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VRA Investing Podcast: Q1 Recap and Q2 Outlook. Market Potential and Earning Expectations – Tyler Herriage – April 1, 2024

In today's episode, Tyler covers the market action for the day, giving his insights on the start of the month and the second quarter. He discusses the performance of major sectors, the impact of upcoming economic data, and the out ...

Posted On April 01, 2024Episode 1354
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About This Episode

In today's episode, Tyler covers the market action for the day, giving his insights on the start of the month and the second quarter. He discusses the performance of major sectors, the impact of upcoming economic data, and the outlook for Q1 earnings. Tyler also shares his analysis of key market indicators such as yields, oil prices, and the dollar.

Transcript

Don’t look back because the market is closed. Good Monday afternoon, everyone. Tyler Herriage here with you for today’s VRA investing podcast. Hope you all had a great start to your week out there and a great long Easter weekend. Happy Easter to everyone out there. Again, hope you had a great start to your week this week and a good start to the month of April as well. I don’t have any April fool’s jokes for you today. I’m sure you’ve seen plenty of them out there already.

But for our markets on the day, we got a bit of a mixed start to the month to now. Q two. Welcome to Q two as well. But we did see still a lot of bright spots in this market. And of course, you know, we do remain long and strong here overall for the long term. But I’ll get into a few of the short term details of what we’re seeing in this market right now. What we see, kind of a recap of what we saw in Q one and what we see looking forward from here and what we have to look forward to in this market. We’ve covered some of these quite a bit here on this podcast, some of the analytics of what we can expect going forward, especially after we’ve now officially wrapped up Q one.

[00:01:23]:
And that now makes five months of gains in a row for the S and P 500, for the Nasdaq, for the Dow Jones, for a lot of our major sectors as well, some of those up even longer than that. So let’s take another quick look here, what this means looking forward for our market. First off here, the S and P 500 just wrapped up an incredible first quarter here. Gains of 10.4%, some even bigger gains from our sectors that I’ll cover here in a little bit. But previously, when this has happened, when the SB has gained more than 10% in the first quarter, Q two has typically better than average. Gains here as well, ends up higher ten out of eleven times with median gains of eight point. That’s another, that would be another five very strong quarter, if that’s what we can expect from here. But it gets even better from here.

This one, you’ve probably heard we’ve covered this one here a lot when you get five months of gains in a row. So that would be here November, December, January, February, and now March as well. This is for the S and P 500. Then the S P is higher for the final nine months of the year has never been lower, eleven out of eleven times going back to 1950. And the average return for the final nine months of the year is just under 12%. So that would give us 22% gains, roughly on the year for our market. We might even be able to do a little better than that with the pace that we’re at right now. And then lastly here, we can’t forget that even though it was a bit of a mixed start to, to the month of April, April is the second best month of the year for our markets.

Now. We’ll see where we are after this week. Our major indexes right now are not at extreme overbought levels, despite being right in range of all time highs here. We look at that as very bullish. But we do have a busy, busy week ahead here. We’ve got a lot of economic data coming out. And then, of course, the Fed speakers, you know, they love to talk, to talk the market lower, especially while they’ve been on their higher for longer tour here. And now.

[00:03:41]:
Jay Powell will continue that core tour, excuse me, with a visit to Stanford on Wednesday, talking about the Fed’s economic outlook and then probably covering some of the economic data we’ll get back this week. We’ve got had ISM manufacturing today, Jolts report tomorrow, ADP report on Wednesday. And then now, as it is the first week of the month, we’ll get a jobs report on Friday as well. So stay tuned here. We’ll be covering all of these topics and more every day at the market close. And actually, sorry, one more that I forgot here. Now that we are out of Q one, we will now get into Q one earnings, which we fully expect will beat estimates here, especially as we see that we’re just in the early innings here of our innovation revolution theme that we’ve covered here for some time. And on that note, I’ll get to it.

More here, more in a second. But the innovation theme led the way again here today. But stay tuned with us here every day at the market close. And you can also sign up for our pre market updates as well, if you haven’t already. Right now we have a 14 day free trial going on where you can experience everything VRA has to offer. You can find it@vrainsider.com dot. That’s where you’ll get our best rate there is@vrainsider.com. And for our new listeners out there, we got a lot of new people coming in, a lot of them from Wayne Root.

And so Wayne, I’ll be on Wayne’s show on Wednesday is absolutely fantastic show had us on this weekend. So if you’re new here with us, thanks for being here with us. Wayne’s a great friend of the show, and we look forward to helping you out here to achieve your financial goals. All right, all that said, let’s take a look at our market action on the day. Because we started out the day looking pretty strong. Futures were higher, our major indexes were higher across the board, and that marked the highs of the day. The market didn’t look back from there after the open today. And of course, it didn’t help that yields were up big here on the day of 2.92% to now a 4.32 that is still below the recent resistance points, really roughly about the 3.5 mark here.

[00:06:04]:
Now, we aren’t at overbought levels on yields, but that’s got. So that’s got a little concern out there for the market. You know, our view. You know, first of all, yields at these rates will not derail this market, even getting up to 5%. Let me check. We just wrote this up this morning to our members. But when you look at the 1995 to 2000 dot melt up that we have compared this market so much to here, yields averaged above a 6% during that time, you know, 1995, 6.5%, the low 1998, still 5.26%. None of those were enough to derail that bull market.

We see that as the case here. So do we want to see yields go higher from here? No, we’d like to see them stay about where they are and continue to drift lower. We’re fine with the higher for longer theme because that means that this economy is as strong as we think it is. Typically, if the Fed is rushing to cut rates, if it’s not a pre planned, strategic one or two rate cuts, or three or four, even that can be on the menu as well. But if the Fed is rushing to cut rates, like we saw during COVID very clearly, right, immediately slashing rates, that’s not a good sign for the economy. So we don’t want that either. So again, at these levels, yields, no big concern. We’d like to see them pause and kind of drift lower from here.

And then another aspect I’ll point out is that oil has, has continued higher here now roughly $84 a barrel. I’ll cover that here in a minute. Now, let me preface this by saying we are bullish on energy stocks here, but higher oil prices is a headwind for our markets, especially when you start getting to the dollar 90 and dollar 100 a barrel mark there. So we’ll be keeping an eye on that here. Yields oil. Again, we remain extremely bullish on energy stocks. So I’m not saying that it’s a bad thing, but the other one would be the dollar as well, which today just hit its highest levels of 2024, was up pretty big. Today is actually the highest level since November of last year.

[00:08:23]:
So not a super long term high, but that would be another headwind for our market. Although over the medium to long term here, we think yields and the dollar will continue their moves lower. All right, so that being said, let’s take an actual look here at our market action. Despite yields being higher, despite the dollar being up, tech led the way today. Now, we finished well off the highs of the day, but in the face of higher yields, we’ll call that strength. The Nasdaq up just over one 10th of 1% on the day to 16,396. And just what we want to see, tech leading the way and semis leading tech. Yes, the semis also finish off their highs of the day, but they never went negative today, finishing up 1.3%.

Good day for the semis. And again, nowhere near overbought levels there yet. Next up here, the s and P 500 down two tenths of 1% on the day today to 5243. One factor I do want to point out here, Kip covered this on his podcast on Thursday as well, is that the narrative of this broadening rally continues here. So more stocks continue to participate. We’ve got roughly well over 82% of stocks in the S and P 500 right now, above their 200 day moving average. Again, as Kip covered on Thursday, that’s starting to flash a little bit of a warning sign, but actually, at these levels, can be very bullish. This is a market that’s broadening.

This is clear evidence of that. Now, once we get to, you know, say, 90%, 92, 93% of stocks above their 200 day moving average, that’s when we’ll really be looking for the warning signs in this market and a bit of an indication that it could be time to take some money off the table. Now, that’s not to say we won’t be back in, you know, just, that’s about the time you expect a bit of a correction from the market. Again, we remain extremely bullish long term here, so I don’t want to understate that at all. Next up here, the Dow down six tenths of 1% on the day to 39,566. And finally here today, small caps were our laggard on the day, down over 1% to 2102. And while they might have had a great day today, again, as Kipp covered on Thursday. We think the small caps are giving us a gift here.

[00:11:00]:
Remember the small caps, if you consider them a major index? A lot of people don’t. It’s the big three, the Dow, Nasdaq, and the S and P. But these are the four that we follow here. So we’ll look at it from this point of view as one of our major indexes. They are the only one that has not broken out to all time highs since their peak in November of 2021. So technically, the bear Russell 2000 has been in a bear market for two full calendar years, the peak, November of 2021. So we had 2022, essentially bear market 2023, same thing. But here’s where it gets bullish.

Since the formation of the Russell 2000 1988, the Russell 2000 has never sustained three consecutive calendar years in a bear market. So we would look at this in a very different point of view, similar to what we’ve talked about here with gold or with bitcoin, that this has formed a base underneath the small caps here. If you’re looking at IWM, the small cap ETF, the Russia 2000 ETF, we’ve seen this base formed above about the 150 level and has not crossed below its bear market lows since June of 2022. Those were the bear market lows. So in technical analysis, you call that a base. And as the old saying goes, the broader the base, the higher in space. We’ve talked about that with bitcoin and with gold as well, but essentially means that the longer that that support base has held, the higher the potential move forward could be. You could look at that to the downside if you get a breakout to the downside below a base, how low can you go? But that’s not what we’re seeing here at all from the small caps.

So given that we’re still 13% away from its all time high, it’s never finished down three years in a row. All signs here that make us extremely bullish on the small caps here, because as we talk about here often as well, the party does not even start until you’ve hit all time highs. We like to call it blue sky territory. That’s the golden time, right? No one who has bought the stock has a loss. And so that marks the beginning of the celebration. So again, that’s the gift that the small caps are giving us here. And one final note is how unloved the small caps are. Active fund managers in their portfolios right now, Russell 2000 stocks represent just 3% of their portfolio.

[00:13:47]:
So almost nothing. So that’s a whole lot of liquidity and cash that can come in and fuel this major index specifically higher. All right, next up here, taking a look at our internals on the day today. Not good readings here, but not bad either. Could have definitely been worse on a day like today where we did spend a lot of the day in the red, coming in with more declining stocks, then advancing stocks on the way. Coming in just under two to one negative on the NYSE. So no two to one beats here and a little bit better on the Nasdaq as well. 52 week highs and lows were our bright spot here.

And while this can lag sometimes, we talk about this often to both the downside and the upside. This is a bit of a lagging indicator. But what we saw today, when you started to dive into the stocks that hit 52 week highs, we’re starting to see resurgence in the mega cap names. Right. This rotational aspect of the market. If we are getting to an elevated level of s and P 500 stocks above their 200 or, yeah, above their 200 day moving average, that’s the market broadening. Those stocks are likely overbought. While the mega cat names are nowhere near overbought right now.

It would have plenty of room to run if the smaller names needed to take a breather here. But so what we saw today, Amazon didn’t finish up impressively, but it did hit a 52 week high. Google finished up over 3% on the day, hit a 52 week high as well. So we’ll look for the other mega caps to follow suit here. And if the mega caps get rolling, even if the rest of the market needs to take a little bit of a breather, it will still be look out above, given the way that the weightings are into the mega cap names. But overall, good day here. NYSE coming in with 186 stocks, hitting 52 week highs to just 23, hitting 52 week lows. Nasdaq coming in good as well.

[00:15:47]:
Over two to one positive on the day today. Lastly here, volume coming in negative on the NYSE. Same thing as advanced decline, though. No big beats, no two to one beat or anything. And Nasdaq coming in really pretty close to flat on the day, just barely negative. Looking at our sectors here on the day today, we finished with just three out of our eleven s and P 500 sectors higher on the day. But our leadership was much a continuation of what we saw from our sectors in Q one. So let’s cover that here quickly.

Our leadership for Q one in the first quarter, ten out of our eleven s and P 500 sectors finish positive. Communication services led the way today up 1.45%. Good day today. Really. We call this a proxy for tech. The two largest holdings are meta and Google in there. So really again a proxy for tech. They were up 12.67% for Q one that outperforms the s and P by a little over 2% there.

But they weren’t our best performing sector. That title belongs to our second best performing sector on the day to day energy, which was up eight tenths of 1%, was our best performing sector in Q one, up a big 13.48% on the quarter. Again, we do remain bullish on energy stocks here. Our other leaders for the quarter did not finish higher on the day. I’m sorry, tech did finish higher. Just before the close got back to positive territory was I believe our fourth or fifth best performing sector for the quarter. Still up an impressive 8.38%. But after that for the best performing sectors on the quarter, they did finish lower today.

[00:17:36]:
But the financials were up 12.44%, industrials up 10.8%. We also had materials up 9% into industrials and materials, both hitting all time highs or 52 week highs during the quarter as well. So all around impressive quarter from our markets then, our one laggard for the quarter was the real estate sector. Xlre. Now if you tune in here with us a lot, you know that’s why we don’t use XLRe as one of our top picks or how we would want to get exposure to the real estate industry. Xlre. The sector is made up mostly of reits. We like the home builders, so for us that would be XHB.

We like to follow the housing index which is HGX. Both of which just hit all time highs on Thursday had very impressive first quarter. So if you took out real estate and put in homebuilders, it would have been eleven out of eleven strong for the quarter. Our other laggards on the day though were healthcare, industrials and consumer staples. Again, three out of our eleven s and P 500 sectors finished higher on the day. Finally for today, our VRA commodity watch some exciting levels here. Gold hitting an all time high today, getting to $2,286 an ounce. Again, all time high now up one and a half percent on the day, just below those levels at 22 72.

And really we’ve been super bullish on gold here. So if you’re a long time listener, this doesn’t surprise you. But it also wouldn’t surprise you if you’ve been following international currencies because the US dollar is the last major currency for gold to hit an all time high in. We’ve already gotten all time highs in gold from the euro, the pound, the yen, the rupee, and others as well. So we were pretty much the last currency for gold to to hit an all time high end. Another reason why we see this as the beginning of a breakout here in the miners continuing to rally as well. Up over 1% on the day, hitting their highest level since May of last year now. So getting closer to a 52 week high.

[00:20:00]:
And if you’ve tuned into some of Kip’s podcasts recently, he likes to cover this often as well. In a rate cutting cycle, there’s no better performing sector than the miners. So we remain long and strong here on the miners. Next up after gold, and I get a refresh here, silver, up 1.2% now on the day to $25.21 an ounce. Copper higher as well, 1.27% to $4.05 an ounce. And what’s interesting here for copper as well is that it has a lot of work to do to get back to an all time high, a lot of work to do to get back to a 52 week high, or at least a decent amount of work to do. But what’s interesting here is that gold and copper, they aren’t a perfect correlation, but they don’t head in different directions for very long. So when gold is breaking out to all time highs, copper usually follows as well, especially as we see demand continuing.

Right. What powers this AI and innovation revolution is the hardware. Copper is a major factor in the production of those items, whether it’s EV’s, chips, everything. So that’s another group that we think has been a very unloved story for some time that we think should start to get some traction again. Copper here are now at $4.05 a pound. And lastly, oil. As I mentioned earlier, up on the day, just below 1% .99% now to $83.99 a barrel, just below its recent highs as well. On the day, it did get up to $45.50 a barrel as well.

[00:21:49]:
Finally here for today. Bitcoin was rallying earlier in the session, getting as high as 71,329. Now down 1.45% to $69,806 of bitcoin. Folks, that is all that 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 at vra letter.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 S&P 500 gains indicate positive market outlook.
03:41 Jay Powell visiting Stanford, discussing Fed's outlook.
06:46 Prefer steady yields to sudden rate cuts.
11:40 Russell 2000 has strong historical performance.
15:01 Mega caps hit 52-week highs, markets overall good.
19:13 Bullish on gold, reaching all-time high. Miners rally.
20:00 Podcasts cover mining sector's strong performance and correlation.

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