Good Life’s Investment team keeps you up to date with timely market insights and updates to help you navigate the investment landscape.
Market Performance and All-Time Highs
Noah Brooks:
Welcome back everybody to another installment of the Market Enthusiast. I’m Noah Brooks and with me Chris Needs, thanks so much for being here today. I’m going to start with the jobs report for our January blowout jobs numbers, right? 353,000 jobs added to the economy in the month of January. We had 70,000 in healthcare, 74,000 in business and professional services. It was just a great number all the way around.
Chris Needs:
And it really pushed back some expectations on those rate cuts that we were looking forward to.
Noah Brooks:
So you mean they’re not going to lower in March?
Chris Needs:
Doesn’t look like it. Yeah, I know the Russell really bounced down the market in general, slowed down for a little bit, but started chugging back up again. Started moving upwards and I guess some of those rate hike hopes came back in a little bit until we got the CPI.
Noah Brooks:
Then everybody was prepared for the Federal Reserve to come in and lower interest rates. And I don’t know if the word is save the day, but really to be the hero and there’s no landing and there may be no landing. I just think it’s really early for the Fed to come in. I don’t think there’s a real reason why they would. So we had, I don’t know if it was a poor number but higher than expected CPI that came in this week, 3.1 year over year on headline 3.9 on core, which is X food and energy. So that’s still, I’d call that sticky, right? I mean, it’s not getting to the 2% number. I know we talked about PCE, personal consumption expenditures ticking under two, but the CPI is not there yet and this expectation for the Federal Reserve to come in lower interest rates in March or even in May, I don’t think it’s going to happen.
Chris Needs:
Yeah, I mean we knew coming from 9% that it was going to be fairly easy as those supply issues straightened out to come down from nine down to five, down to four. We knew that would be the easy part. The tough part there is when you get in the threes and the Fed stops pumping those brakes on the economy, they’re trying to thread that needle, get that soft landing, but the 3% and eventually when we get in the twos, that’s the real tough part to bring it down to that 2% trend line.
Noah Brooks:
So what the last 2% is going to be the hardest. Yeah, absolutely. Well, I mean for what it’s worth the market. It was down the day that the CPI came out, but we are still at 5,000 on the S&P. Right? So all time highs. It’s kind of amazing. I mean if you look at the two year track record, we hit an all time high on, I think it was January 3rd, 2022. We had a nasty year in 2022. We regained that back and really we had two years where the market didn’t go anywhere. October 27th. It wasn’t a low, but it was the low for the third and fourth quarters. Everybody was worried. The end of the world was coming October 27th to last Friday, the market was up 22%. So the stats that everybody was throwing around is 14 positive weeks out of 15. I mean, they’re saying that hasn’t happened since the early seventies. It’s kind of crazy. Yeah, it’s kind of crazy. So for anybody who threw in the towel October, late October, unless they got back in a week or two, I mean they missed a giant move off the bottom.
Earnings Season and Performance of Mega Tech Cap Stocks
Chris Needs:
And we’ve moved into earning season now most of the reports have been pretty good. We got huge numbers out of those mega tech cap stocks that we talk about where there’s so much concentration. But because of that 22% run, you mentioned it was a much higher bar that they had to meet as well. So maybe they met their earnings and I don’t know, I think it may be an Apple. They didn’t exceed them. They didn’t jump athletically over that bar we’ll say. And their stock price didn’t move too much. But I mean you look at some of the other ones we saw, look at meta, they announced a 50 cent dividend and that stock just went crazy through the roof, right?
Valentine’s Day Spending and Impact on the Economy
Yeah. Kind of nutty. Well, so this week everybody is Valentine’s, right? Yes. There’s some stats out there that I’ll put out there for you for the economy. The information that I read suggested that 2024 was going to be the largest Valentine’s Day spend since 2019 and the average household spends some more, some less, right? That’s why it’s an average about $170 on Valentine’s Day. It’s the fifth largest holiday and they estimate that it adds 27 billion to the economy. So I just have to ask, did you buy anything for Valentine’s Day?
Chris Needs:
Got some little stuff, nothing too crazy. Rented a movie, stayed in for the night. I mean with two young kids it’s tough.
Noah Brooks:
So, no.
Chris Needs:
I got you. We resolved to stay in, and it was a good night. Rented Oppenheimer, long movie. She fell asleep 45 minutes in, so I got to enjoy it alone.
Noah Brooks:
What did you think of it?
Chris Needs:
84 out of a hundred. Anything above an eighties, a must watch is a good movie.
Noah Brooks:
84 out of a hundred for Oppenheimer. Okay, I’ll
Chris Needs:
Star stud cast. A lot of people thrown in there that you wouldn’t expect. Yeah,
Noah Brooks:
Good movie. How did it end?
Chris Needs:
Well, there is a little twist at the end. Twist at something you didn’t see the atomic bomb was dropped right in the middle of it and you still had an hour and a half to go. I’m like, where are they going with this?
Noah Brooks:
That seems like a long movie. Yeah, it seems like a long movie. So what other stats do you have for us economically speaking, we got off there a little bit.
Rise in Cocoa Prices and Potential Long-Term Effects
Chris Needs:
Well, on the Valentine’s, a atopic cocoa is now at all time highs. So we have El Nino effect going on. It’s up 43% just year to date and a month and a half. So that’s a big bump. Sugar’s up 14% year to date. So if you spent a little bit more on chocolate this year, that may be why. So a drought going on in Africa where I think three quarters or so of cocoa’s produced in the world is really causing the harvest. And apparently it might be a long-term thing. Some of these trees, plants are dying, so it’s not like they can just regrow them in a day or a week or a year. They have a little bit longer maturity cycle I guess. So it may be a longer term thing that we see higher cocoa prices.
Noah Brooks:
That’s not good. I am a chocolate guy, so that has a direct effect on me and I’m not sure that it’s going to be a good one. We’re looking at chocolate, the Valentine’s Day chocolates and I feel like they went up pretty dramatically. I don’t mean from 2022, but it seems like in the past you could get ’em for 10 or $15. Obviously there’s all different brands at all different qualities, but I really feel like they went up pretty dramatically over the last few years. Did you notice that? Did you buy any?
Chris Needs:
I got our local favorite, Gertrude and Hawk and yeah, I think it was for one box of chocolate. It was like 1799. Great chocolate. Totally worth it. I think my wife agrees. I hope she agrees. I don’t know. I got a bunch of that too. But yeah, I mean two boxes of chocolate for $30 that’s moved up. That’s inflation.
Noah Brooks:
I guess it all depends on what you buy and how big the box is, right? We didn’t really quantify it, but I feel like it’s gone up. You think it’s gone up? So people were talking about sending Valentine’s Day gifts in the mail and talking to some people here about kids doing Valentine’s Day at school and writing letters and bringing chocolate in and bringing candy in and I got mixed reviews. Some schools are doing that, some schools are not. What is your school doing up there? I’m
Chris Needs:
Not exactly sure. Both of our kids aren’t quite school age yet, but I really hope they allow chocolate and candies, come on, give these kids some energy.
Noah Brooks:
I think that the rationale behind the one parent that I talked to was that the little hearts that have B mine, and I don’t know if it says marry me or something like that. It could be construed overly aggressive, maybe.
Chris Needs:
Oh boy, these kids these days.
Natural Gas Exportation and Impact on Electric Vehicle Purchases
Noah Brooks:
Yeah, I don’t know. Let’s move away from Valentine’s Day and talk about natural gas for a minute. I don’t know if there’s a good way to move between those two things. There’s a report out over the last month or so that the United States has become the largest exporter of natural gas, liquified natural gas in the world, overtaking Russia, overtaking Qatar. And we only started exporting it in 2016. February of 2016 was the first time that we had international export of LNG to my knowledge ever. And now we’re the number one exporter. And so I don’t know if there’s fracking up your way in Schull County, but certainly northern Pennsylvania, right? There’s the Marcellus Shale here in Pennsylvania and New York and Texas and out in the Dakotas. But it’s hard to imagine that we went from selling no natural gas internationally to being the world’s largest exporter of natural gas in eight years.
Wealth-Destroying Funds and Performance of Ark Mid-Cap Growth Fund
Chris Needs:
I mean, the shell boom was wild. Obviously there was a lot of wealth created during that boom. I know natural gas, if you look at the chart, has been really going down where it’s getting a lot cheaper, which is a good thing. Makes things more affordable for people heating their homes, electricity and everything like that. I don’t think Marcel Shale is producing as much as they were. I mean if you look at rig counts, they’re certainly not so, I mean the rig counts are way, way, way down from that peak when I think it was what, maybe 2000? It might been 2016. That’s probably why they allowed it to be exported. We had a wild amount of natural gas rigs out there.
Noah Brooks:
Yeah. So how do you think the price of LNG coming down exporting it and hydrocarbon prices in general affect people purchasing electric vehicles?
Chris Needs:
Well, I know when it was high. I mean, I had a truck previously that was tough on the wallet, paying a hundred dollars every time you fill up. So I mean I’m sure there was a shift. Certainly. I don’t know what the global demand looks like. I would guess global demand has flattened out rather than increasing to
Noah Brooks:
For which one?
Chris Needs:
Well, both honestly, but for gas, crude oil, I don’t know what they’re expecting. I think it’s about flat.
Noah Brooks:
I think the EIA has it at a single digit. Single digit. Yeah, single-digit increase. The interesting thing is that there’s been a lot made over the last two or three weeks about a slowdown in the sale of EVs, right? Everybody was hot on it last year. Ford announced that they were going to be selling a lot more electric F1 fifties. Almost every car company out there has an EV or multiple EVs on the market. And everybody was hot on it. Everybody was hot on battery prices and clean energy and then something switched. It seemed like overnight.
Chris Needs:
Now they’re pulling back a little bit. And I know Ford mentioned in a report the other day that they expect substantial competition from China and the S of the world, and that went into their decision to dial back a little bit.
Noah Brooks:
So, yeah, it’s just okay, maybe I think people are saying it’s dead before it’s actually dead. I can’t imagine five or 10 years from now or looking out significantly further, 20 years from now that we’re all still going to have gas cars. I’m not saying that everything is going to be electric. Every vehicle’s going to be EV and bulldozers are going to be EV and all construction vehicles. I’m not saying that. I just think what’s happened with batteries over the last 30 years is prices have come down exponentially. I think in 30 years they’ve come down 99%. And energy density, meaning how much you can store in a battery has gone up five or 600% and it continues that way. So I know you have a Tesla, right? We’ve talked about it on here before. I’m at the point where I think to myself driving back and forth, I could have one and it’s really going to be, not necessarily for me, but for the majority of the people out there, and I’ll preface it, the majority of the people that have garages, right,
Chris Needs:
There’s ability to charge at home. That’s where you save all the money. Yeah,
Noah Brooks:
Absolutely. Charging at home. But when you, in a year, in two years and three years where instead of 250 miles, it’s 350 or 450 miles that you can get on a single charge. I mean there’s going to be a lot less people that are against it.
Chris Needs:
Yeah, I definitely think it’ll go in waves. Certainly. And like you said, if they ever perfect solid state batteries, that would take you above 700 miles depending on the pack size certainly. But I think it’ll go EV adoption will go in waves as the technology picks up. And like you said, there’s going to be less opposition when you can go 700 miles, which is more than you can go in a gas car or an ice car.
Noah Brooks:
So yeah, I’m looking, yeah, you got me riled up with your Tesla. What model do you have?
Chris Needs:
Model three? Long range. Yeah. Yeah.
Noah Brooks:
You got me riled up. I could see myself in an electric vehicle. There’s no question about it.
Chris Needs:
On that topic. We talked about insurance last month. You know how the rates have gone up, but you know how they can do the little sensors or track your driving?
Noah Brooks:
Yeah, I don’t know, that’s big brother of my car.
Chris Needs:
It’s dangerous.
Noah Brooks:
I do not want that
Chris Needs:
On that point. I don’t drive like a jerk. But I have a Tesla. Tesla has an acceleration boost. I like to use it sometimes. My wife was dogging me the other day because in the app they grade you on your stopping acceleration cornering and my acceleration says concerning. That’s the grade they assign me. Concerning.
Noah Brooks:
Concerning. Now what about the car manufacturer sharing that information with the insurance companies or let’s say
Chris Needs:
That’s a bridge too
Noah Brooks:
Far, the police,
Chris Needs:
That’s a bridge too far. That’s not cool. No, no. What about you don’t have to willingly, voluntarily sign up for it, get your insurance to get a discount initially. That’s okay. You’re signing up for it. It’s not ideal, but
Noah Brooks:
I personally would never put one in my car. Not because I am concerning on my acceleration, just I don’t,
Chris Needs:
I’m going to work on that.
Noah Brooks:
Yeah, I don’t like the idea of it. I just don’t like the idea of it. It might be great in practice, but I do not like the idea of someone else having access to the way I drive and I don’t drive like an idiot.
Chris Needs:
I had to jam on the brakes like a month ago for a deer that ran across the road and then I got penalized for that. I was like, what? You want me to just run into the deer?
Noah Brooks:
Okay, well maybe you work on it with your wife a little bit. So it goes from concerning to, I don’t know what the next level would be. Yeah,
Chris Needs:
I’ll find out.
Noah Brooks:
So, there was an article out in the last week or two about the top 15 wealth-destroying funds out there. And I wasn’t sure what they meant at first, was it that just the value went down, but I did a little digging and I thought it was interesting. So there’s this list out here, top 15 destroying funds over the last 10 years. And essentially they take a look at all of the flows, meaning people putting money into it versus the performance of the fund and what it’s actually done. And so some of the names on here probably it makes a lot of sense. Out of the top 15, about 10 of them are meant for trading. So inverse shorts longs, but trading vehicles. But there was one that caught my eye.
Chris Needs:
You do it?
Noah Brooks:
There was one that caught my attention. You might be familiar with it. That was arc, a mid cap growth fund. It says it lost, not that it lost, that people lost 7.1 billion as they said, estimated wealth destroyed. It seems crazy because it was one of the best-performing securities from; I don’t know when the inception date was. If you go
Chris Needs:
Back to it was 2013 or 2014 I think. But you look at the return, the return is still phenomenal. But like you said, that’s not how this is being judged. It’s people who bought 2000 and after and really weighed in when the fund got a lot bigger who just got crushed by 2022 basically and hasn’t killed it the last couple years per se. But I understand what it’s saying by destroying wealth, like aggregate dollars lost
Noah Brooks:
Not so great. And that was one that I wouldn’t have expected to be on there because it was such a big return. But I mean you go up 30% a year for five or six years and then you have a year where it’s down 70%. Yeah, that doesn’t bode so well. Some of the other ones on there. The short, the NASDAQ short, the QQQ.
Chris Needs:
I mean, that seems losing proposition for a decade other than 2022.
Noah Brooks:
And even people that think they can trade, that doesn’t seem to make too much sense. The ultra short-term futures. So leverage futures fund, that was the second one. ARC was third. China, ETF, KWEB was fourth. That makes sense. Yeah. People seem to trade that. Arc had another one on there, a genomic revolution, ETF. And I’m not busting on arc. There’s a lot of other companies on here, pros, shares and iShares direction. That was a Russia ETF. Yeah, I don’t know that people traded that. I think that kind of just blew up when Russia invaded. But yeah, so interesting for me is I look at this and I think to myself, don’t trade. Don’t buy. I’m not saying don’t sell anything ever, but
Chris Needs:
When five of the top 10 or wherever you said are specifically trading vehicles.
Noah Brooks:
Trading vehicles, right? I mean it just goes to show you that there’s not a lot of benefit. I mean I’m sure there are people that made money on these. They wouldn’t have ’em. They wouldn’t be out there. They wouldn’t have short queues or three and a half billion in them, which isn’t a lot, but it’s not nothing. So they’re there because people use them. But it seems to say that a lot of people just lose money continually on it, not so great. Let’s go back to data for a little bit. What else do you have for us this cycle?
Longest Yield Curve Inversion and Implications for Fixed Income Investments
Chris Needs:
Well, we have now surpassed the longest yield curve inversion of all time. So the previous high was 470 consecutive days.
Noah Brooks:
For all the listeners out there, just real quick, tell us what the yield curve inversion is.
Chris Needs:
So short-term yields are higher than long-term yields. So traditionally you’ll look at the, as you extend duration, you buy a longer dated bond, you’re rewarded with a higher yield when markets are normal. And generally we’ll say a healthy growing economy yield curve is the opposite of that, where the short term yields are much higher as a function of fed policy we’ll say in this case obviously. And the longer dated ones are actually giving you less of return. Now obviously it’s not as simple as that. You have reinvestment risk if you just load into short term and then things move. But right now it’s the longest yield curve inversion since the period of 1965 to 67, which was 470 days. Where we’re at today, it’s 475 and doesn’t show no. And let me clarify that is the 10 year to three months. Got it. So it doesn’t show like we’re going to get anywhere close to inverting in the short term, especially with the Fed pushing out rates or rate cuts. So record breaker.
Noah Brooks:
Record breaker, what do we think? How’s this going to end? Right. So the way I think about it is, well, there’s really, I mean there’s lots of ways it can end the inversion that is so short-term rates can come down, long-term rates can go up, or both of those can kind of happen at the same time. It seems to me short-term rates aren’t coming down until fed lowers, right? The market can push them down,
Chris Needs:
Especially on the three month.
Noah Brooks:
Especially on the three month. But right now we still have rates over 5% on those short duration, which is great for people invested in money market funds, high yield money market funds, that’s wonderful. But going out on the 10 year, you’re talking about rates that are around 4%, give or take, depending on what day you’re looking at. And I don’t know, I mean it’s okay. It’s much better than it was two or three years ago for people that are investing in fixed income, but 4% for 10 years still doesn’t seem like a great return to me.
Chris Needs:
Not enough apparently for people to stop the inflows into equity as we’ve seen.
Noah Brooks:
Getting back to record highs. Yeah, I was looking at five-year numbers on different indexes, and for the moment I’m just going to stick with a fixed income. But the benchmark that everybody uses for fixed income is the Bloomberg Barclays US Bond aggregate. The five-year number on that this past week was 50 basis points, a half a percent. And it just strikes you that you’re supposed to invest in fixed income to balance the portfolio out. So when the stock market’s going down, normally the bond market’s going up and there’s generally a return on that and it buoys everything out. And obviously 2022, all that flew out the window. And so now we have a situation where the five year number is a half a percent. The five-year number on the S&P is much higher, 13% a five-year number on the NASDAQ even higher than that. And I get people that are asking me, why are we investing in bonds?
What are we even doing there? And so it’s much easier now to have that conversation with people now that rates are back up because telling someone to invest in a 10 year bond at 1%, it doesn’t make a lot of sense. Now we’re in a situation where at least you can get 4%, you can get 5%, some of the higher yield bonds in the sixes and sevens depending on what investment field of coal you’re looking at. But I hesitate to say this, historically bonds have been a great spot, but interest rates have been coming down since 1980 or 1981 where they hit 15% and now we’re in this position where the federal reserve, yes, they may lower interest rates. My position is probably significantly later in the year, third quarter, maybe even fourth quarter. But how do you look out for the next five years and think that you’re going to have this wonderful return like we’ve had in bonds for the last 30 or 40 years. I’m not sure that that’s the case.
Chris Needs:
It does seem like it’s a different regime. Now, certainly in terms of monetary policy,
Noah Brooks:
I think we’re going to get more clients asking us what’s the purpose of investing in bonds? And so there’s a lot of alternatives out there, alternatives to the stock market, alternatives to the bond market. I think we’re going to see a rise of that. And I’m pretty much alternative for most investors. I think we’re going to have to combat this rise of alternatives instead of fixed income because people, the returns that going forward in fixed income are not going to be as great as the returns that we’ve had over the last 30 or 40 years. I don’t think it’s possible math wise,
Chris Needs:
You’re going to change up the 60 40, make it like a 75 25 for the next couple years than the intermediate.
Noah Brooks:
Well, I think more people are going to lean towards equities. I have people asking me a similar question on why we’re investing internationally. The domestic stock market has beaten all of the international indexes, with the exception of one or two in 2023. But over the five year number, the 10 year number, you look at it and you go, why would we do it? Strategic asset allocation says, listen, we want to have our money diversified and spread out over lots of different asset classes. And certainly there’s no way to predict which country is going to do best, but here we are. And over the last decade, the US economy has just been phenomenal. Even with covid. I mean even this run against international started after the global financial crisis in 2007. One of the best international performers was China. It rallied, I think it was 55%, something like that in 2007 into 2008. And then something happened and it’s really just been dead in the Chinese market and the rest of the international markets never fully recovered and never got back on their feet after the global financial crisis. And so I look at the domestic markets and I think to myself, this is the place the US is the place to invest in until something’s different.
Chris Needs:
Yeah, I mean you could say, why would you be in anything but the S&P 500 or the NASDAQ the way returns have been? And obviously things haven’t been normal where that could be a rational permanent asset allocation. But you look at the earnings, I have some earnings stats here if you want me to opine on them, I certainly can.
Noah Brooks:
Well, let’s hear what you have.
Earnings Growth of Major NASDAQ Components and Market Leadership
Chris Needs:
So year over year, a couple major NASDAQ components just had explosive growth, which a lot of last year was multiple expansion. You’re looking at price versus earnings. A lot of it was the price going up rather than earnings making a huge difference. But we’ve seen a huge bump year over year, and we saw some earnings that were really strong. So year over year and after Q4 a, MD, 4000% earnings per share growth, Netflix 1660%, Amazon 274%, Tesla 110%, and the stock market’s been beating them alive for it. 110 percent’s not good enough. So NVIDIA’s, they’re reporting on the 21st and they’re expected to do 540% earnings per share growth year over year. Yeah. So those are big numbers, like you said, year over year. But these big companies, and we mentioned this on a previous podcast, how the big will get bigger as they can utilize maybe the transition with AI a little bit better because they have massive cash amounts on hand that they can invest in that right away. And I think we’re going to see that in the short term. Obviously we are getting concentrated. I have another stat here for you. Combined revenue of the four top US companies hit 1.5 trillion last year. Huge number, obviously that’s larger than the GDP of all, but 14 countries in the world.
Chris Needs:
For US Companies, well, it’s like our G seven plus. Amazon’s AWS department, their unit AWS 91 billion in revenue, higher than 463 SMP, 500 companies, big numbers, big earnings. So that’s the strength underlying the market right now. That’s why we’re moving up. Now, we mentioned earlier they had a higher bar to jump over, I guess, with earnings this season, but a lot have, especially those semiconductor and mega cap stocks.
Reasons to Stay Invested in the US Economy
Noah Brooks:
And you said they’re getting hit for it a little bit, but overall, I mean, this is the reason why these companies have been the leaders for the last few years. In 22, they were the leaders down, but in 23 and 20, 21 and 20, they were the leaders up because of these massive earnings increases. I would like to see it continue. I certainly hope it does. We want to see the markets go higher. And I’ll pause there for a second, thinking about what I was going to say here at the end, I guess I always think about, well, and people ask me, what about the market going down? Should we be betting on the market going down? And there’s always going to be times where the market goes down. It doesn’t matter if it’s the S&P or if it’s international or small caps, there’s going to be times where the market goes down. I just have a real hard time betting against the United States economy.
Chris Needs:
In case any clients out there are listening, there are always reasons to sell, and the news will seize on any opportunity to put an outlandish headline out there that, like you said, last podcast, this is the next 19 30, 19 29 coming up, these ridiculous headlines. They don’t do justice to anybody. It’s just click bait. And a lot of things you’ll see is just people trying to get eyes and clicks and listens. So there’s always reasons to sell, but look at the stock market over any amount of time. It is bomb. Left the top right over time.
Noah Brooks:
Yeah. Well, listen, I’m going to close on this. So the two year number, on the S&P right now is up 12% total return in two years on November 1st, just a few months ago, the two year number on the S&P was negative five. And then we had those 14 out of 15 weeks where the market rallied of 22%, and now we’re sitting up five and a half for the year on the S&P and 12 and a half on the two year number. Things turn around fast and I would not bet against the US economy. There you have it folks. Thanks so much for listening this month, this month, this week. Thanks so much for listening this month and we hope to see you again on the Market Enthusiast.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. The economic forecast set forth may not develop as predicted, and there can be no guarantee that the strategies promoted will be successful. All performance referenced as historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Good Life’s Investment team keeps you up to date with timely market insights and updates to help you navigate the investment landscape.
Table of Contents
Market Performance and All-Time Highs
Noah Brooks:
Welcome back everybody to another installment of the Market Enthusiast. I’m Noah Brooks and with me Chris Needs, thanks so much for being here today. I’m going to start with the jobs report for our January blowout jobs numbers, right? 353,000 jobs added to the economy in the month of January. We had 70,000 in healthcare, 74,000 in business and professional services. It was just a great number all the way around.
Chris Needs:
And it really pushed back some expectations on those rate cuts that we were looking forward to.
Noah Brooks:
So you mean they’re not going to lower in March?
Chris Needs:
Doesn’t look like it. Yeah, I know the Russell really bounced down the market in general, slowed down for a little bit, but started chugging back up again. Started moving upwards and I guess some of those rate hike hopes came back in a little bit until we got the CPI.
Noah Brooks:
Then everybody was prepared for the Federal Reserve to come in and lower interest rates. And I don’t know if the word is save the day, but really to be the hero and there’s no landing and there may be no landing. I just think it’s really early for the Fed to come in. I don’t think there’s a real reason why they would. So we had, I don’t know if it was a poor number but higher than expected CPI that came in this week, 3.1 year over year on headline 3.9 on core, which is X food and energy. So that’s still, I’d call that sticky, right? I mean, it’s not getting to the 2% number. I know we talked about PCE, personal consumption expenditures ticking under two, but the CPI is not there yet and this expectation for the Federal Reserve to come in lower interest rates in March or even in May, I don’t think it’s going to happen.
Chris Needs:
Yeah, I mean we knew coming from 9% that it was going to be fairly easy as those supply issues straightened out to come down from nine down to five, down to four. We knew that would be the easy part. The tough part there is when you get in the threes and the Fed stops pumping those brakes on the economy, they’re trying to thread that needle, get that soft landing, but the 3% and eventually when we get in the twos, that’s the real tough part to bring it down to that 2% trend line.
Noah Brooks:
So what the last 2% is going to be the hardest. Yeah, absolutely. Well, I mean for what it’s worth the market. It was down the day that the CPI came out, but we are still at 5,000 on the S&P. Right? So all time highs. It’s kind of amazing. I mean if you look at the two year track record, we hit an all time high on, I think it was January 3rd, 2022. We had a nasty year in 2022. We regained that back and really we had two years where the market didn’t go anywhere. October 27th. It wasn’t a low, but it was the low for the third and fourth quarters. Everybody was worried. The end of the world was coming October 27th to last Friday, the market was up 22%. So the stats that everybody was throwing around is 14 positive weeks out of 15. I mean, they’re saying that hasn’t happened since the early seventies. It’s kind of crazy. Yeah, it’s kind of crazy. So for anybody who threw in the towel October, late October, unless they got back in a week or two, I mean they missed a giant move off the bottom.
Earnings Season and Performance of Mega Tech Cap Stocks
Chris Needs:
And we’ve moved into earning season now most of the reports have been pretty good. We got huge numbers out of those mega tech cap stocks that we talk about where there’s so much concentration. But because of that 22% run, you mentioned it was a much higher bar that they had to meet as well. So maybe they met their earnings and I don’t know, I think it may be an Apple. They didn’t exceed them. They didn’t jump athletically over that bar we’ll say. And their stock price didn’t move too much. But I mean you look at some of the other ones we saw, look at meta, they announced a 50 cent dividend and that stock just went crazy through the roof, right?
Valentine’s Day Spending and Impact on the Economy
Yeah. Kind of nutty. Well, so this week everybody is Valentine’s, right? Yes. There’s some stats out there that I’ll put out there for you for the economy. The information that I read suggested that 2024 was going to be the largest Valentine’s Day spend since 2019 and the average household spends some more, some less, right? That’s why it’s an average about $170 on Valentine’s Day. It’s the fifth largest holiday and they estimate that it adds 27 billion to the economy. So I just have to ask, did you buy anything for Valentine’s Day?
Chris Needs:
Got some little stuff, nothing too crazy. Rented a movie, stayed in for the night. I mean with two young kids it’s tough.
Noah Brooks:
So, no.
Chris Needs:
I got you. We resolved to stay in, and it was a good night. Rented Oppenheimer, long movie. She fell asleep 45 minutes in, so I got to enjoy it alone.
Noah Brooks:
What did you think of it?
Chris Needs:
84 out of a hundred. Anything above an eighties, a must watch is a good movie.
Noah Brooks:
84 out of a hundred for Oppenheimer. Okay, I’ll
Chris Needs:
Star stud cast. A lot of people thrown in there that you wouldn’t expect. Yeah,
Noah Brooks:
Good movie. How did it end?
Chris Needs:
Well, there is a little twist at the end. Twist at something you didn’t see the atomic bomb was dropped right in the middle of it and you still had an hour and a half to go. I’m like, where are they going with this?
Noah Brooks:
That seems like a long movie. Yeah, it seems like a long movie. So what other stats do you have for us economically speaking, we got off there a little bit.
Rise in Cocoa Prices and Potential Long-Term Effects
Chris Needs:
Well, on the Valentine’s, a atopic cocoa is now at all time highs. So we have El Nino effect going on. It’s up 43% just year to date and a month and a half. So that’s a big bump. Sugar’s up 14% year to date. So if you spent a little bit more on chocolate this year, that may be why. So a drought going on in Africa where I think three quarters or so of cocoa’s produced in the world is really causing the harvest. And apparently it might be a long-term thing. Some of these trees, plants are dying, so it’s not like they can just regrow them in a day or a week or a year. They have a little bit longer maturity cycle I guess. So it may be a longer term thing that we see higher cocoa prices.
Noah Brooks:
That’s not good. I am a chocolate guy, so that has a direct effect on me and I’m not sure that it’s going to be a good one. We’re looking at chocolate, the Valentine’s Day chocolates and I feel like they went up pretty dramatically. I don’t mean from 2022, but it seems like in the past you could get ’em for 10 or $15. Obviously there’s all different brands at all different qualities, but I really feel like they went up pretty dramatically over the last few years. Did you notice that? Did you buy any?
Chris Needs:
I got our local favorite, Gertrude and Hawk and yeah, I think it was for one box of chocolate. It was like 1799. Great chocolate. Totally worth it. I think my wife agrees. I hope she agrees. I don’t know. I got a bunch of that too. But yeah, I mean two boxes of chocolate for $30 that’s moved up. That’s inflation.
Noah Brooks:
I guess it all depends on what you buy and how big the box is, right? We didn’t really quantify it, but I feel like it’s gone up. You think it’s gone up? So people were talking about sending Valentine’s Day gifts in the mail and talking to some people here about kids doing Valentine’s Day at school and writing letters and bringing chocolate in and bringing candy in and I got mixed reviews. Some schools are doing that, some schools are not. What is your school doing up there? I’m
Chris Needs:
Not exactly sure. Both of our kids aren’t quite school age yet, but I really hope they allow chocolate and candies, come on, give these kids some energy.
Noah Brooks:
I think that the rationale behind the one parent that I talked to was that the little hearts that have B mine, and I don’t know if it says marry me or something like that. It could be construed overly aggressive, maybe.
Chris Needs:
Oh boy, these kids these days.
Natural Gas Exportation and Impact on Electric Vehicle Purchases
Noah Brooks:
Yeah, I don’t know. Let’s move away from Valentine’s Day and talk about natural gas for a minute. I don’t know if there’s a good way to move between those two things. There’s a report out over the last month or so that the United States has become the largest exporter of natural gas, liquified natural gas in the world, overtaking Russia, overtaking Qatar. And we only started exporting it in 2016. February of 2016 was the first time that we had international export of LNG to my knowledge ever. And now we’re the number one exporter. And so I don’t know if there’s fracking up your way in Schull County, but certainly northern Pennsylvania, right? There’s the Marcellus Shale here in Pennsylvania and New York and Texas and out in the Dakotas. But it’s hard to imagine that we went from selling no natural gas internationally to being the world’s largest exporter of natural gas in eight years.
Wealth-Destroying Funds and Performance of Ark Mid-Cap Growth Fund
Chris Needs:
I mean, the shell boom was wild. Obviously there was a lot of wealth created during that boom. I know natural gas, if you look at the chart, has been really going down where it’s getting a lot cheaper, which is a good thing. Makes things more affordable for people heating their homes, electricity and everything like that. I don’t think Marcel Shale is producing as much as they were. I mean if you look at rig counts, they’re certainly not so, I mean the rig counts are way, way, way down from that peak when I think it was what, maybe 2000? It might been 2016. That’s probably why they allowed it to be exported. We had a wild amount of natural gas rigs out there.
Noah Brooks:
Yeah. So how do you think the price of LNG coming down exporting it and hydrocarbon prices in general affect people purchasing electric vehicles?
Chris Needs:
Well, I know when it was high. I mean, I had a truck previously that was tough on the wallet, paying a hundred dollars every time you fill up. So I mean I’m sure there was a shift. Certainly. I don’t know what the global demand looks like. I would guess global demand has flattened out rather than increasing to
Noah Brooks:
For which one?
Chris Needs:
Well, both honestly, but for gas, crude oil, I don’t know what they’re expecting. I think it’s about flat.
Noah Brooks:
I think the EIA has it at a single digit. Single digit. Yeah, single-digit increase. The interesting thing is that there’s been a lot made over the last two or three weeks about a slowdown in the sale of EVs, right? Everybody was hot on it last year. Ford announced that they were going to be selling a lot more electric F1 fifties. Almost every car company out there has an EV or multiple EVs on the market. And everybody was hot on it. Everybody was hot on battery prices and clean energy and then something switched. It seemed like overnight.
Chris Needs:
Now they’re pulling back a little bit. And I know Ford mentioned in a report the other day that they expect substantial competition from China and the S of the world, and that went into their decision to dial back a little bit.
Noah Brooks:
So, yeah, it’s just okay, maybe I think people are saying it’s dead before it’s actually dead. I can’t imagine five or 10 years from now or looking out significantly further, 20 years from now that we’re all still going to have gas cars. I’m not saying that everything is going to be electric. Every vehicle’s going to be EV and bulldozers are going to be EV and all construction vehicles. I’m not saying that. I just think what’s happened with batteries over the last 30 years is prices have come down exponentially. I think in 30 years they’ve come down 99%. And energy density, meaning how much you can store in a battery has gone up five or 600% and it continues that way. So I know you have a Tesla, right? We’ve talked about it on here before. I’m at the point where I think to myself driving back and forth, I could have one and it’s really going to be, not necessarily for me, but for the majority of the people out there, and I’ll preface it, the majority of the people that have garages, right,
Chris Needs:
There’s ability to charge at home. That’s where you save all the money. Yeah,
Noah Brooks:
Absolutely. Charging at home. But when you, in a year, in two years and three years where instead of 250 miles, it’s 350 or 450 miles that you can get on a single charge. I mean there’s going to be a lot less people that are against it.
Chris Needs:
Yeah, I definitely think it’ll go in waves. Certainly. And like you said, if they ever perfect solid state batteries, that would take you above 700 miles depending on the pack size certainly. But I think it’ll go EV adoption will go in waves as the technology picks up. And like you said, there’s going to be less opposition when you can go 700 miles, which is more than you can go in a gas car or an ice car.
Noah Brooks:
So yeah, I’m looking, yeah, you got me riled up with your Tesla. What model do you have?
Chris Needs:
Model three? Long range. Yeah. Yeah.
Noah Brooks:
You got me riled up. I could see myself in an electric vehicle. There’s no question about it.
Chris Needs:
On that topic. We talked about insurance last month. You know how the rates have gone up, but you know how they can do the little sensors or track your driving?
Noah Brooks:
Yeah, I don’t know, that’s big brother of my car.
Chris Needs:
It’s dangerous.
Noah Brooks:
I do not want that
Chris Needs:
On that point. I don’t drive like a jerk. But I have a Tesla. Tesla has an acceleration boost. I like to use it sometimes. My wife was dogging me the other day because in the app they grade you on your stopping acceleration cornering and my acceleration says concerning. That’s the grade they assign me. Concerning.
Noah Brooks:
Concerning. Now what about the car manufacturer sharing that information with the insurance companies or let’s say
Chris Needs:
That’s a bridge too
Noah Brooks:
Far, the police,
Chris Needs:
That’s a bridge too far. That’s not cool. No, no. What about you don’t have to willingly, voluntarily sign up for it, get your insurance to get a discount initially. That’s okay. You’re signing up for it. It’s not ideal, but
Noah Brooks:
I personally would never put one in my car. Not because I am concerning on my acceleration, just I don’t,
Chris Needs:
I’m going to work on that.
Noah Brooks:
Yeah, I don’t like the idea of it. I just don’t like the idea of it. It might be great in practice, but I do not like the idea of someone else having access to the way I drive and I don’t drive like an idiot.
Chris Needs:
I had to jam on the brakes like a month ago for a deer that ran across the road and then I got penalized for that. I was like, what? You want me to just run into the deer?
Noah Brooks:
Okay, well maybe you work on it with your wife a little bit. So it goes from concerning to, I don’t know what the next level would be. Yeah,
Chris Needs:
I’ll find out.
Noah Brooks:
So, there was an article out in the last week or two about the top 15 wealth-destroying funds out there. And I wasn’t sure what they meant at first, was it that just the value went down, but I did a little digging and I thought it was interesting. So there’s this list out here, top 15 destroying funds over the last 10 years. And essentially they take a look at all of the flows, meaning people putting money into it versus the performance of the fund and what it’s actually done. And so some of the names on here probably it makes a lot of sense. Out of the top 15, about 10 of them are meant for trading. So inverse shorts longs, but trading vehicles. But there was one that caught my eye.
Chris Needs:
You do it?
Noah Brooks:
There was one that caught my attention. You might be familiar with it. That was arc, a mid cap growth fund. It says it lost, not that it lost, that people lost 7.1 billion as they said, estimated wealth destroyed. It seems crazy because it was one of the best-performing securities from; I don’t know when the inception date was. If you go
Chris Needs:
Back to it was 2013 or 2014 I think. But you look at the return, the return is still phenomenal. But like you said, that’s not how this is being judged. It’s people who bought 2000 and after and really weighed in when the fund got a lot bigger who just got crushed by 2022 basically and hasn’t killed it the last couple years per se. But I understand what it’s saying by destroying wealth, like aggregate dollars lost
Noah Brooks:
Not so great. And that was one that I wouldn’t have expected to be on there because it was such a big return. But I mean you go up 30% a year for five or six years and then you have a year where it’s down 70%. Yeah, that doesn’t bode so well. Some of the other ones on there. The short, the NASDAQ short, the QQQ.
Chris Needs:
I mean, that seems losing proposition for a decade other than 2022.
Noah Brooks:
And even people that think they can trade, that doesn’t seem to make too much sense. The ultra short-term futures. So leverage futures fund, that was the second one. ARC was third. China, ETF, KWEB was fourth. That makes sense. Yeah. People seem to trade that. Arc had another one on there, a genomic revolution, ETF. And I’m not busting on arc. There’s a lot of other companies on here, pros, shares and iShares direction. That was a Russia ETF. Yeah, I don’t know that people traded that. I think that kind of just blew up when Russia invaded. But yeah, so interesting for me is I look at this and I think to myself, don’t trade. Don’t buy. I’m not saying don’t sell anything ever, but
Chris Needs:
When five of the top 10 or wherever you said are specifically trading vehicles.
Noah Brooks:
Trading vehicles, right? I mean it just goes to show you that there’s not a lot of benefit. I mean I’m sure there are people that made money on these. They wouldn’t have ’em. They wouldn’t be out there. They wouldn’t have short queues or three and a half billion in them, which isn’t a lot, but it’s not nothing. So they’re there because people use them. But it seems to say that a lot of people just lose money continually on it, not so great. Let’s go back to data for a little bit. What else do you have for us this cycle?
Longest Yield Curve Inversion and Implications for Fixed Income Investments
Chris Needs:
Well, we have now surpassed the longest yield curve inversion of all time. So the previous high was 470 consecutive days.
Noah Brooks:
For all the listeners out there, just real quick, tell us what the yield curve inversion is.
Chris Needs:
So short-term yields are higher than long-term yields. So traditionally you’ll look at the, as you extend duration, you buy a longer dated bond, you’re rewarded with a higher yield when markets are normal. And generally we’ll say a healthy growing economy yield curve is the opposite of that, where the short term yields are much higher as a function of fed policy we’ll say in this case obviously. And the longer dated ones are actually giving you less of return. Now obviously it’s not as simple as that. You have reinvestment risk if you just load into short term and then things move. But right now it’s the longest yield curve inversion since the period of 1965 to 67, which was 470 days. Where we’re at today, it’s 475 and doesn’t show no. And let me clarify that is the 10 year to three months. Got it. So it doesn’t show like we’re going to get anywhere close to inverting in the short term, especially with the Fed pushing out rates or rate cuts. So record breaker.
Noah Brooks:
Record breaker, what do we think? How’s this going to end? Right. So the way I think about it is, well, there’s really, I mean there’s lots of ways it can end the inversion that is so short-term rates can come down, long-term rates can go up, or both of those can kind of happen at the same time. It seems to me short-term rates aren’t coming down until fed lowers, right? The market can push them down,
Chris Needs:
Especially on the three month.
Noah Brooks:
Especially on the three month. But right now we still have rates over 5% on those short duration, which is great for people invested in money market funds, high yield money market funds, that’s wonderful. But going out on the 10 year, you’re talking about rates that are around 4%, give or take, depending on what day you’re looking at. And I don’t know, I mean it’s okay. It’s much better than it was two or three years ago for people that are investing in fixed income, but 4% for 10 years still doesn’t seem like a great return to me.
Chris Needs:
Not enough apparently for people to stop the inflows into equity as we’ve seen.
Noah Brooks:
Getting back to record highs. Yeah, I was looking at five-year numbers on different indexes, and for the moment I’m just going to stick with a fixed income. But the benchmark that everybody uses for fixed income is the Bloomberg Barclays US Bond aggregate. The five-year number on that this past week was 50 basis points, a half a percent. And it just strikes you that you’re supposed to invest in fixed income to balance the portfolio out. So when the stock market’s going down, normally the bond market’s going up and there’s generally a return on that and it buoys everything out. And obviously 2022, all that flew out the window. And so now we have a situation where the five year number is a half a percent. The five-year number on the S&P is much higher, 13% a five-year number on the NASDAQ even higher than that. And I get people that are asking me, why are we investing in bonds?
What are we even doing there? And so it’s much easier now to have that conversation with people now that rates are back up because telling someone to invest in a 10 year bond at 1%, it doesn’t make a lot of sense. Now we’re in a situation where at least you can get 4%, you can get 5%, some of the higher yield bonds in the sixes and sevens depending on what investment field of coal you’re looking at. But I hesitate to say this, historically bonds have been a great spot, but interest rates have been coming down since 1980 or 1981 where they hit 15% and now we’re in this position where the federal reserve, yes, they may lower interest rates. My position is probably significantly later in the year, third quarter, maybe even fourth quarter. But how do you look out for the next five years and think that you’re going to have this wonderful return like we’ve had in bonds for the last 30 or 40 years. I’m not sure that that’s the case.
Chris Needs:
It does seem like it’s a different regime. Now, certainly in terms of monetary policy,
Noah Brooks:
I think we’re going to get more clients asking us what’s the purpose of investing in bonds? And so there’s a lot of alternatives out there, alternatives to the stock market, alternatives to the bond market. I think we’re going to see a rise of that. And I’m pretty much alternative for most investors. I think we’re going to have to combat this rise of alternatives instead of fixed income because people, the returns that going forward in fixed income are not going to be as great as the returns that we’ve had over the last 30 or 40 years. I don’t think it’s possible math wise,
Chris Needs:
You’re going to change up the 60 40, make it like a 75 25 for the next couple years than the intermediate.
Noah Brooks:
Well, I think more people are going to lean towards equities. I have people asking me a similar question on why we’re investing internationally. The domestic stock market has beaten all of the international indexes, with the exception of one or two in 2023. But over the five year number, the 10 year number, you look at it and you go, why would we do it? Strategic asset allocation says, listen, we want to have our money diversified and spread out over lots of different asset classes. And certainly there’s no way to predict which country is going to do best, but here we are. And over the last decade, the US economy has just been phenomenal. Even with covid. I mean even this run against international started after the global financial crisis in 2007. One of the best international performers was China. It rallied, I think it was 55%, something like that in 2007 into 2008. And then something happened and it’s really just been dead in the Chinese market and the rest of the international markets never fully recovered and never got back on their feet after the global financial crisis. And so I look at the domestic markets and I think to myself, this is the place the US is the place to invest in until something’s different.
Chris Needs:
Yeah, I mean you could say, why would you be in anything but the S&P 500 or the NASDAQ the way returns have been? And obviously things haven’t been normal where that could be a rational permanent asset allocation. But you look at the earnings, I have some earnings stats here if you want me to opine on them, I certainly can.
Noah Brooks:
Well, let’s hear what you have.
Earnings Growth of Major NASDAQ Components and Market Leadership
Chris Needs:
So year over year, a couple major NASDAQ components just had explosive growth, which a lot of last year was multiple expansion. You’re looking at price versus earnings. A lot of it was the price going up rather than earnings making a huge difference. But we’ve seen a huge bump year over year, and we saw some earnings that were really strong. So year over year and after Q4 a, MD, 4000% earnings per share growth, Netflix 1660%, Amazon 274%, Tesla 110%, and the stock market’s been beating them alive for it. 110 percent’s not good enough. So NVIDIA’s, they’re reporting on the 21st and they’re expected to do 540% earnings per share growth year over year. Yeah. So those are big numbers, like you said, year over year. But these big companies, and we mentioned this on a previous podcast, how the big will get bigger as they can utilize maybe the transition with AI a little bit better because they have massive cash amounts on hand that they can invest in that right away. And I think we’re going to see that in the short term. Obviously we are getting concentrated. I have another stat here for you. Combined revenue of the four top US companies hit 1.5 trillion last year. Huge number, obviously that’s larger than the GDP of all, but 14 countries in the world.
Chris Needs:
For US Companies, well, it’s like our G seven plus. Amazon’s AWS department, their unit AWS 91 billion in revenue, higher than 463 SMP, 500 companies, big numbers, big earnings. So that’s the strength underlying the market right now. That’s why we’re moving up. Now, we mentioned earlier they had a higher bar to jump over, I guess, with earnings this season, but a lot have, especially those semiconductor and mega cap stocks.
Reasons to Stay Invested in the US Economy
Noah Brooks:
And you said they’re getting hit for it a little bit, but overall, I mean, this is the reason why these companies have been the leaders for the last few years. In 22, they were the leaders down, but in 23 and 20, 21 and 20, they were the leaders up because of these massive earnings increases. I would like to see it continue. I certainly hope it does. We want to see the markets go higher. And I’ll pause there for a second, thinking about what I was going to say here at the end, I guess I always think about, well, and people ask me, what about the market going down? Should we be betting on the market going down? And there’s always going to be times where the market goes down. It doesn’t matter if it’s the S&P or if it’s international or small caps, there’s going to be times where the market goes down. I just have a real hard time betting against the United States economy.
Chris Needs:
In case any clients out there are listening, there are always reasons to sell, and the news will seize on any opportunity to put an outlandish headline out there that, like you said, last podcast, this is the next 19 30, 19 29 coming up, these ridiculous headlines. They don’t do justice to anybody. It’s just click bait. And a lot of things you’ll see is just people trying to get eyes and clicks and listens. So there’s always reasons to sell, but look at the stock market over any amount of time. It is bomb. Left the top right over time.
Noah Brooks:
Yeah. Well, listen, I’m going to close on this. So the two year number, on the S&P right now is up 12% total return in two years on November 1st, just a few months ago, the two year number on the S&P was negative five. And then we had those 14 out of 15 weeks where the market rallied of 22%, and now we’re sitting up five and a half for the year on the S&P and 12 and a half on the two year number. Things turn around fast and I would not bet against the US economy. There you have it folks. Thanks so much for listening this month, this month, this week. Thanks so much for listening this month and we hope to see you again on the Market Enthusiast.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. The economic forecast set forth may not develop as predicted, and there can be no guarantee that the strategies promoted will be successful. All performance referenced as historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Categories:
Tags: