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Is sentiment the only reason markets are falling? · The Financial Exchange Show

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Speaker 2: Good morning. I usually say Happy Tuesday to those listeners.
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Speaker 2: It's not terribly happy out there on Wall Street. The
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Speaker 2: wins seem to be turning a little bit on this
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Speaker 2: AI trade. We've got the NASDAC off close to two
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Speaker 2: percent in early trading and continuing a trend that we've
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Speaker 2: seen at least for the last four days, but for
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Speaker 2: the last few weeks. When it comes to the narrative
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Speaker 2: around this stock market generally and the AI trade specifically,
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Speaker 2: it's Mike, Mark and Tucker with you on a Tuesday morning,
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Speaker 2: And I hate to overdo it because we are still
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Speaker 2: what four percent away from all time highs, and we
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Speaker 2: are still in one of the most expensive stock markets
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Speaker 2: in history. But I'm wondering again. I don't talk to
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Speaker 2: you about this stuff every day, Mark, like I do, Chuck,
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Speaker 2: but your take on some degree of sentiment shift when
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Speaker 2: it comes to skepticism about this market, skepticism about the
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Speaker 2: AI trade, and frankly, the importance of Nvidia's earnings tomorrow
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Speaker 2: afternoon to either confirm or shift that narrative. When it
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Speaker 2: comes to the pressure that's been on some of these
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Speaker 2: companies over the last couple of weeks.
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Speaker 3: Let's put it in perspective, as you suggested, we should
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Speaker 3: markets rose the broad stock market about thirty percent. I'm
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Speaker 3: rounding up a little bit. In twenty twenty three and
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Speaker 3: again in twenty twenty four. Information technology stocks where the
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Speaker 3: leading sector in those two markets. They've been the leading sector,
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Speaker 3: i e. The best performing sector for the majority of
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Speaker 3: the past ten or twelve years. In the market. Capitalization
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Speaker 3: of information technology stocks today is nearly thirty trillion dollars,
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Speaker 3: as big as the US economy. We used to talk
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Speaker 3: about the buffet ratio when stocks and you're comparing the
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Speaker 3: market capitalization, which is a stock concept. I don't mean
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Speaker 3: stock is in security that you own. I mean stock
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Speaker 3: is an a static thing. We used to compare market
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Speaker 3: cap to GDP, which is a GDP's a flow concept.
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Speaker 3: It's an income concept. But people like to use the
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Speaker 3: buffet ratio to get a sense for when stocks are
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Speaker 3: frothy and supplement that with measures like price to earnings
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Speaker 3: and so forth. Mike, just the tech sector today is
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Speaker 3: as big as GDP. Now think about that for a second.
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Speaker 3: I'm not saying that that is that that is self
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Speaker 3: evidently worrisome. But if you track things like the value
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Speaker 3: of stocks GDP, and you recognize that one sector is
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Speaker 3: as large as GDP. Again, comparing a stock concept to
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Speaker 3: a flow concept, which is a little problematic, but let's
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Speaker 3: let that go because nobody really cares. That in itself
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Speaker 3: should set you back on your heels. There gets a point,
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Speaker 3: I guess, Mike, you asked about sentiment. I think you
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Speaker 3: put the question perfectly. There gets a point in every
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Speaker 3: bull market, and we've been in one now for a
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Speaker 3: few years since the twenty twenty two pull back. Unless
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Speaker 3: you want it, do we count the the Tariff Liberation
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Speaker 3: Day pullback as a bear market? I don't think we do.
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Speaker 3: I haven't heard anybody referred to that way out. I
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Speaker 3: want to get lost in the weeds on what is
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Speaker 3: and isn't a but we're gonna throw like a three
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Speaker 3: year bull market? Would you agree?
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Speaker 2: I would? Okay, Frankly, I have a tough time counting
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Speaker 2: twenty twenty five, twenty twenty two, or twenty twenty when
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Speaker 2: really thinking about a prolonged downturn. Yeah, they were all
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Speaker 2: just fair enough, quick snap of the finger downturns that
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Speaker 2: you know, bought the dip and recovered. But yes, I
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Speaker 2: think twenty twenty two was a different situation than twenty
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Speaker 2: twenty five.
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Speaker 3: Okay, so we've been in a ball market for a while.
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Speaker 3: That's what I wanted to say, and see if there
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Speaker 3: were any objections from Tucker. You agree we've been in
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Speaker 3: It feels to you like we've been in.
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Speaker 2: A ball market. Yeah, it feels to me like it's not.
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Speaker 2: It feels to you like we've been It's been pretty
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Speaker 2: good first two years. Yeah.
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Speaker 3: So I guess the point I was going to make, Mike,
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Speaker 3: you brought up the issue of sentiment. I think that's
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Speaker 3: precisely the right issue to raise. There comes a point
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Speaker 3: in every bull market when everybody realizes, when everybody asks,
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Speaker 3: is this crazy? It happened in two thousand, ninety nine,
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Speaker 3: two thousand, where the chorus becomes louder and bigger. People
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Speaker 3: are always at there's always the cynic, this skeptic in
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Speaker 3: the room. It says, are things going a little too
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Speaker 3: you know, far ahead of fundamental? Someone's always asking that question.
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Speaker 3: I mean a lot of people asking it, right down
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Speaker 3: to the talking heads on the TV networks. We're at
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Speaker 3: that point now, So it's a moment of truth. Either
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Speaker 3: AI starts to fulfill promises concretely profitability wise. I mean,
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Speaker 3: like the hyperscalers can afford these data center investments, or
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Speaker 3: we decide that they cannot. And this would not be unusual.
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Speaker 3: It happened to every previous revolutionary technology, railroads, electrification, you
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Speaker 3: name it, the electric the electronics revolution of the late
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Speaker 3: nineteen sixties. There were booms, there were bus It wouldn't
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Speaker 3: be unusual.
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Speaker 2: Yeah. I obviously I've had my own personal view on this,
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Speaker 2: which is I've been skeptical of some of this stuff
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Speaker 2: for the last few years, let alone the last few
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Speaker 2: months and the build up and the promises that are
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Speaker 2: being made. On the other hand, if there's been one
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Speaker 2: truism of this market for the last five years, it's
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Speaker 2: been the buy the dip mentality. And that's a big
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Speaker 2: question to me. It just does that return to this
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Speaker 2: market if we get a market sell off here again,
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Speaker 2: earlier this spring we had a twenty percent market sell off.
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Speaker 2: So I don't want to make any of these things impossible.
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Speaker 2: We're talking about a four percent sell off so far today.
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Speaker 2: If we get there, do you have that same buy
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Speaker 2: the dip mentality or to your point, has sentiments shifted
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Speaker 2: in some way. Have people become so concerned about financial conditions?
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Speaker 2: Have they become concerned enough about the overall narrative of
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Speaker 2: become concerned about the labor market and the state of
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Speaker 2: things that they don't go in and buy that dip
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Speaker 2: as they have every other time. There's plenty of cash around, right,
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Speaker 2: There's plenty of resources to hypothetically go buy on that dip.
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Speaker 2: But has this narrative shifted? Are we in a place
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Speaker 2: where investors are prepared to do so? And I think
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Speaker 2: there's plenty of evidence on either side of that equation,
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Speaker 2: you know, technicals for people that like that sort of thing.
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Speaker 2: P and NAZAC have both now slipped below their fifty
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Speaker 2: day moving average, first time in one hundred and thirty
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Speaker 2: eight trading days. The Doubt Industrial average just capped their
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Speaker 2: worst three day drop since April. I don't really follow
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Speaker 2: fifty day moving averages, but there are plenty of technicians
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Speaker 2: who do and look at that as a pretty bearish
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Speaker 2: sign for the market. It's the first time that that
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Speaker 2: has happened since May. That fifty day moving average mark
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Speaker 2: again right back to the tariff time period where market's
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Speaker 2: sold off substantially. So there are a few I think
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Speaker 2: both reality concerns that are flashing as well as a
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Speaker 2: few technical concerns that are flashing out there in markets
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Speaker 2: right now. But I'll be the first one to sit
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Speaker 2: here and say, I don't know if this is the
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Speaker 2: moment of a drop, of a more substantial drop that's
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Speaker 2: going to lead to one of those other moments that
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Speaker 2: we've seen in history. But we've been pounding the desk
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Speaker 2: for a few years now now about how expensive this
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Speaker 2: market is and the concerning rhetoric that's being used to
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Speaker 2: describe this new emerging technology. I don't know. I guess
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Speaker 2: one other notable thing that is important about this market.
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Speaker 2: We talk about stocks all the time, other areas of
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Speaker 2: the market are getting wrapped up in this too. Gold
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Speaker 2: is selling off, Crypto is selling off. Crypto's selling off
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Speaker 2: a heck of a lot more than the stock market.
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Speaker 2: Just taking a look. We don't often quote it, but
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Speaker 2: in terms of the Bitcoin drop, you had bitcoin below
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Speaker 2: ninety thousand. Briefly you had that. Yeah, so Britcoin today
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Speaker 2: actually moving up a little bit right now, but sitting
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Speaker 2: just below ninety two thousand dollars per coin. Just recently,
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Speaker 2: back in October, you had that topping one hundred and
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Speaker 2: twenty five thousand dollars per coin. So we talk about
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Speaker 2: the selloff in equity markets, it's been more substantial in
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Speaker 2: other areas of the markets. What do you have on
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Speaker 2: your radar now that the government's reopened You know what
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Speaker 2: in your mind could either confirm this narrative that we
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Speaker 2: are talking about right now, this sentiment shift, and what
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Speaker 2: could turn it in another direct.
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Speaker 3: I'm personally of the mind that a big downturn is
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Speaker 3: pretty much baked into the cake. I'll stake out a
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Speaker 3: relatively pessimistic position for the short term. I guess is
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Speaker 3: tech has gotten way ahead of itself as it does
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Speaker 3: periodically or whatever. The hot sector tends to be. The
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Speaker 3: investments required on the part of the so called hyperscalers.
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Speaker 3: And when I say investments, I mean the data center
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Speaker 3: build out requirements. I'm going to get some of the
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Speaker 3: jargon off here. Not exactly my area, but the investments
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Speaker 3: required are just too big relative to the overall size
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Speaker 3: of investment in the economy to me to be plausible
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Speaker 3: without a massive boost of growth coming from AI in
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Speaker 3: the near term, AI is not going to pay for itself.
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Speaker 3: Said differently, more simply, so I don't get so tripped
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Speaker 3: up on my own words. AI is not going to
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Speaker 3: pay for itself quickly enough to allow these investments to continue.
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Speaker 3: Most that is now out there in the ether, this concern.
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Speaker 3: Michael Burry raised it, sure, other prominence, so called short sellers,
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Speaker 3: speculators who think prices will go down.
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Speaker 2: Everest Soonderchi, the CEO of Alphabet you raised it yesterday
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Speaker 2: in an interview. We'll be talking about that.
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Speaker 3: So now it's you could talk about im polite company now.
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Speaker 3: And when it gets to that point, it sort of
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Speaker 3: becomes the dominant theme. Couple that with evidence of weakening
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Speaker 3: in the labor market, not severe, but it's there, the
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Speaker 3: FED having to ease preemptively because they're all worried about recession.
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Speaker 3: Combine all these things, Mike and I tend to think
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Speaker 3: a downturn I don't know how big, sure, but I
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Speaker 3: tend to think it's baked into the cake. I e
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Speaker 3: inevitable at this point. I hope that I'm not making
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Speaker 3: a prediction so much as sharing a feeling. I hope
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Speaker 3: it's wrong.
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Speaker 2: Yep. Let's take a quick break. When we come back.
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Speaker 2: I want I want to take the flip side of
10:45
Speaker 2: that argument and talk about what events and data points
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Speaker 2: could turn this overall narrative quick break. We'll be back
10:52
Speaker 2: with that next to The Financial Exchange.
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Speaker 2: Taking a look around at markets here. We've got a
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Speaker 2: broad based sell off that's been bouncing around here for
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Speaker 2: the last few minutes. But the SMP is off a
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Speaker 2: full percentage point, and as that go off and a
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Speaker 2: half in videos down two point six, Google's down one
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Speaker 2: a MDS down five and a quarter. I don't know
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Speaker 2: why I chose those three, but they seemed relph Actually,
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Speaker 2: I can't mention those three without mentioning Microsoft. So let's
12:11
Speaker 2: see what Microsoft is doing. Please hold down two and
12:17
Speaker 2: a half percent today as well. One of the things
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Speaker 2: that we were just talking about in between the break
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Speaker 2: market and you know, I don't like to acknowledge that
12:24
Speaker 2: we actually have conversations when we go to ad breaks,
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Speaker 2: but we do. Uh actually will just stare occasion. No,
12:30
Speaker 2: we usually just stand here in silence and no, no,
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Speaker 2: we all just need each other silent and glare at
12:36
Speaker 2: each other like did Tucker really hit that brake at
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Speaker 2: the right. Yeah, that's how it usually goes. We were
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Speaker 2: talking in the break about this market and your point
12:48
Speaker 2: was there's been this shift in markets without any sort
12:52
Speaker 2: of spirits. Yeah, animal spirits, Right, it's just a sentiment.
12:57
Speaker 2: There's not been a bankruptcy, there's not been a company
13:00
Speaker 2: that's reported terrible earnings.
13:03
Speaker 3: No bank failure, bank, no trade war. Fed didn't surprise
13:07
Speaker 3: us with a rate cut or a rate hike that
13:09
Speaker 3: we have to read into, so no crazy new tariffs.
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Speaker 2: Michaelson totally wrote a piece yesterday that I was reading,
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Speaker 2: and he talked about three different things that are, you know,
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Speaker 2: dominating this market. One has been the skepticism about the
13:23
Speaker 2: AI trade. One has been the turn in expectations for
13:27
Speaker 2: the Federal Reserve and their rate cuts. That was kind
13:29
Speaker 2: of baked in, and now that sentiment has shifted towards, oh,
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Speaker 2: maybe they won't be cutting rates. And there was a
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Speaker 2: third piece that I didn't find relevant, so I didn't remember,
13:37
Speaker 2: but those two items he points to, and again to
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Speaker 2: your point on this, I can see why the sentiment
13:45
Speaker 2: shifted on the Fed. They've come out very publicly and
13:49
Speaker 2: said you all need to pump the brakes here. We're
13:51
Speaker 2: not sure we're gonna be cutting rates at this next meeting.
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Speaker 2: I don't see the catalyst for what shifted on AI
13:57
Speaker 2: other than I guess you can point to Michael Burry,
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Speaker 2: you can to a few bags.
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Speaker 3: It was fragile to begin with. People didn't hold their
14:03
Speaker 3: convictions that strongly because they don't get it. I don't
14:05
Speaker 3: fully get it. I don't get crypto. I defy anybody
14:08
Speaker 3: whose paycheck doesn't depend on it to coherently explain to
14:12
Speaker 3: me how crypto's useful. I defy anybody whose paycheck doesn't
14:15
Speaker 3: depend on it to explain to me how these investments
14:18
Speaker 3: in cap x will provide the returns necessary to facilitate
14:22
Speaker 3: the investment to keep them going in AI. I mean, Mike,
14:25
Speaker 3: so it can get to the point where you start
14:27
Speaker 3: calling BS on stuff. Yeah, and you're more comfortable calling
14:29
Speaker 3: BS on stuff.
14:30
Speaker 2: Here would be my counterpoint, just to voice it for
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Speaker 2: a leisure rare. It seems to me that everyone is
14:37
Speaker 2: talking about how overvalued the stock market is. You have
14:40
Speaker 2: every bank executive out there as soon. Darpachai, the CEO
14:43
Speaker 2: of Alphabet, just gave an interview about the same subject,
14:46
Speaker 2: saying that his company would not be immune to an
14:49
Speaker 2: overall bubble burst in the AI trade. Obviously you have market.
14:54
Speaker 2: I mean, go watch Fox Business, CNBC, Bloomberg, any of
14:58
Speaker 2: these sources they are going to put on interview after
15:01
Speaker 2: interview about the EYE trade. Is it overblown? Should we
15:05
Speaker 2: be more skeptical of it? In my experience, rarely when
15:10
Speaker 2: everyone is preparing for a downturn like that, does the
15:13
Speaker 2: downturn actually come, I think, excuse me about some of
15:16
Speaker 2: them that we've been through recently. Like nobody was talking
15:20
Speaker 2: about COVID sinking overall markets and destroying the economy, and
15:24
Speaker 2: then we you know, shut down the entire economy and
15:27
Speaker 2: markets spilled over forty percent because of it. Nobody was
15:30
Speaker 2: really prepared for Liberation Day when markets sold off by
15:34
Speaker 2: twenty percent based on a trade proposal that nobody was anticipating.
15:38
Speaker 2: And so when you have all of this positioning, or
15:41
Speaker 2: when you have all of this sentiment of already people
15:44
Speaker 2: are skeptical about the earnings, about the spending, I just wonder, Yeah,
15:51
Speaker 2: I guess, are you actually going to catch investors unprepared
15:55
Speaker 2: for this moment and see the market sync to the
15:58
Speaker 2: degree of Liza could right? I mean, if you have sentiment,
16:02
Speaker 2: just shift that dramatically to everybody now hates this stuff,
16:05
Speaker 2: then yeah, they'll dump their shares and you will you will,
16:09
Speaker 2: you know, move downwards because of that. But it would
16:12
Speaker 2: be notably different than the last few markets sell offs
16:14
Speaker 2: that we've had, at least in my perspective of thinking
16:17
Speaker 2: about things.
16:19
Speaker 3: Uh. Yeah, So what you're saying is sort of a
16:21
Speaker 3: version of the if you took a finance course, you
16:23
Speaker 3: recognize the phrase efficient market hypothesis, which is, if it's available,
16:27
Speaker 3: I'll state one version of it. There are lots of them,
16:30
Speaker 3: so I'm not being very rigorous here. If something's known,
16:33
Speaker 3: it's priced in, right, so you can't really make money
16:36
Speaker 3: off of it. So oversimplifying, but that does sort of
16:39
Speaker 3: make sense. So you're stating, I think a version of
16:41
Speaker 3: the efficient market hypothesis. It sounds more technical than it is,
16:45
Speaker 3: but it's just kind of common sense. If everybody knows it,
16:47
Speaker 3: everybody can use it. Not everybody's as good as using it,
16:51
Speaker 3: you know, I'm not as good on skates, nearly as
16:52
Speaker 3: good as on skates as you are. So there's a
16:54
Speaker 3: there's it, right, Sure, there is one way to think
16:57
Speaker 3: about it. So there are reasons to object to this,
17:01
Speaker 3: but you're stating a version of that.
17:05
Speaker 2: Other. The other one is go ahead the other. Just
17:08
Speaker 2: like general investing thesis that I've always looked at, is
17:12
Speaker 2: when the whole crowd is looking in one direction, it
17:15
Speaker 2: oftentimes makes sense to look in the opposite.
17:19
Speaker 1: Feed too.
17:20
Speaker 3: It's and there are people that run modeled markets using
17:24
Speaker 3: the same way that people model the same math that
17:26
Speaker 3: people use to model avalanches and car pile ups and
17:31
Speaker 3: other other sudden events that result in a state a
17:36
Speaker 3: dramatic change in the state of of things. This this
17:39
Speaker 3: feels to me a little different than some of the
17:41
Speaker 3: concerns that have been raised over the past couple of years.
17:44
Speaker 3: Couple that with the worst fiscal and monetary policy I've
17:48
Speaker 3: ever seen in my lifetime or read about since then,
17:50
Speaker 3: I'm serious, We've got We've handicapped monetary policy by infringing
17:54
Speaker 3: on the independence of the Fed. Our fiscal policy is abominable,
17:58
Speaker 3: It's been miserable for some time, though I'm not just
18:00
Speaker 3: pending that on the incumbents here. And our trade policy
18:05
Speaker 3: is incoherent and unproductive. So couple these frothy valuations with
18:10
Speaker 3: the sudden realization that these companies actually have to make
18:13
Speaker 3: money to pay for future enhancements to data centers. Couple
18:16
Speaker 3: that with terrible inconsistent policy fiscal, monetary, and trade, and
18:22
Speaker 3: you get a possible perfect storm.
18:24
Speaker 2: Yeah, I'm not sure that any of those latter things
18:27
Speaker 2: that I tend to agree with you on. Terrible fiscal policy,
18:30
Speaker 2: deficit spending, federal reserve policy when it comes to interest
18:33
Speaker 2: rate setting, and messaging around all of that has been
18:36
Speaker 2: lackluster at best and abysmal at worst. I'm not sure
18:41
Speaker 2: any of that's going to contribute to what we're seeing
18:42
Speaker 2: right now.
18:43
Speaker 3: No, but it ties our hands to in the response
18:45
Speaker 3: mic it does. We've got no we've got no fiscal
18:48
Speaker 3: policy room. Monetary they're going to start they'll blow they'll
18:51
Speaker 3: start blowing money out as quickly as is imaginable if
18:55
Speaker 3: the economy turns down or if the market turns down.
18:58
Speaker 2: But what does that do at how the price?
19:00
Speaker 3: What does that do for inflation? We're not in a
19:04
Speaker 3: good place.
19:05
Speaker 2: Uh Mark is clearly pretty pretty upset and concerned about
19:10
Speaker 2: where we are. So we're gonna take a quick break.
19:11
Speaker 2: We are going to get Wall Street Watch, and we're
19:13
Speaker 2: gonna take a full look at markets when we return.
19:16
Speaker 2: When we come back, though, we do have to move
19:18
Speaker 2: on from just this market shift that we seem to
19:21
Speaker 2: be seeing. We've got earnings from Home Depot to talk about.
19:24
Speaker 2: We've also got some talk about the FED and what
19:28
Speaker 2: we're seeing there. That's all next here on the Financial Exchange.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
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Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
Speaker 1: Watch a complete look at what's moving market so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 4: Markets extending their losses from yesterday's route, where high tech
20:03
Speaker 4: valuations continued away on sentiment. Crypto also seeing more attention
20:07
Speaker 4: today after Bitcoin briefly drop below ninety thousand dollars, It's
20:12
Speaker 4: up around ninety two thousand right now. Wall Street's also
20:15
Speaker 4: digesting the first patch of retailer earnings this morning from
20:19
Speaker 4: Home Depot. Right now, the Dow is down over one
20:22
Speaker 4: percent or five hundred and six points lower, SMP five
20:25
Speaker 4: hundred down just about one percent or sixty five points lower,
20:29
Speaker 4: NASDAC down one and a half percent or three hundred
20:32
Speaker 4: and sixty two points, RUSTED two thousands down two thirds
20:35
Speaker 4: of a percent, Tenure Treasureel down three basis points at
20:38
Speaker 4: four point zero nine six percent, and crude oil down
20:42
Speaker 4: about a quarter percent, trading just below sixty dollars at Barrel,
20:46
Speaker 4: Home Depot falling over three percent after the home improvement
20:49
Speaker 4: retailer missed third quarter earnings expectations, marking its third consecutive miss.
20:54
Speaker 4: Home Depot also cut its full year profit outlook, breaking
20:58
Speaker 4: news this hour after Microsoft and no US new strategic
21:01
Speaker 4: partnerships with Nvidia and ai startup Entropic. Microsoft and Vidia
21:06
Speaker 4: will invest a combined fifteen billion dollars in Entropic, while
21:09
Speaker 4: Entropic committed to purchase thirty billion dollars of computing capacity
21:14
Speaker 4: from Microsoft's a zerr cloud service. Both Microsoft and Nvidia
21:18
Speaker 4: stocks are down over two percent. Meanwhile, we have another
21:22
Speaker 4: major internet outage to report this morning, this time stemming
21:25
Speaker 4: from cloud Fair. The outage is affecting several major websites
21:29
Speaker 4: and services offline, including open ais Chat, GPT, and social
21:33
Speaker 4: media platform x. However, the outage reportedly has been resolved.
21:38
Speaker 4: Cloud Fare is down three percent, and according to The
21:42
Speaker 4: Financial Times, activist investor Elliott Management has built a large
21:45
Speaker 4: stake in Barrack, where Elliott was encouraged by the idea
21:49
Speaker 4: that the gold miner could be split into two companies.
21:52
Speaker 4: Berrickstock is up over one percent. I'm Tucker Silva and
21:57
Speaker 4: that is Wall Street Watch. And remember you can watch
21:59
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22:03
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22:18
Speaker 2: We were mentioning home Depot before the break. They reported
22:21
Speaker 2: earnings this morning, disappointed shareholders. Stock is off. What did
22:25
Speaker 2: you say, Tucker? How much was it off?
22:26
Speaker 4: How about three and a half or three.
22:27
Speaker 2: And a half percent in early trading. Home depot matters,
22:31
Speaker 2: just plain, a simple home Depot matters for the state
22:33
Speaker 2: of the overall economy. Housing is an enormous piece of
22:36
Speaker 2: our traditional economic growth engine. If it is in the
22:41
Speaker 2: process of going through a collapse, isn't the right word.
22:46
Speaker 2: If it's in the process of going through a period
22:49
Speaker 2: of low building, low renovating, then you know it's a
22:53
Speaker 2: bad sign for the overall state of things because it's
22:56
Speaker 2: the single biggest asset that most Americans own, and it
22:59
Speaker 2: is a huge pie of traditional growth in the economy.
23:01
Speaker 2: So far this year, we've already seen the decline in
23:04
Speaker 2: housing investment. It's been made up for by a lot
23:07
Speaker 2: of AI investment. That's why investors have been piling into
23:09
Speaker 2: some of this stuff. But unsurprisingly, Home Depot giving a
23:12
Speaker 2: pretty dour outlook when it comes to their overall business.
23:16
Speaker 2: The net income came in at three point six billion,
23:20
Speaker 2: or three sixty two a share, That was down from
23:22
Speaker 2: three point sixty five billion three sixty seven a share
23:25
Speaker 2: the year prior. Adjusted earnings were three seventy four a share.
23:29
Speaker 2: Expectations were for three dollars eighty four per share, and
23:32
Speaker 2: sales rose two point eight percent, But importantly, COMP Sales
23:36
Speaker 2: meeting looking at sales for all stores that were open
23:40
Speaker 2: for at least twelve months, came in at a barely
23:43
Speaker 2: increase point two percent for the year, missing forecast of
23:46
Speaker 2: one point three percent. So I think it's fair to
23:49
Speaker 2: say that, based on this earnings projection from Home Depot,
23:54
Speaker 2: that people are not investing a lot more in their
23:56
Speaker 2: homes right now. Yes, we still do have that top
23:59
Speaker 2: ten percent who are still spending, but a lot of
24:01
Speaker 2: others are pulling back from major projects, and even on
24:05
Speaker 2: that top income side, I'm starting to hear rumblings, specifically
24:09
Speaker 2: from anybody in the housing or housing adjacent industries, of
24:14
Speaker 2: folks getting a little bit nervous about projects and pulling back.
24:18
Speaker 2: Spoken to a contractor and carpenter that has seen projects
24:22
Speaker 2: dry up. I've spoken to a few people about their
24:24
Speaker 2: own renovations that have decided to put them off. My
24:27
Speaker 2: brother does some hardscaping work. He's seen a cancelation on
24:31
Speaker 2: that front for a fairly sizable project for some work
24:35
Speaker 2: there around the home, and so I think we're generally
24:38
Speaker 2: seeing some Again, most of this is coming from the
24:42
Speaker 2: fact that Florida, Texas and other parts of the country
24:44
Speaker 2: are in a housing slump where nobody wants to develop
24:48
Speaker 2: new homes and so, you know, a massive piece of
24:50
Speaker 2: home depots business is that contractor a new home building business.
24:55
Speaker 2: But even when it comes to renos and things like that,
24:57
Speaker 2: I'm seeing some shift when it comes to what people
24:59
Speaker 2: are willing to do. That's very recent. Anything else to
25:02
Speaker 2: add on the state of housing.
25:03
Speaker 3: So home depot is part of the consumer discretionary basket,
25:07
Speaker 3: very growth sensitive for obvious reasons. Consumer So the overall
25:10
Speaker 3: stock market this year, I'll use the Russell one thousand,
25:13
Speaker 3: which is a little broader than the S and P
25:14
Speaker 3: five hundred, up about thirteen and a half percent. You
25:17
Speaker 3: can think of that as core large cap. If you
25:19
Speaker 3: have a large cap option in your four one K plan,
25:21
Speaker 3: might be called core large cap. That's what I'm talking about.
25:23
Speaker 3: It's synonymous with the entire market. Consumer discretionary stocks, for
25:27
Speaker 3: what this is worth, are barely positive on the year,
25:30
Speaker 3: up point seven percent. This is real time. Infotech and
25:34
Speaker 3: utilities for different reasons are up about twenty percent each.
25:39
Speaker 3: Consumer discretionary stocks are flat.
25:41
Speaker 2: So if you're a believer.
25:42
Speaker 3: In stocks as an economic forecaster, and their record is mixed, there,
25:47
Speaker 3: but at least the stock market is real time. There's
25:52
Speaker 3: no question about prices being incorrect. So the stock market
25:57
Speaker 3: can be a useful forecaster, and it's telling us the
26:01
Speaker 3: pullback in tech over the last really month, in the
26:05
Speaker 3: month to date period, the pullback in consumer discretionary which
26:08
Speaker 3: I was just talking about flat on the year, are
26:11
Speaker 3: suggesting economic weakness.
26:13
Speaker 2: Mic. Yeah, and again, I hate to cherry pick this
26:15
Speaker 2: a little bit, but it's yes, no, no, But you're right,
26:18
Speaker 2: I'm going to cherry pick further. So it's on me here.
26:21
Speaker 2: When we talk about that consumer discretionary sector, you have
26:24
Speaker 2: to recognize that Amazon is the biggest one, followed by Tesla,
26:28
Speaker 2: and then you've got home Depot at third, which is yeah,
26:31
Speaker 2: fair enough by you know, looking at it, just about
26:35
Speaker 2: a fifth of Tesla and about uh an eighth of Amazon.
26:41
Speaker 2: So yeah, really we're talking about the influence of a
26:43
Speaker 2: few big companies on this sector as well. But yeah,
26:46
Speaker 2: I think important to call out that consumers seem to
26:49
Speaker 2: be at least a large percentage of consumers seem to
26:53
Speaker 2: be out of COVID stimulus payments, not keeping up with
26:57
Speaker 2: their overall expenses, and are nervous about their ible.
27:01
Speaker 3: Sees the market's reaction, especially over the past few weeks too,
27:05
Speaker 3: and that may lead into our next story.
27:07
Speaker 2: So yeah, what is I mean, what is the FED
27:09
Speaker 2: do in December? Their next meeting is coming up on
27:12
Speaker 2: December tenth. Okay, so next meeting December tenth. They have
27:16
Speaker 2: cut now is it twice?
27:19
Speaker 3: We're at three seven five right target, We're at.
27:21
Speaker 2: Three seven five, and I think they've cut twice so
27:23
Speaker 2: far this up until a few weeks ago. Another cut
27:27
Speaker 2: in December was fully baked in. FED has net since
27:29
Speaker 2: come out and said, hey, pump the brakes here. We're
27:31
Speaker 2: not so sure about that. The more I'm seeing recently,
27:35
Speaker 2: the more I am on board was saying, there is
27:36
Speaker 2: no reason for you to pause that overall rate cutting
27:39
Speaker 2: cycle unless you see financial conditions reverse in the course
27:43
Speaker 2: of the next few weeks. In markets rally another twenty
27:45
Speaker 2: percent from here. I just you know, between what we're
27:48
Speaker 2: seeing from Again, we haven't had government data for a while,
27:52
Speaker 2: and I don't think that the FED genuinely cares about
27:55
Speaker 2: home depot earnings. But what we're seeing from announced layoffs,
27:59
Speaker 2: what we are are seeing from markets, to me insinuates
28:03
Speaker 2: that the FED has some work to do on cutting rates.
28:05
Speaker 2: And again, this FED has always favored the labor market
28:09
Speaker 2: over the inflation concerns.
28:12
Speaker 3: Their job is to is, you know, balance the two.
28:16
Speaker 3: The problem is we don't know exactly. We never know exactly.
28:20
Speaker 3: We don't know even sort of vaguely right now what
28:23
Speaker 3: the very recent trend in unemployment and inflation has been.
28:28
Speaker 2: Right, So I don't know.
28:31
Speaker 3: My gut says basic to go ahead, good, no good.
28:33
Speaker 3: As of two months ago, I would have said absolutely not.
28:35
Speaker 3: Inflation remains elevated, unemployment's gone up a little tiny bit.
28:39
Speaker 3: May not be the best measure of the state of
28:40
Speaker 3: the labor market, however, others point to mounting weakness, but
28:45
Speaker 3: nothing alarming. More perhaps a normalization from the frantic pace
28:50
Speaker 3: of labor market growth over the last few years. So
28:53
Speaker 3: we've got elevated inflation, we've got potential slight compromise of
29:00
Speaker 3: labor market conditions not enough to me to provide. What
29:04
Speaker 3: the FED does is it stimulates the economy. It stimulates
29:07
Speaker 3: a man. It does that, as we know, by controlling
29:09
Speaker 3: the money supply, which in turn effectively allows it to
29:12
Speaker 3: control very short term interest rates. To me, the case
29:15
Speaker 3: was far from clear that we needed additional stimulus when
29:19
Speaker 3: underlying inflation when last we knew what the estimate was
29:23
Speaker 3: was somewhere in the low three underlying inflation.
29:27
Speaker 2: I think so right now. By the way, according to CME,
29:30
Speaker 2: it's about a coin toss as to whether or not
29:32
Speaker 2: they cut rates. Again, I won't voice my opinion of
29:35
Speaker 2: what they should do, but in terms of what I
29:37
Speaker 2: think they will do, I think a rate cut is
29:39
Speaker 2: far more likely than a coin toss.
29:41
Speaker 3: Well, they're scared to death of a market crash because
29:43
Speaker 3: the so called wealth effect is increased in importance, meaning
29:46
Speaker 3: people tend to spend more. In response to a one
29:49
Speaker 3: percent increase in stocks historically has resulted in a three
29:52
Speaker 3: to five cent increase in spending. That number may have
29:57
Speaker 3: gone up. We've all seen stories about top earners and
30:00
Speaker 3: people on stocks keeping consumption going. FED knows this I
30:05
Speaker 3: don't know that they think they can afford to let
30:08
Speaker 3: the stock market sell off. I also don't know that
30:10
Speaker 3: they can staunch any sell off if it's driven by
30:13
Speaker 3: more fundamental or deeper concerns.
30:15
Speaker 2: Quick break when we come back. We did finally get
30:19
Speaker 2: some government numbers on the labor market. I want to
30:23
Speaker 2: talk about those when we return next on The Financial Exchange.
30:26
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30:30
Speaker 1: Financial Exchange Radio Network.
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31:22
Speaker 2: As far as I'm aware, one of the first pieces
31:25
Speaker 2: of government economic data to be released since the government
31:28
Speaker 2: shutdown or since the government reopened, were the jobless claims
31:31
Speaker 2: that we got just this morning. This is pretty stale now,
31:35
Speaker 2: it's measuring a month ago. So I don't know what
31:39
Speaker 2: to do with this information other than to say that
31:41
Speaker 2: a month ago I wasn't terribly concerned about the labor market.
31:45
Speaker 2: Jobless claims for the week of October eighteenth total two
31:49
Speaker 2: hundred and thirty two thousand. That was up a little
31:53
Speaker 2: bit from previous weeks that we had back in I
31:56
Speaker 2: don't know what we had before that, like September. But again,
32:01
Speaker 2: until those numbers, I don't know if you have a
32:03
Speaker 2: figure in your mind where that reaches a real grave
32:05
Speaker 2: concern level, But I would say if it crosses the
32:07
Speaker 2: three hundred thousand threshold, we've got some questions to answer
32:11
Speaker 2: about the state of this economy. But at two hundred
32:13
Speaker 2: thirty two thousand, that's basically in line with where we've
32:16
Speaker 2: been for a while now, and it has not been
32:18
Speaker 2: enough to force up the unemployment rate. If you take
32:20
Speaker 2: that with a shrinking workforce due to retirees plus lack
32:26
Speaker 2: of immigration into the US. I tend to think that
32:29
Speaker 2: two hundred thirty two thousand is nothing to be immensely
32:32
Speaker 2: concerned about. Continuing claims, i e. How many people are
32:36
Speaker 2: continuing to receive unemployment benefits came in at one point
32:39
Speaker 2: nine to five seven million. That was up slightly from
32:41
Speaker 2: one point nine to four to seven million the week prior.
32:45
Speaker 2: So again, I think we will get this data on
32:49
Speaker 2: Thursday for last week, which will be far more relevant.
32:52
Speaker 2: It may take a little while to have it released,
32:55
Speaker 2: but this data point is only important because it is
33:01
Speaker 2: the most up to date data that we get on
33:04
Speaker 2: the stay of the labor market. Right, nothing else that
33:06
Speaker 2: we can get other than private when.
33:08
Speaker 3: You want when you use data for forecasting. It's the
33:11
Speaker 3: point I was trying to make in the last segment
33:14
Speaker 3: or a couple of segments ago about the stock market
33:16
Speaker 3: being useful is because it's continually updated day. The price
33:20
Speaker 3: is always right. People don't appreciate if you don't work
33:22
Speaker 3: with data, you may not recognize that cleaning your that
33:27
Speaker 3: mismeasurement is a huge problem when you're doing when you're
33:30
Speaker 3: estimating economic models, doing forecasting stock markets beautiful because there's
33:33
Speaker 3: never a measurement issue with your data, and it's always
33:35
Speaker 3: up up to date. It's not a perfect forecaster of anything,
33:38
Speaker 3: but useful for that reason. Similarly, the frequency of the
33:42
Speaker 3: of the weekly jobless claims continuing claims is weekly, so.
33:46
Speaker 2: Very high frequency compared to say, the monthly jobs report,
33:49
Speaker 2: which we also haven't been getting.
33:50
Speaker 3: Problem is there could be some measurement issues there too.
33:52
Speaker 3: I have not seen any serious analytical not to say
33:54
Speaker 3: it doesn't exist, I just haven't seen it analytical work
33:56
Speaker 3: on what rate of change should be concerning, you know,
34:01
Speaker 3: is if it goes up by two percent.
34:03
Speaker 2: You know, yeah, I think I have seen something, and
34:05
Speaker 2: I don't recall where the thresholds well, and that.
34:07
Speaker 3: Probably changes too because relationships among these variables change.
34:10
Speaker 2: Well, that was the point that they made, is you know,
34:11
Speaker 2: prior to twenty twenty five, the level of job as
34:15
Speaker 2: claims hit the FIT reached this level would indicate that
34:18
Speaker 2: unemployment rate's going to start ticking up. But then they
34:20
Speaker 2: also said, you know, given where we are in twenty
34:22
Speaker 2: twenty five with retirements plus deportations, they had no semblance
34:27
Speaker 2: of an idea of where that number is to be concerning.
34:30
Speaker 2: So again, maybe it's two fifty. Maybe it's three fifty,
34:35
Speaker 2: but in either case, I'm comfortable saying that where we
34:37
Speaker 2: were on October eighteenth is about where we've been for
34:39
Speaker 2: the last twelve months and not concerned.
34:41
Speaker 3: I think we could say, without over analyzing it, that
34:44
Speaker 3: if it started to go up by a lot quickly,
34:47
Speaker 3: we should be worried.
34:48
Speaker 2: Agreed, Yeah, yeah, I think we'd agree on that.
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35:57
Speaker 2: Some bad news out there for for my family in particular,
36:02
Speaker 2: but you know families. This Thanksgiving, generally, turkey price is
36:06
Speaker 2: going to be a bit of sticker shock, as wholesale
36:08
Speaker 2: prices for a turkey have jumped forty percent from a
36:11
Speaker 2: year ago. Why I'm focusing on my family A little
36:14
Speaker 2: lesser known thing about me. My family's insane, especially around Thanksgiving.
36:20
Speaker 2: And we generally have sixty plus people every year for Thanksgiving.
36:25
Speaker 2: But I'm looking at by the way because it's so big.
36:28
Speaker 2: We have family members assigned to building a spreadsheet for
36:31
Speaker 2: who has to do what for our Thanksgiving. And this
36:33
Speaker 2: year I'm counting five turkeys for our one hundred and
36:37
Speaker 2: one attendees of this year's Thanksgiving. For the larger Armstrong family,
36:42
Speaker 2: I am actually responsible for one of these so I'm
36:45
Speaker 2: gonna have to figure that out. But wholesale turkey price.
36:47
Speaker 4: Is one cook per turkey.
36:52
Speaker 2: No, I am splitting this responsibility with my second cousin.
36:56
Speaker 4: Okay, so how many birds are you responsible for? Two?
36:59
Speaker 1: Okay?
36:59
Speaker 2: Yeah, I'm personally responsible for one, and then there's other,
37:02
Speaker 2: you know, couples and family members that are responsible for
37:06
Speaker 2: their own. But I'm counting five turkeys. Forty pies, forty pies.
37:13
Speaker 2: Forty pies, yeah, all the same pie.
37:15
Speaker 3: No, forty pies for sixty people.
37:18
Speaker 2: Let's let's do the pretty big forty pies.
37:23
Speaker 1: Uh.
37:23
Speaker 2: Yeah, I don't think you need forty pies for one
37:25
Speaker 2: hundred people. Yeah, probably not for one hundred people.
37:27
Speaker 1: I'm sorry.
37:27
Speaker 3: See I don't know where I got sixty excuse me.
37:29
Speaker 2: Probably probably twenty five pies would do it, wouldn't it. Yeah?
37:33
Speaker 4: Forty Yeah, we don't.
37:34
Speaker 2: Are you having a contest, yeah, it's a pieting contest.
37:38
Speaker 4: The Armstrong pie eating contest.
37:40
Speaker 2: Yeah?
37:41
Speaker 3: Or are you having a food fight?
37:42
Speaker 2: Maybe? Yeah? So it's gonna be an interesting This one,
37:44
Speaker 2: one hundred one is a record. So I'm proud to
37:46
Speaker 2: say that for for the family Thanksgiving, it is a record.
37:50
Speaker 2: And the nice thing is if you don't get along
37:51
Speaker 2: with a family member, it doesn't matter because you don't
37:54
Speaker 2: even see them, which is which is fortunate. I don't
37:58
Speaker 2: know the names of all the people that will be
37:59
Speaker 2: in at ten.
38:00
Speaker 3: That's a big enough crowd that ice may show up.
38:02
Speaker 2: Yeah, it's entirely possible.
38:03
Speaker 3: Yeah, you have a lot of cana, right, Okay.
38:06
Speaker 2: Not on this side. This is my mother's side of
38:08
Speaker 2: the family. Yeah, way around, that's true. But yeah, again,
38:13
Speaker 2: the point of this story before I went on a
38:16
Speaker 2: tangent about my own insane family and every year, is
38:19
Speaker 2: that turkey pretty expensively. It's up forty percent, So.
38:23
Speaker 3: Maybe there's turkeys everywhere.
38:25
Speaker 2: Maybe, Yeah, I know, I could just run over work. Yeah,
38:30
Speaker 2: I don't know. Maybe a good you know, Thanksgiving tofurkey
38:32
Speaker 2: would be go over well with your family.
38:35
Speaker 3: Stop is terrible.
38:38
Speaker 2: I was going to suggest steakes, but those are even
38:40
Speaker 2: more expensive than turkey right now, so that's not a
38:41
Speaker 2: good IDEA quick break, A lot more to cover in
38:44
Speaker 2: the second hour of the financial exchange. We'll be right
38:46
Speaker 2: back