In this conversation, Noah Brooks and Chris discuss various topics including the 23rd anniversary of the September 11th attacks, the recent presidential debate, the market’s reaction to a possible Harris presidency, the CPI report, the upcoming S&P 500 rebalance, and the growth of Uber Freight. They also touch on the potential impact of artificial intelligence and the challenges faced by American Airlines.
Noah Brooks: Welcome back everybody. Thanks so much for joining us for another installment of The Market Enthusiast. I’m Noah Brooks, and with me as always, Chris Needs.
Chris Needs:
Hello.
Noah Brooks:
Thanks for joining us. I’m going to start out today, something a little bit somber. This week marks the 23rd anniversary of the September 11th attacks. I’m sure most everybody out there remembers where they were. I was at the office at an old Prudential Securities building in Allentown, Pennsylvania, and we had a sales meeting and someone came in and said that there was a small plane that had hit the World Trade Center and he made some joke about a giant eight being on top of it.
Obviously, we filed out and we realized that it wasn’t a small plane. Watched the events unfold live in the office. Where were you?
Chris Needs:
I was in my fifth grade social studies class.
Noah Brooks:
Oh, boy. It is 23 years ago.
Chris Needs:
Yeah, yeah. I personally remember the day. It seemed like it changed our lives instantly. Obviously, we felt invincible I think here in America, and that was really the first time, at least in my life, where I was like, “Oh, maybe that’s not so.”
Noah Brooks:
Yeah, well certainly worst attack since Pearl Harbor. That’s not up for debate or anything. The thing that I remember most about the time period after, well two things, thing I remember most from a social standpoint was it feels like… I lived in a relatively diverse city at the time here locally in Reading and all of the what could be perceived as racism or private animosities amongst different groups within the city, it all just melted away. It all just disappeared.
I don’t know how long it happened for, it could have been two weeks, could have been three weeks, but the American flags went up. I don’t care who you were, you had an American flag up and it almost felt like it was the America that should be there all the time. Everybody singing Kumbaya to one another and like I said, no animosities anywhere. That’s the part that I remember socially the most. The other thing I think a lot of people out there can remember, nowadays, we have scrolls on television and not just CNBC or Bloomberg business channels, but you have them everywhere.
After 9/11, in those days afterwards, all of the cable news networks or nightly news networks started scrolls on the sides on the top. Certainly, it could have been the names of the people that had perished, whether it was in the Pentagon or World Trade or Flight 93, but those scrolls were there. I don’t love them today, but it’s all good. Moving on to maybe another somber event that happened much, much more recently. They had the debate this week, the presidential debate. Did you watch it?
Chris Needs:
I did. And somber is a good way to put it. I don’t know how I felt about it there. I didn’t think there was as much detail as I wanted. I don’t know if an hour and a half was enough. I would’ve liked to see more policy points touched on. Of course they’re politicians, so they’re trained to maybe obfuscate a little bit and dodge-
Noah Brooks:
Obfuscate? Politicians? No, come on now.
Chris Needs:
… the questions. We didn’t get that many details from either side. Neither side really dunked on the other too much. Everyone had their little zingers and that’s what we’ll come away with.
Noah Brooks:
Do you think either one of them moved the needle at all before those six undecided voters supposedly that are out there?
Chris Needs:
Yeah, I’m sure a couple of people were swayed. It wasn’t a major win for either side, I don’t think. If I had to put my finger on the scale, I would say probably Kamala won. I think she exceeded maybe lower bar. No one really knew her per se, and she got up there and was very composed and in comparison to the previous debate, she looked better than-
Noah Brooks:
Well listen, the previous debate, okay, that’s not really… I mean, the reason that Harris is up there is because of the previous debate. Let’s not forget that. Whatever you feel about it, that’s why she is there. I don’t think that too many people changed their minds. I’m not saying nobody. Trump kept hammering immigration. He kept going back to that. I think there’s a lot of people that that is a major concern for.
I think she had maybe some missed opportunities to dunk on him when he said some… He’s talking about-
Chris Needs:
Cats and dogs.
Noah Brooks:
… cats and dogs, yeah. I think she had missed some opportunities, but I don’t know that she got up there and killed it.
Chris Needs:
Yeah, I don’t think either of them. If you were grading both of them in a vacuum, neither got a good score, how I’m looking at it.
Noah Brooks:
Grade it for me.
Chris Needs:
I’m giving them both C minuses.
Noah Brooks:
C minuses, yeah.
Chris Needs:
Yeah. It may pass depending on what college class you’re in, you may not pass. I don’t know.
Noah Brooks:
I think there were some missed opportunities on both sides. I know some people, depending on where you’re getting your news from, take issue with the moderators. I thought they were okay. I thought they did a reasonable job. No one is ever going to be 100% kosher with everything they say.
Chris Needs:
It’s a tough job.
Noah Brooks:
Yeah.
Chris Needs:
Dealing with strong-willed people.
Noah Brooks:
Sure. I’m just glad I didn’t have to moderate it. Right?
Chris Needs:
Yeah. And not get picked apart.
Noah Brooks:
I don’t think they’d call.
Chris Needs:
They’d talk right over me.
Noah Brooks:
We got through those two items. Let’s talk economics. Let’s talk the market. The market is not in love with the idea currently, at least today, of possibly Harris presidency. Seems like she’s not as well-liked from a business perspective as opposed to a social perspective.
Chris Needs:
I don’t think it’s unfair to say if you’re looking at the two’s policies, Trump is probably better for business and better for “the Stock Market” obviously, what we look at every day. On the social issues, I’d say that’s where her strength is. If you say go with that, she is getting a bump from the performance today. Market’s teetering a little bit. We’ll see how it goes. Again, we have to get further clarification on both of their policies because we really didn’t get much material to go on last night.
Noah Brooks:
No, a lot of sound bites, but not real actual lot of policy per se. It’s one of those things that I suspect will develop over time, but I have to tell you, I’m kind of liking the shorter timeframe in terms of who is going to be the nominee. This idea of six, nine months or even longer knowing who it’s going to be and you’re campaigning the entire way up. Maybe give me two months, two and a half months. I’m already sick and tired of all of the ads on television and radio and internet. It is nonstop with political ads. Here in Pennsylvania where we are, three quarters of the ads that you see on network television are political ads bashing the other one.
Chris Needs:
Tough to escape, for sure. That’s what we get for being in a Battleground state.
Noah Brooks:
How do we avoid that? Nevermind. Let’s not go down that path. CPI came out this week and it’s pretty good as far as inflation goes. There was a few standouts that didn’t look great. Why don’t you go into that a little bit?
Chris Needs:
We had 2.5% year-over-year on headline CPI, which was a 10th below expectation, so not bad there. Core month-over-month was 0.3 versus 0.2 expected. Kind of hot there. We have largely oil prices, gas prices coming down at the right time.
Noah Brooks:
We’re under $3.40 here.
Chris Needs:
Yeah, the average in the country is $3.26. That’s not bad, oil prices are tanking. See what I did there?
Noah Brooks:
Yeah. Yeah. Yeah.
Chris Needs:
That’s not bad for all of us out there or all of you out there who fill up the gas tank.
Noah Brooks:
All of us because Chris doesn’t fill up his gas tank anymore. He drives the electric car.
Chris Needs:
Food was largely up we’ll say. Shelter was up half a percent.
Noah Brooks:
Did you hear that dog?
Chris Needs:
I did hear that.
Noah Brooks:
I feel like there’s a dog running around somewhere. Oh, boy.
Chris Needs:
Sort of same thing, things that were down, oil, gas, apparel, coffee. If you drink coffee, I see you have a Nitro cold brew over there. I know I drink coffee every day, so things are going up and down. I would say largely not a bad report though.
Noah Brooks:
In line with what the Fed is going to do, I don’t think it’s going to change their course. The expectation, it’s bouncing between a decrease of 50 basis points and a decrease of 25 basis points. I don’t think this is going to push the line to 50.
Chris Needs:
No, I’ve looked at the CME Fed Watch and the probability is pricing in 29 basis points, just so pretty solidly towards 25.
Noah Brooks:
Yeah, if you look out for the entire year, end of the year, you’re going to see probability based on that is that they expect a decline of about one and a quarter percent towards the end of the year. If you do the math, they don’t have to lower during a meeting. They can come out at any point. I suspect if they lower in September, they probably won’t do anything until after the election.
Now I was under the impression that they weren’t going to do anything at all. It seems like it’s a given that it’s going to happen in September. I didn’t think they would, but there’s no meeting in October and then there’s a meeting the day after the election. I think that’s the seventh, if I’m not mistaken. There’s a likelihood that they lower in September. There’s a gigantic likelihood, high probability likelihood that they lower in November and likelihood that they lower in December.
Of course, they’re going to continue to be data-dependent. We also had jobs report that came out which did not light the world on fire.
Chris Needs:
That was 140,000 jobs. 165,000 was expected and we had a revision of last month’s pretty, we’ll call it awful. 114,000 really was below expectations. They revised that all the way down to 89,000. That really wasn’t a good report I would say.
Noah Brooks:
No.
Chris Needs:
Now the market got crushed on it. I don’t know if the market reaction was in line with that. We know things are slowing down. We can read those tea leaves and understand.
Noah Brooks:
So is bad news, bad news again?
Chris Needs:
I think so. It flipped.
Noah Brooks:
It used to be bad news is good news because the bad news is going to make the Fed lower. Now we’re at this point where the bad news is, oh hey, it’s just bad news and the Fed’s going to lower, but that’s not necessarily going to save our butts on it.
Chris Needs:
Exactly. Yeah.
Noah Brooks:
That seems to be the way this is playing out. CPI is definitely coming down on an annualized basis. We’re looking at 2.5% on headline, 3.2 year-over-year, which was in line. You mentioned gasoline prices. Sometimes they help the headline, sometimes they hurt the headline. Nowadays, or in this report, they certainly help the headline. When you take it out, you get to obviously food and energy. Shelter, you mentioned earlier, shelter was up a half a percent month-over-month. There’s still an issue with not enough homes, not enough rental properties, and I don’t see that going away here in the short term.
Chris Needs:
Yeah, rates have come in a little bit on 30 year mortgages, but we’re still up there above six, right?
Noah Brooks:
Yeah, six two.
Chris Needs:
I mean people are maybe holding off until we get into the low fives, which would put us in early 2025. Maybe next summer’s buying season will maybe be a little bit better.
Noah Brooks:
Springtime baby.
Chris Needs:
We’ll see. Yeah.
Noah Brooks:
Right?
Chris Needs:
But yeah, that holds up both obviously core and headline because of the percentage it makes up.
Noah Brooks:
Used car prices continue to come down month-over-month. I think it was down 1%. That’s pretty good for everybody involved. I know you’re not going to get a new car anytime soon, but certainly helpful out there. The cost of money coming down, whether it’s your mortgages or whether it’s the potential rate decreases that are coming, it’s going to be good for every aspect of consumers. There’s just no question about it.
Right now with the debate past us and CPI past us, we have PPI coming out. I don’t know that that’s going to really change anything too much. The market is still up. The S&P is still up about 14% for the year. Technology obviously has been a big leader, but coming into the quarter, growth is actually down 4%, value is up 4%. That’s a big disparity.
Chris Needs:
Tech and energy are the ones getting hit on the quarter right now, really lagging. I think almost every other sector is positive though on the quarter, but we’ve got a little bit of this September seasonality going on, a little more volatility. September, if you don’t know, is the worst month in the calendar year for the Stock Market, the S&P 500 on average since 1928 is down negative 1.2% on average for September. It’s the only month that is down or not positive more than it is. I think the percentage is like 47% of the time September’s negative.
Noah Brooks:
Wow, that’s crazy.
Chris Needs:
My apologies. 47% is positive. Said it backwards. I flipped it. 47% of the time it’s positive, so it’s negative more than it’s positive. That makes sense.
Noah Brooks:
Not by a whole heck of a lot, but by a little bit. Yeah. Yeah. Okay. I mean the rest of the year, the way this is going to play out is it seems like every headline that’s going to come out is going to be the make or break headline until the next one comes through. We can talk a little bit about the candidates and where they stand in terms of what their policies are, but I think you summed it up earlier from a short term perspective, I think the market would respond positively at least again in the short term to a Trump win. From a social perspective, whether that’s education, lots of other social issues, I think everything but the market might respond positively to a Harris win. Is there anything out there between these two candidates that we don’t know that could really move the market, I guess is what I’m saying?
Chris Needs:
We haven’t gotten the details, so I think there’s a lot we don’t know. I think more so on the Vice President’s side, we don’t know. We’ve heard vague things on tax policy for the Stock Market, but again, a lot of that’s being put out on her campaign or maybe on her website or float around different places, but I haven’t heard it from her mouth to know if that’s where she stands. Trump’s been somewhat clear they want to reduce taxes again. From a business perspective, that moves the needle positively. Either one who takes over, they’re coming into a slowing economy and it’s probably not going to be the best environment for if they’re gauging-
Noah Brooks:
The first 100 days.
Chris Needs:
… how they’re doing by the Stock Market.
Noah Brooks:
Might not be great.
Chris Needs:
We have the un-inversion, finally. We had a record over two years and three months approximately of a yield curve inversion. That’s setting up a little bit-
Noah Brooks:
Let’s dissect that for a little bit. We’ve mentioned that term here on The Market Enthusiast probably a number of times over the last year or so, and I just want to make that when we say that people out there understand what we’re talking about. When you have two different rates, let’s say a 10-year bond and a 2-year bond, an inversion is when the shorter term bond is actually yielding more than the longer term bond.
The way the curve normally works is your long-term bonds are yielding five and your short-term bonds are yielding three, kind of goes up like that. The inversion is that the front of the end, meaning the short term, a little bit higher. We want to make sure that when we use these terms that people out there are actually getting it, understanding it, making sure that they’re following along.
Historically, and this is where we kind of open up a can of worms, this inversion has led on a number of occasions, has predated recessions that come out. In some cases, the longer the inversion, the worse the recession. Now, I’m not going to sit here and tell you this time it’s different because I don’t know. Even the smartest people in the room don’t know and can’t tell you. Looking back historically, we have six or so episodes where we’ve had inversion turn into a recession and four of those times the market was higher after a year. Two of those times it was lower.
We really are in one of these conundrums where it’s going to be about jobs, and I’m not 100% sure that either candidate is going to move the needle on job growth at least in a short period of time. The tariffs, I don’t know, historically they’ve not been great. They might move the needle on slowing down imports, but I don’t know that they’re actually going to provide jobs in the short term. What do you think about that?
Chris Needs:
Yeah, I think maybe his goal with that is to over the intermediate and long term have more capital investment in the country and make our domestic producers more competitive with the low cost people that we generally see coming in from Asia. It’s not a short term thing. Tariffs I think are definitely inflationary in the short term and then it’ll remain to be seen. There’s not a lot of evidence for success of tariffs, but I think that’s the goal.
We’ve had a slow drain of a lot of manufacturing and jobs and physical capital investment in plants and things like that here in the US, and there’s a number of fiscal policies we put in place. Think of the CHIPS Act to counteract that and bring manufacturing and plants here. I think this is, in their opinion, it’s two sides of the same coin. They’re going to drive the investment through doing tariffs rather than by outlaying cash and fiscal spend.
It remains to be seen if it’ll work out, but I think that’s what they’re going for is to incentivize domestic producers to build here, to make things here.
Noah Brooks:
One of the things that we have talked about on here before is the fact that Americans love cheap junk, cheap stuff and they will go to a lot of means to actually find those bargains out there.
Chris Needs:
I’m not wearing my Temu shoes.
Noah Brooks:
You’re not today? Okay. They’ve come under some scrutiny lately. We can get into that at another time. The thing that strikes me is, and the tariffs, I think on the front end, maybe they sound like a reasonable way to deal with China in the sense that they’re not a fully capitalistic country. They’re communists, they’re socialists, and the government supports the industries.
That doesn’t necessarily happen here. We get some tax rates. The CHIPS Act was introduced in ’22, if I’m not mistaken, maybe ’21. I don’t know the exact date. It has put a lot of money to bringing semiconductor manufacturing back here in the United States, but it has a lot to do with imports. As a percentage of imports that we’re moving from China, Walmart itself, Walmart and Sam’s Club, imports 10% of everything that comes in to the United States and somewhere around 8% of that is all from China.
I don’t know if the plan is to put tariffs on everything. That gets a little bit sticky because you start putting tariffs on everything and that is going to be a tax for us, the consumer. I don’t have the answer on this, but maybe the answer is targeted tariffs, very specific tariffs on very specific goods. One of the things that they didn’t really get into last night was healthcare. There were some back and forth a little bit, but there was certainly no plan in place.
They were throwing around, well was Obamacare good, bad Affordable Care Act. In the last 25 years, healthcare costs have annualized about 6% where CPI is only around 2.5%. Regular inflation rate of everything is only 2.5%. I don’t know that that can continue. In 1999, the average cost for a family was about $7,000 and today it’s roughly $23,000 average cost for a family. That’s not sustainable.
Chris Needs:
No.
Noah Brooks:
At some point, I know we’ve talked about car insurance on here going up and one of the things that have risen very rapidly, but at some point people are going to be forced, literally forced, to determine whether they need healthcare or they need food. To me, that doesn’t seem like a good thing. I don’t know Affordable Care Act if it blunted any of that inflation on healthcare costs or if it added to it, but something’s got to give. I mean 24,000 for healthcare for people, that seems like a lot of money.
Chris Needs:
Yeah, if you look at numbers, it seems like it kind of added to the inflation. There’s more people being covered now. I’m not sure if maybe some of these plans aren’t compensating enough. I don’t know exactly where the breakdown is there on why the healthcare inflation is so much higher than other areas. You just look at college tuition, healthcare insurance in general, things that have just gone up much higher than the pace of inflation of everything else. I don’t know what the cause is, but you’re right, it’s not sustainable and it’s a huge chunk of people, especially families, expenses each year.
Noah Brooks:
If we continue at that rate of inflation on healthcare costs or health insurance costs, healthcare is a different beast, but I’m referring to specifically the insurance costs. In 12 years, it’ll be close to $50,000 a year to insure a family of four. I know wages have gone up, but the average family is not going to be able to afford that and it seems like significant trap that we’re falling into. Again, I don’t have the answers to it, but I can certainly point out the problems.
Let’s lighten it up a little bit and talk about valuations in the Stock Market. How about it?
Chris Needs:
All right.
Noah Brooks:
All right. We are talking S&P 500, it’s trading about 20 times next year earnings. You look at some of the other markets, mid-caps are trading about 14.5 times. Small caps are trading about 13.3 against 2025 earnings. Mids and smalls certainly look more attractive from a valuation standpoint. Do they look more attractive anywhere else?
Chris Needs:
Well, where it looks like we’re going in the market cycle, I don’t think that would be an advantage or a pro for small caps per se with the slow-down as it appears to be occurring. I would say there’s a case for maybe going towards maybe a value tilt just because if we have these high P names that are still, despite coming in a little bit in tech, you can still say they’re rich for maybe a slowdown or a recession case.
Noah Brooks:
To your point, the Russell 1000 growth is trading at about 25.5 times next year’s earnings, 2025. Russell 1000 value is trading about 15.5 times. Big disparity there.
Chris Needs:
Yeah.
Noah Brooks:
But does that mean that when the market goes down, that value is not going to go down?
Chris Needs:
I think if we have a massive sell-off, everything will go down, but you’re looking at the percentages. I think growth would be going down at a higher beta. Because they’re a higher beta, they’d be going down more than value would be.
Noah Brooks:
Well, if you look back to 2022, growth was down 30, value was only down about 10.5 if I’m not mistaken. It could be one of those years?
Chris Needs:
Possibly, yeah.
Noah Brooks:
But semiconductors are already coming down. Nvidia, I think you had some stats on some of the market cap stuff. Wasn’t there a dramatic day last week?
Chris Needs:
Nvidia’s had some big movements. Obviously, they’re high beta, super large cap where they’re third in the world right now in market cap. They’ve been going swinging pretty wildly in these volatility bounces that we’ve been seeing. Back on July 31st, they had the largest one-day increase in market cap, 279 billion in one day. Obviously, a massive move for the company. Then you pair that, they had the largest drawdown, let me check my stats here. September 3rd, largest single-day loss, 327 billion, they lost in market cap.
So now they have the five largest up days in positive market cap and eight of the 10 largest down days in market cap. We talked about them. We talked about their earnings last podcast and they’re a huge bellwether. Everyone’s looking at it. It seems like everyone’s trading it and it’s been moving. There’s always action there it seems like.
Noah Brooks:
We haven’t talked about AI. We don’t have too much time. I still think that the adoption of artificial intelligence in everyday lives hasn’t taken place, not even a little bit. I think the productivity growth and productivity gains that we’re going to see over the next 10 years are going to be reminiscent of the productivity gains that we saw when people placed a computer on their desks. It’s just going to change everything. Doesn’t mean that the market’s not going to go down or anything like that, but the productivity gains that the American worker is going to see over the next 10 years are almost unfathomable compared to what we have.
Chris Needs:
The revenues that they’re doing and the hyperscalers are doing, they’re real. Their valuations may fluctuate, but those revenues are real. I think revenue growth, if you’re looking in the intermediate term, is definitely still there.
Noah Brooks:
You’re starting to see ads for artificial intelligence in iPhones of the world, certainly the Googles of the world, Microsoft Co-Pilot, things like that. I said here the other day, we went up to the first day of the US Open. We watched a whole bunch of it over the last two weeks or so, and one of the things that they kept popping up was IBM Watson and that Watson had calculated that the chance of particular, I think it was [inaudible 00:30:23]. I’m messing up the name, the Russian gentleman.
They had his chances pegged at something like 79%. I thought to myself, now that’s great in certain things, but I thought to myself, well if you’re going to tell us who’s going to win, then why would I watch it? Now I’m a tennis fan, so we obviously watched that particular match, but there’s a lot of uses for artificial intelligence and they are certainly coming out every day. Here in the office we use Microsoft Teams. One of our team members is using Co-Pilot to summarize some of the meetings that he has with people. That’s interesting,
It used to be you’d have to have somebody taking notes. Well now you have somebody taking notes. It’s just not a person. It’s a thing. It’s software. Man, over the last 20 years I could have used that a lot. A lot. I just see there’s a lot of applications for artificial intelligence coming down the pipeline that we haven’t even really thought of yet. And so, not pounding the table on it, I’m just saying whatever happens in the next six months, whether it’s a slowdown or if it turns out to be nothing, artificial intelligence isn’t going away and the next 10 years is going to be crazy.
I’m going to flip gears and I’m going to say, so talk about artificial intelligence. I saw something the other day that I’m not sure made me smarter.
Chris Needs:
Boy.
Noah Brooks:
I don’t know if anybody out there is a fan of conspiracy theories, but I watched… Oh, you’re shaking your head. Okay. I watched something called Sasquatch Sunrise the other day. It took me two days to do it. I want to make a blanket recommendation here that people should watch it if they have an hour and a half that they don’t mind giving up and aren’t able to give to get back ever. You know what it’s about? I’ve talked about it.
Chris Needs:
I watched the trailer. Be careful with the trailer.
Noah Brooks:
Oh, I didn’t see the trailer.
Chris Needs:
Oh, just be careful with it.
Noah Brooks:
Oh yeah, there’s some weird stuff happening in the movie. I said it did take me two days to watch it. It’s only an hour and a half. The first 45 minutes, I thought maybe there was something wrong. It’s not very fast-paced, but I’m not selling it as well as I should. I think everybody should watch it. The end of the movie, the last 30 seconds of the movie is worth the entire hour and 48 minutes prior.
Are you watching anything interesting?
Chris Needs:
You kind of know me, I’m like a nerd. I’m into the Rings of Power right now. I’m big into the Lord of the Rings genre. I’m a big House of Dragons fan. Not really happy how House of Dragons ended up, but we’ll wait for another season in two years. Yeah, Rings of Power right now. Lex and I are binging the end of Suits. We got halfway through it the first time through. Had to take a break. It was just too repetitive and now we’re back into it.
Noah Brooks:
Okay, well speaking of Suits, the Royals, the-
Chris Needs:
Former Royals?
Noah Brooks:
… former Royals?
Chris Needs:
I don’t know.
Noah Brooks:
You keep hearing little ramblings about them getting back together, fixing the dysfunction in the family. Of course, I think most everybody saw the Duchess of York came out. She said she finished chemotherapy and kind of getting back to normal if you will. I guess that’s a good thing for them.
Chris Needs:
Yeah.
Noah Brooks:
That’ll be good. Personally, I’d like to see more of them in the news for positive things, not scandalous things, personally. All right, do we have anything to end on besides this nonsense?
Chris Needs:
I have a couple of points to hit on.
Noah Brooks:
Go ahead.
Chris Needs:
We have an S&P 500 rebalance reconstitution going on. September 23rd, they’re going to add Palantir, Dell, and Erie Indemnity. Getting the axe is American Airlines, Etsy and BioRAD Labs.
Noah Brooks:
What? Etsy’s getting X’d?
Chris Needs:
Yep.
Noah Brooks:
I did not know that.
Chris Needs:
I think they’re going all the way down to small cap S&P 600, the other two are going into the mid-caps. We had a big deal sort of, I consider in the political sphere, Nippon Steel’s deal for X is probably getting nixed. Both parties were against it, unions were against it. X as in meaning X Steel is in a tough spot. They’re saying they might have to lay off some people, they might have to move jobs to maybe some of their southern plants and they’re really struggling right now with the environment in their industry and competing against China, who obviously is a notoriously low cost producer of steel.
Then I had another spot on here and we talked about this the other day, but Uber, their Uber Freight has surpassed 20 billion in freight under management and has quickly grown to about 15% of their revenue.
Noah Brooks:
When Chris said this to me the other day, I was like, what do you mean freight? You mean these delivery drivers are carrying around freight? I didn’t know that Uber actually did freight delivery service.
Chris Needs:
Yeah, and logistic systems I think is their biggest in on it. They used their algorithms to basically apply to logistics for supply chain delivery and it seems to be working out pretty decently for them. Obviously, their big thing is going to be driverless taxis, things like that. Uber Eats, the ride hailing services are doing great. This is a nice little third diversification revenue piece for them.
Noah Brooks:
Yeah, you mentioned American getting booted out of there. I feel strongly about American. I fly American. I have a flight coming up this week. I just wish they could get their act together from a stock perspective. From an airline perspective, I think they’ve done okay. I know some people hate them. We’re a hub here in Philadelphia, so I don’t only fly American, but a lot of times it’s American.
From a stock perspective, they have just not been able to get out of their own way. Obviously, that speaks to them being taken out of the S&P 500. Are they going into the mid-cap 400?
Chris Needs:
I believe so, yeah.
Noah Brooks:
It’s supposed to go the other way.
Chris Needs:
Yeah, up.
Noah Brooks:
Its supposed to go up in capitalization, not down in capitalization.
Chris Needs:
Airlines historically have struggled from a stock perspective. It’s just a tough low margin sort of business.
Noah Brooks:
They have. There’s no question about it. We just need to travel more.
Chris Needs:
I’m okay with that.
Noah Brooks:
All right everybody, thank you for listening. We really appreciate it. Thank you to the men and women that give their time. Our first responders, I am calling them out simply because we’re 23 years into 9/11. There’s a lot of brave people out there that lost their lives at that time period and there’s a lot of brave people that helped everybody else out. Let’s try to keep them in our hearts.
Chris Needs:
Thank them and their family.
Noah Brooks:
Yeah, thank them and their family. All right, thank you so much for your time. We’ll see you in a few weeks.
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. Economic forecast set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Summary
In this conversation, Noah Brooks and Chris discuss various topics including the 23rd anniversary of the September 11th attacks, the recent presidential debate, the market’s reaction to a possible Harris presidency, the CPI report, the upcoming S&P 500 rebalance, and the growth of Uber Freight. They also touch on the potential impact of artificial intelligence and the challenges faced by American Airlines.
Takeaways
Transcript
Noah Brooks: Welcome back everybody. Thanks so much for joining us for another installment of The Market Enthusiast. I’m Noah Brooks, and with me as always, Chris Needs.
Chris Needs:
Hello.
Noah Brooks:
Thanks for joining us. I’m going to start out today, something a little bit somber. This week marks the 23rd anniversary of the September 11th attacks. I’m sure most everybody out there remembers where they were. I was at the office at an old Prudential Securities building in Allentown, Pennsylvania, and we had a sales meeting and someone came in and said that there was a small plane that had hit the World Trade Center and he made some joke about a giant eight being on top of it.
Obviously, we filed out and we realized that it wasn’t a small plane. Watched the events unfold live in the office. Where were you?
Chris Needs:
I was in my fifth grade social studies class.
Noah Brooks:
Oh, boy. It is 23 years ago.
Chris Needs:
Yeah, yeah. I personally remember the day. It seemed like it changed our lives instantly. Obviously, we felt invincible I think here in America, and that was really the first time, at least in my life, where I was like, “Oh, maybe that’s not so.”
Noah Brooks:
Yeah, well certainly worst attack since Pearl Harbor. That’s not up for debate or anything. The thing that I remember most about the time period after, well two things, thing I remember most from a social standpoint was it feels like… I lived in a relatively diverse city at the time here locally in Reading and all of the what could be perceived as racism or private animosities amongst different groups within the city, it all just melted away. It all just disappeared.
I don’t know how long it happened for, it could have been two weeks, could have been three weeks, but the American flags went up. I don’t care who you were, you had an American flag up and it almost felt like it was the America that should be there all the time. Everybody singing Kumbaya to one another and like I said, no animosities anywhere. That’s the part that I remember socially the most. The other thing I think a lot of people out there can remember, nowadays, we have scrolls on television and not just CNBC or Bloomberg business channels, but you have them everywhere.
After 9/11, in those days afterwards, all of the cable news networks or nightly news networks started scrolls on the sides on the top. Certainly, it could have been the names of the people that had perished, whether it was in the Pentagon or World Trade or Flight 93, but those scrolls were there. I don’t love them today, but it’s all good. Moving on to maybe another somber event that happened much, much more recently. They had the debate this week, the presidential debate. Did you watch it?
Chris Needs:
I did. And somber is a good way to put it. I don’t know how I felt about it there. I didn’t think there was as much detail as I wanted. I don’t know if an hour and a half was enough. I would’ve liked to see more policy points touched on. Of course they’re politicians, so they’re trained to maybe obfuscate a little bit and dodge-
Noah Brooks:
Obfuscate? Politicians? No, come on now.
Chris Needs:
… the questions. We didn’t get that many details from either side. Neither side really dunked on the other too much. Everyone had their little zingers and that’s what we’ll come away with.
Noah Brooks:
Do you think either one of them moved the needle at all before those six undecided voters supposedly that are out there?
Chris Needs:
Yeah, I’m sure a couple of people were swayed. It wasn’t a major win for either side, I don’t think. If I had to put my finger on the scale, I would say probably Kamala won. I think she exceeded maybe lower bar. No one really knew her per se, and she got up there and was very composed and in comparison to the previous debate, she looked better than-
Noah Brooks:
Well listen, the previous debate, okay, that’s not really… I mean, the reason that Harris is up there is because of the previous debate. Let’s not forget that. Whatever you feel about it, that’s why she is there. I don’t think that too many people changed their minds. I’m not saying nobody. Trump kept hammering immigration. He kept going back to that. I think there’s a lot of people that that is a major concern for.
I think she had maybe some missed opportunities to dunk on him when he said some… He’s talking about-
Chris Needs:
Cats and dogs.
Noah Brooks:
… cats and dogs, yeah. I think she had missed some opportunities, but I don’t know that she got up there and killed it.
Chris Needs:
Yeah, I don’t think either of them. If you were grading both of them in a vacuum, neither got a good score, how I’m looking at it.
Noah Brooks:
Grade it for me.
Chris Needs:
I’m giving them both C minuses.
Noah Brooks:
C minuses, yeah.
Chris Needs:
Yeah. It may pass depending on what college class you’re in, you may not pass. I don’t know.
Noah Brooks:
I think there were some missed opportunities on both sides. I know some people, depending on where you’re getting your news from, take issue with the moderators. I thought they were okay. I thought they did a reasonable job. No one is ever going to be 100% kosher with everything they say.
Chris Needs:
It’s a tough job.
Noah Brooks:
Yeah.
Chris Needs:
Dealing with strong-willed people.
Noah Brooks:
Sure. I’m just glad I didn’t have to moderate it. Right?
Chris Needs:
Yeah. And not get picked apart.
Noah Brooks:
I don’t think they’d call.
Chris Needs:
They’d talk right over me.
Noah Brooks:
We got through those two items. Let’s talk economics. Let’s talk the market. The market is not in love with the idea currently, at least today, of possibly Harris presidency. Seems like she’s not as well-liked from a business perspective as opposed to a social perspective.
Chris Needs:
I don’t think it’s unfair to say if you’re looking at the two’s policies, Trump is probably better for business and better for “the Stock Market” obviously, what we look at every day. On the social issues, I’d say that’s where her strength is. If you say go with that, she is getting a bump from the performance today. Market’s teetering a little bit. We’ll see how it goes. Again, we have to get further clarification on both of their policies because we really didn’t get much material to go on last night.
Noah Brooks:
No, a lot of sound bites, but not real actual lot of policy per se. It’s one of those things that I suspect will develop over time, but I have to tell you, I’m kind of liking the shorter timeframe in terms of who is going to be the nominee. This idea of six, nine months or even longer knowing who it’s going to be and you’re campaigning the entire way up. Maybe give me two months, two and a half months. I’m already sick and tired of all of the ads on television and radio and internet. It is nonstop with political ads. Here in Pennsylvania where we are, three quarters of the ads that you see on network television are political ads bashing the other one.
Chris Needs:
Tough to escape, for sure. That’s what we get for being in a Battleground state.
Noah Brooks:
How do we avoid that? Nevermind. Let’s not go down that path. CPI came out this week and it’s pretty good as far as inflation goes. There was a few standouts that didn’t look great. Why don’t you go into that a little bit?
Chris Needs:
We had 2.5% year-over-year on headline CPI, which was a 10th below expectation, so not bad there. Core month-over-month was 0.3 versus 0.2 expected. Kind of hot there. We have largely oil prices, gas prices coming down at the right time.
Noah Brooks:
We’re under $3.40 here.
Chris Needs:
Yeah, the average in the country is $3.26. That’s not bad, oil prices are tanking. See what I did there?
Noah Brooks:
Yeah. Yeah. Yeah.
Chris Needs:
That’s not bad for all of us out there or all of you out there who fill up the gas tank.
Noah Brooks:
All of us because Chris doesn’t fill up his gas tank anymore. He drives the electric car.
Chris Needs:
Food was largely up we’ll say. Shelter was up half a percent.
Noah Brooks:
Did you hear that dog?
Chris Needs:
I did hear that.
Noah Brooks:
I feel like there’s a dog running around somewhere. Oh, boy.
Chris Needs:
Sort of same thing, things that were down, oil, gas, apparel, coffee. If you drink coffee, I see you have a Nitro cold brew over there. I know I drink coffee every day, so things are going up and down. I would say largely not a bad report though.
Noah Brooks:
In line with what the Fed is going to do, I don’t think it’s going to change their course. The expectation, it’s bouncing between a decrease of 50 basis points and a decrease of 25 basis points. I don’t think this is going to push the line to 50.
Chris Needs:
No, I’ve looked at the CME Fed Watch and the probability is pricing in 29 basis points, just so pretty solidly towards 25.
Noah Brooks:
Yeah, if you look out for the entire year, end of the year, you’re going to see probability based on that is that they expect a decline of about one and a quarter percent towards the end of the year. If you do the math, they don’t have to lower during a meeting. They can come out at any point. I suspect if they lower in September, they probably won’t do anything until after the election.
Now I was under the impression that they weren’t going to do anything at all. It seems like it’s a given that it’s going to happen in September. I didn’t think they would, but there’s no meeting in October and then there’s a meeting the day after the election. I think that’s the seventh, if I’m not mistaken. There’s a likelihood that they lower in September. There’s a gigantic likelihood, high probability likelihood that they lower in November and likelihood that they lower in December.
Of course, they’re going to continue to be data-dependent. We also had jobs report that came out which did not light the world on fire.
Chris Needs:
That was 140,000 jobs. 165,000 was expected and we had a revision of last month’s pretty, we’ll call it awful. 114,000 really was below expectations. They revised that all the way down to 89,000. That really wasn’t a good report I would say.
Noah Brooks:
No.
Chris Needs:
Now the market got crushed on it. I don’t know if the market reaction was in line with that. We know things are slowing down. We can read those tea leaves and understand.
Noah Brooks:
So is bad news, bad news again?
Chris Needs:
I think so. It flipped.
Noah Brooks:
It used to be bad news is good news because the bad news is going to make the Fed lower. Now we’re at this point where the bad news is, oh hey, it’s just bad news and the Fed’s going to lower, but that’s not necessarily going to save our butts on it.
Chris Needs:
Exactly. Yeah.
Noah Brooks:
That seems to be the way this is playing out. CPI is definitely coming down on an annualized basis. We’re looking at 2.5% on headline, 3.2 year-over-year, which was in line. You mentioned gasoline prices. Sometimes they help the headline, sometimes they hurt the headline. Nowadays, or in this report, they certainly help the headline. When you take it out, you get to obviously food and energy. Shelter, you mentioned earlier, shelter was up a half a percent month-over-month. There’s still an issue with not enough homes, not enough rental properties, and I don’t see that going away here in the short term.
Chris Needs:
Yeah, rates have come in a little bit on 30 year mortgages, but we’re still up there above six, right?
Noah Brooks:
Yeah, six two.
Chris Needs:
I mean people are maybe holding off until we get into the low fives, which would put us in early 2025. Maybe next summer’s buying season will maybe be a little bit better.
Noah Brooks:
Springtime baby.
Chris Needs:
We’ll see. Yeah.
Noah Brooks:
Right?
Chris Needs:
But yeah, that holds up both obviously core and headline because of the percentage it makes up.
Noah Brooks:
Used car prices continue to come down month-over-month. I think it was down 1%. That’s pretty good for everybody involved. I know you’re not going to get a new car anytime soon, but certainly helpful out there. The cost of money coming down, whether it’s your mortgages or whether it’s the potential rate decreases that are coming, it’s going to be good for every aspect of consumers. There’s just no question about it.
Right now with the debate past us and CPI past us, we have PPI coming out. I don’t know that that’s going to really change anything too much. The market is still up. The S&P is still up about 14% for the year. Technology obviously has been a big leader, but coming into the quarter, growth is actually down 4%, value is up 4%. That’s a big disparity.
Chris Needs:
Tech and energy are the ones getting hit on the quarter right now, really lagging. I think almost every other sector is positive though on the quarter, but we’ve got a little bit of this September seasonality going on, a little more volatility. September, if you don’t know, is the worst month in the calendar year for the Stock Market, the S&P 500 on average since 1928 is down negative 1.2% on average for September. It’s the only month that is down or not positive more than it is. I think the percentage is like 47% of the time September’s negative.
Noah Brooks:
Wow, that’s crazy.
Chris Needs:
My apologies. 47% is positive. Said it backwards. I flipped it. 47% of the time it’s positive, so it’s negative more than it’s positive. That makes sense.
Noah Brooks:
Not by a whole heck of a lot, but by a little bit. Yeah. Yeah. Okay. I mean the rest of the year, the way this is going to play out is it seems like every headline that’s going to come out is going to be the make or break headline until the next one comes through. We can talk a little bit about the candidates and where they stand in terms of what their policies are, but I think you summed it up earlier from a short term perspective, I think the market would respond positively at least again in the short term to a Trump win. From a social perspective, whether that’s education, lots of other social issues, I think everything but the market might respond positively to a Harris win. Is there anything out there between these two candidates that we don’t know that could really move the market, I guess is what I’m saying?
Chris Needs:
We haven’t gotten the details, so I think there’s a lot we don’t know. I think more so on the Vice President’s side, we don’t know. We’ve heard vague things on tax policy for the Stock Market, but again, a lot of that’s being put out on her campaign or maybe on her website or float around different places, but I haven’t heard it from her mouth to know if that’s where she stands. Trump’s been somewhat clear they want to reduce taxes again. From a business perspective, that moves the needle positively. Either one who takes over, they’re coming into a slowing economy and it’s probably not going to be the best environment for if they’re gauging-
Noah Brooks:
The first 100 days.
Chris Needs:
… how they’re doing by the Stock Market.
Noah Brooks:
Might not be great.
Chris Needs:
We have the un-inversion, finally. We had a record over two years and three months approximately of a yield curve inversion. That’s setting up a little bit-
Noah Brooks:
Let’s dissect that for a little bit. We’ve mentioned that term here on The Market Enthusiast probably a number of times over the last year or so, and I just want to make that when we say that people out there understand what we’re talking about. When you have two different rates, let’s say a 10-year bond and a 2-year bond, an inversion is when the shorter term bond is actually yielding more than the longer term bond.
The way the curve normally works is your long-term bonds are yielding five and your short-term bonds are yielding three, kind of goes up like that. The inversion is that the front of the end, meaning the short term, a little bit higher. We want to make sure that when we use these terms that people out there are actually getting it, understanding it, making sure that they’re following along.
Historically, and this is where we kind of open up a can of worms, this inversion has led on a number of occasions, has predated recessions that come out. In some cases, the longer the inversion, the worse the recession. Now, I’m not going to sit here and tell you this time it’s different because I don’t know. Even the smartest people in the room don’t know and can’t tell you. Looking back historically, we have six or so episodes where we’ve had inversion turn into a recession and four of those times the market was higher after a year. Two of those times it was lower.
We really are in one of these conundrums where it’s going to be about jobs, and I’m not 100% sure that either candidate is going to move the needle on job growth at least in a short period of time. The tariffs, I don’t know, historically they’ve not been great. They might move the needle on slowing down imports, but I don’t know that they’re actually going to provide jobs in the short term. What do you think about that?
Chris Needs:
Yeah, I think maybe his goal with that is to over the intermediate and long term have more capital investment in the country and make our domestic producers more competitive with the low cost people that we generally see coming in from Asia. It’s not a short term thing. Tariffs I think are definitely inflationary in the short term and then it’ll remain to be seen. There’s not a lot of evidence for success of tariffs, but I think that’s the goal.
We’ve had a slow drain of a lot of manufacturing and jobs and physical capital investment in plants and things like that here in the US, and there’s a number of fiscal policies we put in place. Think of the CHIPS Act to counteract that and bring manufacturing and plants here. I think this is, in their opinion, it’s two sides of the same coin. They’re going to drive the investment through doing tariffs rather than by outlaying cash and fiscal spend.
It remains to be seen if it’ll work out, but I think that’s what they’re going for is to incentivize domestic producers to build here, to make things here.
Noah Brooks:
One of the things that we have talked about on here before is the fact that Americans love cheap junk, cheap stuff and they will go to a lot of means to actually find those bargains out there.
Chris Needs:
I’m not wearing my Temu shoes.
Noah Brooks:
You’re not today? Okay. They’ve come under some scrutiny lately. We can get into that at another time. The thing that strikes me is, and the tariffs, I think on the front end, maybe they sound like a reasonable way to deal with China in the sense that they’re not a fully capitalistic country. They’re communists, they’re socialists, and the government supports the industries.
That doesn’t necessarily happen here. We get some tax rates. The CHIPS Act was introduced in ’22, if I’m not mistaken, maybe ’21. I don’t know the exact date. It has put a lot of money to bringing semiconductor manufacturing back here in the United States, but it has a lot to do with imports. As a percentage of imports that we’re moving from China, Walmart itself, Walmart and Sam’s Club, imports 10% of everything that comes in to the United States and somewhere around 8% of that is all from China.
I don’t know if the plan is to put tariffs on everything. That gets a little bit sticky because you start putting tariffs on everything and that is going to be a tax for us, the consumer. I don’t have the answer on this, but maybe the answer is targeted tariffs, very specific tariffs on very specific goods. One of the things that they didn’t really get into last night was healthcare. There were some back and forth a little bit, but there was certainly no plan in place.
They were throwing around, well was Obamacare good, bad Affordable Care Act. In the last 25 years, healthcare costs have annualized about 6% where CPI is only around 2.5%. Regular inflation rate of everything is only 2.5%. I don’t know that that can continue. In 1999, the average cost for a family was about $7,000 and today it’s roughly $23,000 average cost for a family. That’s not sustainable.
Chris Needs:
No.
Noah Brooks:
At some point, I know we’ve talked about car insurance on here going up and one of the things that have risen very rapidly, but at some point people are going to be forced, literally forced, to determine whether they need healthcare or they need food. To me, that doesn’t seem like a good thing. I don’t know Affordable Care Act if it blunted any of that inflation on healthcare costs or if it added to it, but something’s got to give. I mean 24,000 for healthcare for people, that seems like a lot of money.
Chris Needs:
Yeah, if you look at numbers, it seems like it kind of added to the inflation. There’s more people being covered now. I’m not sure if maybe some of these plans aren’t compensating enough. I don’t know exactly where the breakdown is there on why the healthcare inflation is so much higher than other areas. You just look at college tuition, healthcare insurance in general, things that have just gone up much higher than the pace of inflation of everything else. I don’t know what the cause is, but you’re right, it’s not sustainable and it’s a huge chunk of people, especially families, expenses each year.
Noah Brooks:
If we continue at that rate of inflation on healthcare costs or health insurance costs, healthcare is a different beast, but I’m referring to specifically the insurance costs. In 12 years, it’ll be close to $50,000 a year to insure a family of four. I know wages have gone up, but the average family is not going to be able to afford that and it seems like significant trap that we’re falling into. Again, I don’t have the answers to it, but I can certainly point out the problems.
Let’s lighten it up a little bit and talk about valuations in the Stock Market. How about it?
Chris Needs:
All right.
Noah Brooks:
All right. We are talking S&P 500, it’s trading about 20 times next year earnings. You look at some of the other markets, mid-caps are trading about 14.5 times. Small caps are trading about 13.3 against 2025 earnings. Mids and smalls certainly look more attractive from a valuation standpoint. Do they look more attractive anywhere else?
Chris Needs:
Well, where it looks like we’re going in the market cycle, I don’t think that would be an advantage or a pro for small caps per se with the slow-down as it appears to be occurring. I would say there’s a case for maybe going towards maybe a value tilt just because if we have these high P names that are still, despite coming in a little bit in tech, you can still say they’re rich for maybe a slowdown or a recession case.
Noah Brooks:
To your point, the Russell 1000 growth is trading at about 25.5 times next year’s earnings, 2025. Russell 1000 value is trading about 15.5 times. Big disparity there.
Chris Needs:
Yeah.
Noah Brooks:
But does that mean that when the market goes down, that value is not going to go down?
Chris Needs:
I think if we have a massive sell-off, everything will go down, but you’re looking at the percentages. I think growth would be going down at a higher beta. Because they’re a higher beta, they’d be going down more than value would be.
Noah Brooks:
Well, if you look back to 2022, growth was down 30, value was only down about 10.5 if I’m not mistaken. It could be one of those years?
Chris Needs:
Possibly, yeah.
Noah Brooks:
But semiconductors are already coming down. Nvidia, I think you had some stats on some of the market cap stuff. Wasn’t there a dramatic day last week?
Chris Needs:
Nvidia’s had some big movements. Obviously, they’re high beta, super large cap where they’re third in the world right now in market cap. They’ve been going swinging pretty wildly in these volatility bounces that we’ve been seeing. Back on July 31st, they had the largest one-day increase in market cap, 279 billion in one day. Obviously, a massive move for the company. Then you pair that, they had the largest drawdown, let me check my stats here. September 3rd, largest single-day loss, 327 billion, they lost in market cap.
So now they have the five largest up days in positive market cap and eight of the 10 largest down days in market cap. We talked about them. We talked about their earnings last podcast and they’re a huge bellwether. Everyone’s looking at it. It seems like everyone’s trading it and it’s been moving. There’s always action there it seems like.
Noah Brooks:
We haven’t talked about AI. We don’t have too much time. I still think that the adoption of artificial intelligence in everyday lives hasn’t taken place, not even a little bit. I think the productivity growth and productivity gains that we’re going to see over the next 10 years are going to be reminiscent of the productivity gains that we saw when people placed a computer on their desks. It’s just going to change everything. Doesn’t mean that the market’s not going to go down or anything like that, but the productivity gains that the American worker is going to see over the next 10 years are almost unfathomable compared to what we have.
Chris Needs:
The revenues that they’re doing and the hyperscalers are doing, they’re real. Their valuations may fluctuate, but those revenues are real. I think revenue growth, if you’re looking in the intermediate term, is definitely still there.
Noah Brooks:
You’re starting to see ads for artificial intelligence in iPhones of the world, certainly the Googles of the world, Microsoft Co-Pilot, things like that. I said here the other day, we went up to the first day of the US Open. We watched a whole bunch of it over the last two weeks or so, and one of the things that they kept popping up was IBM Watson and that Watson had calculated that the chance of particular, I think it was [inaudible 00:30:23]. I’m messing up the name, the Russian gentleman.
They had his chances pegged at something like 79%. I thought to myself, now that’s great in certain things, but I thought to myself, well if you’re going to tell us who’s going to win, then why would I watch it? Now I’m a tennis fan, so we obviously watched that particular match, but there’s a lot of uses for artificial intelligence and they are certainly coming out every day. Here in the office we use Microsoft Teams. One of our team members is using Co-Pilot to summarize some of the meetings that he has with people. That’s interesting,
It used to be you’d have to have somebody taking notes. Well now you have somebody taking notes. It’s just not a person. It’s a thing. It’s software. Man, over the last 20 years I could have used that a lot. A lot. I just see there’s a lot of applications for artificial intelligence coming down the pipeline that we haven’t even really thought of yet. And so, not pounding the table on it, I’m just saying whatever happens in the next six months, whether it’s a slowdown or if it turns out to be nothing, artificial intelligence isn’t going away and the next 10 years is going to be crazy.
I’m going to flip gears and I’m going to say, so talk about artificial intelligence. I saw something the other day that I’m not sure made me smarter.
Chris Needs:
Boy.
Noah Brooks:
I don’t know if anybody out there is a fan of conspiracy theories, but I watched… Oh, you’re shaking your head. Okay. I watched something called Sasquatch Sunrise the other day. It took me two days to do it. I want to make a blanket recommendation here that people should watch it if they have an hour and a half that they don’t mind giving up and aren’t able to give to get back ever. You know what it’s about? I’ve talked about it.
Chris Needs:
I watched the trailer. Be careful with the trailer.
Noah Brooks:
Oh, I didn’t see the trailer.
Chris Needs:
Oh, just be careful with it.
Noah Brooks:
Oh yeah, there’s some weird stuff happening in the movie. I said it did take me two days to watch it. It’s only an hour and a half. The first 45 minutes, I thought maybe there was something wrong. It’s not very fast-paced, but I’m not selling it as well as I should. I think everybody should watch it. The end of the movie, the last 30 seconds of the movie is worth the entire hour and 48 minutes prior.
Are you watching anything interesting?
Chris Needs:
You kind of know me, I’m like a nerd. I’m into the Rings of Power right now. I’m big into the Lord of the Rings genre. I’m a big House of Dragons fan. Not really happy how House of Dragons ended up, but we’ll wait for another season in two years. Yeah, Rings of Power right now. Lex and I are binging the end of Suits. We got halfway through it the first time through. Had to take a break. It was just too repetitive and now we’re back into it.
Noah Brooks:
Okay, well speaking of Suits, the Royals, the-
Chris Needs:
Former Royals?
Noah Brooks:
… former Royals?
Chris Needs:
I don’t know.
Noah Brooks:
You keep hearing little ramblings about them getting back together, fixing the dysfunction in the family. Of course, I think most everybody saw the Duchess of York came out. She said she finished chemotherapy and kind of getting back to normal if you will. I guess that’s a good thing for them.
Chris Needs:
Yeah.
Noah Brooks:
That’ll be good. Personally, I’d like to see more of them in the news for positive things, not scandalous things, personally. All right, do we have anything to end on besides this nonsense?
Chris Needs:
I have a couple of points to hit on.
Noah Brooks:
Go ahead.
Chris Needs:
We have an S&P 500 rebalance reconstitution going on. September 23rd, they’re going to add Palantir, Dell, and Erie Indemnity. Getting the axe is American Airlines, Etsy and BioRAD Labs.
Noah Brooks:
What? Etsy’s getting X’d?
Chris Needs:
Yep.
Noah Brooks:
I did not know that.
Chris Needs:
I think they’re going all the way down to small cap S&P 600, the other two are going into the mid-caps. We had a big deal sort of, I consider in the political sphere, Nippon Steel’s deal for X is probably getting nixed. Both parties were against it, unions were against it. X as in meaning X Steel is in a tough spot. They’re saying they might have to lay off some people, they might have to move jobs to maybe some of their southern plants and they’re really struggling right now with the environment in their industry and competing against China, who obviously is a notoriously low cost producer of steel.
Then I had another spot on here and we talked about this the other day, but Uber, their Uber Freight has surpassed 20 billion in freight under management and has quickly grown to about 15% of their revenue.
Noah Brooks:
When Chris said this to me the other day, I was like, what do you mean freight? You mean these delivery drivers are carrying around freight? I didn’t know that Uber actually did freight delivery service.
Chris Needs:
Yeah, and logistic systems I think is their biggest in on it. They used their algorithms to basically apply to logistics for supply chain delivery and it seems to be working out pretty decently for them. Obviously, their big thing is going to be driverless taxis, things like that. Uber Eats, the ride hailing services are doing great. This is a nice little third diversification revenue piece for them.
Noah Brooks:
Yeah, you mentioned American getting booted out of there. I feel strongly about American. I fly American. I have a flight coming up this week. I just wish they could get their act together from a stock perspective. From an airline perspective, I think they’ve done okay. I know some people hate them. We’re a hub here in Philadelphia, so I don’t only fly American, but a lot of times it’s American.
From a stock perspective, they have just not been able to get out of their own way. Obviously, that speaks to them being taken out of the S&P 500. Are they going into the mid-cap 400?
Chris Needs:
I believe so, yeah.
Noah Brooks:
It’s supposed to go the other way.
Chris Needs:
Yeah, up.
Noah Brooks:
Its supposed to go up in capitalization, not down in capitalization.
Chris Needs:
Airlines historically have struggled from a stock perspective. It’s just a tough low margin sort of business.
Noah Brooks:
They have. There’s no question about it. We just need to travel more.
Chris Needs:
I’m okay with that.
Noah Brooks:
All right everybody, thank you for listening. We really appreciate it. Thank you to the men and women that give their time. Our first responders, I am calling them out simply because we’re 23 years into 9/11. There’s a lot of brave people out there that lost their lives at that time period and there’s a lot of brave people that helped everybody else out. Let’s try to keep them in our hearts.
Chris Needs:
Thank them and their family.
Noah Brooks:
Yeah, thank them and their family. All right, thank you so much for your time. We’ll see you in a few weeks.
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. Economic forecast set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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