Welcome everybody. Thanks so much for joining us today on the Market Enthusiast. I’m Noah Brooks and with me today. Chris needs Chris 11 months down, one to go. Here we are. And I thought it’d be interesting just to take a quick look back on what happened in 2023. Did anything worth talking about happen in 2023?
Chris Needs:
Yeah, there is a bunch of noble topics, several, I guess we’ll go through here. We had the AI boom chat, GPT.
Noah Brooks:
Oh, right. That seemed to happen at the beginning of the year. Everybody was hot on chat GPT.
Chris Needs:
Yes. Yes. So Open AI released this amount of AI that they had. That was when was it most recent as of 2021, did they stop feeding into it?
Noah Brooks:
Yeah, December 31st, 2021. Because when I use chat GPT, it won’t give me any stats within, it won’t give me any recent stats, let’s put it that way.
Chris Needs:
I mean, we’ve had AI for a long time. I think what really opened eyeballs here was they made it available to the public and people were kind of amazed at the conversational way. It answered a variety of questions. It literally seemed as if you had a product expert explaining it to you and it was typing out in real time right in front of you, no matter what you sent into it. And that obviously led to a number of other things people started talking about. Is this our Skynet moment? Do we have a hold on or control of where this is going to go? When it starts thinking for itself.
Noah Brooks:
I still think it’s going to be terminators and eventually we’re going to be slaves to the Terminators. I mean, how could it not be that right? Life imitates art. Art says that we’re going to be slaves, so okay. Besides chat GPT and ai, I mean we started the year in March, regional banks, the Bears were out in force telling us that this was the beginning of the end. It was going to be worse than 2008. The global financial crisis, I think we had two and a half weeks of pretty significant volatility in March when that came out. Regional banks certainly still have not performed as well as some of the other companies out there. Certainly technology, but regional banking crisis was not a crisis. More of just a few week event. Right?
Chris Needs:
Yeah, certainly they’re impacted by rates. All of them were. But really what caused the panic, I guess, was those few that really had no risk management in their processes. I mean, Silicon Valley Bank literally didn’t have a chief risk for about two. Was it coming up on two years or so? Or a year or so? Yeah. And what did they expect to
Noah Brooks:
Happen? Yeah, that seems like a self-inflicted wound.
Chris Needs:
Yeah, certainly. But it certainly caused a market wide panic and just because of, they were, I guess non granular. They had a certain clientele that they were working with, which was sort of like the San Francisco tech companies, California tech companies. They were nationwide and had companies all over, but it caused panic in a certain variety of people who may have had an outsized influence on things. Think of what Peter Thiel did to sort of spark it off by reaching out to his investors and saying, Hey, we’re pulling our money out, and it caused that bank rush that led to failure.
Noah Brooks:
So Peter Thiel caused the crisis?
Chris Needs:
No, the risk management certainly did, but you talk about the initial catalyst, that guy is held in very, very high esteem with people out there in the valley, and that’s what I heard as the initial catalyst to people start pulling their funds and losing confidence, and then once those dominoes start, it’s hard to stop them.
The Year of the Weight Loss Drug
Noah Brooks:
Yeah, yeah, absolutely. So a few other big things this year. Have you heard of Wegovy face?
Chris Needs:
I haven’t heard of that, but I know what you’re referencing.
Noah Brooks:
I don’t have it. I’m not taking any wegovy, but obviously this is the year of the weight loss drug. It doesn’t seem to be the fenden of 2023, but everybody’s on it. Everybody I talked to is trying to get it. So these are these GLP ones I think they are.
Chris Needs:
Think of Ozempic and those things that start off as diabetic medicines and now people are using more generally for weight loss.
Noah Brooks:
So this is a big trend. I mean, when Ozempic came out or Wegovy came out earlier in the year and they were doing these studies and they showed that it actually not just people lose weight, but they stopped in some cases drinking and stopped snacking. It actually caused reverberations at the grocery store from a stock market perspective.
Chris Needs:
Definitely did. I mean, we’ve had portfolio managers tell us it impacted their returns. I mean, the people who I know are on it stopped drinking soda, started snacking last, started eating much smaller portions. And US Americans love our junk food. That’s one of the things that’s known about us. Our obesity rates are legendary in the world, but you had stocks that were priced for that, that would continue. There would never be a threat to how much Coca-Cola you’re going to drink or how much Hershey’s chocolate you’re going to have. Or
Noah Brooks:
I would say though, this might be a little ahead of you, but back in the early two thousands, there was the Atkins diet, essentially the protein diet where you stopped eating carbs. And I can remember it was one of the nails in the coffin for Krispy Kreme. I don’t know how many people actually stopped eating Krispy Kreme because of the Atkins diet. But from a stock market perspective, I mean it really put a nail in the Krispy Kreme coffin. I doubt, this is my personal opinion, I doubt that everybody’s going to go on Wegovy and stop eating chips. I doubt it. But there’s certainly some evidence to suggest that it might be
Chris Needs:
Affect five to 10% of revenue, something on the margins that is still a big impact.
Oil in 2023
Noah Brooks:
Yeah, absolutely. Absolutely. One or two other things, big, big stands out this year. We should talk about oil. United States is set to produce for the second year in a row, the largest production producer of oil in the world. It’s significantly more than Saudi Arabia. I honestly didn’t know. I think we’re something at like 13.4, 13.5 million barrels, which is a pretty big number. Million a day,
Chris Needs:
I think 14 million barrels, 14 million. Well, 13 to 14 on
Noah Brooks:
Third variant a day. So we obviously had a massive slowdown in driving and transportation during Covid, and then the oil companies cut back production dramatically. They capped wells obviously during the shutdown. Nobody was going anywhere, but it took a while to build back up and now the production is through the roof. Through the roof. So I hear some people saying that we need to drill more and I think we are mean. The numbers kind of speak for themselves. We are producing a lot of oil here in the United States, which is awesome, and I would be remiss.
Geopolitical Happenings in 2023
Two other quick things here. Obviously, we had the terrorist attack in Israel October 7th. That’s certainly on the radar that it has not stopped. It is still an issue. The minimum thing it is is an issue. There’s still daily fighting over there and we’re still kind of in a tinderbox in the Middle East. That doesn’t seem to be going away. I don’t know. Is it going to be a catalyst for something more? I mean some people suggest it is. Some people say, no, it’s not that big a deal. It’s isolated to that area.
Chris Needs:
We have two regions that are having this geopolitical strife. Obviously Ukraine’s still going on, and now to bring the middle, which historically has always been a real headache in terms of peace. That’s an understatement of the world, right? It’s certainly not ideal to have multiple fronts that when we talked before, we were talking about just the US military and just in vague terms, technic moving on multi fronts right now. So we have carriers here and there and
Noah Brooks:
Are you saying we’re stretched?
Chris Needs:
I think that’s safe to say
Noah Brooks:
Hey, do you think it would be an interesting time for China to invade Taiwan?
Chris Needs:
Well, let’s hope not, but I mean, what are we going to do? That’s a whole nother can worms.
Noah Brooks:
That’s a different day. Last but not least, 52 week highs and new all time highs on the Dow recently. I mean, that’s monster. That’s monster.
Chris Needs:
I mean, it’s great to see those trend chains. Sometimes the market can fool you. We know what tech has done this year, but Dow is the first one to make all time highs again. Yeah,
Noah Brooks:
37,000. It’s
Chris Needs:
Tricky like that. I mean, something else we could certainly talk about is obviously it’s a symptom of high rates, but people started talking about treasury bills this year. Yeah. When was the last time people talked about normal retail investors? Started asking about treasuries. It hasn’t been a thing for long. It’s been a long time. We had I bonds last year and tips that people started asking questions about, but this year it’s just been straight treasuries, good old boring treasuries.
The Dow’s 52-Week All-Time High
Noah Brooks:
Yeah. Well, so listen, we’re talking about 52-week highs, all time highs on the Dow. I think maybe the S&P is pretty close to there. Perfect time. Just to look back on November. November was a great month in the stock markets. It was a great month in the bond markets. SP 500 was up over 9%. Midcaps were up eight and a half percent. Small caps were up about eight and a quarter, and that’s great. I mean these are big months, but bond markets, they were negative 2% at the beginning of November and by the end of November they were up 2%, four, four and a half on the Ag corporates were up even more, probably close to five and a half.
And then high yield just had a massive month I think for a lot of fixed income investors, people in a 60 40 or 50/50 portfolio, they were really feeling like, Hey, this is the third year of fixed income being down depending on what asset class you’re in. And that really starts to weigh on somebody’s psyche and you start thinking, well, should I be in fixed income? And you start looking at all the alternatives to fixed income and you really start to question the wisdom of some type of 60 40, but I think you have it in your stats. How did the 60/40 perform?
Chris Needs:
I mean it performed great, so it was up 7.3% in November. That was the ninth best since 1976. The ag itself alone was up 4.5%. That was its eighth best since 1976. And the S&P 500 was up 9.1%. That was the 18th best since 1950. So across the board, sort of a banner month, something that is very welcome. Like we said, defending the 60/40 portfolio, it was struggling for almost three years in a row. The ag had never gone negative for three straight years and we were preparing to have to have that conversation. But
Noah Brooks:
Yeah, I hope that rates don’t skyrocket in December. It doesn’t seem like they’re going to. We’ll get into the Federal Reserve here in a little bit, but we should go back, just talk Thanksgiving a little bit. Black Friday, I know you said you were driving somewhere for Thanksgiving. I wound up driving a few hours to the North Fork of Long Island from here, and I got back and I got really, really sick. I mean 103 and a half fever, which I keep saying is a child-sized fever. I got really sick.
And the more and more people that I talked to after I got done being sick, it seemed like everybody was getting sick and everybody’s bra. But it seems like most everybody I talked to, either their spouse or their kid or someone here at the office was getting sick with me. And I questioned that. I think to myself, are they really getting sick? Is it that we’re maybe more attentive to it because of covid?
Chris Needs:
Hypersensitivity? I think multiple things. Yeah, I think it’s hypersensitivity to sickness. I don’t know about you as is to say. Prior to Covid, I would go into work sick all the time and it wasn’t like a thing, it was just like, I’m not going to use an off day. It
Noah Brooks:
Was kind of a badge of honor. I’m in here, I’m sick, but I’m well enough to perform to do something. And then COVID happened and you weren’t allowed to, right? If you came in, you were the jerk.
Chris Needs:
Yeah, for
Noah Brooks:
Sure. Yeah. So do you think everybody’s gotten sick here after Thanksgiving or do you think it is simply just that we’re hypersensitive to it? And the other thing that I think is everybody’s scrolling on their feeds and I feel like maybe it’s a social media that’s telling us not just social media, nightly news, social media, but are we any more sicker than we were a few Thanksgivings ago?
Chris Needs:
I think multiple things can be true. I think there is hypersensitivity. I think people are talking about it more now certainly, but for about a year, and for some people, even longer than a year, people were pretty holed up in their house and it’s very possible immune systems just took some time off and now they’re a little weaker and now they’re getting hit by all these new things. I mean, I know they said there’s this RSV out there and all these things. My dad got sick. He was sick for four or five plus weeks and it was like, my goodness, when’s this thing going to end? Right?
Noah Brooks:
Is RSV new? I’m not familiar with it per se, but I
Chris Needs:
Think it’s pretty vague. I don’t know. What’s it stand for? Respiratory system virus. Well, that’s like the cold. Isn’t the cold a respiratory system virus? I don’t know, but I guess it’s just higher quantities this year or a different bug coming around.
Noah Brooks:
I definitely hear in Pennsylvania here they are putting ads on the radio to go get a vaccination for it.
Chris Needs:
Do you see the ads on TV for Moderna’s rebranded thing? I was talking to my wife about this. It’s called Spike Vac. That’s sounds scary to me. I don’t like that name. Spike vx.
Noah Brooks:
Actually,
Chris Needs:
It sounds potent, but I’m not sure if that’s something I want to be.
The Hottest Thing on Netflix
Noah Brooks:
I have not seen that. We must be watching. We must be watching different televisions. Different televisions. So listen, so sticking with the watching TV theme here. Have you seen the hottest thing on Netflix? Everybody’s talking about it.
Chris Needs:
Leave the world behind. I haven’t watched it, but I have heard several people talking about it.
Noah Brooks:
If I were you personally, I would be really worried. So there’s a big scene. Listen, if you haven’t seen it and you don’t want me to tell you about it, just skip ahead 30 seconds or so. But there’s a big scene in there where they’re on the highway, they’re trying to leave the city, and all of the self-driving Teslas have been programmed to murder people and to clog the highway. Now you just got that Tesla, right? Yeah. So does it do anything, do you think it’s not really going to,
Chris Needs:
I mean, I see this new recall, 2 million vehicles being recalled. I don’t know if they’re sending out this software
Noah Brooks:
For the self drive, the software, whether
Chris Needs:
They’re preventing this from happening or if maybe they’re putting this in there to take us out. I don’t know.
Noah Brooks:
We’ll see. That would be strange if they did that intentionally.
Chris Needs:
They’re preparing us,
Noah Brooks:
Unless that’s Elon’s plan to take over the world. Okay, so driving, let’s go back to that. I think it was AAA came out and said they’re expecting 115 million miles driven, no, 115 million people traveling by driving over the Christmas holiday. It seems like a lot. I think it’s the second largest in history. It doesn’t feel like people are worried about a recession. It doesn’t feel like they’re clamping up. Although I think a lot of people are kind of, I don’t want to say reducing their spending, but maybe normalizing spending.
On Travel Trends
Noah Brooks:
Going back to Thanksgiving, that Sunday after Thanksgiving was the most traveled airline day ever. 2.9 million people pass through TSA securities in the United States on that day. That’s a lot of people I would not want to fly on that day. And they’re suggesting that the Christmas holiday is going to be even bigger for travel than it has been ever.
So it doesn’t really seem like it’s a recessionary factor. Now we have some other situations that we looked at, right? Black Friday, the numbers came out. Salesforce actually produced the number that said overall spending was up about 6% for Black Friday. Something like 16 and a half billion dollars spent on Black Friday, not including Cyber Monday or anything. I don’t know why Salesforce has that as opposed to some of the credit card companies, but it seemed a little bit strange. It doesn’t seem like that’s recessionary. The one thing I would point out with that number, if spending is up 6%, that’s a raw number that doesn’t take into account inflation. So maybe,
Inflation Trends and Economic Outlook
Chris Needs:
But inflation this year certainly isn’t 6%, whereas last year you would say, well, inflation’s running at 7%, so that’s not a good number. We’ve certainly seen a draw down in the level of inflation. I saw the Cyber five number, which is Amazon Cyber five, going from Black Friday through Cyber Monday was up 7.6%. So also a pretty decent number. I’ve heard all these things about oo, the subsidiary of Duo Duo is that where you get
Noah Brooks:
Your shoes from? Timo?
Chris Needs:
I have bought shoes from them. Hey man, you get a nice pair of shoes for eight bucks, $8. I know who’s making it. I don’t know where it was stolen from, but there’s some crazy deals on that place. If you’re okay with giving up all your credit card information to the C ccp, I guess.
Noah Brooks:
Sorry, the ccp. Oh
Chris Needs:
Geez, I shouldn’t have said
Noah Brooks:
That. One thing I will point out with Timo, I have not bought anything from them, but I’ve said this to advisors, I’ve said this to clients. We’ve essentially been importing deflation for the last 40 or 50 years. So looking for the low cost producer of all of our goods, whether it’s our shirts, our shoes, cars, whatever it happens to be. We’ve been looking for the low cost producer and we’ve really been in this arena where inflation has been brought in, and I don’t mean recently, but over the last 30, 40, 50 years, we’re importing deflation or deflationary exporting,
Chris Needs:
Inflation and receiving.
Noah Brooks:
And so what happened with Covid is all of that changed and we started importing inflation. And so I guess I think about it now. This is just one number I’m looking down at. I don’t know if those are your $8 shoes or not, but they’re not. They’re not. Okay. So thinking about it, I feel like we’re now back to importing deflation, right?
So the supply chain is back during early 22, right around the time where Russia invaded Ukraine, it was taking months to go from the east coast of China to the West Coast to the United States. Those delays are all but gone. We were looking at, they were talking about the number of ships off of Long Beach waiting to get delivered or to unloaded. And I mean that’s gone. The ships that there are just simply there waiting a few hours or a day, which is normal. And so I feel like we’re back to where we were pre covid from a supply chain standpoint. And when I say I feel like it, the data shows that yeah,
Chris Needs:
We’ve healed from that
Noah Brooks:
Shock. Yeah, we’ve healed. And so there’s a lot of people or there’s at least a few people out there saying that this is just temporary and we’re going to have this inflation come roaring back. But the data doesn’t suggest that at the moment.
Chris Needs:
Yeah, I mean I’ve been referencing something I’ve never looked at before. I’ll be completely honest. The unit labor costs and productivity numbers, I never really gave much weight to them. But you’ve seen productivity really moving up and obviously that could be, whether you say it’s AI or better automation in terms of tools being used in the workplace, but that’s something that would foster lower inflation over long-term is our higher productivity and now boost GDP, obviously the technological factor is a very important part in GDP and future potential GDP. So it’s nice to see those productivity numbers move up that that’s something we want to see in the longterm that benefits everybody.
Noah Brooks:
Yeah. Well to go back to where we started with chat GPT, I mean the fact of the matter is technology is going to make life easier for us. It’s going to make warehouse life easier and more productive. I don’t know where we’re going to be in 20 years. Is it going to ruin all the factory jobs? I tend to think not. I think it’ll take the hardest jobs and make them much easier. The backbreaking jobs of just, you see it the moving boxes of the world. I mean, why do we need people to move boxes? Why can’t the machines move the boxes? And I think that’s what we’re going to see. So if you go back to the nineties and the beginning of the internet revolution, really what you see there is this massive productivity gains and I think we’re at a spot now where the next 10 or 15 years could really show us the same type of massive productivity gains from ai, from robotics. There was a factory being built out on the west coast, and this is kind of the cyborg thing and the terminators, but you’ve seen it. There are these terminator looking droids that are going to work in factories, they’re going to move boxes and they’re being produced currently.
Chris Needs:
I mean Amazon definitely currently has robots in their warehouses that are certainly working and doing just fine. I’m sure there’s many other companies that use them too that will probably expand and they’ll probably be even more functional going forward with different gains,
Noah Brooks:
No question about it. And those productivity gains lead to, I would say
Chris Needs:
Maybe at first we’ll see all these tech companies like we’ve seen do really good off of this or these semiconductor stocks have launched off the AI sort of boom and hype. And then that should though expand out two gains for the larger companies that are utilizing and benefiting from the productivity of them. So it should increase breadth over
Noah Brooks:
Time as we go along. So you think the small companies, the mom and pops of the world, the 20, 40, 50, a hundred, a hundred company, a hundred employee companies probably not going to be using robots. Too expensive
Chris Needs:
Most likely.
Noah Brooks:
Yeah. So the big get bigger,
Chris Needs:
It’ll probably benefit, say the Russell 1000 type stocks, definitely not your 10 employees aren’t
Inflation, Productivity, and Economic Outlook
Noah Brooks:
There. Inflation is healing, right? So a few stats here. We have used cars prices that are continuing to tumble I think year over year. They’re down about 14.5%, which is great. CPI coming out here in December looks really good. 3.1% PPIs trending at around 2%. I mean these are all great things and it certainly helped in November the market had a massive rally and is continuing to rally. So just a few stats that I grabbed this morning. The last 30 days s and p 500, up 7% and it is really broadening out. The rally is broadening out across midcaps small caps and even some of the large caps, not the magnificent seven. So the equal weight s and p 500 in the last 30 days, up 10 and a half percent big move mid caps s and p 400, mid cap of 11 and a quarter percent and small caps baby, they are on fire up 14% in the last 30 days.
Chris Needs:
Well thank goodness because we’ve been talking about how much they’ve been really lagging compared to in part due to the quote magnificent seven and leading the mega caps, leading the indices higher rather than everybody else participating sort of on that same breath. We’re so happy to see that happen in November and beyond because we haven’t seen that. So this year, large versus small, large has crushed small caps. So we love to see them catch up. The s and p 500 is up 13.7% over the Russell 2000 so far this year. It’s only been higher than that twice the disparity between the 2 19 98 and 2021. We also had growth versus value. We had a year where last year value crushed growth and it’s been the complete office this year. If you’re looking at the Russell 1000 growth, it’s up 30% over the Russell 1000 value.
Noah Brooks:
That’s a big spread.
Chris Needs:
Second largest since 1979, only 2020 had a wider disparity where things were getting shut down. So obviously without the economy being shut down in 2020, this would be probably the biggest instance. This would be the biggest instance. So the ratio of the tech sector is now at its highest level in terms of within the s and p 500. Since 2000 what happened?
Noah Brooks:
What happened then Chris?
Chris Needs:
We had a little bit of a tech bubble. So there’s just some strange things happening. Market cap indices versus equal weight market cap is outperforming by 14% versus equal weight. That’s the second largest going back to 1971. And just last one here for you US is outperforming international, which has been a trend the last 14, 15 years. 11 of the last 14 years the US has outperformed international, but this year it’s up 21% versus the s and p 500 is up 21%. Compare that to the MSCI EFA being up about 13.5% and those stats I just read off are as of December 8th,
Noah Brooks:
Just for But I mean big spreads between those. Yes,
Chris Needs:
Big spreads and a lot of second biggest since this time and that time. So clearly we’re dealing with an interesting market the last few years as everyone knows since Covid, there’s been a lot of exacerbations and trends and things like that.
Noah Brooks:
Well, so the inflation trend seems to be coming to an end. A lot of the factors that contributed to massive inflation, we had the 9% print back in 2022, I think it was June. Those factors are all but gone now. The housing is still sticky. So housing prices have gone down and historically housing prices don’t go down unless there’s some massive recession. So global financial crisis housing prices went down 73, 74 I think houses went down a little bit and certainly in the Great Depression house prices went down. Other than that, they don’t go down.
So I’m not saying they’re going to continue with the same increases that they had, but it seems like housing is going to be sticky, but everything else is going to, and again, not go down, but the rate of inflation is going to really trend south and I think that’s why we see November having a massive rally and then into December, things keep moving. And to your point about these big spreads between growth and value and small and large, now we’re seeing small caps and mid caps outperform and it’s largely because rates are coming down so their cost of refinancing capital is going to come down and maybe they were able to hold off a little bit.
Fed Policy and Economic Stability
Chris Needs:
Well we talked about that two months ago when Russell was just getting crushed. It seemed like day after day, month after month, and as soon as the yields topped out, I think it was October, October 23rd, as soon as that happened, you started to see the Russell 2000 really crush it. And then we paused a little bit there early December and then with the Fed decision, which we haven’t really gone into yet again, we’re seeing some movement from the Russell.
So it seems like it really was a yield story we thought and we talked about obviously a lot of these small caps have revenue, but a lot of them aren’t profitable. So some of the money that keeps them operational is coming from taking out loans. Well, when you go from taking out loans after covid at 2% to taking them out at eight or 10% to depending on the credit quality, you can see how that really drains them of value.
Noah Brooks:
Yeah, my position was that when rates stopped going up, we would get some broadening of the rally. Now that rates are actually going down. I mean you’re seeing big gains in the Russell some 3% days here and there. That does not happen all that often. So I don’t want to say I hope that the trend continues.
I’d like to see small caps and mid-caps continue to perform. It seems like even if they had a massive rally into the end of the year, they’re still going to be underperforming the s and p 500 and certainly underperforming large cap growth. But just to see the rally expanding I think is healthy because so many people were talking about it was concentrated on those large cap names, those seven names that we all know, and the fact that it’s broadening out gives me hope that we are not going into a recession.
Maybe there is a softening and a slowdown, but I don’t think we’re actually going to get a technical recession. I don’t think we’re going to see too much of a decline in GDP if at all. I mean it’s possible I’ve been wrong before, but it doesn’t seem at this point that that’s going to happen.
The parking lots where I go are still filled. The shopping centers are mobbed restaurants, there are still lines and waiting times for, so I don’t want to say we’re out of the clear, but the Fed has come out, they’re not going to be raising anymore in 2023 and they’ve told us that they’re looking to decrease next year.
Chris Needs:
The dot plot had across the participants two to four rate cuts in 2024. So you have two rate cuts, three rate cuts in four. So there isn’t a consensus on the dot plots among the participants, but it sort of validates what we doubted to be true over the last two months or so that there could be a hundred. The market was pricing in a hundred basis point cut by December. I thought that was too quick, but the Fed essentially came out and validated that and the market loved it. So I think we could go so far to say that the Fed really, they didn’t say it, they can’t say it, but it seems like they’re going to start taking a victory lap.
Noah Brooks:
The all clear if you will.
Chris Needs:
So we’ve gone to the part where we’ve talked about it doesn’t seem like them raising rates is going to be the cause of recession. It’d have to be something external that causes it, which there can be a shock related to what they’ve done, but they are not the cause of recession at this point.
Noah Brooks:
The old adage is 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 we see inflation, it doesn’t appear that it’s going to break anything at the moment. So there could be something else coming down the tracks that we can’t see
Chris Needs:
Yields have topped out. So that sort of hopefully remains so that’s not going to be a cause of another bank crisis or something like that.
Noah Brooks:
Yeah, so the bottom line is inflation seems to be abating, not seems to it is abating right, and most of the factors that drove up inflation in 2022 and into 2023 have all but disciplined. And I mean, I don’t want to say give the all clear, 2024 is going to be a banger year, but it seems like a lot of the volatility is behind us and certainly the big wave of inflation is behind us.
So let’s make sure, or let’s try to think that that’s still done. Still done. Let’s try to think that that’s over. The inflation is over, it was transitory and we have other things to worry about. Tori.
Hey, thanks so much for joining us on this installment of The Market Enthusiast. Have a great holiday, everybody. Take care.
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Table of Contents
Reflections on 2023: Key Events and Trends
Noah Brooks:
Welcome everybody. Thanks so much for joining us today on the Market Enthusiast. I’m Noah Brooks and with me today. Chris needs Chris 11 months down, one to go. Here we are. And I thought it’d be interesting just to take a quick look back on what happened in 2023. Did anything worth talking about happen in 2023?
Chris Needs:
Yeah, there is a bunch of noble topics, several, I guess we’ll go through here. We had the AI boom chat, GPT.
Noah Brooks:
Oh, right. That seemed to happen at the beginning of the year. Everybody was hot on chat GPT.
Chris Needs:
Yes. Yes. So Open AI released this amount of AI that they had. That was when was it most recent as of 2021, did they stop feeding into it?
Noah Brooks:
Yeah, December 31st, 2021. Because when I use chat GPT, it won’t give me any stats within, it won’t give me any recent stats, let’s put it that way.
Chris Needs:
I mean, we’ve had AI for a long time. I think what really opened eyeballs here was they made it available to the public and people were kind of amazed at the conversational way. It answered a variety of questions. It literally seemed as if you had a product expert explaining it to you and it was typing out in real time right in front of you, no matter what you sent into it. And that obviously led to a number of other things people started talking about. Is this our Skynet moment? Do we have a hold on or control of where this is going to go? When it starts thinking for itself.
Noah Brooks:
I still think it’s going to be terminators and eventually we’re going to be slaves to the Terminators. I mean, how could it not be that right? Life imitates art. Art says that we’re going to be slaves, so okay. Besides chat GPT and ai, I mean we started the year in March, regional banks, the Bears were out in force telling us that this was the beginning of the end. It was going to be worse than 2008. The global financial crisis, I think we had two and a half weeks of pretty significant volatility in March when that came out. Regional banks certainly still have not performed as well as some of the other companies out there. Certainly technology, but regional banking crisis was not a crisis. More of just a few week event. Right?
Chris Needs:
Yeah, certainly they’re impacted by rates. All of them were. But really what caused the panic, I guess, was those few that really had no risk management in their processes. I mean, Silicon Valley Bank literally didn’t have a chief risk for about two. Was it coming up on two years or so? Or a year or so? Yeah. And what did they expect to
Noah Brooks:
Happen? Yeah, that seems like a self-inflicted wound.
Chris Needs:
Yeah, certainly. But it certainly caused a market wide panic and just because of, they were, I guess non granular. They had a certain clientele that they were working with, which was sort of like the San Francisco tech companies, California tech companies. They were nationwide and had companies all over, but it caused panic in a certain variety of people who may have had an outsized influence on things. Think of what Peter Thiel did to sort of spark it off by reaching out to his investors and saying, Hey, we’re pulling our money out, and it caused that bank rush that led to failure.
Noah Brooks:
So Peter Thiel caused the crisis?
Chris Needs:
No, the risk management certainly did, but you talk about the initial catalyst, that guy is held in very, very high esteem with people out there in the valley, and that’s what I heard as the initial catalyst to people start pulling their funds and losing confidence, and then once those dominoes start, it’s hard to stop them.
The Year of the Weight Loss Drug
Noah Brooks:
Yeah, yeah, absolutely. So a few other big things this year. Have you heard of Wegovy face?
Chris Needs:
I haven’t heard of that, but I know what you’re referencing.
Noah Brooks:
I don’t have it. I’m not taking any wegovy, but obviously this is the year of the weight loss drug. It doesn’t seem to be the fenden of 2023, but everybody’s on it. Everybody I talked to is trying to get it. So these are these GLP ones I think they are.
Chris Needs:
Think of Ozempic and those things that start off as diabetic medicines and now people are using more generally for weight loss.
Noah Brooks:
So this is a big trend. I mean, when Ozempic came out or Wegovy came out earlier in the year and they were doing these studies and they showed that it actually not just people lose weight, but they stopped in some cases drinking and stopped snacking. It actually caused reverberations at the grocery store from a stock market perspective.
Chris Needs:
Definitely did. I mean, we’ve had portfolio managers tell us it impacted their returns. I mean, the people who I know are on it stopped drinking soda, started snacking last, started eating much smaller portions. And US Americans love our junk food. That’s one of the things that’s known about us. Our obesity rates are legendary in the world, but you had stocks that were priced for that, that would continue. There would never be a threat to how much Coca-Cola you’re going to drink or how much Hershey’s chocolate you’re going to have. Or
Noah Brooks:
I would say though, this might be a little ahead of you, but back in the early two thousands, there was the Atkins diet, essentially the protein diet where you stopped eating carbs. And I can remember it was one of the nails in the coffin for Krispy Kreme. I don’t know how many people actually stopped eating Krispy Kreme because of the Atkins diet. But from a stock market perspective, I mean it really put a nail in the Krispy Kreme coffin. I doubt, this is my personal opinion, I doubt that everybody’s going to go on Wegovy and stop eating chips. I doubt it. But there’s certainly some evidence to suggest that it might be
Chris Needs:
Affect five to 10% of revenue, something on the margins that is still a big impact.
Oil in 2023
Noah Brooks:
Yeah, absolutely. Absolutely. One or two other things, big, big stands out this year. We should talk about oil. United States is set to produce for the second year in a row, the largest production producer of oil in the world. It’s significantly more than Saudi Arabia. I honestly didn’t know. I think we’re something at like 13.4, 13.5 million barrels, which is a pretty big number. Million a day,
Chris Needs:
I think 14 million barrels, 14 million. Well, 13 to 14 on
Noah Brooks:
Third variant a day. So we obviously had a massive slowdown in driving and transportation during Covid, and then the oil companies cut back production dramatically. They capped wells obviously during the shutdown. Nobody was going anywhere, but it took a while to build back up and now the production is through the roof. Through the roof. So I hear some people saying that we need to drill more and I think we are mean. The numbers kind of speak for themselves. We are producing a lot of oil here in the United States, which is awesome, and I would be remiss.
Geopolitical Happenings in 2023
Two other quick things here. Obviously, we had the terrorist attack in Israel October 7th. That’s certainly on the radar that it has not stopped. It is still an issue. The minimum thing it is is an issue. There’s still daily fighting over there and we’re still kind of in a tinderbox in the Middle East. That doesn’t seem to be going away. I don’t know. Is it going to be a catalyst for something more? I mean some people suggest it is. Some people say, no, it’s not that big a deal. It’s isolated to that area.
Chris Needs:
We have two regions that are having this geopolitical strife. Obviously Ukraine’s still going on, and now to bring the middle, which historically has always been a real headache in terms of peace. That’s an understatement of the world, right? It’s certainly not ideal to have multiple fronts that when we talked before, we were talking about just the US military and just in vague terms, technic moving on multi fronts right now. So we have carriers here and there and
Noah Brooks:
Are you saying we’re stretched?
Chris Needs:
I think that’s safe to say
Noah Brooks:
Hey, do you think it would be an interesting time for China to invade Taiwan?
Chris Needs:
Well, let’s hope not, but I mean, what are we going to do? That’s a whole nother can worms.
Noah Brooks:
That’s a different day. Last but not least, 52 week highs and new all time highs on the Dow recently. I mean, that’s monster. That’s monster.
Chris Needs:
I mean, it’s great to see those trend chains. Sometimes the market can fool you. We know what tech has done this year, but Dow is the first one to make all time highs again. Yeah,
Noah Brooks:
37,000. It’s
Chris Needs:
Tricky like that. I mean, something else we could certainly talk about is obviously it’s a symptom of high rates, but people started talking about treasury bills this year. Yeah. When was the last time people talked about normal retail investors? Started asking about treasuries. It hasn’t been a thing for long. It’s been a long time. We had I bonds last year and tips that people started asking questions about, but this year it’s just been straight treasuries, good old boring treasuries.
The Dow’s 52-Week All-Time High
Noah Brooks:
Yeah. Well, so listen, we’re talking about 52-week highs, all time highs on the Dow. I think maybe the S&P is pretty close to there. Perfect time. Just to look back on November. November was a great month in the stock markets. It was a great month in the bond markets. SP 500 was up over 9%. Midcaps were up eight and a half percent. Small caps were up about eight and a quarter, and that’s great. I mean these are big months, but bond markets, they were negative 2% at the beginning of November and by the end of November they were up 2%, four, four and a half on the Ag corporates were up even more, probably close to five and a half.
And then high yield just had a massive month I think for a lot of fixed income investors, people in a 60 40 or 50/50 portfolio, they were really feeling like, Hey, this is the third year of fixed income being down depending on what asset class you’re in. And that really starts to weigh on somebody’s psyche and you start thinking, well, should I be in fixed income? And you start looking at all the alternatives to fixed income and you really start to question the wisdom of some type of 60 40, but I think you have it in your stats. How did the 60/40 perform?
Chris Needs:
I mean it performed great, so it was up 7.3% in November. That was the ninth best since 1976. The ag itself alone was up 4.5%. That was its eighth best since 1976. And the S&P 500 was up 9.1%. That was the 18th best since 1950. So across the board, sort of a banner month, something that is very welcome. Like we said, defending the 60/40 portfolio, it was struggling for almost three years in a row. The ag had never gone negative for three straight years and we were preparing to have to have that conversation. But
Noah Brooks:
Yeah, I hope that rates don’t skyrocket in December. It doesn’t seem like they’re going to. We’ll get into the Federal Reserve here in a little bit, but we should go back, just talk Thanksgiving a little bit. Black Friday, I know you said you were driving somewhere for Thanksgiving. I wound up driving a few hours to the North Fork of Long Island from here, and I got back and I got really, really sick. I mean 103 and a half fever, which I keep saying is a child-sized fever. I got really sick.
And the more and more people that I talked to after I got done being sick, it seemed like everybody was getting sick and everybody’s bra. But it seems like most everybody I talked to, either their spouse or their kid or someone here at the office was getting sick with me. And I questioned that. I think to myself, are they really getting sick? Is it that we’re maybe more attentive to it because of covid?
Chris Needs:
Hypersensitivity? I think multiple things. Yeah, I think it’s hypersensitivity to sickness. I don’t know about you as is to say. Prior to Covid, I would go into work sick all the time and it wasn’t like a thing, it was just like, I’m not going to use an off day. It
Noah Brooks:
Was kind of a badge of honor. I’m in here, I’m sick, but I’m well enough to perform to do something. And then COVID happened and you weren’t allowed to, right? If you came in, you were the jerk.
Chris Needs:
Yeah, for
Noah Brooks:
Sure. Yeah. So do you think everybody’s gotten sick here after Thanksgiving or do you think it is simply just that we’re hypersensitive to it? And the other thing that I think is everybody’s scrolling on their feeds and I feel like maybe it’s a social media that’s telling us not just social media, nightly news, social media, but are we any more sicker than we were a few Thanksgivings ago?
Chris Needs:
I think multiple things can be true. I think there is hypersensitivity. I think people are talking about it more now certainly, but for about a year, and for some people, even longer than a year, people were pretty holed up in their house and it’s very possible immune systems just took some time off and now they’re a little weaker and now they’re getting hit by all these new things. I mean, I know they said there’s this RSV out there and all these things. My dad got sick. He was sick for four or five plus weeks and it was like, my goodness, when’s this thing going to end? Right?
Noah Brooks:
Is RSV new? I’m not familiar with it per se, but I
Chris Needs:
Think it’s pretty vague. I don’t know. What’s it stand for? Respiratory system virus. Well, that’s like the cold. Isn’t the cold a respiratory system virus? I don’t know, but I guess it’s just higher quantities this year or a different bug coming around.
Noah Brooks:
I definitely hear in Pennsylvania here they are putting ads on the radio to go get a vaccination for it.
Chris Needs:
Do you see the ads on TV for Moderna’s rebranded thing? I was talking to my wife about this. It’s called Spike Vac. That’s sounds scary to me. I don’t like that name. Spike vx.
Noah Brooks:
Actually,
Chris Needs:
It sounds potent, but I’m not sure if that’s something I want to be.
The Hottest Thing on Netflix
Noah Brooks:
I have not seen that. We must be watching. We must be watching different televisions. Different televisions. So listen, so sticking with the watching TV theme here. Have you seen the hottest thing on Netflix? Everybody’s talking about it.
Chris Needs:
Leave the world behind. I haven’t watched it, but I have heard several people talking about it.
Noah Brooks:
If I were you personally, I would be really worried. So there’s a big scene. Listen, if you haven’t seen it and you don’t want me to tell you about it, just skip ahead 30 seconds or so. But there’s a big scene in there where they’re on the highway, they’re trying to leave the city, and all of the self-driving Teslas have been programmed to murder people and to clog the highway. Now you just got that Tesla, right? Yeah. So does it do anything, do you think it’s not really going to,
Chris Needs:
I mean, I see this new recall, 2 million vehicles being recalled. I don’t know if they’re sending out this software
Noah Brooks:
For the self drive, the software, whether
Chris Needs:
They’re preventing this from happening or if maybe they’re putting this in there to take us out. I don’t know.
Noah Brooks:
We’ll see. That would be strange if they did that intentionally.
Chris Needs:
They’re preparing us,
Noah Brooks:
Unless that’s Elon’s plan to take over the world. Okay, so driving, let’s go back to that. I think it was AAA came out and said they’re expecting 115 million miles driven, no, 115 million people traveling by driving over the Christmas holiday. It seems like a lot. I think it’s the second largest in history. It doesn’t feel like people are worried about a recession. It doesn’t feel like they’re clamping up. Although I think a lot of people are kind of, I don’t want to say reducing their spending, but maybe normalizing spending.
On Travel Trends
Noah Brooks:
Going back to Thanksgiving, that Sunday after Thanksgiving was the most traveled airline day ever. 2.9 million people pass through TSA securities in the United States on that day. That’s a lot of people I would not want to fly on that day. And they’re suggesting that the Christmas holiday is going to be even bigger for travel than it has been ever.
So it doesn’t really seem like it’s a recessionary factor. Now we have some other situations that we looked at, right? Black Friday, the numbers came out. Salesforce actually produced the number that said overall spending was up about 6% for Black Friday. Something like 16 and a half billion dollars spent on Black Friday, not including Cyber Monday or anything. I don’t know why Salesforce has that as opposed to some of the credit card companies, but it seemed a little bit strange. It doesn’t seem like that’s recessionary. The one thing I would point out with that number, if spending is up 6%, that’s a raw number that doesn’t take into account inflation. So maybe,
Inflation Trends and Economic Outlook
Chris Needs:
But inflation this year certainly isn’t 6%, whereas last year you would say, well, inflation’s running at 7%, so that’s not a good number. We’ve certainly seen a draw down in the level of inflation. I saw the Cyber five number, which is Amazon Cyber five, going from Black Friday through Cyber Monday was up 7.6%. So also a pretty decent number. I’ve heard all these things about oo, the subsidiary of Duo Duo is that where you get
Noah Brooks:
Your shoes from? Timo?
Chris Needs:
I have bought shoes from them. Hey man, you get a nice pair of shoes for eight bucks, $8. I know who’s making it. I don’t know where it was stolen from, but there’s some crazy deals on that place. If you’re okay with giving up all your credit card information to the C ccp, I guess.
Noah Brooks:
Sorry, the ccp. Oh
Chris Needs:
Geez, I shouldn’t have said
Noah Brooks:
That. One thing I will point out with Timo, I have not bought anything from them, but I’ve said this to advisors, I’ve said this to clients. We’ve essentially been importing deflation for the last 40 or 50 years. So looking for the low cost producer of all of our goods, whether it’s our shirts, our shoes, cars, whatever it happens to be. We’ve been looking for the low cost producer and we’ve really been in this arena where inflation has been brought in, and I don’t mean recently, but over the last 30, 40, 50 years, we’re importing deflation or deflationary exporting,
Chris Needs:
Inflation and receiving.
Noah Brooks:
And so what happened with Covid is all of that changed and we started importing inflation. And so I guess I think about it now. This is just one number I’m looking down at. I don’t know if those are your $8 shoes or not, but they’re not. They’re not. Okay. So thinking about it, I feel like we’re now back to importing deflation, right?
So the supply chain is back during early 22, right around the time where Russia invaded Ukraine, it was taking months to go from the east coast of China to the West Coast to the United States. Those delays are all but gone. We were looking at, they were talking about the number of ships off of Long Beach waiting to get delivered or to unloaded. And I mean that’s gone. The ships that there are just simply there waiting a few hours or a day, which is normal. And so I feel like we’re back to where we were pre covid from a supply chain standpoint. And when I say I feel like it, the data shows that yeah,
Chris Needs:
We’ve healed from that
Noah Brooks:
Shock. Yeah, we’ve healed. And so there’s a lot of people or there’s at least a few people out there saying that this is just temporary and we’re going to have this inflation come roaring back. But the data doesn’t suggest that at the moment.
Chris Needs:
Yeah, I mean I’ve been referencing something I’ve never looked at before. I’ll be completely honest. The unit labor costs and productivity numbers, I never really gave much weight to them. But you’ve seen productivity really moving up and obviously that could be, whether you say it’s AI or better automation in terms of tools being used in the workplace, but that’s something that would foster lower inflation over long-term is our higher productivity and now boost GDP, obviously the technological factor is a very important part in GDP and future potential GDP. So it’s nice to see those productivity numbers move up that that’s something we want to see in the longterm that benefits everybody.
Noah Brooks:
Yeah. Well to go back to where we started with chat GPT, I mean the fact of the matter is technology is going to make life easier for us. It’s going to make warehouse life easier and more productive. I don’t know where we’re going to be in 20 years. Is it going to ruin all the factory jobs? I tend to think not. I think it’ll take the hardest jobs and make them much easier. The backbreaking jobs of just, you see it the moving boxes of the world. I mean, why do we need people to move boxes? Why can’t the machines move the boxes? And I think that’s what we’re going to see. So if you go back to the nineties and the beginning of the internet revolution, really what you see there is this massive productivity gains and I think we’re at a spot now where the next 10 or 15 years could really show us the same type of massive productivity gains from ai, from robotics. There was a factory being built out on the west coast, and this is kind of the cyborg thing and the terminators, but you’ve seen it. There are these terminator looking droids that are going to work in factories, they’re going to move boxes and they’re being produced currently.
Chris Needs:
I mean Amazon definitely currently has robots in their warehouses that are certainly working and doing just fine. I’m sure there’s many other companies that use them too that will probably expand and they’ll probably be even more functional going forward with different gains,
Noah Brooks:
No question about it. And those productivity gains lead to, I would say
Chris Needs:
Maybe at first we’ll see all these tech companies like we’ve seen do really good off of this or these semiconductor stocks have launched off the AI sort of boom and hype. And then that should though expand out two gains for the larger companies that are utilizing and benefiting from the productivity of them. So it should increase breadth over
Noah Brooks:
Time as we go along. So you think the small companies, the mom and pops of the world, the 20, 40, 50, a hundred, a hundred company, a hundred employee companies probably not going to be using robots. Too expensive
Chris Needs:
Most likely.
Noah Brooks:
Yeah. So the big get bigger,
Chris Needs:
It’ll probably benefit, say the Russell 1000 type stocks, definitely not your 10 employees aren’t
Inflation, Productivity, and Economic Outlook
Noah Brooks:
There. Inflation is healing, right? So a few stats here. We have used cars prices that are continuing to tumble I think year over year. They’re down about 14.5%, which is great. CPI coming out here in December looks really good. 3.1% PPIs trending at around 2%. I mean these are all great things and it certainly helped in November the market had a massive rally and is continuing to rally. So just a few stats that I grabbed this morning. The last 30 days s and p 500, up 7% and it is really broadening out. The rally is broadening out across midcaps small caps and even some of the large caps, not the magnificent seven. So the equal weight s and p 500 in the last 30 days, up 10 and a half percent big move mid caps s and p 400, mid cap of 11 and a quarter percent and small caps baby, they are on fire up 14% in the last 30 days.
Chris Needs:
Well thank goodness because we’ve been talking about how much they’ve been really lagging compared to in part due to the quote magnificent seven and leading the mega caps, leading the indices higher rather than everybody else participating sort of on that same breath. We’re so happy to see that happen in November and beyond because we haven’t seen that. So this year, large versus small, large has crushed small caps. So we love to see them catch up. The s and p 500 is up 13.7% over the Russell 2000 so far this year. It’s only been higher than that twice the disparity between the 2 19 98 and 2021. We also had growth versus value. We had a year where last year value crushed growth and it’s been the complete office this year. If you’re looking at the Russell 1000 growth, it’s up 30% over the Russell 1000 value.
Noah Brooks:
That’s a big spread.
Chris Needs:
Second largest since 1979, only 2020 had a wider disparity where things were getting shut down. So obviously without the economy being shut down in 2020, this would be probably the biggest instance. This would be the biggest instance. So the ratio of the tech sector is now at its highest level in terms of within the s and p 500. Since 2000 what happened?
Noah Brooks:
What happened then Chris?
Chris Needs:
We had a little bit of a tech bubble. So there’s just some strange things happening. Market cap indices versus equal weight market cap is outperforming by 14% versus equal weight. That’s the second largest going back to 1971. And just last one here for you US is outperforming international, which has been a trend the last 14, 15 years. 11 of the last 14 years the US has outperformed international, but this year it’s up 21% versus the s and p 500 is up 21%. Compare that to the MSCI EFA being up about 13.5% and those stats I just read off are as of December 8th,
Noah Brooks:
Just for But I mean big spreads between those. Yes,
Chris Needs:
Big spreads and a lot of second biggest since this time and that time. So clearly we’re dealing with an interesting market the last few years as everyone knows since Covid, there’s been a lot of exacerbations and trends and things like that.
Noah Brooks:
Well, so the inflation trend seems to be coming to an end. A lot of the factors that contributed to massive inflation, we had the 9% print back in 2022, I think it was June. Those factors are all but gone now. The housing is still sticky. So housing prices have gone down and historically housing prices don’t go down unless there’s some massive recession. So global financial crisis housing prices went down 73, 74 I think houses went down a little bit and certainly in the Great Depression house prices went down. Other than that, they don’t go down.
So I’m not saying they’re going to continue with the same increases that they had, but it seems like housing is going to be sticky, but everything else is going to, and again, not go down, but the rate of inflation is going to really trend south and I think that’s why we see November having a massive rally and then into December, things keep moving. And to your point about these big spreads between growth and value and small and large, now we’re seeing small caps and mid caps outperform and it’s largely because rates are coming down so their cost of refinancing capital is going to come down and maybe they were able to hold off a little bit.
Fed Policy and Economic Stability
Chris Needs:
Well we talked about that two months ago when Russell was just getting crushed. It seemed like day after day, month after month, and as soon as the yields topped out, I think it was October, October 23rd, as soon as that happened, you started to see the Russell 2000 really crush it. And then we paused a little bit there early December and then with the Fed decision, which we haven’t really gone into yet again, we’re seeing some movement from the Russell.
So it seems like it really was a yield story we thought and we talked about obviously a lot of these small caps have revenue, but a lot of them aren’t profitable. So some of the money that keeps them operational is coming from taking out loans. Well, when you go from taking out loans after covid at 2% to taking them out at eight or 10% to depending on the credit quality, you can see how that really drains them of value.
Noah Brooks:
Yeah, my position was that when rates stopped going up, we would get some broadening of the rally. Now that rates are actually going down. I mean you’re seeing big gains in the Russell some 3% days here and there. That does not happen all that often. So I don’t want to say I hope that the trend continues.
I’d like to see small caps and mid-caps continue to perform. It seems like even if they had a massive rally into the end of the year, they’re still going to be underperforming the s and p 500 and certainly underperforming large cap growth. But just to see the rally expanding I think is healthy because so many people were talking about it was concentrated on those large cap names, those seven names that we all know, and the fact that it’s broadening out gives me hope that we are not going into a recession.
Maybe there is a softening and a slowdown, but I don’t think we’re actually going to get a technical recession. I don’t think we’re going to see too much of a decline in GDP if at all. I mean it’s possible I’ve been wrong before, but it doesn’t seem at this point that that’s going to happen.
The parking lots where I go are still filled. The shopping centers are mobbed restaurants, there are still lines and waiting times for, so I don’t want to say we’re out of the clear, but the Fed has come out, they’re not going to be raising anymore in 2023 and they’ve told us that they’re looking to decrease next year.
Chris Needs:
The dot plot had across the participants two to four rate cuts in 2024. So you have two rate cuts, three rate cuts in four. So there isn’t a consensus on the dot plots among the participants, but it sort of validates what we doubted to be true over the last two months or so that there could be a hundred. The market was pricing in a hundred basis point cut by December. I thought that was too quick, but the Fed essentially came out and validated that and the market loved it. So I think we could go so far to say that the Fed really, they didn’t say it, they can’t say it, but it seems like they’re going to start taking a victory lap.
Noah Brooks:
The all clear if you will.
Chris Needs:
So we’ve gone to the part where we’ve talked about it doesn’t seem like them raising rates is going to be the cause of recession. It’d have to be something external that causes it, which there can be a shock related to what they’ve done, but they are not the cause of recession at this point.
Noah Brooks:
The old adage is 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 we see inflation, it doesn’t appear that it’s going to break anything at the moment. So there could be something else coming down the tracks that we can’t see
Chris Needs:
Yields have topped out. So that sort of hopefully remains so that’s not going to be a cause of another bank crisis or something like that.
Noah Brooks:
Yeah, so the bottom line is inflation seems to be abating, not seems to it is abating right, and most of the factors that drove up inflation in 2022 and into 2023 have all but disciplined. And I mean, I don’t want to say give the all clear, 2024 is going to be a banger year, but it seems like a lot of the volatility is behind us and certainly the big wave of inflation is behind us.
So let’s make sure, or let’s try to think that that’s still done. Still done. Let’s try to think that that’s over. The inflation is over, it was transitory and we have other things to worry about. Tori.
Hey, thanks so much for joining us on this installment of The Market Enthusiast. Have a great holiday, everybody. Take care.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. The economic forecast set forth may not develop as predicted, and there can be no guarantee that the strategies promoted will be successful. All performance referenced as historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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