Q3 Recap: Big Gains, Tech Flat, and Small Caps Rising

Chris Needs:

We’ve had an extra week here in between recordings. Noah went on a nice little trip.

Noah Brooks:

Yeah. I did a little bit of Europe end of summer trip with my wife and her aunt and uncle doing, it was a little bit of a retirement trip for her uncle. I met him and I met him. I saw him a few months ago and I said, I know you’re retiring. What do you want to do? And he just said, well, I want to go away somewhere. And then a few weeks later I saw him again. I said, well, where do you want to go, Dana? He goes, I want to go to Prague. He went big. Yeah, he went big with the retirement celebration. I was thinking like Maine or something, and he said, I want to go to Prague. And we built a little bit of a European vacation. Look kids, big Ben over Prague and yeah, that was nice. And normally what happens when I go away is that the market collapses. It never fails. I’m known for leaving. When Bear Stearns collapsed, I was away. And then when we had the credit downgrade in 2013, I was out of the country. 2012, 2013, I was out of the country that lives with me. So five puts when you leave this time,

Chris Needs:

Not this time.

Noah Brooks:

That didn’t happen. Well, what happened when I was away? Well, the Fed lowered rates and the market made new all time highs. Hallelujah. Not time. It’s incredible. It’s incredible. We have been talking about the Federal Reserve lowering interest rates. Geez. I mean since we started this podcast in 2023, I can’t believe it’s finally here. Tell us a little bit about what happened.

Chris Needs:

So obviously we’ve been waiting on it for a few weeks now or a few months now, from when we actually got communication that would actually happen rather than what the market hoped or when the market hoped it would happen, and we finally got the cut. They went sort of big with the 50 basis point cut. Powell said, this is not indicative of a trend of rate cuts. Trying to, I guess frame it as a one-off, but one notable piece of that, we did have our first voting member dissent since 2005, I think with Fed Governor Bowman, she only advocated for 25 basis points.

Noah Brooks:

Well, a half a percent. I mean it’s not unheard of. I know you said this to me today. He said, well, they did a half in 2008. I didn’t want to go there. I’m like, dude, why do you have to bring that up

Chris Needs:

17 years ago? Yeah.

Noah Brooks:

Is it that long ago? 17 years ago,

Chris Needs:

So it was 2007 when they cut then. Oh my cow.

Noah Brooks:

It seems like just yesterday,

Chris Needs:

My word not indicative of what we expect this time.

Noah Brooks:

Yeah, so the market cut, I mean, again, we’ve been talking about it for ages now. The fed cut not the market and yields actually Rose A. Little bit because they had come down in preparation, if you will, for the Fed to lower, and they actually, the 10 year actually popped up a little bit, 10 or 15 basis points since then. I don’t think it’s going to get too much higher, at least in the short term popped up a little bit. Mortgage rates are steadily coming down and it just feels like the whole thing is moving in the right direction.

Chris Needs:

Obviously what we expected to happen with the short end coming down and rate cuts more rate cuts on the horizon, we’re seeing a little bit of a bullish steepening. I mean, you mentioned how the 10 year did take up a little bit, but obviously on the shorter timeframes they’ve dropped down. A bullish steeper is just when short-term rates fall faster than long-term rates do and that it is bullish for bonds, not necessarily for equities.

Noah Brooks:

One of the other things that happened while I was away, we had an inversion in the yield curve and we talked about that a few weeks ago. Essentially when short-term yields are higher than long-term yields, and that ended, we had a 27 month inversion in the yield curve, and I mean it got as low as a negative, I think 1 0 7 in June of 2023, but it has been inverted for more than two years.

Chris Needs:

Record long inversion.

Noah Brooks:

Yeah, yeah. Record long. It doesn’t normally happen like that and a lot of times there can be, I mean historically, I think it’s eight out of 11 aversions. Inversions have been followed by some type of economic downturn

Chris Needs:

When comparing the 10 year minus fed funds,

Noah Brooks:

10 minus fed meaning the Fed overnight lending rate. I don’t know that it’s going to happen this time. I mean, there’s not an imminent slowdown happening.

Chris Needs:

There’s a little bit of a slowdown happening, but it’s a little bit, it’s not to the level of super concerning just because of where the numbers are coming from and how hot we were, I guess.

Noah Brooks:

Well, we have Friday’s job report coming out this week. I think that this will be out before that, but it’ll be out in the same week. That’s going to be a big determining factor.

Chris Needs:

Yeah, we have two before the election. I would say those are the two biggest catalysts in the meantime, unless obviously you have some geopolitical things happening now over in Israel with Iran. But in terms of economic data, those are two big data points prior to the election.

Noah Brooks:

So speaking of the election, did you watch the EP debate?

Chris Needs:

I didn’t intend to. It’s not something I wanted to do. It’s the VP debate, but my Braves limped into playoffs and start off the game giving up a big dinger and we went to our bullpen early, so I couldn’t do it. My heart can’t handle the pain, so I switched to the debate and ended up watching that.

Noah Brooks:

What’d you think?

Chris Needs:

I mean, what’s crazy is I felt like we got more policy points in that debate than we did in the presidential debate. If I had to guess, I would say I thought JD V seemed pretty impressive. I don’t know much. I haven’t seen either side him or governor Walls talk that much. I thought he performed very well, but again, I don’t think there’s going to be a needle being moved on a VP debate.

Noah Brooks:

Yeah, I would tend to agree with that. I always think of JD Vance as someone that Trump’s just telling what to do, but he did come off as, I dunno if you want to say an intellectual, but he came off as affable. I don’t know, I go so far as likable, but reasonable guy and both of them were upstanding citizens, let’s put it that way. They were very

Chris Needs:

Well, there was much better demeanor between the two of them in that I would say wall seemed a little bit nervous. Oh, he seemed really nervous. He seemed out of place on there. But if I had to say between the four of them, obviously presidents and VP candidates, I would say probably Vance was the best debater. If I’m looking at them, he seemed to come across as in that frame as the most professional giving, the most information and content style presidential debates went, and I just thought he seemed far more impressive than I thought he was. I

Noah Brooks:

Think the takeaway for the Democrats was that I think they’re glad that JD Vance is not at the top of the ticket.

Chris Needs:

He’s not in front of the media all the time or as much. Maybe they should do a switcheroo and get him in the media more

Noah Brooks:

A switcheroo.

Chris Needs:

No, just in terms of the media and out front. So you’re saying that Trump should drop out? No, no. I’m saying no, but I think if he would be out in the media rather than these random rallies and stuff just going on and on like Trump does, man seem to really stick to the facts and have a lot of receipts. We’ll say. That may come across better in this what we have now 30 some days to the election.

Noah Brooks:

Yeah, I mean we are really close. I feel like this has been dragging on. I feel like it’s been years and in some cases it actually has been years. But one of the things interesting about being in was that I didn’t have to listen to a single advert anywhere for the US election. Lucky it was brilliant. I come back, we get back to Philadelphia, we hop in the car, turn the radio on, and the first thing we hear is some pack. We’re home and we’re just like, oh God. Yeah, that was rough. That was a little bit disheartening. I’m ready for it to be over. Same. I’m ready for it to be over. So when I was away, we had all time highs. We came back, we started, or we ended the month of September at all time highs again, and we were floating around, I mean just half a percent from all time highs right at the moment. So year to date, SB 500 up over 20%. It has been a banger year and September was a great month. Yes, it was, and Q3 was a great quarter. Q3 was a wonderful quarter, s and p up over five and a half percent for the quarter. Some interesting stuff here. Growth, not so much, right? It was up for the quarter, value was up almost 9.5%. Growth was up three point a quarter percent.

Chris Needs:

Yeah, Dow Jones was up, let just check here, 8.7%. Nasdaq up 2.76% s and p up six mid caps up 6.9 and smalls. If you look at the s and p 600, up 10.1. Yeah, big numbers.

Noah Brooks:

Big numbers. The thing that I think when you drill down a little bit, and we’ve talked about this broadening of the rally, it looks like it’s going to continue. I mean I think that’s kind of on the horizon here, but the broadening of the rally when you drill down, I think this is a positive for the internals of it, for the quarter tech was flat tech went nowhere for the quarter, best performing sector for the quarter, utilities

Chris Needs:

Up 19.3% their best since 2003.

Noah Brooks:

Crazy.

Chris Needs:

And then you had

Noah Brooks:

Real estate.

Chris Needs:

Real estate and telecom I think were up 16.9%. Yeah,

Noah Brooks:

So there is a definite broadening of this rally. Will it continue? I mean anybody’s guess. We have an election, we have some geopolitical stuff, a few things we’re going to talk about here, but I mean right at the moment it’s broadening out, and that was the thing that everybody was saying earlier in the year, if it’s only these seven or six stocks that are making the market move and the indexes are only up because of these companies, there could be hell to pay in the future

Chris Needs:

If they stop going up. If the market stopped going up and we got our answer, we had a great quarter when they sort of stalled out.

Noah Brooks:

One of the things that we look at is the market cap weighted index versus the equal weight. And for the uninitiated, that simply means that the s and p 500, the way it’s ranked, it’s ranked by the largest companies. So whether it’s Apple or Microsoft at the top, I mean it kind of vacillates back and forth. I think Nvidia was in there for a little bit at the top, but it’s ranked on how large the company is, so we call that a market cap weighted index. We also look at the equal cap weighted, so there’s an equal cap s and p 500, which simply means it’s all 500 companies divided equally. And what that means is that you don’t have the biggest ones that make up the top 10 companies making up 30% of the index. Each company’s making up a quarter of it when they do the rebalancing and the equal weight outperformed the market cap weight pretty significantly over the quarter. Equal weight was up almost 10% for the quarter P. The regular s and p we said was up five and a half percent. So to me that’s a great internal metric to really say that it’s not just these seven stocks, the mag seven or just technology that are driving the returns. It is really broadening out and I think that’s a big positive.

Chris Needs:

I mean, for a while there the correlation between the two, the cap weighted and the equal weight was very far apart way out of historical norms. And now we’ve seen a little bit of reversion here, but with a Brian in an ideal environment, they’re both going up together because if you look historically, they trade pretty closely in terms of their correlation, and we haven’t seen that really this year, but if we start getting everything working at once, wouldn’t that be something,

Noah Brooks:

I mean SBS already up 20% for the year if we get everything working. Where does the market go from your mouth to God’s ears? I would love to see that happen. I’m not sure if it’s going to be a straight up ride. I think you mentioned earlier some of the economic data that’s coming out is a little wishy-washy. We still have a scenario where rates have been high for a long period of time and eventually they do start to impact earnings and that’s what everything is about. So the cost of money has been higher and it’s a cumulative effect. It’s a lasting effect. Even though they’re lowering, it’s still relatively high compared to where it was a year ago or two years ago, certainly three years ago. And I just feel like there’s going to be some type of impact economically. I mean, so what do we have going on? Yesterday was a big day, we had some deaths and Pete Rose,

Chris Needs:

Pete Rose, Debe, Mutombo, bad day for our affiliate area sports.

Noah Brooks:

Yeah, not a great one. We can come back to them. I was thinking even though I said deaths, I was thinking strikes.

Chris Needs:

We do have some notable strikes. I mean the biggest one is the longshoremen. The port workers on the east coast here are striking. We also have the Boeing Strait going on, but going back to longshoreman, they have a big ask, don’t they? In the negotiations?

Noah Brooks:

I’m so torn with this. I did a little bit of research into it, and it seems like throughout Europe and Asia, most of the ports have a lot of automation. Even on the west coast, there’s significantly more automation than the east coast operators have. And for people that aren’t following it, longshoremen, these are what I would call dock lockers. Dock docks, people that are loading, unloading and transporting goods and services right off the ships. They want a raise, which is okay, right? I

Chris Needs:

Mean 80% over six years.

Noah Brooks:

That’s not too bad.

Chris Needs:

That’s pretty darn good.

Noah Brooks:

Well, they said they’re making I think 102,000, which as a dock worker, I mean it’s good salary. It’s probably a living wage, but as a dock worker, you’re living in a big city. I mean, you’re living in Port Arthur, you’re living in Philadelphia, you’re living in Savannah, you’re living in a big city, so the cost of living is more Norfolk. I don’t know about the cost of living in Norfolk, so a hundred thousand, it seems reasonable, but it certainly doesn’t seem high. The big ask that they’re asking for in addition to that raise is that they want to avoid automation.

Chris Needs:

A guarantee of and no additional efficiency is essentially how I look at it.

Noah Brooks:

I’m all for that. I’m all for keeping jobs, but I don’t think you can avoid automation. At some point they’re just going to say, well, this is what we’re doing and you can strike and we’ll bring in scabs. It doesn’t necessarily matter what you do because for the long term, for the next 20, 30, 40, 50 years, these

Chris Needs:

Jobs are going to be automated and this is what they’re asking for. But I mean obviously they’re negotiating, so obviously they’re probably going to come down on the 80%. They’re going to probably relent in some way on the automation, which will probably be in the area of upskilling their workers to say, we’re going to put these education pieces in place so that you can run this automation and then be eligible for even more in the next

Noah Brooks:

Contract. Yeah, I think it’s one of those things where, okay, if this automated crane is going to put me out, how do I fix that crane? How do I program that crane? And it’s not something you can learn overnight. I mean, I don’t think I could learn overnight.

Chris Needs:

I mean, you hear this about farmers now, how much is going on made, and it seems like, from what I’ve heard, farmers choose to work on their equipment rather than take it to somebody. So if they can, they learn it, they fix it themselves, and it’s similar thing there. They’re going to have to learn how to program and fix these pieces, which currently, I guess isn’t in most of the dock workers arsenal, which is understandable.

Noah Brooks:

Have you ever been to one of those big ports?

Chris Needs:

I’ve seen them. I’ve never been at the actual port. Obviously I was in Philly for several years, so you see what’s going on in South Philly. Philly

Noah Brooks:

For some reason, I always thought it’d be a cool job. I probably saw too many movies where criminals are stealing cars. Yeah, mafia movies or something like that, and all the good stuff happens at the box. The

Chris Needs:

Shipment’s coming

Noah Brooks:

In. Yeah, the shipment’s coming in and I, yeah, it didn’t turn out to be my profession. It won’t be my second one either. I think in the end with the automation and the ask is I don’t think they’re going to get it right. I mean, the port operators might give a little bit, but to say, Hey, we are not going to automate anything. I mean there’s just too much money on the table to not do that. I don’t think they can get away with it. I don’t know. I’m not an expert at the port operators. I don’t know them, but there’s too much money over the next 10 years and the amount of goods being imported isn’t going to go down. The amount of exports, the docks are going to be utilized doubly over the next 15, 20 years. There’s just no way that they can’t automate these services. They could drag their feet a little bit, which is what they’ve been doing, but you’re really putting, whether it’s the east coast or whether you want to say America, you’re putting that at a disadvantage to Europe to even

Chris Needs:

China has a lot of automation too.

Noah Brooks:

Sure.

Chris Needs:

Yeah.

Noah Brooks:

Does China have any, I guess I’ll probably answer my own question. Does China have any unions? Probably not. That is a stupid question. As I was coming up with it, I was like, Ooh, that’s probably, they’re not democratic, are they?

Chris Needs:

No, but not to go onto our topic. They’re doing a heck of a stimulus right now to try and stem the pain they’ve had the last few years.

Noah Brooks:

They are, the China market has been on fire over the last month or two. How much money have they pumped into the economy?

Chris Needs:

I don’t have the exact number, but they’re pulling out all of the stops. They’re making real estate easier to buy. They’re giving money for literally purchasing equities, essentially billions of dollars. I don’t know the yen or the Juan conversion on it, but they tried it earlier in the summer. They did sort of like a mini major thing, but this is a major stimulus that they’re putting in now. So what’s the

Noah Brooks:

Old adage? Prime the pump. I mean, two ways to look at this.

Chris Needs:

Capital injections,

Noah Brooks:

Capital injections. Either it’s going to work and it’s going to take off or it’s really that bad in China that it’s not going to work and it’ll just be setting this money on fire.

Chris Needs:

You’ve heard some notable hedge fund guys. I mean, I’ve seen Teron Bloomberg a lot lately talking about how he’s all in on it though. He’s pulled out in Nvidia and he’s going to China, so I don’t know if that’s indicative of everyone, but there’s clearly lots of money flows going in in the past month,

Noah Brooks:

And it’s almost exactly when people have thrown the towel in on China that their market especially their large cap market, has rallied. I mean, over in the beginning of the year it was China’s not going to do so good, and there’s all these problems fundamentally, right? I mean, that’s what we’ve been hearing, and I guess that’s why they’re putting stimulus to work is there are all these problems. It’s just weird. I feel like somewhere in June it was like everybody was giving up. They’re just not going to invest in China. Right?

Chris Needs:

Well, relative to what was happening here, it makes sense. If you had China exposure, it was causing you to lag, and I mean, they saw the writing on the wall too. They can sort of unilaterally do whatever they want and they had to do something and they did it.

Noah Brooks:

Yeah. Well, China’s moving. I don’t know if it’ll stay that way, but as an allocator, where we are here, we invest internationally, and it’s good to see everything outside the US moving. It’s great to have small caps moving to see midsize companies moving up.

Chris Needs:

Yeah. Speaking of small caps, we were just talking before we came on, they had their biggest out performance to the s and p 500 since 2021, early first quarter of 2021, so I think the s and p 600 was up, what, 4% plus four and a half versus the SP for the quarter half.

Noah Brooks:

That’s great.

Chris Needs:

Yeah.

Noah Brooks:

Now, year to date, it is still dramatically underperforming the SP 500. I don’t want anybody to think, Hey, it’s rocking and rolling.

Chris Needs:

It’s part of this rotation though.

Noah Brooks:

Yeah, part of the rotation. Again, I think that’s healthy. We have an election coming up and there’s always volatility around an election. Anecdotally, I hear about companies that are kind of pausing on hiring. I hear companies in terms of what they’re doing on a strategic nature. They’re just saying, Hey, before we implement anything, let’s just pump the brakes until after the election and see how it transpires. And so I feel like we might get a little bit of whether it’s pull back A GDP, even though there was a report out, a revision report to GDP suggesting that in 2022 when we had two back-to-back quarters of negative growth. Actually we didn’t.

Chris Needs:

Yeah, they revised it just

Noah Brooks:

Positive. Yeah, I mean that’s interesting. I don’t know if you can make a case for anything on that. It was so long ago in market time.

Chris Needs:

In my mind, I was looking at those two consecutive quarters as the recession, that quote.

Noah Brooks:

Yeah, absolutely. I think everybody was,

Chris Needs:

But what that makes me scared of is that we’re later cycle than under that assumption that it was the start of a new cycle. Take the good with the bad. I

Noah Brooks:

Guess we’re going to find out how many days till the election

Chris Needs:

Or we at, so 35, 36.

Noah Brooks:

Yeah, 35. I said this before and I say it to people that I talk to, don’t invest on politics. It doesn’t make money. It does not make money. So we’re 35 days out and we get calls depending on who we’re talking to. Wow, I want to pull out because of this, or in some cases I want to buy because of this. Whatever you’re doing, just keep doing it. I think that’s the key here. Just keep doing it. Whatever you’re comfortable with, keep doing it. Don’t make a massive change. Right before the election,

Chris Needs:

You had given me that stat from one of our favorite follows, Charlie Ello at Creative Planning. Over the last 30 years, inflation adjusted the s and p 500 is up 960% over that same timeframe. The US dollar is negative 53% in terms of purchasing power, and we’ve talked several times on the podcast about the power of compounding. Do not stop that compounding, especially in relation to political views. You don’t make an emotional decision based off that, and when you read that stat and you say it out loud, it’s like,

Noah Brooks:

Yeah, so a dollar under the bed when went down by 50%, but just putting your money in the market, you’re up a thousand percent just in the index.

Chris Needs:

You don’t need the top performer. It’d be nice to have the top performer.

Noah Brooks:

What was the top performer over the last 30 years?

Chris Needs:

Ooh, that’s a good question. Is it Domino’s that, I don’t know. It might be over the last four years. It was a random company, Jack, Henry and Associates, they make a lot of banking software. I don’t know what over 30 years, what it would be.

Noah Brooks:

We’ll come back to that one. We’ll come back to that one. We have a fair number of advisors and clients that are down in the path of the hurricane, so we should give, I don’t want to say a shout out. We should make reference to them. Tell everybody out there that we’re thinking about them hoping. I mean, some of the destruction that I’ve seen on the news has been brutal.

Chris Needs:

40 trillion gallons of water dropped on the southeast us. That’s pretty wild. My sister-in-Law just moved down to Florida, St. Pete area in September and within a month she’s getting evacuated out. So scary situation

Noah Brooks:

Down there. If you live in the panhandle of Florida and you’ve just hit, I think, was it three or four hurricanes in the last 13 months, do you stay,

Chris Needs:

You’re going to be paying a lot more for insurance. If you own a home,

Noah Brooks:

Are you going to be able to get

Chris Needs:

Insurance? Yeah, that’s great question.

Noah Brooks:

I mean, where we live, I say this time and time again, I feel like we’re protected. We may not be, but I feel like we’re protected here outside of Philadelphia. We get some hurricanes. We don’t have, well, we have had an earthquake here or there, minor, not like the west coast. We don’t have these natural disasters, at least in the last 30, 40 years. Massive natural disasters with large losses of property or life. I feel like we’re protected. Maybe it’s just we haven’t had one recently or in my memory, but if you’re living in Florida and you’re dealing with this, I mean

Chris Needs:

I would be, my favorite college memory was Hurricane Sandy, which came up our way and we never got off school. I went to Temple University right in the city. We never got off school for snow and whatnot, but for Hurricane Sandy, we got a day off of classes, so we all dressed up in bathing suits and teas and went out to the bar in bathing suits to celebrate Hurricane Sandy coming through good

Noah Brooks:

Times. Yeah.

My hurricane story, if you will, I was living in, or we were in West Palm for Andrew in 92, big one, and they saw it coming. My aunt and uncle were in West Palm. We were with them at the time. We helped with shutters and then we got in the car and we drove to Orlando and it was surreal. I mean, people probably have seen this, this is the only time that it happened to me, but driving up 95, in some spots it’s two lanes. Some spots it’s three lanes, but there were four lanes and nothing coming down except military vehicles and utilities. It gives me goosebumps to think about it. That was 92 hit homestead, mass destruction. I think they wound up raising it to a category five. We are protected from it. I don’t know if I could stay there. Florida’s a beautiful place to be, but gosh darn man. You have your home destroyed like

Chris Needs:

That cosmic type events happening every year it seems like. That’s tough. One random thing, we have very few certain types of precious metals obviously and things like that here in the us. Apparently one of the only, the mine that has the purest quartz that is used in semiconductors and specialized equipment is in apparently the southern Appalachians and apparently it’s totally cut off from travel too, so that mine, that’s obviously crucial to, we’ll call it our not so sizable manufacturer of semiconductors, but is crucial to it is totally shut down. Apparently. They’re so secretive about its location that they will blindfold workers and send them to different locations blindfolded.

Noah Brooks:

I don’t think OSHA likes that.

Chris Needs:

I thought it was the strangest thing ever, but

Noah Brooks:

Where did you read that?

Chris Needs:

It was on the Morning Brew. It’s another podcast.

Noah Brooks:

Okay. I know.

Chris Needs:

It sounded wild to me. Interesting nonetheless.

Noah Brooks:

Yeah, that does sound wild. That does sound wild. I wouldn’t want to have to go to work someplace blindfolded. It doesn’t matter. Apparently this stuff’s

Chris Needs:

Very valuable,

Noah Brooks:

So we’re at the situation. We just ended the third quarter. It was great. We didn’t have, September was also a good month, historically speaking. September, not so great.

Chris Needs:

Survived the seasonality. Yeah, thankfully.

Noah Brooks:

Yeah, and now we’re at the situation where we’re going into the fourth quarter. We’re here first few days of it and there’s nothing bearing down on us. There’s a few things economically, we have a jobs report that’s coming out. The job numbers have been trending lower, right? Unemployment has been trending higher. You mentioned the SAM rule a few weeks ago. Essentially short term, when the short term gauge is above the longer term gauge and it rises by half a percent, it’s indicative of recession. It’s not a guarantee, and the lady who came up with it has come out and said that it’s not a guarantee, but there’s a bunch of factors out there. That’s one of them. The inversion, the end of the inversion is one of them. The job growth slowing down is another one. It just seems like we’re in for some type and not to mention the election. It seems like we’re in for some type of volatility and volatility in the stock market doesn’t necessarily mean volatility in the economy, but it seems like the economy might be slowing down. There’s also, there’s always

Chris Needs:

October surprises in election years. We don’t know what variety, if you’ll be pertinent to the election or what, but maybe some emails coming out,

Noah Brooks:

Oh boy, but P Diddy, let’s not talk about p Diddy. That is a bridge too far for me today. I just think of a thousand bottles of baby oil.

Chris Needs:

Costco quickly refuted their involvement. All going back to the jokingly, I think, I don’t think it

Noah Brooks:

Was actually going back to the economy. It does seem like there’s a possible coming and there’s lots of data that points to that. It doesn’t necessarily mean that the market is going to tank. Maybe it means that the market is going to be flat for a few months. Maybe it means the market is going to go down 10 or 15%. I think people should wrap their arms around the fact that we’re at all time highs and a pullback from all time highs is natural.

Chris Needs:

Yeah, I think being an election year, I think everyone is sort of assuming any volatility or maybe potential downside surprises would be before the election, but we’re still running up. I think we might be setting up for the potential of a post recession, let down almost where we are expecting. Once we get that all clear on policy things, we’ll just go right back, go to the moon, but we’ve just been chugging along. Maybe there’ll be a little malaise after the election and the market will take a breather towards the end of the year. We’ll wait and see.

Noah Brooks:

Yeah, it is tough. Anybody that tries to say what the market’s going to do always gets made fool of. I mean it doesn’t matter who it is. It always happens. I would just say be prepared for some type of pullback. I don’t know if it’s an October surprise, I don’t know if it’s a jobs report. It could be a million things. You don’t get hit by the train. You see coming down the tracks. You get hit by the train, you don’t see coming down the tracks, so be prepared for something like that. There’s nothing imminent, but be prepared, right, so we have a broadening in the market, broadening in the rally in the market. Even though we’re talking about possibilities of pullbacks, we have a broadening small caps are working, value is starting to work. Is there anything that’s not going to work? Is tech dead?

Chris Needs:

I don’t think tech’s dead. You’ll have market rotations if you’re in a bull market we’ve talked about before. You’ll see the funds flowing between got a little bit ahead of themselves. I think people are just reassessing this thesis and the valuations in comparison to each other and right now people are just taking their foot off the gas a little bit to wait to see exactly how are these productivity gains going to manifest and on what schedule. Maybe some people who are allocating money might be thinking it’s going to take a little bit longer. Maybe it’s a 2030 story where, 2030 story where we’re going to start actually seeing productivity gains. I will say we have had productivity going up, but it’s not really the AI thesis where billions and billions of dollars are being spent right now.

Noah Brooks:

So you heard it here first, everybody. Tech is not dead and the fact of the matter is it’s not. It’s been flat for a quarter, which is nothing, but we’re in a situation where we’re about to go into, I would think over the next 20 or 30 years, some of the biggest productivity gains that we’ve ever seen in America. I’m talking like Eli, Whitney, cotton gin type of stuff with automation and artificial intelligence, so down for a little bit, but not down and out. Alright, so the outlook is the concentration that we’ve seen over the next or over the last few years with the Mag seven and technology. We think it broadens out a little bit. We think some of that concentration comes back. The rotation that we’ve seen, we expect it to continue to happen. Large cap maybe with

Chris Needs:

This rotation that we’ve had, it’s at, we’re still at 34% of the s and p 500 in the top 10 stocks. If you look at the Russell 1000 growth, 59% is in the top 10 components, so that concentration didn’t build up in a day. It’s not going to go away in a day.

Noah Brooks:

We think there’s definitely upside with small companies value. We talked about China. I mean maybe tech’s not moving right at the moment, but it’ll probably pick up at some point and we have an election coming up, so don’t do anything crazy. It’s 35 days away. Don’t think like, oh my gosh, I have time to pull the trigger on something. Even if the market goes down, it’ll come back up. If you

Chris Needs:

Start getting antsy, pull yourself from the TV and all the ads, turn off the radio ride in silence.

Noah Brooks:

Absolutely. Don’t stop your compounding everybody, and as always, don’t bet against America. Thanks so much for listening. We’ll see you guys next time.