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The VRA Investing Podcast: December Market Update with Tyler Herriage

In today's episode, Tyler Herriage brings you a comprehensive overview of the day's market action and provides valuable analysis on key trends and indicators. From the market's response to the Fed blackout period to the performanc ...

Posted On December 05, 2023Episode 1290
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About This Episode

In today's episode, Tyler Herriage brings you a comprehensive overview of the day's market action and provides valuable analysis on key trends and indicators. From the market's response to the Fed blackout period to the performance of sectors and commodities, Tyler delves into the factors shaping investment strategies. Join us as we navigate the current market landscape and discuss potential opportunities for investors. Stay tuned for today's episode of the VRA Investing Podcast.

Transcript

Don’t look back because the market is closed. Good Tuesday afternoon everyone. Tyler Herridge here with you for today’s VRA investing podcast. We hope you all had a great day out there today. I’ll tell you, it was a pretty busy day here in the world of VRA. We’ve got a lot of exciting stuff coming for you here in to year end and of course for 2024 as well, which we think is going to be a phenomenal year. But that said been a little over the place. So if I miss a couple areas that we normally cover today, I apologize, but we’re going to cover it all here pretty quickly today.

It was a bit of a mixed session for our market. We did have the Nasdaq finishing higher today. Not a bad day per se, more of a quiet day. After the massive, massive November that we just had, our markets did hit extreme overbought levels. So as we talk about here often that’s about when you would expect to get a little bit of a pause from the market. And as Kip said on Charles Payne’s show know we may be in for a little bit of a quiet start to the month followed by a great finish. Seasonality speaks to that as well. After a strong November like we just saw, you do typically get a slower start to the month of December.

And then as you get to the end and the Santa Claus rally, which is the last five days of the year into the first two days of the next year, we expect the move higher to really continue. But point being here, any weakness that we do see, we’re going to be continuing to use that as a buying opportunity here. We’ve said it all year, buy the dip has been the smart money move and that continues to be the case. We believe that will continue to be the case from here as well. And one big reason for that that Kip touched briefly on yesterday is the IPO market. This is something we’re starting to look at here more closely because as we wrap up 2023, it’s been a silent year from the IPO market, which is a major sign for us here that we are nowhere near an all time high. So what does silent mean from the IPO market? There’s been 148 IPOs so far this year. That’s the lowest number in six years that we’ve seen from the IPO market.

And on top of that, it’s something like 50% of the companies that IPOed this year are negative from their initial listing price as well. So that just speaks volumes to this is not anywhere near a red hot IPO market, which is the sign more so that you’re approaching a market top when you’ve got every IPO that comes out being oversubscribed, up 50% on its opening day, up 100% in some cases on their opening day. Those are signs that you start to look for and say, all right, we’re approaching a top, doesn’t mean we’re there, it means we’re approaching a top. And so we’re just nowhere near that yet. And so we as contrarians look at that as a very bullish sign going forward. Hopefully we start to see a bit of a heat up in the IPO market in 2024. But as we see it, we’re still in the early innings of this bull market, so we may be a ways off from that red hot kind of IPO market. Also of note today, we are now in the Fed blackout period, so we don’t have to hear from any more Fed speakers.

The last couple of weeks they’ve been rolling out like eleven a day, right? Also, they can tell you the same thing in a different format over and over and over again. So it’s nice to say that we won’t have to hear from any of the major Fed speakers until the FOMC meeting next week, which not always looking forward to it. We don’t think we’ll be any major surprises coming out there. And that said, yields are continuing to fall ahead of that meeting. The ten year yield today down 2.73%, hitting another multi month low here. That’s its lowest level since the beginning of September, and the ten year yield at a 4.17. Now, what’s really interesting here, though, is take a look at the CME’s Fed Watch tool. I talked about this on last week’s podcast because we saw a big increase in the chances of a rate cut by March of next year.

Since that podcast, which was probably, I don’t know, last Thursday or Friday, where I talked about this, I mentioned that January had basically no chance of a rate cut. Well, that has changed. It went from one week ago. There was a 0.3% chance of a rate cut in January. Those probabilities are now at a 14.3%. That’s a big increase in just a week. Now, March, as I talked about last week, the odds for a rate cut was just over 30%. That number is up in a massive way as well.

Now, the majority view is for a rate cut in March of next year, 56 and a half percent. Again, that’s up from 34% a week ago that the Fed will have to cut rates by March. Now, this has been our theme for a while here. We said the last few rate hikes that the Fed was making, we said that’s a mistake. It’s only going to accelerate the timeline in which they’re going to have to cut rates. Now, you might think you see these ODS and you think, all right, rate cuts, let’s go. Exactly what we’ve been calling for here at the VRA, what we’ve been talking about. Now, we may end up being right on that.

That doesn’t necessarily mean that we want to be right. Now, those might sound conflicting. There they are in a way, but here’s why usually the first rate cut is because something went wrong, something broke. And the Fed is reacting to that, right? They’re reacting to the fact that we are getting more recessionary signals. A big company goes under because of mismanagement and their interest rate hedging there. So you don’t necessarily want a rate cut because the first rate cut is usually not very good for the markets. Now, longer term it’s fine and we expect it to be the case, but we wouldn’t mind it being pushed back further than that. But now that we have the majority view of a rate cut in March, it makes what Jay Powell has to say next week that much more important because we’re not going to hear from him again until the end of January.

We’ve got over a month and a half from the December 13 Fed meeting to the January 31 Fed meeting and then you’ve got another month and a half there before March. So it’s going to be an important meeting next week. We don’t expect any surprises from JPAL, probably more jawboning of the market, but it’ll be interesting to see the data we get back. Really a lot riding on this jobs report coming Friday. But point of the story there being, yes, we might be right on them having to cut rates sooner rather than later, but that may not be the best outcome for our market. Now. That doesn’t change anything about our long term view. Long term, we remain incredibly bullish on this market.

We are in the early innings of a new bull market which begun at the October 13 lows of 2022. Nothing in that view changes based off what I just said. It’s more of a short to medium term trading outlook if you want to make those trades, if you are a trader, but if you’re more of a buy and hold type of person, then this is when we would be using those opportunities to buy the dip. If we did get a rate cut and got a pullback in the market just like we did earlier this year after the July peak through the bottom in October, we use that period as a buying opportunity. If you’re a listener, then you heard me say it, you heard Kip say it often on the podcast that hey, this is going to be one of the best buying opportunities leading into what we expect to be a phenomenal year end. Now we’ve gotten that in November, did its job. Right now we need the second half of December to do the same. But hey, ending the year close to or at 52 week highs, some all time highs, feel pretty good about saying that now that it was going to be a great opportunity as we were watching the pullback happen in August, September and early October.

So that’s our view going forward from what we’re going to see from the Fed. We’ll be reporting on what the Fed covers next week at the FOMC meeting as well. That should be next Wednesday. That said, let’s take a look at our market action on the day today. As I said, kind of a quiet day today. Nasdaq up three tenths of 1%, leading the way to 14,229. I will point out here the semis were negative for most of the session today and they might have just finished flat on the day. You might say that’s inconsequential.

But they did finish at their highs of the day today and they’re now out of extreme overbought territory on all of our VRA momentum oscillators. Now, that doesn’t mean we’re at oversold levels just yet, but they are quickly approaching them. And sometimes in big bull markets like we see that we’re in, you don’t get that pullback all the way to oversold levels before the move higher resumes, but we are now out of extreme overbought territory. Next up, the S and P 500 down 0.6%. So again, pretty flat on the day at 4567. After that, the Dow Jones down just over two tenths of 1% at 36,124. Run a quick chart here. Yeah, just barely off of those 52 week highs that we saw at the end of last week.

And then finally here, small caps down 1.3% on the day, the Russell 2000 now at 1856. So it was our laggard on the day today. But we have seen good outperformance from the small caps recently. Kip covered this yesterday as well. And now a little bit of info from the Stock Traders Almanac to back that up. And that is that the Russell 2000 typically outperforms the Russell 1000 seasonality speaking right now. And the Russell 1000 is made up of some of the larger names that you’ll see, russell 2000 being exclusively small cap stocks. So going forward, as far as seasonality goes, we can expect this kind of outperformance from the Russell 2000 through Q one of next year as well as the January effect kicks in early Q one seasonality.

This is when you expect to see the Russell 2000 outperforming. We’ve been pounding the table on small caps for some time and we do anticipate this group playing some catch up here going forward. Next up, taking a look at our internals on the day to day. Not the numbers you want to see, but they do coincide a bit with seeing a pause here through the beginning of this month. And again, not to beat a dead horse, but any pauses that we see right now we believe do need to be bought. The market’s giving us a gift, as we said, for some time really. The exciting phase of the new bull market doesn’t begin until all of our major indexes have hit all time highs and we’re not there yet. So anything buying below those levels we see as a gift from this market.

So we did have declining stocks, beating out, advancing stocks today, two to one, negative on the NYSE, just under two to one, negative on the Nasdaq, 52 week highs to lows. Our bright spot on the day, we haven’t had been able to say that very often now. It is a lagging indicator, so you might expect it to be the bright spot on a day like today, but nonetheless coming in nicely positive over five to one, positive on the NYSE and slightly positive on the Nasdaq as well. Volume back to negative, though, coming in over three to one, negative on the NYSE. Just under two to one, negative on the Nasdaq. Next up, our sectors on the day today, we finished with three out of our eleven SP 500 sectors higher on the day, with Nasdaq leading, as you might expect, tech finish higher on the day, which, hey, we say this here often as well. You want to see tech leading and the semis leading. Tech, well, we didn’t get the semis leading today, but at least we got tech leading the way.

Still hanging out near its 52 week high as well. After that, consumer discretionary, which did hit its highest level since mid September today. And lastly, communication services for our positive sectors. Our laggards on the day, energy leading the way lower as oil took a big hit over the last couple of sessions. I’ll cover that here in a little bit. After that, materials, industrials and utilities are laggards on the day today I do want to see before I move on, we did get 52 week high or so I believe. That’s an all time high from the home builders yesterday. Taking a slight breather here today.

Nothing major there. We are at overbought levels there. Just wanted to run that chart before I moved on. But finally for today, our VRA commodity watch, gold. Now flat on the day, down zero, 1% to $2,037 an ounce. Silver flat as well at $24.52 an ounce. Copper also flat, down 0.3% to $3.78 a pound. And oil, as I mentioned earlier, hanging around its lows from, let’s see, still the last few months.

Let’s get an exact one for you here. We got the time, why not, right, so today we saw the lowest print for oil since July of this year. So it makes sense while we’re seeing the energy sector lag here. This is a group that we like a lot long term, though, so we’ll look at this as a buying opportunity as well. Oil now at $72.13 a barrel, again, the lowest level there since July. And finally, for today, bitcoin, just wow, surging today. And with that, we got 52 week highs from a lot of the names in the bitcoin area. The services side of bitcoin, coinbase hitting a 52 week high today.

The bitcoin ETFs hitting a 52 week high today. Makes sense. We got bitcoin now up 5.24% at 44,147. This is another one we’ve been saying we like a lot for some time here. Let’s see, I’ve been pausing a lot to see things, so why not one more bitcoin? We bought in June of this year at 28, eight now again 44,142. We continue to like bitcoin a lot, but this has been a big move higher that we’ve seen here. Certainly that we’re at extreme overbought levels in bitcoin, although it has been known to just keep going through those levels. So we’ll see if you’re not in it yet.

There might be a pullback there to get on board, but it is a group that we like a lot as well. Folks that’s all 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@vrainsider.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.

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Time Stamps

00:00 IPO market not red hot, bullish sign.
03:53 Fed speakers silent, yields continue to fall.
08:06 Early innings of new bull market, buy opportunities.
12:37 Declining stocks outweigh advancing, tech sector leading.
15:02 Lowest oil prices, bitcoin surges to highs.

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