Check out today's VRA Investing Podcast as Tyler covers the latest look at inflation, the effects of government spending on inflation, and the market's expectations regarding potential rate cuts. He also dives into the rotational aspect of this market, highlighting the recent outperformance from the energy sector.

Don’t look back because the market is closed. Good Thursday afternoon, everyone. Tyler Herringch here with you for today’s VRA investing podcast. It was a bit of a rocky day out there for our markets today. Nothing crazy, but just couldn’t quite get the life in the wind and the sails, if you will, behind this market to get into positive territory. Just mostly fractionally lower for everything except for the small caps today took a little bit of a beating, but futures this morning were slightly higher ahead of the latest look at inflation that we got this morning, which came out at 07:30 a.m. Central time, 830 eastern time, and began the markets move lower from there. But that was the latest look at the producers price index, or PPI, coming in here year over year with a hotter than expected reading of 1.6% in February.

That was well above expectations there of 1.1%. So that was the big kind of reaction to that, that it was a bigger than expected number. Still really not bad. And the core numbers coming in closer to expectations, coming in at 2%, just slightly above the expectations, which were for 1.9%. So when you look at the non core reading, just PPI. Again, the reaction here with the expectations for just a three tenths of 1% increase and coming in at six tenths, so nearly a double what expectations were. That was kind of the big reaction there. But as you start to dive into the data, as with most government data, you start to see a few different plot holes in there.

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For example, here, energy prices have been on the rise. So when you look at the rise in PPI numbers now, core PPI numbers, just like with CPI, takes out food and energy. So that’s why you can see in the core number was only off by one 10th of 1%. But in just the regular PPI number, energy contributed to 70% of that move higher there. So really not that far out of expectations. And as we said for some time here, inflation was just never going to be a straight line down, especially when you’ve got a runaway government spending problem like we have now. Even doing everything they could, the Fed can’t help the continuous money printing from this government. Remember that it wasn’t too long ago that we just added 40% to our money supply in just two years, right after coronavirus insanity began.

Yes, there are going to be effects when you nearly double your money supply in just two years. I believe. If I’m not mistaken, we printed what we usually do in ten years and two years. So yes, there are going to be effects for some time from the system. And so in some ways, that money is still working its way through the system, still competing for the same amount of goods as before. And that’s where you get inflation. From there, you can look at all of the ways to curb inflation that you want. But the only one that really moves the needle, not in an incremental kind of way, in a big way, is money supply.

And so we’re still seeing a lot of the effects from that here. Seriously, from when that one fact alone is what we said why we would see inflation a few years back when we were calling for it then. It’s why we couldn’t believe what we heard the Fed saying that this is, well, first the Fed saying that they didn’t see inflation and then coming out saying, oh, well, there is inflation, but it’s transitory. And then, all right, inflation’s here, we got to raise rates real fast, was essentially their evolution through that process. And the same thing from Treasury Secretary Janet Yellen as well, who just recently basically apologized for having whiffed on inflation and saying that it was transitory. Yes, it is transitory if you’re looking at a very long term period here. But they have access to that data and way more data than we do. Right.

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The fact that they couldn’t tell alone by the increase in money supply tells you a lot of what you need to know about this group of people. They’re just getting up there reading their talking points and hoping for the best. So again, inflation was never going to go down in a straight line. We do expect it to continue heading lower from here, though, with pops like this along the way. Like we’ve said for some time, China is already in a deflationary environment, one that we expect them to export to the rest of the world from here. So what was also interesting today after the inflation data came out, was the CME’s Fed watch tool, where we’re seeing the ODS of a may rate cut continuing to fall here with hotter than expected inflation data. That’s not a big surprise. What was interesting is that the June probabilities for a 25 basis point cut actually rose a little bit.

Those were mostly from people transferring out of, they were looking for 50 basis points worth of cuts by June. A lot of those now going into the 25 basis point probability. But still the majority view here, 60% probability. The market expects that the Fed will cut rates in June. So stay tuned. We’ll continue to report on that there in any inflation readings we get coming back now, as we start to look towards the end of the first quarter of 2024. And some of the action we could have seen today might have been a little hesitancy ahead of next week’s fomc meeting and what the Fed will have to say. Fortunately, right now we’re in a blackout period, but it is kind of a wait and see from here.

But after the report, our major indexes did struggle from there. The ten year yield rose on the day, getting back above a 4.3% for the first time in just over right. Actually just about two weeks here. Let me get a final refresh of that. I’m thinking about the price of oil here, hitting its highest since the end of 2023. The ten year, on the other hand, that’s its highest level in about two weeks, did finish below the 4.3 mark, up two and a half percent on the day to a 4.29 there. And now let’s take a look at our market action on the day today. We did get a little bit of a rally into the close today, at least to finish off of the lows of the day.

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Again, no big losses here for our big three, the Dow, Nasdaq and the SP. But small caps lagged behind today, down 1.96% to 2031 for the Russell 2000. Then after that, we have the Dow Jones down zero point 35% to 38,905. Next up, the Nasdaq down three tenths of 1% to 16,128. And I want to point out here, in a way, you got tech leading to the downside there with semis down 1.8% on the day today. So not necessarily the action you want to see. You want to see tech leading and the semis leading tech. What was interesting to see, though, is we got a little bit of life from some of the magnificent seven names that have not been performing well lately.

Namely Apple, which from its peak in December got down as much as 15% from those highs, roughly down about 13% from those highs. Now, bouncing back today, up 1.9%. But I want to point out that Apple just had what is referred to as a death cross. That is when a shorter term moving average, this is for technicians out there, a shorter term moving average moves below a longer term moving average. One of the key ones that technicians key off of is the 50 day and the 200 day. When the 50 day goes above the 200 day, it’s a golden cross. When a 50 day goes below the 200 day moving average, that is known as a death cross. So to see Apple having a pretty good day on the same day.

It has a death cross. We want to see it break the trend on that one. It’s not a certainty, but the probabilities do say that stocks typically head lower from there. So we want to see Apple continue this rally. While the other magnificent seven names have held up pretty well outside of Tesla, which I won’t get into here today. But Google had a good day today as well. It’s taken a little bit of a beating. Not quite as bad as Apple did.

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Well, let me check that. Right about the same, a little bit less than what Apple did, but it was up 2.37% on the day. And you have stocks like Amazon up 1.24% on the day, almost at a 52 week high. And Microsoft up a big, nearly two and a half percent on the day, hitting an all time high. So this is the time period here. We’ve seen a lot of this market broadening aspect. We’ve talked about it from the internals. Once you get to the pause and pullback sort of stage, this is when you want to see the generals performing well.

So we want to see that going forward from here. But what’s good to see is that, like I said, our generals have taken a little bit of a breather here, and yet our market has continued to hit all time highs here. Again, that’s a point to the broadening area of this market. And now it’s time for the generals to do their job. Finally here for today, the Dow Jones, the S and P 500 was our leader on the day, if you want to call it that, still down zero point, 29% to 5150. Next up here, taking a look at our internals on the day today, not necessarily the readings you want to see here. We’ve seen a lot more resilience from the internals before today. That was not quite the case here today.

Coming in over four to one negative for more declining stocks than advancing stocks on the NYSE. Just over three to one negative for the Nasdaq 52 week highs, lows. Had our one positive reading for the day. That is Nyse 52 week highs to lows. This is an area we’ve seen much better numbers in recently. Coming in a little weaker today, though, with 138 stocks hitting 52 week highs, 259 hitting 52 week lows. So a bit of a decrease in the 52 week highs and a bit of an increase in the 52 week lows. Similar story from the Nasdaq, but negative.

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We’re seeing less stocks hitting 52 week highs and a little bit more hitting 52 week lows here in the short term, we’ve come a long way in a short period of time. So I don’t want anybody to think that this is changing our buy the dip strategy here, which we have called from the October 2022 lows. We said that that was the smart money move to buy the dip. Nothing has changed in that strategy. Despite what we’re seeing right now in the internals. This is all part of a healthy bull market action. Same thing that we’ve seen in the rotation, which I’ll get to here in a bit for our sector watch. Lastly here, volume coming in negative as well.

Roughly 82% downside volume on the NYSE, just slightly better on the Nasdaq coming at 75% downside volume. So certainly not what you want to see, but one day doesn’t make a trend. We want to see some improvement from here, though. But again, going back to our main strategy continues to be to buy the dip. Nothing has changed in that view here. Next up here today, let’s take a look at our sectors on the day. We finished with just two out of our eleven s and P 500 sectors higher on the day. And this is going back to the rotation theme that I just mentioned.

Energy has been one of our lagging sectors compared to its incredible rally after coronavirus insanity. After that, tech took back over. At least recently, energy took a bit of a breather. Now we are seeing energy come back to life, getting close to a 52 week high here of 1.1% on the day to day. And its recent rally has taken it to in the top three performing sectors so far in 2024, just below tech, the tech sector and the communications services sector, which essentially now is a proxy for tech, mostly made up of Google and Meta. So those things said, it’s good to see energy really participating here. This is again going back to the broadening and rotational aspects that we’re seeing, all as part of a healthy bull market. We are very bullish on energy stocks here, and they’ve been performing very well as of late.

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After that was our best performing sector on the year, communications services up over 10% now on the year for communication services, not even three months into the year yet. Then for our laggards on the day, we did have real estate lagging on the day. As you know, we talk about this here often. We don’t watch the real estate sector as closely as we watch the housing index and as closely as we watch home builders. The housing index did sell off today, but we just hit an all time high yesterday. So no concerns, just yet there we also got an all time high yesterday from the home builders, which did finish lower on the day today. But again, we don’t look at that as a bearish occurrence. New all time highs are not a bearish occurrence.

Our other laggards on the day utilities, which makes sense when we have yields rallying like we saw today, followed by consumer staples and the financials. One last comment on sectors here. We only have two negative sectors on the year, utilities, which I mean basically flat from about an hour before the close day, they’re down 6% on the year. And then you have the real estate sector down 2.87% on the year. But again, we look at the home Builders and the housing index instead of that, which are up significantly so far in 2024. So no concerns there. It’s been great action from all of our sectors so far in 2024. Finally here for today, our VRA commodity watch.

We now got some red on the screen here. Gold down zero point 66% to 2166. Next up, silver down just over half of 1% to $25.02 an ounce. Copper now down two tenths of 1% to $4.05 a pound. And oil rallying along with energy here, getting above $81 a barrel for the first time since the beginning of November last year. Very early November, like one of the first days of November. That’s why I was confusing with yields earlier in the podcast. But oil today now up 1.68% at $81.06 a barrel.

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And finally here for today, bitcoin, having a bit of a rough day here, has stabilized now. Earlier in the day got back below 70,000, hitting 68,717 at the lows of the day. It has since rallied back now down just 3.3% at 70,668. 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 also find our transcripts on our website as well, vraletter.com. Click the podcast link at the top. You can sign up there.

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.