here. This is not contraction territory, but we have seen a slowdown in the economy. And by what we’ve seen, it’s enough to give the Fed clearance here.

Essentially, what it all boils down to is the Fed wants to see some more good inflation data before cutting rates. So we’ll see if he has anything different to say in tomorrow’s testimony. I doubt it. But it was interesting today that Citi came out saying that the Fed is now running late on rate cuts, saying the Fed, because they’ve waited too long, will have to cut rates by a full 2% starting in September, and then that will be a quarter point cut, followed by seven more quarter point cuts at each of the next Fed meetings. So eight rate cuts in a row is what they’re calling for. I mean, remember where we were just seven months ago at the start of the year, and we had, you know, talking head sources like those at Citi saying, oh, there’s going to be six rate cuts in 2024, right. The Fed went too far. Well, we agree that the Fed went too far, but our tune has not changed from the beginning of the year, where we were looking for two to three rate cuts in 2024, then after.

So that was in December when they said that. Then you look to time periods like March and April, where we saw a little bit of a bounce, a little bit of a tick higher in our inflation data. PCE, CPI and PPI, all coming in a little bit above expectations, nowhere near the peak of where inflation was last year. But just after that slight increase in inflation, remember what we said here? It was never going to be straight down, but those talking heads flipped the script from six rate cuts in 2024 to, oh, the Fed didn’t do enough. Look, inflation’s back. And now that they’ve paused, they’re going to have to hike rates again. There’s going to be two to three more rate hikes in 2024. They were so convinced of it.

Right, but the point of covering this here is that now we’ve come full circle again, where you have Citi calling for eight rate cuts over the next year. We don’t think that’s going to be the case, and we don’t think you want it to be the case either. But the point here of covering this is that when you see these sensationalized talking points, right, that seem like so extreme from where they just were, you know, it’s a good time to do your own research and not to listen to these talking heads again. Our view remains unchanged. We came into the year expecting two to three rate cuts. We continue to expect that from the Fed. It is beginning to look more and more like two will be the answer. But I do have a scenario here in a second.

But if Citi is correct, let’s go back to that really quick. And why that is so bad is that, and why it’s not what we want from the Fed, it’s that when the Fed cuts rates and does so quickly and aggressively, like this rate cut cycle they’re talking about here at Citi, it usually means not only trouble for the economy, trouble for the stock market as well, trouble in, we’ve already seen it in commercial real estate areas or in real estate as a whole. It sends a ripple of shockwaves through the system, because it is the Federal Reserve reacting, right, rushing to fix another problem that they likely created. And remember here that the full effect of what they’ve done with rate hikes has not even been felt by the market yet. We’re coming up on the final rate hike that they had but we’re not there. And the rate hikes are not, end cuts are not usually felt by the market for twelve to 14 months after it happens. So the good news is here, I saw this earlier today, and I might have to double check this one myself, but it seems pretty true to me. Essentially, cities calling for a recession, apparently going back to World War two.

They’ve only correctly called one recession in the entire time. So the good news is they rarely get calls like this. Right? We’re seeing bears from other firms that rarely get calls like this. Right, as well. You know, they’re becoming the loudest voices now. But hey, even a blind squirrel finds a nut from time to time. But if we are correct here, which we think we are, and the Fed is starting to telegraph this as well, then this is already underway, right? The Fed comes in, they’re saying still they’re data dependent. But just last week, and we wrote about this to our members this morning.

So if you want to get this kind of information first, come and join us@vraletter.com. dot we’ve got a 14 day free trial going on right now. But if you are familiar with who Nick Timrose is, he is from the Wall Street Journal. His latest piece, he’s kind of known as, well, he’s known as Nikileaks, right, or the Fed whisperer because he is the public relations show for the Federal Reserve. Anything that they can’t say that they want to start getting a narrative going, this guy is the unofficial leaker of the Fed’s next steps. So sometimes, not always. You know, you gotta take everything you learn with a grain of salt. Who knows? It could be a little misdirection.

Always, right? But this is why we pay attention here, because Nick’s latest piece was just titled the case for September. Rate cut builds after slower jobs data. Who could have predicted that coming, right? Maybe two guys down in Texas removed from the madness a little bit, have been able to telegraph this even a little sooner. But if the Fed is able to successfully begin to introduce this narrative to the market, then these moves won’t spook the market, right? There will be no disruption to our new bull market because the Fed has to do an intracycle rate cut. Again, it’s the aggressive and quick rate cuts that spook out the market. And we see a quick 15, 20% sell off. You know, maybe not quite that far, maybe not all the way into bear market territory, but it certainly spooks our market. You know, then we looking at a period of sideways action likely.

I doubt we’d get back to bear market territory, but we’d see some sideways action. So if they’re able to nail this move of two to three rate cuts this year, and then being able to pause again is a big part of that as well. So that remains our view. By then, we’ll have Trump back in office and we can get back to business and use as usual and away from the craziness of the last three and a half years. Now. And I won’t get into the political side of things, but I know we’ve got a large smart money audience here, and the smart money is now betting on Trump. All right, so that said, again, we’ll continue to watch what happens with Jay Powell’s testimony tomorrow. I’ll also point out here that yields were higher in the session when Jay Powell was speaking.

Towards the end of him speaking, yields peaked and began to fall into the close. Yields were still higher on the day but finished well off, excuse me, well off. Their highs of the day closer to the lows of the day. We look at that as a little bit of a tell for the bond market. We’d like to see some more of that tomorrow. But again, yields in the 4% rate are no concern for us here. Even yields in the 5% rate really wouldn’t start to change our thesis too much. As we talk about here often, we’ve compared this period most closely to 1995 to 2000.

A lot of people talk about the dot bomb blow up. We like to focus on the making money side of that. From 1995 to 2000, the Nasdaq rallied 575%. Those are the kinds of gains that we think we still have in front of us, that we’re just in the early innings of here. So during that time period, yields averaged above 6%. So no yields in a 4% range. Don’t spook us too much here. All right, so as I mentioned earlier then, we still have a lot of important and exciting data to come out this week, and one here that could give Jay Powell the clearance he needs to cut rates sooner rather than later.

With the inflation data this week, we’ll get consumer price index data out on Thursday, and then we’ll get producers price index out on Friday as well. We expect to see some solid beats here and more evidence of disinflation. We aren’t back to a deflationary environment. Who knows if we will get there. Sadly, I hate to say that. Instead, the Fed always goes for this arbitrary number. They basically picked out of thin air of 2% inflation. It always should have been the goal to have 0% inflation, but that is the system that we live in today.

So the other interesting aspect here of today’s action was in the CME’s FedWatch tool, which is now showing a 70% probability of the first rate cut coming in September. That’s the highest level that this indicator has seen in months. We were just a month ago at a 46% probability and a 50% probability of no rate cut in September. Those numbers continue to tick higher. If we were to get some really good data later this week and some good earnings, you know, it wouldn’t quite give the Fed enough time to telegraph it. Their next meeting is at the very end of the month, July 31. So we’ll see if they have time to do it by then. But we still could look at three rate cuts this year, September, November, December.

Certainly possible. Also, a little side note here. Remember at the beginning of this year when everyone said, oh, the Fed has to cut rates in q one because they don’t want to look political, that they have to cut rates in September. It’s too close to the election. No one’s talking about that anymore. That narrative went away so quickly. I’m sure they’ll try to resurrect it at some point. But I think that everyone understands that the Fed’s got to do what the Fed’s got to do to some extent, at least here.

All right, so after that, too, after the inflation data. Lastly, again, big banks reporting on Friday. You’ll get Delta Airlines on Thursday, and then we’ll start hitting some of the more exciting names, really not even next week, but the week after that is when we start getting into big tech earnings. And what’s most important about this is we do expect another strong quarter of earnings here that will surpass expectations. That said, let’s take a look at the market action on the day we started this morning. Again, another round of all time highs from the S and P and from the Nasdaq. But we finished a little bit mixed on the day with the Dow and the Russell 2000, you know, slightly lower on the day, but a very mild move lower. So we’ll repeat the old adage here that this kind of market action is actually very encouraging to us, helps to keep us, you know, out or just right at extreme overbought levels.

Kind of work off those levels a little bit here. But again, as the old adage goes, never short a dull market. And we’ve seen that for weeks now. This market will take a little sideways action for a few days, then back to all time highs so you don’t want to shorten a dull market. We did see a little bit of the rotational aspect today. The Dow tried to take the lead with gains at midday today, hitting its highs of the day, got above the Nasdaq gains there, but ultimately could not hang on, finishing down again just fractionally, down just over one 10th of 1% to 39,291. The Russ 2000 was our biggest loser on the day again, not huge losses though, down less than half of 1% to 2029. After that, the S and P 500 up 0.07% so just barely finishing higher, but it was enough again today.

Intraday all time high now closing at 5576. And lastly here the Nasdaq up 0.14%, our leader on the day to 18,400 429. Interestingly here, the semis, which were up more earlier in the session, did lead the way today on SMH. The semiconductor ETF up over two tenths of 1%. So that’s what you’d like to see from the group is semi’s leading. But if you look at the semiconductor ETF, which is depending on what charting service you use or what search you’re using on Google, is Sox or dollar sign Sox, it finished basically exactly flat on the day today, yet still managed to hit an all time high earlier in the session today. The SMH ETF is not quite back to those levels. So we look to this as hopefully an early tell here of what we can expect to continue from the semis after they peaked in mid June.

I will point out here that as far as the S and P and Nasdaq go, we are approaching extreme overbought levels. We still got some room to run there on some of our VRA momentum oscillators. So not quite there yet. What’s good to see is the semis really have some room to run before they hit extreme overbought on steroids. So let’s look for those all time highs to continue there. Next up, lets take a look at our internals on the day today. Ill also quickly recap that yesterday we got strong internals across the board, finishing higher today. A little bit mixed on the day, but no big red flag kind of beats out there.

Declining stocks did beat out advancing stocks for both the NYSE and the Nasdaq, but again, no big two one beats or anything, 52 week highs and lows. Kind of our bright spot here. Coming in barely positive for the NYSE, negative by only one issue on the Nasdaq today. So we’ll call that even on the day. Lastly, volume did come in negative for the NYSE. Not a big beat though, and did manage to come in positive on the Nasdaq. So certainly not terrible readings. Not great either.

We do want to continue to see the internals improve. Looking at our sectors on the day, we got a little bit of a late day rally here as well, to finish with seven out of our eleven sectors higher on the day to day. Financial is actually leading the way today, and it really been on a bit of a sleeper pick of a move here, getting back in the range of their all time highs right now. And what’s really good to see as well is KRE, the regional bank ETF, holding up here as well. A lot of technicians and market washers look to the regional banks as a sign of overall economic strength. After that, more defensive names. We had healthcare and utilities higher on the day. And then we get into the all time highs.

Consumer discretionary hitting an all time high today. We also had the tech sector, which spent a good amount of the day in the red, finishing today and also hitting an all time high. We also saw some pretty good action in the mega cap names here. Again, Apple making another all time high here. So overall, you know, pretty good day from the generals and our market leaders. Just not quite the big rally that you really like to see and that I would like to do a podcast day on. But they’re all fun days out here, especially when you get to do something you love, like we do here at the VRA. So hopefully you come and join us and have some fun with us and make some money here as well.

That is always our goal at the end of the day is to take care of our clients and ensure that we have fully funded retirement accounts. That is the goal here at the VRA. As far as our laggards go on the day to day, materials, energy and industrials and consumer staples all finishing lower on the day today. Finally here for today, our VRA commodity watch. Gold now up three tenths of 1% at 20, excuse me, 23 71, less than $100 away from its all time high here. Silver higher as well today, up over half a percent to $31.80 cents an ounce. Copper now lower on the day, down seven tenths of 1% to $4.58 an ounce. Oil sold off a little bit here recently.

Still holding on to the $80 a barrel mark, now down six tenths of 1% at $81.81 a barrel. And finally here for today, bitcoin, which saw a sell off over the weekend here, hitting a low, a multi month low here of 53,500 on July 5. It has since rallied back some here. But just like our markets, we are seeing basically extreme fear, despite the fact that we’ve had a great run this year as the fear and greed index, which they have for bitcoin as well, just hit a full on fear mode, hitting a 27 over the that was this morning. Actually, that is its lowest level for bitcoin on the fear and greed since January 2023, January of last year. At that time, bitcoin was trading at $17,000 of bitcoin. It’s since rallied over 230% and now we’re back into the same levels of fear. So, yes, we remain extremely long here, aggressively long.

We will continue to use these dips as buying opportunities for bitcoin, and we’ve since rallied back some as well. Bitcoin up 2.9% on the day, over $4,000 off of its lows now at 57,885 a 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.

Podcast Newsletter

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Time Stamps

00:00 Market podcast discusses upcoming Q3 earnings forecast.
04:53 Fed awaiting good inflation data before cutting rates.
07:53 Citi predicts recession, Fed rate cuts impact.
10:37 Nick predicts September rate cut and implications.
15:59 Strong earnings, market hits all-time highs.
17:58 Nasdaq closes at all-time high, semi's leading.
22:49 Oil at $81.81, Bitcoin rebounds from lows.
24:02 Bitcoin rallies, use dips as buying opportunities.

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