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VRA Investing Podcast: The All-Time Highs Continue, Big-Tech Earnings, and the first FOMC of 2024 – Tyler Herriage – January 30, 2024

Check out today's VRA Investing Podcast for the latest on Q4 earnings as we'll discuss the market's reactions to the latest earnings reports of tech giants like Microsoft, AMD, and Alphabet. Alongside earnings, we'll also be looki ...

Posted On January 30, 2024Episode 1316
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About This Episode

Check out today's VRA Investing Podcast for the latest on Q4 earnings as we'll discuss the market's reactions to the latest earnings reports of tech giants like Microsoft, AMD, and Alphabet. Alongside earnings, we'll also be looking ahead at the economic data and the first FOMC meeting of 2024.

Transcript

Don’t look back because the market is closed. Good Tuesday afternoon, everyone. Tyler Herriage here with you for today’s VRA investing podcast. We hope you all had a great day out there today after yesterday’s very strong start to the week of what is a very eventful week for our markets. We got a bit of a mixed day today, just one of our major indexes finishing higher on the day today, but we still saw a lot of bright spots out there. But all eyes were on earnings today after the close. So let’s start there for today’s podcast. As Kip talked about yesterday, this will be the biggest week so far for Q four 2023 earnings.

We’ve got all of the big names pretty much reporting this week. I mean, with the companies, this week alone have a combined market cap well over $10 trillion here. So really basically all the largest companies here in the US giving results this week. And today it really kicked into high gear as after the close today we had Microsoft, AMD, Alphabet, and those are just the tech names. We had a bunch of other names out there reporting as well. But let’s kick it off with the large tech names here first, as we had Microsoft reporting today hitting yet another all time high. Hit one yesterday, hit one again today before finishing lower. So an all time intraday high there, but that is America’s largest company right now as it outpaced Apple well over $3 trillion now.

[00:01:49]:
But we did get a little bit of a pullback into the close. Again, intraday all time high today. But after the close, we got earnings where Microsoft beat on both earnings per share estimates and revenue estimates as well. Their cloud division also seeing much better than expected growth. That is the Azure cloud division there. And what we talk about here often is not the news that matters, it’s the market’s reaction to that news. And the reaction so far has been lower. The stock is down 1.6% in after hours trading here, has regained some of the ground from the initial losses.

After reporting no real concerns here, Microsoft is at extreme overbought on steroids here, as you would imagine with the company taking out Apple, hitting multiple all time highs in the last month or so. So no real concerns there, especially when you’re hanging out in all time high territory. But given the overbought situation here, it is about where you expect to see a bit of a pause. Then after Microsoft, we also had Google or alphabets earnings today, this stock as well hanging right at 52 week highs here as well. Hit one yesterday, did finish lower on the day today as it tries to get its market cap above $2 trillion as well for Google. Google today beating on earnings per share estimates, beating on revenue estimates as well. What’s really impressive here is when you have an almost $2 trillion company with revenue growth of over 13% year over year. So certainly nothing to complain about from that point of view in this earnings report.

But again, it’s not the news that matters, it’s the market’s reaction to that news. And Google is getting hit on the chin here, down 4.27% in after hours trading. Now tech names have come a long way. We’ve seen a lot of all time highs from this group, whether it’s the megacap, tech names, semiconductors, the tech sector as a whole. When you reach these extreme overbought levels, this is at the time when you see a pause. So again, no big concerns here. And then we had AMD also reporting after the close today, not far off of its 52 week high as well, coming in beating on top line revenue and inline with earnings per share estimates. AMD also trading lower now.

[00:04:30]:
Both AMD and Microsoft tried to get back to positive territory before heading lower. AMD now back heading to the downside, down over 2% in after hours trading. It’ll take a little time though for the market to process this earnings data. We’ll see what they say on their earnings reports for forward looking estimates as well. But right now the initial reaction is lower for all three of those stocks in after hours trading. And I’ll just say it here one more time, all of these stocks were at extreme overbought on steroids here. So pause is not surprising here, but stay tuned with us. The earnings fund will continue this week.

Tomorrow we’ve got a lot of big names as well. In the morning we’ve got Boeing, Philips 66, Mastercard and others. Then after the close, we’ve got Qualcomm and some other names there as well. And then Thursday, we kick really back into high gear here, which we’ve got Amazon reporting earnings on Thursday after the close. Apple also reporting earnings after the close as well. And Amazon, if you’re not mistaken, did also hit an intraday 52 week high today as well. So going to be an exciting end of the week here. And what’s really important to remember along with the fact that we are at extreme overbought levels is that 52 week highs and all time highs are not a bearish occurrence here.

But when you start getting them, you’ve got all of the perma bears coming out in full force saying stocks have only one direction to go, and it’s lower. Well, it’s just certainly not been the case. We’ve said this here often when you’re starting to hit fresh all time highs in our major indexes, that’s the beginning of a bull market, right? We’re in blue sky territory now. It’s usually not the end of a bull market. We just start hitting all time highs. And don’t forget that we are just now in year two of this bull market. Kip and I have talked about this here a lot. Bull markets on average last over four years and going back to 1952, the second year of bull market has been higher 100% of the time.

[00:06:52]:
There has not been a bull market that went on for one year that did not continue into year two. And that’s with average gains of 14%. Now, that doesn’t mean there won’t be pullbacks along the way. I know this is a common theme. I keep coming back here, but it’s important to remember that trees don’t grow to the sky overnight. So what that does mean for us here is that when we inevitably do get these pullbacks, whether it’s in the individual names you like the most or in your favorite sectors or etfs, those pullbacks are buying opportunities. We said it a lot in 2023. We said that buying the dip was the smart money move.

Nothing has changed in that view. We think that that will continue to be the case for 2024. All right, so taking a look at what else we have to look forward to this week, we’ve got a lot of economic data coming back. Then we’ll get the latest look at jobs data on Friday. But of course, we can’t forget that today is the first day of the first FOMC meeting of 2024. Now, there isn’t any expected action coming out of the Fed here, but all eyes will be on Jay Powell’s press conference tomorrow at 02:00 p.m. Eastern time tomorrow. Everyone will be tuning in to see if he gives any hints as to what the Fed’s next move will be.

We know the market is anticipating a lot of rate cuts in 2024, which is why we think that the Fed is actually set up here for a positive surprise. We know Jay Powell loves that kind of environment because he has the worst track record of any Fed chairman, that when he gets in front of the microphone, he sends the market lower. He has the worst track record of sending the market lower of any modern Fed chair. So in this scenario, he’s actually had more recently had a better trend of actually being able to send the market higher. So we’ll see if that continues from here. But the positive surprise that I was referencing would be a more dovish stance from the Fed. They’ve talked so much about this higher for longer theme, but they have already begun to telegraph their dovishness. They did that in the final meeting of 2023.

[00:09:23]:
Now, we’ve said for some time we’re fine with the Fed’s higher for longer theme, and there’s one main reason for that. It’s that if the Fed has to aggressively cut rates, that means that something is broken, is not a good sign going forward from there. But if they can instead signal, hey, we’re going to do a couple of rate cuts this year just to get in line with the disinflationary trends we have seen, then the market can take a step back and take a breather there and not expect the six rate cuts that are anticipated for this year. The Fed has already told us that they’ll need to begin cutting rates well before the 2% inflation target. Well, we’re getting closer and closer to that level, and if they wait for 2%, they also said that it would be too late. Right? So they’re trying to anticipate here where the market’s going to be going forward. And as Brian Rich pointed out in an excellent piece yesterday, too late here means that the Fed would overshoot to the downside, inducing a deflationary spiral. If there’s one thing we know about the Federal Reserve, it’s their biggest fear is not inflation, it’s actual deflation.

Deflation does not work in our current world of financial engineering that kip and I wrote our new book, the Big Bribe on, as this would lead to defaults on debt. They can’t have that in the way our system is set up here. So in our view, yes, the Fed does need to cut rates, just not the six times that the market is currently forecasting for 2024. We think it’ll be more like two to three, depending on the size of the cuts here. But to give a little perspective of just how restrictive the Fed is right now with a Fed, funds rate is most closely correlated to the two year yield. That’s what they try to line it up with. So what is the two year yield telling us right now at a 4.3? Let me get a quick 4.37 was the last I saw. Let’s see where we’re at.

The last read here on the day was a 4.33. So that means that the Fed funds rate is a full one percentage point higher than the market says it should be. And the market has a much better track record than the FOMC does. Let’s just say that the Fed funds rate right now is between five and a quarter and five and a half percent. So if the Fed can start to bring down the Fed funds rate more in line with the two year yield, that would be fine here. We don’t need six rate cuts this year. And again, we’d argue that’s probably counterproductive in a lot of ways. So we’ll see what the Fed has to say.

[00:12:25]:
We’ll be reporting on that here tomorrow after the close. Now, let’s take a look at our markets on the day today. As I mentioned earlier, a mixed day today, but we did get some fresh all time highs. The Dow Jones up just over three tenths of 1% to 38,467. That is an all time high for the Dow Jones. Next up, the S and P 500 finished roughly flat on the day, down 0.6%, but hit another intraday all time high today. I will point out we are at extreme overbought levels here, but the view remains the same. Buy the dip on any pullbacks.

SP finished at 4924 on the day. After that, we have the Nasdaq down three quarters of 1% to 15,509. And lastly, the Russell 2000, also down three quarters of 1% to 1996. Next up here, taking a look at our internals on the day today. Not the numbers that you might want to see, but also not terrible here either. Declining stocks did beat out advancing stocks on the day. Just barely, though. Just barely on the NYSE, a little worse on the Nasdaq, but no two to one beats or anything.

Then 52 week highs to lows. Our bright spot here on the day today, coming in with 421 stocks, hitting 52 week highs to just 112 hitting 52 week lows. That’s combined NYSE and Nasdaq, but you can see big beats there today. And lastly, volume, much like advanced decline, coming in negative for both the NYSE and the Nasdaq. But no two to one beats or anything here again, one last time, want to point out that at these extreme overbought levels, that is when you begin to expect a little bit of a pullback. But no concerns for us here. We would use it as a buying opportunity. You can’t emphasize that enough.

[00:14:29]:
Next up, taking a look at our sectors on the day today. We finished with six out of our eleven s and P 500 sectors higher on the day today. Financials up in a big way today, hitting a 52 week high here, up 1.26% on the day today. Now, on this podcast, we’ve said this for a long time. We’ve got no love for the big banks here. They’re in large part responsible to the financial engineering that we see so much of here in the United States. I won’t dive too deep into it here, but nevertheless, this is a group you want to see participating in our new bull market. So a fresh 52 week high is yet another bullish factor here.

And I’ll point out the largest bank, JPMorgan Chase, up a big 2% on the day, hitting an all time high, as we say here, often, new highs beget new highs. Next up after that, after the financials, energy stocks having a nice day today, followed by consumer staples and materials. Then our laggards on the day. Real estate was our biggest losing sector. But I’ll point out the home builders were able to finish positive on the day to day, as well as the housing index as well. All of those hanging out near 52 week highs right now. Not quite one day’s range away from it, but very close there as well. After real estate, we had tech and communication services.

Communication services did just hit a 52 week high yesterday, though, as well. So coming just off of those 52 week highs, no big concerns here for us. Finally here for today, our VRA commodity watch. Gold now higher on the day, up half a percent to $2,054 an ounce. Silver up slightly, zero point 16% to $23.28 an ounce. Copper up more just under nine tenths of 1% to $3.91 a pound. And oil now going from hanging out at the lower seventy s. Now trying to get to the upper seventy s here at seventy seven.

[00:16:41]:
Eighty one a barrel, up 1.34% on the day today, just below those recent highs of $79 a barrel. And finally here, bitcoin hitting its highest level in a few weeks here, up eight tenths of 1% to 43,562. Folks, that is all that we have time for here today. Please be sure to subscribe to receive our VRA podcasts every day at the market close. You can find us@vraletter.com click the podcast link at the top while you’re there. We also have a 14 day free trial going on as well. So come and join us here at the VRA. We want to help you crush Mr.

Market in 2024. 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 Microsoft overbought, Google beats earnings estimates.
06:04 Perma bears doubt, but bull market persists.
09:23 Fed prefers gradual rate cuts to signal disinflation.
10:45 Deflation doesn't work, Fed needs 2-3 rate cuts.
14:29 Most S&P 500 sectors higher today.

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