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INTRODUCTION AND TRAVEL BOOM
Noah Brooks: Welcome back to the next installment of the Market Enthusiast. I’m Noah Brooks, and with me today, Chris Needs. What a crazy five days we’ve had in the market. The first two weeks of July, the market has gone, I don’t want to say through the roof, but we have had a little bit of a rotation that we’ve been talking about here for the last year, year and a half or so. The last few days, small caps have rallied upwards of 10%, right? So our small companies, mid-sized companies have rallied. Large companies, done okay, but it’s those small and mid-cap companies that have really, really done well.
Chris, why have they done so well?
Chris Needs: It all changed on the CPI report. So we finally got a really good reading in terms of cooling data. We had a negative month over month in the CPI, -0.1%, 3% year over year.
Noah Brooks: Is that prices coming down?
Chris Needs: That is a month of prices coming down.
Noah Brooks: Wow. First one, we should throw it a birthday party.
Chris Needs: We’ve been talking about all the difficulties small caps have been having with rates elevated and this is the first real green light for them of rate cuts getting pulled forward, and they have really jumped off of that. You’ve seen mid-caps move as well and even value is moving off of this. So a very big rotation. It seems like it’s mostly coming out of mega cap or large techie type-
MARKET ROTATION AND INFLATION DATA
Noah Brooks: Large growth, right? Which has been the main driver of the market for, shoot, for since the turn in late 2022. So here we are, stock market is up, S&P 500 is up another 150 points since we sat in here two weeks ago and said we were at all time highs, and here we are today sitting at all time highs once again. I’m just going to say it, I’ll say it a few times this episode, don’t bet against America people. It’s not good.
Chris Needs: That Russell 2000 move that you were just talking about is the biggest move for four-day trade since the reopening trade in November of 2020. Yeah, things started finally creeping open again.
Noah Brooks: This is the type of move that people see in their accounts and they go, “Oh.” They like it. So just to drill down here a little bit. Year to date, S&P is up I think 19% right now as we’re sitting here talking. Mid-caps up 11%, so pretty big delta there. But here’s the crazy thing. You’re up 7% over the last five trading days, now at all time highs. That’s the first time they’ve been at all time highs in, I think it’s a year and a half. Small caps just shy of new all time highs, within less than a percent on the S&P 600, Russell 2000 a little bit farther away, but S&P 600 is within a percent. Last week S&P 600 was up 5%. The last five trading days they’re up 10%, 2% a day.
Chris Needs: Amazing rotation. Happens really quick.
Noah Brooks: Yeah, really, really quick. And so over the last five trading days, small caps were up 10%, large growth, down 1% over the last five trading days. So we’ve been talking about this rotation a lot. We’re not the only people talking about it, but it’s finally happening. And so the question is, that everybody wants to know, including myself, is how long is it going to last?
Chris Needs: Yeah, does it have staying power? Will this be a three or a six-month move, or more like Q4, will it be a two, three month move that then just rotates right back into tech? Because healthy bull markets do rotate, you’ll see the money flow around. But we’ll see, it’s been a multi-year lag from small caps and if this can stay, that’d be a good indicator of a healthy market.
Noah Brooks: Absolutely. One of the things that we’ve discussed, and again, we’re not the only people mentioning it out there, but it was like can the market move higher? Well, here’s how it doesn’t. It doesn’t move higher if it continues to be only one sector and eventually that sector peters out and the rest of the world doesn’t catch fire. Can it move higher? Yes, if there’s a rotation. Not necessarily out of technology, but kind of out of technology, right? Give me something else that works. And so now we have this scenario where the Fed is poised to rate. We’re going to talk a little bit about it. We’re going to talk significantly about inflation here and that CPI number. But we are now at a situation, and I have to put this right out there, I have been saying time and time again that I didn’t think the Fed was going to lower before the election.
Chris Needs: CPI changed this.
Noah Brooks: CPA, it seems like CPI changed that. Now we’re at a situation where the Fed rate tool, which is, it’s not always right or anything like that, but it gives us an idea of what market participants are thinking, what is this September profitability of cut?
Chris Needs: 100%. 100.
Noah Brooks: That’s not right. How do they get a hundred percent? That’s a done deal. They’re going to lower in September?
Chris Needs: Yeah. And they even have some odds for two cuts by then, or a 50 basis point cut. We’ve talked about, when you’re months out, it’s not very accurate, but if you’re in the month of the Fed meeting, it’s very accurate. So we’re not quite there yet, we have a month and a half to go, but if that holds true, it’s very likely we’ll definitely, I would say, get one cut if these odds remain where they’re at, and they shifted drastically after that CPI report.
And that’s not the only cooling data we have out there, there’s a number of cooling pieces that we’ve talked about before. There’s unemployment, obviously these inflation numbers, PCE as well, that have been coming down into a better range. And despite shelter still being up 5.2% year over year, the rent component, 35% of the CPI, it’s starting to come down. And we’re getting a little bit of deflationary positive news on housing too. There’s more listings out there, 18% year over year active listings, and 6.9% of homes over the last month have had price cuts. That’s the highest since they were tracking data since 2015. Not a long timeframe. We haven’t had a housing crisis really during that time, but it’s news, it’s trending in a direction that would continue potentially to pull CPI down and would lead possibly to more dovish Fed, which we’ve heard-
DATA HACKS AND POLITICAL INVESTING
Noah Brooks: There’s a house in our neighborhood that has been on the market. It is priced incorrectly, but it’s been on the market for about nine months right now, it’s the murder house.
Chris Needs: Uh-oh.
Noah Brooks: There was a few-
Chris Needs: I can understand why with that name. Oh, my.
Noah Brooks: Well, locally it’s known as the murder house.
Chris Needs: Not looking in that neighborhood.
Noah Brooks: I don’t think they have to disclose that on Zillow.
Chris Needs: I don’t know if PA laws require that. I know a realtor, I could ask her.
Noah Brooks: You let us know for next time. But yeah, I guess in that scenario, if you price it wrong, it’s not going to sell. It’s not like anything will sell at a wrong price. But prices are coming down a little bit, we’re seeing that. And I suspect from a housing standpoint, I suspect that there’s going to be, because everybody froze up, you don’t want to lose your 3% or 4% mortgage. The only houses that were for sale were for people that had passed away, gone to a home, moved for a job. It was very rare to find somebody that’s like, “Oh, I’m just going to move and I’m going to move across town. I’m going to sell this house.” Not that it didn’t happen, but it was pretty rare.
I just think as time goes by, there’s going to be more housing that comes online. You can only make that, “I’m not going anywhere,” for so long, and in the aggregate. I think there’s going to be more, which will be good for the market, for the housing market, certainly good hopefully for new first time home buyers, just to have more availability, more choice.
So let’s talk a little bit about some of the economic data, the inflation data that came out. We keep talking that deflation, meaning the inflation coming down, doesn’t mean prices come down. It means the rate of increase is slowing. And so we had our first negative price decrease since COVID. That’s a big deal. One, it solidifies the fact that the Federal Reserve will indeed move. And two, it’s good for the consumer. Yeah, right? Good for the consumer.
We also had a jobs report since the last time we were sitting here. Economy created over 200,000 jobs once again. Now you mentioned some, we didn’t say headwinds, but you said there seems to be some data that suggests a little bit of a slow-down, which, let’s keep in mind, that’s what the Federal Reserve is looking to accomplish to, I don’t want to say put out the fire, but to slow it down a little bit, and that seems to be working. Now if they are able to pull this off, they’re going to go down in history as geniuses? I don’t know. How about that transitory number we were talking about the other day?
Chris Needs: Yeah, Jay Powell walked back his transitory comment back in the day, but two, three years later, we’re back down to a level we can be, I would argue, somewhat happy with, and we’re likely to see a little bit more progress in that direction as well. We got through that stickiness and we’re sitting right on 3% now. So with the unemployment-
Noah Brooks: Only another 50% more to go, down to two.
Chris Needs: It’s one way to look at it. But we have unemployment at 4.1%. We had a cycle low mid last year at 3.4, now it’s at 4.1. Historically super low numbers still, but being up seven tenths of a percent is still a notable move. There’s some indicators out there which we can go into if you want, but it’s rare to see that quick of a move where in a year’s time or so you’re up seven tenths of percent in unemployment.
Noah Brooks: It seems to me that the unemployment rate might continue to climb up. Historically, you’ve mentioned a few times that as that happens, historically speaking, there tends to be some type of recession.
Chris Needs: One of the things that’s out there on the Fed’s website, you have the Sahm indicator rule, Sahm rule indicator, I should say, which is just, it’s very logical. Short term unemployment spikes up versus long-term, generally indicates recession. So the Sahm rule is if the three-month moving average of the unemployment rate is half a percent higher than the 12-month rate, you’ll see a recession. And in history it’s been perfect. There was one questionable one in 1976 where it was exactly 0.5 for one month and we did not have a recession then. But every time it’s exceeded half percent we’ve had a recession.
And not being alarmist, just saying it’s something we should be aware of. I would argue data should be taken with a grain of salt with what we’ve seen since COVID, and we’ve talked a lot about how the different way to count things and how skewed the trends have been, that you can’t put your full weight into things. But we’re seeing a number of, we still have a yield curve inversion. So we have a number of indicators that are at least showing we’re going to have a slowing economy, which we are seeing in that economic data.
Noah Brooks: Well, I don’t want to go too far into the recession thing. We’re going to talk about a little on market outlook here in a minutes. But I would tell you wholeheartedly that it’s possible to have a recession and I think it’s that, and maybe short-term memory isn’t the right word, but people think recession, they think 2008, and they think global financial crisis.
Chris Needs: We don’t see that. We don’t expect that.
POSSIBILITY OF A MILD RECESSION
Noah Brooks: It is very probable to have a recession and it’s just a mild recession. So technically a recession is job loss with two quarters of GDP being negative, that will not be the end of the world. So I guess maybe we’re jumping the gun a little bit here with a market outlook, we’re going to go into that. But really, it’s certainly possible to have a mild recession or a soft landing, right? We’ve used that word, I don’t know how many times since COVID, but it’s certainly possible to have that without the market going down 10, 20, 30, 40%. 10%, it happens all the time, but it doesn’t have to go down 20 or 30%. I’m not saying that it will or won’t, but everybody hears that word recession and they think, “Oh, the end is nigh,” that’s not the case. That’s not the case.
Chris Needs: And we’re in a strange situation where we are going to be, I shouldn’t say it’s strange, but we’ll be cutting rates shortly. So that could potentially help the stock market valuations compared to the economy may not be doing awesome or stellar, but prices might hold up better than they normally might in a recession, which they’re not the same thing. The economy and the stock market, they’re not the exact same thing.
Noah Brooks: They’re definitely not the exact same thing. Retail sales also since the last time we were here, flat over month on the headline number, when you take out some of the auto and gas prices, up eight tenths of a percent.
Chris Needs: Good numbers.
Noah Brooks: Yeah, good numbers, right?
Chris Needs: Yeah. Excluding autos, we had that auto hiccup there.
Noah Brooks: What happened with that breach of software?
Chris Needs: Yeah, there was a hack, and apparently 90+ percent of American auto dealers use the same software.
Noah Brooks: How is that possible?
Chris Needs: So they all got locked out. So it was like a two-week thing where they were doing lending, quoting numbers by hand, on paper.
Noah Brooks: I know on our local news-
Chris Needs: Can certainly impact the numbers there.
Noah Brooks: Oh, yeah. On our local news, they went to an auto dealer, a Subaru auto dealer here in the Redding area, and they were interviewing the sales manager and they’re like, “Yep, we’re doing it old school, we’re writing it down,” and I was just like, seems a little…
Chris Needs: Doesn’t make me feel good.
LIKELIHOOD OF A FED CUT
Noah Brooks: Doesn’t make me feel good. So that definitely impacted those numbers, when you take that out a 0.8, pretty good, right? And so the consumer seems to be resilient. I think that’s the name of the game right at the moment. And there may be a time when spending starts to slow down, we’re going to see that. Construction spending, that could be a little bit iffy. But we have the CHIPS Act, which has been one of the main drivers of actually new manufacturing coming online over the last year or so. That’s not slowing down. Government funded, or Chris and Noah funded, I could say, right? Taxpayer funded, not just Chris and Noah. But the consumer seems to be resilient. I took a look at some of the TSA numbers, last time we were talking was right before Fourth of July, and I always think these are interesting numbers.
Now, my thing with this is the Fourth of July holiday obviously always falls on a different set of days each year. So I just went back and I looked at July 1st through July 7th from 2019 to 2024. Back in 2019, pre COVID, it was 18 point, let’s call it 7 million passengers flew on those seven days, during COVID it was under 5 million, and then every year we worked back up a little bit more. Last year was just maybe about 150,000 more. This year we’re up roughly 2 million new… Well, 2 million more people flying in 2024 on those seven days than back in 2019. So the consumer, at least the traveler, maybe they’re all flying Frontier, I don’t know, but the traveler is back and we are moving. AAA estimated that there was 16 and a half million people that drove 50 miles or more for the Fourth of July holiday. It’s crazy. I didn’t do anything. I went to my neighbor’s firework show.
Chris Needs: Apparently those people aren’t on Delta.
Noah Brooks: Yeah, I don’t know. Did you do anything?
Chris Needs: I did not travel for Fourth of July. We stayed home. Had a good time with our friends. We’re between vacations, so we’re going on a little beach vacation coming up, and then we’re going to take the kids to the Philly Zoo here in August, coming up in August.
Noah Brooks: Nice. Speaking of the Philly Zoo, I just saw last week, I saw it last week, but Philly Zoo is turning 150 years old. It’s the oldest zoo in the United States of America.
Chris Needs: I did not know that.
Noah Brooks: It’s crazy, right? So I was thinking about it and I thought to myself, well that’s certainly not the oldest zoo in the world. I looked it up, I’m going to murder the name of it, but the Schönbrunn Zoo in Vienna in Austria is the oldest, 272 years old, oldest continually operated. There might’ve been zoos in Roman times. We certainly know that they had animals at the Colosseum. I don’t know if you call that a zoo. Established in 1752. So we were excited. We were thinking about going to Vienna this year. We have a little trip planned coming up in September. We bypassed Vienna simply because of just the flights and I’m going to do a little Prague instead.
Chris Needs: Sounds fun.
Noah Brooks: Oh yeah, I’m super excited. If anybody has any great ideas what to do in Prague, I have all the YouTube videos in the world, but send them our way, send them my way.
Chris Needs: Who’s the planner, you or Eilish? Who’s the plotter?
Noah Brooks: I don’t know. A little bit of both.
Chris Needs: All right.
Noah Brooks: A little bit of both. She wants to have an itinerary, I’m more just a I’ll plan to get us there.
Chris Needs: I’m the food planner of the family. Lexi does everything else. I’m just like, “I want to hit up this food spot and this food spot. Besides that, it’s all you.”
Noah Brooks: We were looking at stars, looking at the Michelin star restaurants. I don’t know that we’re going to hit any, maybe one, just want some bratwurst, or the good stuff. I want to eat my way through Europe. The local food.
Chris Needs: Don’t blame you.
Noah Brooks: Yeah, that’s going to be great. What else do we have?
Chris Needs: Just a couple random things I could run through here. We had a couple data hacks. So Snowflake, one of the big data cloud providers as we made the switch to the cloud and what have you and high storage of data. They had a big hack back in May, and now we’re finding out it impacted multiple customers, one of those customers being AT&T. Apparently this one American hacker is very well known, I don’t have his name unfortunately, but they got half a year of the entire customer base of call and text data. That’s a lot of stuff. A lot of people could get in trouble with that, I’m sure.
Noah Brooks: So is he going through the texts line by line?
Chris Needs: I don’t know. Hope not.
Noah Brooks: That seems like a lot of data for one guy to have, huh?
Chris Needs: Yeah. But far-reaching impacts, obviously when you have, I don’t know what the exact number is, but we’ll say maybe a third of America might use AT&T, and everyone’s data was taken. So just underlines how important cybersecurity is.
Noah Brooks: All right, so they have our call data, and I don’t use AT&T, maybe they have your call data, but they have it and they have the text data. Did they steal credit cards and social security numbers?
Chris Needs: I don’t know the full extent of it, if they got personal info too, it’s very possible. They just said the whole customer set and half a year of call and text data.
Noah Brooks: So when I was starting out in the industry in the financial services back in the nineties, identity theft was becoming more and more prevalent, and one of the ways… I was never one of those guys that could sit down and cold call 200 people in a day or something like that, I had my fair share of that. But one of the ways that I was building my business in the nineties was offering identity theft seminars. I haven’t done one probably in about 10 years.
Nowadays, I just make sure that I have all my banking information, or all my banks have a fraud free policy. If you say, “Hey, my stuff’s hacked,” even if it’s been charged, they’re going to give it back to you with an affidavit that says that that’s the case. But for people out there that don’t or that are interested in learning more about it, you should get a copy of your credit report. You can go to the free credit report and request it. You can certainly pay for it and get it instantaneously. But for people out there that are listening, even if you’re not an AT&T subscriber.
Chris Needs: There have been so many hacks lately, I’m sure many of the people listening have gotten thing in the mail where there was a hack, “Here’s 12 months of free credit tracking,” and it’s a shame, but it’s where we’re at with all this big data.
Noah Brooks: Knock on wood, it has never happened to me. Has it happened to you?
Chris Needs: Several times.
Noah Brooks: Has it really?
Chris Needs: Yeah, just random companies that you have accounts with. Sort of like I’m sure AT&T will be sending out disclaimers to all-
Noah Brooks: So has your credit card, have you ever had any charges that weren’t yours on your credit card?
Chris Needs: Back when I was living in Philly, yeah, some dude went to Walmart and blew 400 bucks, just like, this is good.
Noah Brooks: Okay.
Chris Needs:
At least it was only 400 and didn’t put me in a pickle, but it’s not fun to deal with. It’s scary. It’s like, what else do they have? I had my Netflix taken. It was switched to all Spanish. It was like the email was all crazy and they’re just like, “We can get you refunded, but that account, that password, that’s gone.”
Noah Brooks: Yeah, if you’re listening and you’re curious about it, get a copy of your credit report, make sure there’s nothing on there that’s not yours. That’s the only thing I’ll say about it.
So I want to just touch base. I don’t know if it’s the elephant in the room, but obviously there was an assassination attempt on former President Trump this weekend, which was pretty big news for everybody out there. I’m not going to go down a rabbit hole and talk too much about politics. I don’t think that’s our claim to fame here. I will say, the polls that I saw afterwards, there was a poll on Monday for the morning consult, and relatively small, was less than 3000 people, but it didn’t really give him a bump. A few people that I’ve run into have said to me, “Oh, this makes him even more durable in the general election.” I don’t know that that’s the case, and we don’t need to really cover that. There’s people out there that are going to be supporting President Biden. There’s people out there that are going to be supporting former President Trump. And the reverse is certainly, there’s people that-
Chris Needs: I would say you’re just going to see bumps on the margin because, like you said, there’s not going to be, in general, Democrats are going to switch their vote because of this or vice versa.
Noah Brooks: Yeah, I don’t know that there’s going to be any switching going on because of that.
Chris Needs: Well, it was interesting to see people are saying there’s a little bitcoin bump because Trump or Vance now, who’s been named as vice president on the ticket, is more pro crypto, and you’ve seen this interesting little bump. And we don’t get into crypto, but just an interesting thing to see. Looks like there’s been a slight market impact. You hear Bloomberg saying Trump traded and things like that a lot more the last couple of days.
DON’T BET AGAINST AMERICA: LONG-TERM INVESTMENT STRATEGIES
Noah Brooks: Yeah, well, we will see what happened. One of the reasons that I just brought that up is LPL, who’s our broker dealer, they came out with their second half or third quarter market update. And one of the things that they mentioned, they’re talking political investing a little bit. And so they had this stat out there that I thought that was certainly worthwhile. It says if you had invested a hundred thousand dollars into the S&P 500 in 1950, and for all the smarty-pants out there, the S&P 500 wasn’t around in 1950, it was the S&P 90. So they backtested that, if you will, or used that data in the first few years that the S&P 500 wasn’t around.
But if you put a hundred thousand dollars in there in 1950 and you only had it invested during times where there was a Democratic president, excluding dividends, that’s the way they did it, you’d have about $3.1 million today. Not a bad return, a hundred thousand into 3.1 million. Conversely, if you had only invested in times where there was a Republican president, you’d have about a million dollars today. So I mean 10 bagger, not the worst thing ever. But had you just put the hundred thousand dollars in there in 1950 and done nothing over that time period, you’d have over $32 million.
Chris Needs: So to summarize, don’t make investing decisions based on emotions or politics.
Noah Brooks: Politics, right.
Chris Needs: Just don’t do it.
Noah Brooks: Yeah. You may dislike Trump, you may dislike Biden, but don’t vote with your dollars, don’t vote with your investing dollars.
Chris Needs: Don’t ruin your financial plan because of a temporary emotional response.
Noah Brooks: If you stop your compounding, the whole name of this game in long-term accumulation of wealth is compounding. If you stop it, it is really tough to gain it back. And those numbers, I think they are pretty interesting, right? 3.1 versus 32 million, 1 million versus 32 million.
Chris Needs: Time in the market.
Noah Brooks: Yeah, time in the market.
Chris Needs: Not timing.
Noah Brooks: Not timing. We’re not the first people to come up with that, are we?
Chris Needs: No, certainly not.
Noah Brooks: We’re not?
Chris Needs: I think that might be the most famous euphemism in the market.
Noah Brooks: Okay. What else?
Chris Needs: Don’t fight the Fed.
Noah Brooks: Don’t fight the Fed. Yeah, don’t fight the Fed. If they’re lowering, you got to be long, right? And to that point, JP Morgan just, well, I think I guess maybe mutually parted ways with their chief strategist, chief equity strategist. I have, I think it was Mike Kolanovic. He was a superstar equity strategist for them, but he has been dead wrong over the last two years. And so his thing was, was he long in ’22?
Chris Needs: Yeah. He had amazing track record prior to this. I don’t know exactly on 2020, but in 2022, you’re right, he was long. And then obviously 2022 was a terrible year. And then right at December he flipped to super bearish. So not only was he then wrong on the start of the new bull market, but he went short basically based on his price targets we’re saying, and didn’t work out for him. The market is hard. The market is hard. And he had a couple of high conviction incorrect calls and it got him.
Noah Brooks: I think, to this guy and to all those other people out there, people want to sound smart, and it’s really easy to list the ways that you shouldn’t be investing. You shouldn’t invest because of inflation. You shouldn’t invest because of the upcoming recession. For me, it stops your compounding. So you should always be invested. You can make changes around the edges, how much international you have, how much small cap, how much large, growth value, all that good stuff. But he’s telling people to get out of the equity markets, and that’s what happens. Two years of that, you missed this monster rally, you’re the chief equity strategist at JP Morgan.
Chris Needs: The premier firm, and there’s lots of eyeballs. Jamie Dimon on your back.
Noah Brooks: I would hate to be in the room listening to those conversations.
Chris Needs: But Jamie himself has been bearish at times too. What was his term? He called for a hurricane or something like that? An epic storm? So I don’t know if he was going off of Kolanovic’s insights, but…
Noah Brooks: Well, if he was, that’s why he got tossed.
Chris Needs: Yeah.
Noah Brooks: So this week, or last week, we put out our third quarter outlook. I’m not going to go down the rabbit hole on that today, but there’s a few things that I want to cover. I just thought they were important. We know that we’ve had this big concentration in large growth and certainly mega cap technology, your magnificent seven, most everybody knows that. One of the points that we make in our market outlook is that that concentration didn’t occur overnight, and it’s unlikely to end overnight. So it probably will end at some point. It can get worse or it can get more concentrated before it gets better. But it’s not going to go away overnight. It didn’t come overnight, it’s not going to end overnight. So expect that force to be remained intact for a while. Eventually it won’t be there, but it certainly is now.
We talked about a rotation. So we did our live event on July 11th, which was actually the day that the CPI came out. Now we were talking about a rotation out of large growth into other areas to market and we didn’t just come up with that on the same day as the CPI, but that looks like, since that number came out five trading days ago, that’s how we started here, right? Small caps are up 10%, mid-caps are up eight and a half, 9%, values even up.
Chris Needs:Yeah, imagine that.
Noah Brooks: Imagine that. So that rotation, I don’t know if it’s expected to continue. We think there’s a rotation going to happen, that’s what we put out in our outlook, and it’s happening now. It doesn’t mean it’s going to continue to happen. Certainly the Fed lowering is going to be a big indicator of how long that this rotation can happen. I think there was, I would just bring it up, CNBC this morning, Tom Lee came out, who’s a strategist for his own firm, and he came out with a really tight call. He said-
Chris Needs: Aggressive.
Noah Brooks: … really aggressive call. He said Russell 2000 up 40% in 10 weeks.
Chris Needs: We’re talking about doing the CFA math on the information ratio on that call is very high. He’s putting a timeline on it. He’s putting a price percentage target on it. That’s aggressive.
Noah Brooks: That’s nutty. Now, I don’t know if that includes the 10% that it’s already moved.
Chris Needs: Even if it did, that’s still a big call.
Noah Brooks: That is a big call. So we talk about rotation into small caps, international and a little bit of value. One of the other points that we made in the market outlook is that there is a higher probability for some type of slowing, and that is a mild recession in 2025. It is certainly possible. But when I say that, this isn’t one of those calls where you have to exit the market, this is, hey, we might get two quarters of negative GDP growth. And it looks like right now, when you look at the job data, it’s slowing down, and there’s revisions to prior months. So at some point in the future, there very well could be a negative number. You get some negative numbers, you get, there’s two quarters of GDP negativity, and they’re going to call it a recession. Doesn’t mean the end of the world is here, people, it just means that there’s a good chance of a soft landing.
And of course, I think I mentioned this earlier, I was calling for no Fed move until after the election, but the data is telling us another story. And so it looks like there’s going to be a lowering, a Fed lowering, coming right up, right?
Chris Needs: Odds on it.
Noah Brooks: Odds on it. So that’s it for this week. I will tell you that the things that I want to reiterate, don’t stop your compounding, and don’t bet against America, anybody. Don’t do it. Hey, if you want to send us your topic requests or any questions, send them in via email at themarketenthusiast@goodlifefa.com. We’d love to hear from you. And until next time, don’t bet against America, anybody.
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Table of Contents
INTRODUCTION AND TRAVEL BOOM
Noah Brooks: Welcome back to the next installment of the Market Enthusiast. I’m Noah Brooks, and with me today, Chris Needs. What a crazy five days we’ve had in the market. The first two weeks of July, the market has gone, I don’t want to say through the roof, but we have had a little bit of a rotation that we’ve been talking about here for the last year, year and a half or so. The last few days, small caps have rallied upwards of 10%, right? So our small companies, mid-sized companies have rallied. Large companies, done okay, but it’s those small and mid-cap companies that have really, really done well.
Chris, why have they done so well?
Chris Needs: It all changed on the CPI report. So we finally got a really good reading in terms of cooling data. We had a negative month over month in the CPI, -0.1%, 3% year over year.
Noah Brooks: Is that prices coming down?
Chris Needs: That is a month of prices coming down.
Noah Brooks: Wow. First one, we should throw it a birthday party.
Chris Needs: We’ve been talking about all the difficulties small caps have been having with rates elevated and this is the first real green light for them of rate cuts getting pulled forward, and they have really jumped off of that. You’ve seen mid-caps move as well and even value is moving off of this. So a very big rotation. It seems like it’s mostly coming out of mega cap or large techie type-
MARKET ROTATION AND INFLATION DATA
Noah Brooks: Large growth, right? Which has been the main driver of the market for, shoot, for since the turn in late 2022. So here we are, stock market is up, S&P 500 is up another 150 points since we sat in here two weeks ago and said we were at all time highs, and here we are today sitting at all time highs once again. I’m just going to say it, I’ll say it a few times this episode, don’t bet against America people. It’s not good.
Chris Needs: That Russell 2000 move that you were just talking about is the biggest move for four-day trade since the reopening trade in November of 2020. Yeah, things started finally creeping open again.
Noah Brooks: This is the type of move that people see in their accounts and they go, “Oh.” They like it. So just to drill down here a little bit. Year to date, S&P is up I think 19% right now as we’re sitting here talking. Mid-caps up 11%, so pretty big delta there. But here’s the crazy thing. You’re up 7% over the last five trading days, now at all time highs. That’s the first time they’ve been at all time highs in, I think it’s a year and a half. Small caps just shy of new all time highs, within less than a percent on the S&P 600, Russell 2000 a little bit farther away, but S&P 600 is within a percent. Last week S&P 600 was up 5%. The last five trading days they’re up 10%, 2% a day.
Chris Needs: Amazing rotation. Happens really quick.
Noah Brooks: Yeah, really, really quick. And so over the last five trading days, small caps were up 10%, large growth, down 1% over the last five trading days. So we’ve been talking about this rotation a lot. We’re not the only people talking about it, but it’s finally happening. And so the question is, that everybody wants to know, including myself, is how long is it going to last?
Chris Needs: Yeah, does it have staying power? Will this be a three or a six-month move, or more like Q4, will it be a two, three month move that then just rotates right back into tech? Because healthy bull markets do rotate, you’ll see the money flow around. But we’ll see, it’s been a multi-year lag from small caps and if this can stay, that’d be a good indicator of a healthy market.
Noah Brooks: Absolutely. One of the things that we’ve discussed, and again, we’re not the only people mentioning it out there, but it was like can the market move higher? Well, here’s how it doesn’t. It doesn’t move higher if it continues to be only one sector and eventually that sector peters out and the rest of the world doesn’t catch fire. Can it move higher? Yes, if there’s a rotation. Not necessarily out of technology, but kind of out of technology, right? Give me something else that works. And so now we have this scenario where the Fed is poised to rate. We’re going to talk a little bit about it. We’re going to talk significantly about inflation here and that CPI number. But we are now at a situation, and I have to put this right out there, I have been saying time and time again that I didn’t think the Fed was going to lower before the election.
Chris Needs: CPI changed this.
Noah Brooks: CPA, it seems like CPI changed that. Now we’re at a situation where the Fed rate tool, which is, it’s not always right or anything like that, but it gives us an idea of what market participants are thinking, what is this September profitability of cut?
Chris Needs: 100%. 100.
Noah Brooks: That’s not right. How do they get a hundred percent? That’s a done deal. They’re going to lower in September?
Chris Needs: Yeah. And they even have some odds for two cuts by then, or a 50 basis point cut. We’ve talked about, when you’re months out, it’s not very accurate, but if you’re in the month of the Fed meeting, it’s very accurate. So we’re not quite there yet, we have a month and a half to go, but if that holds true, it’s very likely we’ll definitely, I would say, get one cut if these odds remain where they’re at, and they shifted drastically after that CPI report.
And that’s not the only cooling data we have out there, there’s a number of cooling pieces that we’ve talked about before. There’s unemployment, obviously these inflation numbers, PCE as well, that have been coming down into a better range. And despite shelter still being up 5.2% year over year, the rent component, 35% of the CPI, it’s starting to come down. And we’re getting a little bit of deflationary positive news on housing too. There’s more listings out there, 18% year over year active listings, and 6.9% of homes over the last month have had price cuts. That’s the highest since they were tracking data since 2015. Not a long timeframe. We haven’t had a housing crisis really during that time, but it’s news, it’s trending in a direction that would continue potentially to pull CPI down and would lead possibly to more dovish Fed, which we’ve heard-
DATA HACKS AND POLITICAL INVESTING
Noah Brooks: There’s a house in our neighborhood that has been on the market. It is priced incorrectly, but it’s been on the market for about nine months right now, it’s the murder house.
Chris Needs: Uh-oh.
Noah Brooks: There was a few-
Chris Needs: I can understand why with that name. Oh, my.
Noah Brooks: Well, locally it’s known as the murder house.
Chris Needs: Not looking in that neighborhood.
Noah Brooks: I don’t think they have to disclose that on Zillow.
Chris Needs: I don’t know if PA laws require that. I know a realtor, I could ask her.
Noah Brooks: You let us know for next time. But yeah, I guess in that scenario, if you price it wrong, it’s not going to sell. It’s not like anything will sell at a wrong price. But prices are coming down a little bit, we’re seeing that. And I suspect from a housing standpoint, I suspect that there’s going to be, because everybody froze up, you don’t want to lose your 3% or 4% mortgage. The only houses that were for sale were for people that had passed away, gone to a home, moved for a job. It was very rare to find somebody that’s like, “Oh, I’m just going to move and I’m going to move across town. I’m going to sell this house.” Not that it didn’t happen, but it was pretty rare.
I just think as time goes by, there’s going to be more housing that comes online. You can only make that, “I’m not going anywhere,” for so long, and in the aggregate. I think there’s going to be more, which will be good for the market, for the housing market, certainly good hopefully for new first time home buyers, just to have more availability, more choice.
So let’s talk a little bit about some of the economic data, the inflation data that came out. We keep talking that deflation, meaning the inflation coming down, doesn’t mean prices come down. It means the rate of increase is slowing. And so we had our first negative price decrease since COVID. That’s a big deal. One, it solidifies the fact that the Federal Reserve will indeed move. And two, it’s good for the consumer. Yeah, right? Good for the consumer.
We also had a jobs report since the last time we were sitting here. Economy created over 200,000 jobs once again. Now you mentioned some, we didn’t say headwinds, but you said there seems to be some data that suggests a little bit of a slow-down, which, let’s keep in mind, that’s what the Federal Reserve is looking to accomplish to, I don’t want to say put out the fire, but to slow it down a little bit, and that seems to be working. Now if they are able to pull this off, they’re going to go down in history as geniuses? I don’t know. How about that transitory number we were talking about the other day?
Chris Needs: Yeah, Jay Powell walked back his transitory comment back in the day, but two, three years later, we’re back down to a level we can be, I would argue, somewhat happy with, and we’re likely to see a little bit more progress in that direction as well. We got through that stickiness and we’re sitting right on 3% now. So with the unemployment-
Noah Brooks: Only another 50% more to go, down to two.
Chris Needs: It’s one way to look at it. But we have unemployment at 4.1%. We had a cycle low mid last year at 3.4, now it’s at 4.1. Historically super low numbers still, but being up seven tenths of a percent is still a notable move. There’s some indicators out there which we can go into if you want, but it’s rare to see that quick of a move where in a year’s time or so you’re up seven tenths of percent in unemployment.
Noah Brooks: It seems to me that the unemployment rate might continue to climb up. Historically, you’ve mentioned a few times that as that happens, historically speaking, there tends to be some type of recession.
Chris Needs: One of the things that’s out there on the Fed’s website, you have the Sahm indicator rule, Sahm rule indicator, I should say, which is just, it’s very logical. Short term unemployment spikes up versus long-term, generally indicates recession. So the Sahm rule is if the three-month moving average of the unemployment rate is half a percent higher than the 12-month rate, you’ll see a recession. And in history it’s been perfect. There was one questionable one in 1976 where it was exactly 0.5 for one month and we did not have a recession then. But every time it’s exceeded half percent we’ve had a recession.
And not being alarmist, just saying it’s something we should be aware of. I would argue data should be taken with a grain of salt with what we’ve seen since COVID, and we’ve talked a lot about how the different way to count things and how skewed the trends have been, that you can’t put your full weight into things. But we’re seeing a number of, we still have a yield curve inversion. So we have a number of indicators that are at least showing we’re going to have a slowing economy, which we are seeing in that economic data.
Noah Brooks: Well, I don’t want to go too far into the recession thing. We’re going to talk about a little on market outlook here in a minutes. But I would tell you wholeheartedly that it’s possible to have a recession and I think it’s that, and maybe short-term memory isn’t the right word, but people think recession, they think 2008, and they think global financial crisis.
Chris Needs: We don’t see that. We don’t expect that.
POSSIBILITY OF A MILD RECESSION
Noah Brooks: It is very probable to have a recession and it’s just a mild recession. So technically a recession is job loss with two quarters of GDP being negative, that will not be the end of the world. So I guess maybe we’re jumping the gun a little bit here with a market outlook, we’re going to go into that. But really, it’s certainly possible to have a mild recession or a soft landing, right? We’ve used that word, I don’t know how many times since COVID, but it’s certainly possible to have that without the market going down 10, 20, 30, 40%. 10%, it happens all the time, but it doesn’t have to go down 20 or 30%. I’m not saying that it will or won’t, but everybody hears that word recession and they think, “Oh, the end is nigh,” that’s not the case. That’s not the case.
Chris Needs: And we’re in a strange situation where we are going to be, I shouldn’t say it’s strange, but we’ll be cutting rates shortly. So that could potentially help the stock market valuations compared to the economy may not be doing awesome or stellar, but prices might hold up better than they normally might in a recession, which they’re not the same thing. The economy and the stock market, they’re not the exact same thing.
Noah Brooks: They’re definitely not the exact same thing. Retail sales also since the last time we were here, flat over month on the headline number, when you take out some of the auto and gas prices, up eight tenths of a percent.
Chris Needs: Good numbers.
Noah Brooks: Yeah, good numbers, right?
Chris Needs: Yeah. Excluding autos, we had that auto hiccup there.
Noah Brooks: What happened with that breach of software?
Chris Needs: Yeah, there was a hack, and apparently 90+ percent of American auto dealers use the same software.
Noah Brooks: How is that possible?
Chris Needs: So they all got locked out. So it was like a two-week thing where they were doing lending, quoting numbers by hand, on paper.
Noah Brooks: I know on our local news-
Chris Needs: Can certainly impact the numbers there.
Noah Brooks: Oh, yeah. On our local news, they went to an auto dealer, a Subaru auto dealer here in the Redding area, and they were interviewing the sales manager and they’re like, “Yep, we’re doing it old school, we’re writing it down,” and I was just like, seems a little…
Chris Needs: Doesn’t make me feel good.
LIKELIHOOD OF A FED CUT
Noah Brooks: Doesn’t make me feel good. So that definitely impacted those numbers, when you take that out a 0.8, pretty good, right? And so the consumer seems to be resilient. I think that’s the name of the game right at the moment. And there may be a time when spending starts to slow down, we’re going to see that. Construction spending, that could be a little bit iffy. But we have the CHIPS Act, which has been one of the main drivers of actually new manufacturing coming online over the last year or so. That’s not slowing down. Government funded, or Chris and Noah funded, I could say, right? Taxpayer funded, not just Chris and Noah. But the consumer seems to be resilient. I took a look at some of the TSA numbers, last time we were talking was right before Fourth of July, and I always think these are interesting numbers.
Now, my thing with this is the Fourth of July holiday obviously always falls on a different set of days each year. So I just went back and I looked at July 1st through July 7th from 2019 to 2024. Back in 2019, pre COVID, it was 18 point, let’s call it 7 million passengers flew on those seven days, during COVID it was under 5 million, and then every year we worked back up a little bit more. Last year was just maybe about 150,000 more. This year we’re up roughly 2 million new… Well, 2 million more people flying in 2024 on those seven days than back in 2019. So the consumer, at least the traveler, maybe they’re all flying Frontier, I don’t know, but the traveler is back and we are moving. AAA estimated that there was 16 and a half million people that drove 50 miles or more for the Fourth of July holiday. It’s crazy. I didn’t do anything. I went to my neighbor’s firework show.
Chris Needs: Apparently those people aren’t on Delta.
Noah Brooks: Yeah, I don’t know. Did you do anything?
Chris Needs: I did not travel for Fourth of July. We stayed home. Had a good time with our friends. We’re between vacations, so we’re going on a little beach vacation coming up, and then we’re going to take the kids to the Philly Zoo here in August, coming up in August.
Noah Brooks: Nice. Speaking of the Philly Zoo, I just saw last week, I saw it last week, but Philly Zoo is turning 150 years old. It’s the oldest zoo in the United States of America.
Chris Needs: I did not know that.
Noah Brooks: It’s crazy, right? So I was thinking about it and I thought to myself, well that’s certainly not the oldest zoo in the world. I looked it up, I’m going to murder the name of it, but the Schönbrunn Zoo in Vienna in Austria is the oldest, 272 years old, oldest continually operated. There might’ve been zoos in Roman times. We certainly know that they had animals at the Colosseum. I don’t know if you call that a zoo. Established in 1752. So we were excited. We were thinking about going to Vienna this year. We have a little trip planned coming up in September. We bypassed Vienna simply because of just the flights and I’m going to do a little Prague instead.
Chris Needs: Sounds fun.
Noah Brooks: Oh yeah, I’m super excited. If anybody has any great ideas what to do in Prague, I have all the YouTube videos in the world, but send them our way, send them my way.
Chris Needs: Who’s the planner, you or Eilish? Who’s the plotter?
Noah Brooks: I don’t know. A little bit of both.
Chris Needs: All right.
Noah Brooks: A little bit of both. She wants to have an itinerary, I’m more just a I’ll plan to get us there.
Chris Needs: I’m the food planner of the family. Lexi does everything else. I’m just like, “I want to hit up this food spot and this food spot. Besides that, it’s all you.”
Noah Brooks: We were looking at stars, looking at the Michelin star restaurants. I don’t know that we’re going to hit any, maybe one, just want some bratwurst, or the good stuff. I want to eat my way through Europe. The local food.
Chris Needs: Don’t blame you.
Noah Brooks: Yeah, that’s going to be great. What else do we have?
Chris Needs: Just a couple random things I could run through here. We had a couple data hacks. So Snowflake, one of the big data cloud providers as we made the switch to the cloud and what have you and high storage of data. They had a big hack back in May, and now we’re finding out it impacted multiple customers, one of those customers being AT&T. Apparently this one American hacker is very well known, I don’t have his name unfortunately, but they got half a year of the entire customer base of call and text data. That’s a lot of stuff. A lot of people could get in trouble with that, I’m sure.
Noah Brooks: So is he going through the texts line by line?
Chris Needs: I don’t know. Hope not.
Noah Brooks: That seems like a lot of data for one guy to have, huh?
Chris Needs: Yeah. But far-reaching impacts, obviously when you have, I don’t know what the exact number is, but we’ll say maybe a third of America might use AT&T, and everyone’s data was taken. So just underlines how important cybersecurity is.
Noah Brooks: All right, so they have our call data, and I don’t use AT&T, maybe they have your call data, but they have it and they have the text data. Did they steal credit cards and social security numbers?
Chris Needs: I don’t know the full extent of it, if they got personal info too, it’s very possible. They just said the whole customer set and half a year of call and text data.
Noah Brooks: So when I was starting out in the industry in the financial services back in the nineties, identity theft was becoming more and more prevalent, and one of the ways… I was never one of those guys that could sit down and cold call 200 people in a day or something like that, I had my fair share of that. But one of the ways that I was building my business in the nineties was offering identity theft seminars. I haven’t done one probably in about 10 years.
Nowadays, I just make sure that I have all my banking information, or all my banks have a fraud free policy. If you say, “Hey, my stuff’s hacked,” even if it’s been charged, they’re going to give it back to you with an affidavit that says that that’s the case. But for people out there that don’t or that are interested in learning more about it, you should get a copy of your credit report. You can go to the free credit report and request it. You can certainly pay for it and get it instantaneously. But for people out there that are listening, even if you’re not an AT&T subscriber.
Chris Needs: There have been so many hacks lately, I’m sure many of the people listening have gotten thing in the mail where there was a hack, “Here’s 12 months of free credit tracking,” and it’s a shame, but it’s where we’re at with all this big data.
Noah Brooks: Knock on wood, it has never happened to me. Has it happened to you?
Chris Needs: Several times.
Noah Brooks: Has it really?
Chris Needs: Yeah, just random companies that you have accounts with. Sort of like I’m sure AT&T will be sending out disclaimers to all-
Noah Brooks: So has your credit card, have you ever had any charges that weren’t yours on your credit card?
Chris Needs: Back when I was living in Philly, yeah, some dude went to Walmart and blew 400 bucks, just like, this is good.
Noah Brooks: Okay.
Chris Needs:
At least it was only 400 and didn’t put me in a pickle, but it’s not fun to deal with. It’s scary. It’s like, what else do they have? I had my Netflix taken. It was switched to all Spanish. It was like the email was all crazy and they’re just like, “We can get you refunded, but that account, that password, that’s gone.”
Noah Brooks: Yeah, if you’re listening and you’re curious about it, get a copy of your credit report, make sure there’s nothing on there that’s not yours. That’s the only thing I’ll say about it.
So I want to just touch base. I don’t know if it’s the elephant in the room, but obviously there was an assassination attempt on former President Trump this weekend, which was pretty big news for everybody out there. I’m not going to go down a rabbit hole and talk too much about politics. I don’t think that’s our claim to fame here. I will say, the polls that I saw afterwards, there was a poll on Monday for the morning consult, and relatively small, was less than 3000 people, but it didn’t really give him a bump. A few people that I’ve run into have said to me, “Oh, this makes him even more durable in the general election.” I don’t know that that’s the case, and we don’t need to really cover that. There’s people out there that are going to be supporting President Biden. There’s people out there that are going to be supporting former President Trump. And the reverse is certainly, there’s people that-
Chris Needs: I would say you’re just going to see bumps on the margin because, like you said, there’s not going to be, in general, Democrats are going to switch their vote because of this or vice versa.
Noah Brooks: Yeah, I don’t know that there’s going to be any switching going on because of that.
Chris Needs: Well, it was interesting to see people are saying there’s a little bitcoin bump because Trump or Vance now, who’s been named as vice president on the ticket, is more pro crypto, and you’ve seen this interesting little bump. And we don’t get into crypto, but just an interesting thing to see. Looks like there’s been a slight market impact. You hear Bloomberg saying Trump traded and things like that a lot more the last couple of days.
DON’T BET AGAINST AMERICA: LONG-TERM INVESTMENT STRATEGIES
Noah Brooks: Yeah, well, we will see what happened. One of the reasons that I just brought that up is LPL, who’s our broker dealer, they came out with their second half or third quarter market update. And one of the things that they mentioned, they’re talking political investing a little bit. And so they had this stat out there that I thought that was certainly worthwhile. It says if you had invested a hundred thousand dollars into the S&P 500 in 1950, and for all the smarty-pants out there, the S&P 500 wasn’t around in 1950, it was the S&P 90. So they backtested that, if you will, or used that data in the first few years that the S&P 500 wasn’t around.
But if you put a hundred thousand dollars in there in 1950 and you only had it invested during times where there was a Democratic president, excluding dividends, that’s the way they did it, you’d have about $3.1 million today. Not a bad return, a hundred thousand into 3.1 million. Conversely, if you had only invested in times where there was a Republican president, you’d have about a million dollars today. So I mean 10 bagger, not the worst thing ever. But had you just put the hundred thousand dollars in there in 1950 and done nothing over that time period, you’d have over $32 million.
Chris Needs: So to summarize, don’t make investing decisions based on emotions or politics.
Noah Brooks: Politics, right.
Chris Needs: Just don’t do it.
Noah Brooks: Yeah. You may dislike Trump, you may dislike Biden, but don’t vote with your dollars, don’t vote with your investing dollars.
Chris Needs: Don’t ruin your financial plan because of a temporary emotional response.
Noah Brooks: If you stop your compounding, the whole name of this game in long-term accumulation of wealth is compounding. If you stop it, it is really tough to gain it back. And those numbers, I think they are pretty interesting, right? 3.1 versus 32 million, 1 million versus 32 million.
Chris Needs: Time in the market.
Noah Brooks: Yeah, time in the market.
Chris Needs: Not timing.
Noah Brooks: Not timing. We’re not the first people to come up with that, are we?
Chris Needs: No, certainly not.
Noah Brooks: We’re not?
Chris Needs: I think that might be the most famous euphemism in the market.
Noah Brooks: Okay. What else?
Chris Needs: Don’t fight the Fed.
Noah Brooks: Don’t fight the Fed. Yeah, don’t fight the Fed. If they’re lowering, you got to be long, right? And to that point, JP Morgan just, well, I think I guess maybe mutually parted ways with their chief strategist, chief equity strategist. I have, I think it was Mike Kolanovic. He was a superstar equity strategist for them, but he has been dead wrong over the last two years. And so his thing was, was he long in ’22?
Chris Needs: Yeah. He had amazing track record prior to this. I don’t know exactly on 2020, but in 2022, you’re right, he was long. And then obviously 2022 was a terrible year. And then right at December he flipped to super bearish. So not only was he then wrong on the start of the new bull market, but he went short basically based on his price targets we’re saying, and didn’t work out for him. The market is hard. The market is hard. And he had a couple of high conviction incorrect calls and it got him.
Noah Brooks: I think, to this guy and to all those other people out there, people want to sound smart, and it’s really easy to list the ways that you shouldn’t be investing. You shouldn’t invest because of inflation. You shouldn’t invest because of the upcoming recession. For me, it stops your compounding. So you should always be invested. You can make changes around the edges, how much international you have, how much small cap, how much large, growth value, all that good stuff. But he’s telling people to get out of the equity markets, and that’s what happens. Two years of that, you missed this monster rally, you’re the chief equity strategist at JP Morgan.
Chris Needs: The premier firm, and there’s lots of eyeballs. Jamie Dimon on your back.
Noah Brooks: I would hate to be in the room listening to those conversations.
Chris Needs: But Jamie himself has been bearish at times too. What was his term? He called for a hurricane or something like that? An epic storm? So I don’t know if he was going off of Kolanovic’s insights, but…
Noah Brooks: Well, if he was, that’s why he got tossed.
Chris Needs: Yeah.
Noah Brooks: So this week, or last week, we put out our third quarter outlook. I’m not going to go down the rabbit hole on that today, but there’s a few things that I want to cover. I just thought they were important. We know that we’ve had this big concentration in large growth and certainly mega cap technology, your magnificent seven, most everybody knows that. One of the points that we make in our market outlook is that that concentration didn’t occur overnight, and it’s unlikely to end overnight. So it probably will end at some point. It can get worse or it can get more concentrated before it gets better. But it’s not going to go away overnight. It didn’t come overnight, it’s not going to end overnight. So expect that force to be remained intact for a while. Eventually it won’t be there, but it certainly is now.
We talked about a rotation. So we did our live event on July 11th, which was actually the day that the CPI came out. Now we were talking about a rotation out of large growth into other areas to market and we didn’t just come up with that on the same day as the CPI, but that looks like, since that number came out five trading days ago, that’s how we started here, right? Small caps are up 10%, mid-caps are up eight and a half, 9%, values even up.
Chris Needs:Yeah, imagine that.
Noah Brooks: Imagine that. So that rotation, I don’t know if it’s expected to continue. We think there’s a rotation going to happen, that’s what we put out in our outlook, and it’s happening now. It doesn’t mean it’s going to continue to happen. Certainly the Fed lowering is going to be a big indicator of how long that this rotation can happen. I think there was, I would just bring it up, CNBC this morning, Tom Lee came out, who’s a strategist for his own firm, and he came out with a really tight call. He said-
Chris Needs: Aggressive.
Noah Brooks: … really aggressive call. He said Russell 2000 up 40% in 10 weeks.
Chris Needs: We’re talking about doing the CFA math on the information ratio on that call is very high. He’s putting a timeline on it. He’s putting a price percentage target on it. That’s aggressive.
Noah Brooks: That’s nutty. Now, I don’t know if that includes the 10% that it’s already moved.
Chris Needs: Even if it did, that’s still a big call.
Noah Brooks: That is a big call. So we talk about rotation into small caps, international and a little bit of value. One of the other points that we made in the market outlook is that there is a higher probability for some type of slowing, and that is a mild recession in 2025. It is certainly possible. But when I say that, this isn’t one of those calls where you have to exit the market, this is, hey, we might get two quarters of negative GDP growth. And it looks like right now, when you look at the job data, it’s slowing down, and there’s revisions to prior months. So at some point in the future, there very well could be a negative number. You get some negative numbers, you get, there’s two quarters of GDP negativity, and they’re going to call it a recession. Doesn’t mean the end of the world is here, people, it just means that there’s a good chance of a soft landing.
And of course, I think I mentioned this earlier, I was calling for no Fed move until after the election, but the data is telling us another story. And so it looks like there’s going to be a lowering, a Fed lowering, coming right up, right?
Chris Needs: Odds on it.
Noah Brooks: Odds on it. So that’s it for this week. I will tell you that the things that I want to reiterate, don’t stop your compounding, and don’t bet against America, anybody. Don’t do it. Hey, if you want to send us your topic requests or any questions, send them in via email at themarketenthusiast@goodlifefa.com. We’d love to hear from you. And until next time, don’t bet against America, anybody.
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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