The Jobs Report Was Bad. Stocks Rose. Here's the Catch.

[0:00] Dano: It's officially spooky season. We are into October. It's the 2nd of October, 2026. Was the market spooky this month? Depends on what part you're looking at. My name is Dano Weir. I'm the marketing director for Sonoma Wealth Advisors, which is the private wealth arm of Fermata Advisors, including Fermata 401K, Fermata Tax. And we're about to go on the Markets. This is our weekly market update show. The September jobs report came in well short of expectations. But stocks rose anyway. So we're going to look at why a weaker payroll print pushed the odds of an October Fed hike lower. As I said, the market was, what, flat for the week? Question Mark? Flat? Don't look under the hood. We'll take a look at what really happened in the S&P 500. There is a lot of red. Also, if you're worried about a divided House, Senate, or an executive branch, we'll take a look historically at what has the market done during periods of divided government.

[1:30] Dano: All right, let's bring him in on the show. You can see him here on this thumbnail, guys. They are the managing principals of Fermata Advisors, Daren Blonski and Chris Sipes, both CFP. Daren, our foray into AI thumbnails has got me looking like the rock here. I don't even think my eyebrow can do that.

[1:49] Daren: It's pretty impressive, that differentiation between two eyebrows there, Dan. But yeah, it seems like the algo, for whatever reason, loves videos that have thumbnails of the people speaking and their pictures AI-ified on there. So we're doing it, folks. We're going to do it too. And there you go. There you have it. But if you like and subscribe to the show, that feeds the algo even better for us. So for those who are watching, please take the time to do that. It's super helpful for us.

[2:24] Chris: That's the look on my face, Dan. That's the look on my face after a summer day. All four kids and the dog had been in the House for the entire day. I just walk in the door. Pandemonium.

[2:40] Dano: This is your face when you look at the 10-year treasury this week.

[2:43] Daren: Yeah, I was going to say, this is when you look at the 10-year treasury, dude.

[2:46] Chris: They're the same face.

[2:48] Daren: 100%.

[2:50] Dano: They're the same face. As Daren said, if you're interacting with the show or watching the show, first off, thank you. We appreciate your time. That's why we put together this education is we're trying to share and educate both our clients and prospective clients on what's happening, our view on the market. But second off, make sure to like, subscribe. And if you're watching the show live on Friday afternoons, you can interact with the show. So leave us a comment. Ask us a question. We can reply live here on the show. So, Chris, we do have a midterm election on the horizon very soon. Let's look at what the market does during divided governments.

[3:28] Chris: Well, it looks like that, according to this chart, and this goes back to 1954, if you, you know, just are a couple weeks out from the election, not much has happened. But if you're looking a year out, the S&P has been positive. At a one-year time frame. And this kind of surprised me. The best case scenario was the president's party loses the House and the Senate. So the market tends to like gridlock. Now, you'll notice that it's positive in pretty much all cases, but it's more positive when gridlock is expected.

[4:13] Dano: Which makes no sense, Daren. I mean, it seems like we, it all feels like, you know, if one power party was in complete control, then they would have their will. Kind of like we said back to the presidential election, this thought that once Trump gets elected, quote, crypto to the moon, it just felt right. Right. But in this instance, we're looking at 50 years of data wrong.

[4:33] Daren: Yeah, the other thing too is when one party wins, it's not like... Everyone in our party all agrees on everything, right? Like for the minute we see one party win, the infighting begins. So that creates even, I think it creates a different level. And frankly, I think the more the government stays out. And this is my theory on the issue. If government is divided, it can't really make any changes and Markets generally like status quo. Of course, Markets want a government that all agrees when we're in a crisis like COVID, but generally speaking, as things move, if governments can't act, then the market is very predictable about what the market and what's likely to happen from it. It's just more certainty.

[5:23] Chris: This is going back to 1932, so it's a little bit longer data set showing the returns under different regimes. So on the far left there, Republican sweep, and we've got it boxed in, or I should say the provider of this chart has it boxed in with Republican president and split Congress or Republican president and a Democratic Congress. Both at about five percent annual returns in that regime which is the lowest of the combination that the reason it's boxed in is because that's what's expected right now in the prediction Markets i believe it's about a 60 percent probability that the Democrats you know take over the Senate and the House the House is obviously much higher the Senate just recently looks like it's going to go Democratic too.

[6:21] Chris: From an S&P's standpoint, not the best combination, but still a positive annual return historically nonetheless. All right, now bearishness kicked up this week, guys. We've got 46%, 46.5%. The neutrals are really getting squeezed. So, It's still elevated, but down from, call it a month ago, mid-September. I guess maybe more like three weeks now. Not at extremes by any means, but still a little bit on the bearish side. Now, the CNN Fear and Greed Index is reading a 31, which is fear, down a little bit from 36 fear last week. And then we've got Bitcoin at 72 greed, which is pretty much unchanged. From 71 last week. So Bitcoin's been continuing its revival here recently, and the sentiment is reflecting that. Now, interest rates have been the story all year, but especially this last month.

[7:36] Chris: Here you're seeing the two-year treasury rate, the 10-year treasury rate, and the 30-year treasury rate. Those are kind of the most commonly cited rates. Because the two-year rate's the short-term, of course, the 10-year's kind of the mid-run, and that one is the one that most other types of credit are loosely based on, like mortgages, car loans, business loans, et cetera. And now the two-year rate isn't 40.63%. This is saying that the two-year rate has increased by 40% this year. Now, those shorter-term rates are going to be a little more sensitive to what the Fed is expected to do. It's a little more sensitive to the growth and inflation in the shorter term.

[8:23] Chris: The longer rates don't move quite as much in those cases, which is why you've seen them not quite keep pace with that, thankfully. But nonetheless, all of them are pretty comfortably over 5% now from the short-term to the long-term rates. We've really just been seeing that continue all year, but September was significantly, they ramped up significantly in September, which really wreaked havoc on the Markets across the board. Why is that? Well, when interest rates go higher, the cost of money goes higher, then other assets have to reflect that. Think of it as a hurdle rate. So if you can get, call it 5% in a short-term treasury, that is considered to be credit risk-free, then another asset has to offer a higher return to get people to be enticed into those other assets.

[9:29] Chris: Otherwise, why take the risk? If you're going to take the risk and get paid less, that's not logical. People are not going to do that. As those interest rates go higher, it creates a higher and higher hurdle rate for the rest of the asset classes. That's usually reflected across a lot of different asset classes. Not all, though. This is a great chart here from the Idea Farm. And they're showing inflation sensitivity since 1972, and they're showing the different regimes, or different assets, I'm sorry, during 2022. And you can see cumulative returns are on the left axis there, and then you've got inflation sensitivity since 1972 on the bottom axis. So more inflation sensitive is... Is to the right and more return is towards the top. And so what did well in 2022 and why would we even be looking at this?

[10:32] Chris: Well, if interest rates continue to go higher, especially at the pace that we saw in September, some of those assets that are in that top right box might be the beneficiaries of that type of regime. So you had economic trend, price trend, commodities, Long, short, value. So some of the kind of alternative space tends to do well. What tends to do really poorly in that kind of regime? Well, that's what we saw in September. Treasuries, bonds, normally equities, which we'll see in a second. Most equities did very poorly in September, except for a handful that were able to hold up the index. People might not have noticed it as much in September because of those few that were able to hold it up. Now, this is over the longer term.

[11:29] Chris: When you look at the different environments that we can be in, high growth, low growth, that's on the left side. And then on the right side, you've got inflation. So high inflation, low inflation, or what you would consider sometimes deflation. You Treasuries, you can see, fall square in the bottom left. They tend to do well in low growth and low inflation or deflationary regimes. Reading that book, 1873, about the depression that happened during that time after the boom in the railroads, there was about a 20-plus year period where prices dropped. They didn't go up, they dropped. So think of the regime that we were in after the great financial crisis when all the credit collapsed.

[12:25] Chris: Essentially, that was a deflationary environment, which is what tends to happen when we get too much debt and then that debt cannot be repaid and those loans go bad. You get deflation. And treasuries tend to do very well in that type of regime because they continue to pay the coupon of when you... You purchase them. Now, so in the current regime where we've had higher inflation and high growth in treasuries and bonds in general have done very poorly. Now, flip side of that, what does well in a high growth environment is equities, commodities, energy equities specifically tend to do really well. So you The reason you diversify, though, is you're never sure when these environments are going to change and which asset class is going to be the top performer in any one environment. It's only clear in hindsight which environment you're in. And so that's the reason for diversification and having a little of these assets exposure in your portfolio for the different economic regimes.

[13:42] Dano: Chris, before you go on to that next slide, because I want to stick on that for a second for our bond folks, because we have clients or you perhaps if you're a prospective client, you might have bonds in your portfolio. And this has been a rough 10 days for bonds. What you just said was in a deflationary environment with low growth is when bonds tend to do well. You also mentioned 2008. And that was 2008 is the only time in my life I ever saw prices go down. I saw rent go down, you know?

[14:15] Daren: Yeah.

[14:17] Dano: And one of the things I saw during 2008, this is anecdotal, but one of the things I remember specifically during 2008 was the closure of Starbucks stores. And it was all over the place. Starbucks is closing stores. And I have seen recently upticks in Starbucks store closures, including two here in Sonoma County. So what I'm saying is. There's a lot of things that are happening that I just, you just headlines, you see in data, you see that reminds me a little bit of 2008 and we don't have that deflationary environment yet. I guess what I'm saying is it feels like there are a few dominoes that are lining up that, as you said, if something should break, you know, being in bonds in that scenario, should that happen if you're diversified in that way, could be really advantageous. Would you agree?

[15:07] Chris: Yes, I would agree with that. And the trick is that it's very easy to fall prey to the recency bias of, you know, bonds, especially coming out of the 2008 crisis. We artificially kept. Interest rates low through all types of government programs and such. And so we went through a period of time that was somewhat of an anomaly from an interest rate standpoint. If you think about in Europe, they had negative interest rates. And so really you can't blame people for feeling like, well, when do bonds do well? Because there's a whole generation of investors that really haven't seen. Anytime when bonds have done well, or you've been paid to even hold them.

[15:52] Chris: And that, that is, that's different now with the interest rates higher. But that, that's one, that's one thing, the recency bias. And the other, I think, fallacy is that people assume they're going to see the drop coming and be able to switch and get out, you know, and time it. And, you know, that's, that's a common. That's a common assumption that humans have held forever, essentially. They even talk about it during that 1873 crash, where everybody kind of knew there was a huge bubble and there was all kinds of fraud happening and money was very loose going into it and people kind of knew it was getting frothy, but they just assumed they would be able to get out and change direction at the right time.

[16:44] Chris: Think that timing element is extremely difficult to do. So case in point, if you look at September and you said, oh, well, as soon as I see the market start to go down, I'm going to bail out of whatever equities. Well, 75% of stocks in September had a pretty bad month. So if you happen to be invested in. Just a handful of them, the other 25% that did well, great. But I don't think that that's most people. And it's sort of similar to what we saw in the real estate market where this is one of the most crisis level real estate Markets that America has been in a while in terms of affordability, in terms of what's going on in the surface, in terms like several...

[17:40] Chris: Clients have houses for sale right now and they just said hey we're not even getting anybody looking at them like it's not even like there's just nobody even in the market right now but that's been hidden all that turmoil in that market has been hidden by the fact that prices really haven't dropped that much to you know it's not like if you if you if you saw the prices drop dramatically you're like oh my goodness you know There is a lot going on in this market. We're not really seeing that in the index itself. The S&P wasn't off too much in September, and that was because of those handful that kind of held it up. So the breadth, what they call the breadth of the market was very weak in September as the interest rates hit a lot of those segments.

[18:34] Chris: You think about finance and utilities. Health care. A lot of these companies need money. They need to borrow money to survive or lend money to survive. And as those interest rates get higher and higher, that becomes more and more difficult.

[18:49] Dano: I'm glad you said that about real estate too, Chris, because I've had that feeling the past couple months, which is that you can tell yourself, well, my House is worth this. And it's an old saying that my dad used to say when I used to, I'd take out the Beckett. And I'd say, hey, dad, this Ken Griffey Jr. Card is worth $5.50. Yeah. The Beckett says my Ken Griffey Jr. Is worth $5.50. And my dad, Bruce, would say, yeah, only if somebody will buy it. I think this has turned into a Beckett real estate market where you can feel that your House is worth whatever you think it is, but it's not 2021 anymore. And the. The repricing of some of this real estate, I think, is on the horizon soon if you need to move it.

[19:37] Chris: Yeah, it's interesting how much of the wealth effect. You know, they talk about the fact that people spend money based on the fact that they feel wealthier because of the value of their assets. And that's especially true right now with stock Markets being high and having just produced great returns over the last several years. And you wonder if people knew the actual liquidation value of their House, if they had to sell it, how much impact that would have on that wealth effect. But most of us aren't thinking about that day to day. They just think, oh, I'm sure it's worth X if I sold it, right? Now, here you're seeing the equal weighted S&P 500 versus the cap weighted S&P 500. The cap weighted means that the larger companies get, larger companies by market cap or capitalization, what the market says that company is worth, you know, they get more dollars of the index. Than the smaller companies that the market says are worth less.

[20:53] Chris: Now, equal weighted means you just are taking those dollars in your index and you're just equal weighting them across the 500 companies in the index. Now, I know there's not exactly 500 companies in the index, but just for illustration purposes, that's how you can think of it. And the equal weighted index goes back to, what does that say, maybe 2002 or 2003. And we're at the lowest really in the history of that relative performance. And it's just been the pain train really for quite a while for those equal weighted indices versus the cap weighted. And so the more months you see like the one we just had where 75% of the stocks are down. The more this is going to go down relative to that S&P 500.

[21:49] Chris: And here you can see how common it is where the equal weighted is down X number of days in a row. Now, this last streak was seven. Sorry, I said days, but I meant weeks. So that happened back in maybe 22. But Since then, going back to really the dot-com bust, it's not been struggling as badly versus the cap-weighted. And then speaking of struggles, you've got bonds. And this is from Charlie Bielo. He says, the U. S. Bond market has now been at a drawdown for over six years, 74 months. By far, it's longest in history. The long-term bonds have been underwater for 10 years now. So a lost decade, just going to show that any single asset class can go through lost decades.

[22:54] Chris: It's happened many times in history and, and many times in history, those lost decades have actually lasted longer than 10 years. It's hard to believe. Because, because, you know, especially with the bond market, people don't pay attention to it as much. They pay attention more to the stock market. But there's been many times where the stock Markets had lost decades. There's been stretches where the U. S. Stock Markets had lost 20 plus years. So we just came out of one with Japan where it was over 30 years where the market was down from its high. So the case for diversification, the case for asking yourself, oh, okay, well, some of these asset classes. Like bonds, I would venture to say are absolutely hated. No, nobody wants them right now. You know, you look at the 10 year track record and you're like, I've made any money. This is awful.

[23:55] Chris: Usually those are, are, you know, the times where you want to look at things and go, maybe there's an opportunity here. It's so bombed out, but the old John Templeton saying of blood in the streets, right? You want to, yeah.

[24:08] Dano: Yeah. Chris. I think I want to say, did you just describe bonds or did you describe European stocks until this year? Yeah. I mean, it's the same. It's the exact same situation.

[24:21] Chris: Yes. Yes. So and U. S. Stocks had that same flavor in 2009. You know, if coming out of the great financial crisis, stocks had been through two huge 50 percent plus drawdowns, a lost decade. People were saying like, why would you ever want to own U. S. Stocks? And then they went on to have, you know, one of the most epic bull runs in U. S. Stock history. So I know it's painful right now. And everybody, including us, are looking at bonds going, oh, blah, blah, right? But hang in there because over the long term, those tend to be the times where you look back and go, man, I'm glad I didn't bail as much as I hated that whatever that thing was in the portfolio at the time.

[25:17] Chris: Out. But stocks, you know, speaking of stocks, on the flip side, you know, we're sort of in this like regime where I feel like people just think that the stock market just never goes down. And if it does, somebody's going to be there to bail it out. Can't blame people for thinking that, you know, household wealth has been surging since the start of the pandemic. With gains being led by equities, you can see that a lot of the gain in wealth has been from the stock. Market. And that has flowed through to the wealth effect, spending at the top of the K that we're always talking about drives the overall economy. And a lot of that is driven by gains in the market. People can sell their gains in stocks and go buy other things. And so that has been a primary driver since the beginning of the pandemic.

[26:16] Chris: Who knows how long that continues to last. But this from Charlie Bielo, again, at Creative Planning, showing that the S&P 500 returns while they've averaged, let's say, around 10%, and that's the number that everybody always quotes, really, those years are made up of higher gains and bigger losses. So in an average up year, the S&P is actually up quite a bit more than that 10%, actually almost more than double that, versus the years that they're down, it's also down significantly off of that high. So average up year is 21%, according to Charlie, and the average down year is down 13.5%, and these go back to 1928, those numbers. So in a good year, expect it to be really good, in a bad year, expect it to be really bad and The valuations on stocks have moved up to the point where the equity risk premium, a. k. a.

[27:21] Chris: The amount of spread that you're expected to get on stocks versus treasuries, has been compressed. You can see here the U. S. Equity risk premium. This is a moving number, so it doesn't make a ton of sense to put too much weight into any one number. This is targeting it right at around 2.3% versus other countries like Japan at more like 5.6%, the UK at 5.1%. So the EMU, I'm having a brain dump right now. What would EMU stand for, Dan? You know on that one?

[28:08] Daren: Is that the European Union?

[28:10] Chris: Is that the Union?

[28:12] Daren: Yeah, what?

[28:13] Chris: European Union? Call it the eu but emerging market maybe it's emerging Markets well whatever it is has got the highest premium on this chart but the u. s is the lowest and that's due to the the valuations on on the market relative to its its past valuations so i just searched i just searched EMU market is now showing me the EMU animal.

[28:43] Daren: The EMU has the highest risk premium. I mean, perfect sense.

[28:47] Chris: What's for EMUs? That's not investment advice.

[28:50] Daren: Economic Monetary Union Eurozone.

[28:53] Dano: There we go.

[28:54] Daren: Okay, okay.

[28:56] Dano: You've got me. You beat me.

[28:58] Chris: Okay. So now on the bonds, why have interest rates been going up? Lots of reasons. It's been a perfect storm for interest rates this year. One being... Deficits the government deficits government the u. s government is the largest borrower in the world and this showing their fiscal year 2026 deficit is estimated to be two trillion so no slowdown in spending i saw another chart which wasn't included this week that showed the money supply of the u. s and China combined not quite to the COVID highs, but getting up there. So we're throwing a lot of dollars into the system and we're borrowing a lot of dollars at the government level. So when there's a lot of demand for money, the price is going to go up on that money. The government is a huge borrower.

[30:02] Chris: AI is a huge borrower. The large hyperscalers are borrowing as much money as some other foreign governments. I forget the exact fraction of the US government's borrowing that the AI hyperscalers are compared to, but it's not insignificant. They are borrowing a ton of money. So there's a lot of demand for money out there at the moment.

[30:29] Dano: I got a question on the bond market real quick, Chris. I just want an opinion. I want an opinion from Darren. There's a lot of factors at play here, but one that I feel has gone unmentioned, I want your opinion, and this is only your opinion, Darren. You know, President Trump has a clearly a bombastic style. Some people love it. Some people do not. Do you feel at all that his demeanor impacts the purchasing of bonds at all?

[30:55] Daren: His demeanor as in like how he talks in what he puts out on social.

[31:00] Dano: The way that he interacts with people, the way that he goes after people. I mean, if ostensibly it's like buying a Trump buck. In a way if you buy a bond because you're supporting America and you're supporting him. Do you feel like that could impact the bond market at all?

[31:15] Daren: Maybe, maybe on the very peripheral edges. The driver of the bond market is institutions, right? And insurance companies, corporations that per their corporate regulations have to buy bonds. And the retail investor is... Miniscule as far as a driver of the bond market. And so retail investors, the only one that's going to, maybe you could argue. So let's take half of America is sensitive to what Trump says. And half of America is like, yay. I don't know. Right. And the other half is like, and he says they, you know, don't like, so I, I think it's. That's a big stretch. Highly.

[32:06] Dano: Yeah. Yeah. Interesting. Just wanted to ask that question.

[32:11] Chris: Yeah. Bond, a bond is a loan. You know, when you buy a bond, you're loaning your money out, or an institution is right. And so to the extent that, that borrower is not as credit worthy as before, for whatever reason, that interest rate is going to go up and. You also have to look at what are the other players in the market, right? Because if you're going to loan your money out, right now there's a lot of demand for that to AI. So if you can loan your money out to AI and you can loan your money out to the government, et cetera, you got to look at those things and that all goes into the price. And when you look at the overall fiscal situation and the debt situation in the United States, you know, the price, the price of that money has been going up. That borrower is less credit worthy than they were, you know, before. And there's been less, you know, impact on the market from outside forces, at least so far from like the treasury and, and the Fed.

[33:19] Chris: There's less than there's been less room because there's been more inflation, which leads us to this, which is the, oil prices. So government borrowing costs are also at the mercy of oil prices because oil prices are flowing through to inflation expectations. And so this is showing the oil and the 10-year treasury three-month rolling correlation is very high right now, as high as it's been since the early 90s when we also went to war in the Middle East. So having an impact. So again, the perfect storm thing. And then we've got we've got a lot of growth so With nominal GDP coming in, you know, very strong. So this is according to RBA advisors, they say the strongest GDP growth in 20 years, x the pandemic effects, suggesting the five and a quarter percent 10 year yield might be too low.

[34:18] Chris: Because growth actually drives interest rates higher as well. That is a natural driver of higher interest rates. We've got a lot of growth in the economy at the moment. Inflation, PCE came in this week on Wednesday. 3.42%. You can see it's off the highs we saw a couple of months ago, but still trending in the upward direction. And the PCE is, at least it used to be, the preferred measure of the Fed, the personal consumption expenditure reading. And so who knows what the new Fed, but that is something that is considered to be a leading economic. Indicator of inflation moving forward. And then on the other side of the Fed's mandate, we've got unemployment rate. So the Fed is responsible for stable prices, aka not allowing for too much inflation or deflation. And the other side of the mandate is full employment.

[35:25] Chris: Now we got the unemployment rate today, which is at 4.2%, still under. The 5% number, which if we look at this, these stats just kind of blew my mind. This from Charlie Bielo showing the unemployment rate consecutive months below 5%. This is going back to 1948, so Post-World War II. And we've only had one stretch in the 60s where the unemployment rate was under 5% for longer. Now, if you'll remember at that time, the 60s, the stock market It was absolutely... Booming. That's when we had the nifty 50 and it's sort of a similar time of expansion in the 60s to where we're at today. But listen to these stats. So since, and this is from Ben Carlson, by the way, since 1948, the US unemployment rate has been under 5% for just 37% of the time. In the past 10 years, it's been under 5%.

[36:31] Chris: Percent for more than 83 percent of the time and most of that was during Covid where it was above that that five percent was just during Covid in the 1980s the unemployment rate never once fell below five percent never once in the 1980s so not only did we have a really weird interest rate environment really post great financial crisis and and up until So. You know, coming into COVID. But we've also had a very strange employment market. Now, employment drives growth and inflation, because if people have jobs, they have money to go spend. That's going to drive growth. They can put money into the market via their 401ks. It creates kind of a virtuous circle. And so we've had very good employment numbers for a very long period of time, which is... Been outside of the norm.

[37:33] Dano: Is this employment number factoring in AI agents as people and therefore giving them jobs? I don't believe this. I don't believe this, guys. I mean, I'm seeing, especially in media, which is an area of interest for me, people are getting smoked. I mean, maybe they're getting rehired, but I feel like all I hear is layoff notices. I know they're doing it at Oracle. I should pull those numbers. But this, Darren, doesn't it feel...

[37:59] Daren: Counterintuitive well i if you trust the numbers it feels counterintuitive but i think a lot of times too there's people's jobs they just not looking right so if they're not even looking they're not going to show up on this stuff but currently the unemployment rates look like they're headed down or their the jobs coming into the economy are headed down you Oh, so, I, this number two, the other thing, Dan, is it's extremely noisy. It gets readjusted all the time. And I, I think it'd be the first number to interrogate whether or not it's used for political purposes. So I don't, I don't put much into it. And I also think too, we feel AI layoffs in the Bay Area different than the rest of the country.

[38:56] Daren: You know, maybe like you could argue Austin has a similar vibe to it. And certainly that's the case if you look at the real estate market in Austin, because a lot of the jobs getting relegated are the tech jobs, right? It's the programming jobs, that kind of thing.

[39:13] Chris: Yeah, and you ask yourself, okay, bad jobs numbers, like we mentioned to kick off the show, why would stocks be up? Well, it's because it gives the room for the Fed to not. Continue raising interest rates because if, if jobs, if, if jobs are, are being lost, then that gives the Fed some room on that side of its mandate. Hey, inflation's high and, or, but, but jobs are starting to fall off. We don't, we don't have to raise rates because the jobs are starting to fall off. It's, it's going to cut down on growth on its own. It's going to cut down on the inflation on its own. Right. So So. The market, I think, was reacting to that news today. Like it's got this perverse incentive of it doesn't want more jobs because more jobs means.

[40:00] Chris: More growth means higher interest rates, means more inflation, means the Fed's going to hike.

[40:12] Daren: Okay.

[40:16] Dano: All right. You're about to get a face again.

[40:20] Chris: I just wanted to show Chris again. You promised me we're never going to use this actual thumbnail ever again.

[40:26] Daren: Chris, we can promise you we'll never use this actual one. But we'll use it every week. We'll have a new face for you every week.

[40:33] Dano: Will it get worse than this, Chris? I can't promise that.

[40:36] Chris: You and Darren look so serious and inviting, and then there's me.

[40:42] Dano: I look inviting? I look suspicious. My son would say I look sus.

[40:48] Chris: I would invest with you guys. I don't know.

[40:53] Daren: All right, let's take a look at the S&P 500. This is the heat map. For the S&P 500. So Chris referred earlier to a cap-weighted index. So you've got a cap-weighted index and you've got the RSP, which is an equally weighted index. A cap-weighted index gives more credit to the bigger stocks. If there's one point in all the charts I'm going to show you today that I want you to take home, that is that the bigger stocks, Nvidia, Apple, Google, Amazon, Tesla, Microsoft, they're holding the market up. Underneath the hood, the market doesn't look good. We've definitely had that September correction put in place. But because these big stocks are doing well, the cap weighted indexes look just fine.

[41:39] Dano: Holding the market up, Darren, as in they're supporting it, not delaying it.

[41:45] Daren: What do you mean delaying it?

[41:47] Dano: Like I got held up, meaning I got stopped. You're saying it's the opposite. They're supporting the market. Yeah, because if you look at the Q... Without them, they'd have nothing.

[41:55] Daren: No, without the... The tech large cap, the market would look like this. See, red, red, red, red, red, red down. This is the RSP, equally weighted index. Add in the large and cap weight the index, and it looks just fine. It's just a bull flag trading sideways. We're still above that 20 period moving average, which is that trader's average. This is the weekly number you're looking at right now. So this is the candlestick for the week. Looked like it was going to trade down, bounce back up. You look at the weekly chart on the RSP, it tells a different story. So you have a more corrective looking market in the RSP, and you can see that's down almost 7%-ish. Well, I guess it would be down here with 7%, and it closed up around 5.8% down from the top.

[42:50] Daren: So what that tells you is that you don't have broad... Participation in this continued rally, which is the sign of a chink in the armor, right? It's a crack in the dam. How do we look at that? Well, when we look at the RSP to the SPY, when this ratio goes down, that means you have declining depth and breadth to the market. But what we see here is we're kind of at this bottom on this ratio. So we're at the point where I think three weeks from now, I think we'll probably see that this was the close to the bottom and barring some bomb getting dropped over the weekend. When we look at it, I shouldn't laugh. It's sad, but it's pretty crazy how the politicians wait until Friday to drop all the bombs and do the thing.

[43:41] Daren: So when we look at IWM to spy, right now, IWM is going to be those smaller stocks. And it makes all the sense in the world that those stocks are selling off. They're more sensitive to higher interest rates, interest rates going up, like we've seen the 10-year going up. We see IWM, the smaller stocks, going down. Double top, broken double top. I'm going to call this is probably close to the bottom. What I'm seeing in the charts today and this week is that I think we're finding a bottom for this short-term correction. We can't call it correction. It's not low enough, but correctional behavior, which would make sense from the seasonality. We're walking into midterms. Things are going to get stimulated.

[44:31] Daren: The powers that be want to stay in power. They'll do all they can. When we look at emerging Markets, this is very heavily weighted towards China. You can see everything looks good in the emerging Markets. We're still above that 20-week moving average. We like to develop Markets. We are closing below that 20-week moving average. So we've got headwinds in Europe, which makes sense. We've had an incredible run with the European stocks. So again, the headline, big stocks are doing great. They're pulling the market up. You can see this is the weekly chart of the Qs, QQQ, which is those big tech stocks mostly pulling that thing up. They're dragging IWMs of this world. Everything but those mag sevens is effectively driving the market at this point. When we look at this is the number of S&P 500 stocks. Above their 50-day average. So that 50-day average is a really important kind of like demarcation trading line. So that's 50. This is looking at it on a weekly chart, but you can see we're getting to this bottom area too here.

[45:40] Daren: So if it goes lower, then it's something different. It's a more substantial true correction. Right now, it's just a pullback and we're getting to the bottom of the pullback area where I would expect to see at least some kind of like bounce Might be a dead dog bounce where it just bounces up a little bit and goes back down. But I would definitely start to think in the next few weeks we're going to see a bounce here. When we look at the stocks above their 200-day average, I think it was a drunken mill or Buffett that said nothing happens good below the 200-day average. One of those. Chris, do you remember?

[46:19] Chris: I think it was actually Paul Tudor Jones, but I couldn't remember. You're right. It was Tudor Jones.

[46:23] Daren: You're right. It was one of those guys. 200-day moving average. This is, again, the S&P stocks below that 200-day moving average. You can see we're right in that zone where we expect to start seeing some kind of bounce or we're into something different. So pullback getting to the bottom, maybe headed for a correction. We'll see. But I would start looking to the positive bounce. And these are all stocks that are trading below their 200-day moving average. Again, you have seven stocks holding it up, so a lot of the others are lower. Doesn't mean it's going to happen for sure. We don't know. This is looking at advanced decline. There's nothing really to report there. Let's look at VIX. So VIX is a measurement of complacency, how complacent those people are who trade the S&P 500 index. And they're complacent right now, right?

[47:15] Daren: They're not, there's a risk on appetite, meaning the cost of the VIX is lower. Move index, this has been building. The bond market is the part of the market that's concerning that we're kind of watching. But at least at this point, Besant still thinks he's the House. So he's got it under control. We'll see. This is interesting. When you look at high yield debt, which would be junk bonds to debt that is more not junk. You can see this ratio is going up. When this ratio is going up, that's telling you that there's an appetite in the market for high-yield debt. It means that, again, going back to Dan's question, hey, the retail investors and how they think about Trump, do they care about them or do they impact the bond market? Probably not much.

[48:09] Daren: Corporations, sophisticated buyers are taking the high-yield debt, which would lead you to believe, looking at the whole picture, that it's a risk-on indicator. When we look at XLY to XLP, so there's 11 different sectors in the S&P 500, you can see if this ratio goes up, that's telling us that there's a risk appetite out there. And you can see we got that little bounce, right? So that little bounce told us this one green candle right here. This is this week's candle. That's telling you that there's a risk on appetite in the market. So you're looking at consumer discretionary. Two staples right so the idea is if this is going down then people are saying oh i need consumer staples the things that are more secure in a type of recession environment you're not seeing that you're seeing discretionary spending go up here so when we're taking the full picture in we're absorbing the whole picture it starts to tell a story we have this weakness in the bond market because bonds are going up interest rates going up jobs data coming in soft today Last two months getting revised downward, job data being soft, that data comes in and market pops.

[49:30] Daren: Why does it pop? Well, that tells you that maybe inflation's slowing down. Maybe the Fed's less likely to raise rates again. That's more positive for the overall economy and the Markets. When we look at the two-year, you can see that move on the two-year. Mortgage environment is absolutely a dumpster fire at the moment. It's 10-year and the way it's moving. Now, you've heard me say this many, many times on this show. Markets don't care. Necessarily what the price is. They care how fast it moves in any one direction. And when you get big moves like this, that's problematic. And you saw that in 22. You can see this is when the inflation that really beat up bonds. And you can see another big thrust higher. We do tend to see corrections. I would expect this to come right back in with this 20-week moving average here pretty soon. It's just moved up too fast, too quick. So I do see this settling in. And that might be the settling in we see through October, November, December.

[50:29] Daren: January rolls in and then it bounces again and we have something that looks more like this. Inflation goes higher, rates go higher. I don't know, but I do expect at this point, the way things have moved, the way the overall depth and breadth of the market is moving and where it's going to, I think the pullback is coming to an end. I think two to three weeks from now, we'll look back and say, this is probably about where the bottom is. Unless, again, we're getting into a broader correction. But right now, I don't think that's the likelihood. Go back to oil. I've talked about this for many, many weeks. 80 and 100. That's where the politicians want it, between 80 and 100.

[51:09] Daren: Those who sell it don't want it too low. And those who buy it don't want it too high. And they'll collude one with another to keep it in the middle, 80 and 100. That seems to be where they are comfortable, at least the current regime leaders. Whenever it spikes above 100, everything gets a little weird. And all of a sudden, magically, Trump comes out and says, oh, peace. We all have peace. Everyone has peace. And even the Iranians kind of capitulate there. And then when it goes lower, then we can drop some more bombs on each other, threaten each other, et cetera. Sad because it's human life, but that's the reality of the market. And what oil is doing is really, really important.

[51:51] Daren: Look at gold. Gold continues its decline down. You can see we're still making lower lows and we're sitting right at almost at $4,000 an ounce. This area, this zone as support, we'll see if it can hold that over the next few weeks. Bitcoin, which is kind of the front end of the risk curve, nice little breakout. I've been watching this double bottom for a few months now. You can see this double bottom, this decline. We broke out, we broke above. We close now this week, second week above this neckline on a double bottom. That's usually bullish. I think the risk is the upside. Further supports what I'm saying about this being the bottom of this short-term cycle, push this pullback.

[52:40] Daren: Bitcoin taking on risk seems to lead that we're starting to load the gun to move higher into the end of the year. That's my base thesis right now. We get through the midterms, we end up with split government. I think the Democrats take the House, probably the Senate, to push. I think we go into next year with a split government. We see lots of infighting, lots of executive orders. It gets noisy, but overall, I think the risk goes on into the end of the year. That's my base case. It's just a base case. I have no idea. I can't forecast. This is, I guess, a forecast, but forecasts are fundamentally flawed. So don't take his investment advice. This is a jobs data that came out. Initial claims are down, right? So people aren't claiming that, hey, I just got laid off. We continue to see personal income rising higher. So overall, the economy looks strong. The area of concern is the mortgage rates.

[53:43] Daren: The 30-year rate is just high, 7.2. I mean, at this point, it's left for dead. And that's why it's a buyer's market right now. That's why what Dan was saying earlier, well, the reality is that you can think your House is worth a million bucks, but fine, go find a buyer. There's not a lot of people willing to take out a million dollars at 7.2%. Eventually there might be, again, I go back to my point, that what people care about, what Markets care about is how fast things move in one direction or the other. If rates were really low, as they were, right back in 22, and now we're at 7.2, That's a big move, and there's still a lot of people remember this, still a lot of people hoping it comes back to this.

[54:26] Daren: It's going to take some pretty significant depreciatory environment, some type of systematic economic turmoil to get rates down that much lower. I think we're probably rates higher for longer at this point, unless we get some type of very corrective environment.

[54:51] Dano: I got a single to look at if when you're in the right time for it. I stumbled across this this week. I don't even know how it came across my radar. For some reason, I ended up, I don't think I was even trying to just Google something else, and I ended up seeing tractor supplies stock. The ticker is T-S-C-O. And I watched the fall over the last year from summer 25 to now. Oh Right? And so then I just started digging into it a little bit. And this is data coming from Gemini. 20 because i had never heard a tractor supply in my life guys and then suddenly there was a tractor supply in windsor there was a tractor supply on the old yard birds in petaluma on lakeville and it's tractor supply is it home depot is it orchard is it what what type of store is it it was everywhere and in 2019 they determined they had an opportunity they took out over the next six years they went from 400 million in debt to now $2.1 billion in debt.

[56:00] Dano: They had a massive expansion in stores. And now look at the price and they're announcing store closures. And one, we always talk about, I like to point out single stocks usually at the end of the show because it's a good example of, you know, if you feel like it's fun to brag about your pick at the barbecue, take a look at this. But two, what a great epitome of this COVID economy and the downstream long-term effects of it. You can just see it right there, it feels like to me.

[56:30] Daren: Well, this is the homesteading boom, right? I mean, think what happened when COVID hit. It was already in place, but I think you could argue up until COVID right here, the stock was kind of sideways-ish. And then boom, right? Think about all the people who moved to the countryside and bought their farm. And this is stock that drugs really benefited from that, right? You know, what's interesting is I go into a tractor supply a fair amount, speaking of homesteading, and it is interesting. You look at the shelves. I have noticed, anecdotally, that the shelves are more empty than I remembered. And that's usually, you know, they're trying to cut back on what's in the stores, right? Because when you hold stuff in the stores, that costs money. But yeah, they're... There's certainly that stock is getting locked right now since 25, basically.

[57:30] Daren: But that's that consumer discretionary spending, right? If you have less spending, then maybe we're going to buy one less horse, one less cow.

[57:39] Dano: Yeah. And for the record, it's been a pleasant experience when I've been in the store. There's some interesting stuff. I'm not trying to rag on them necessarily, but I just saw all this action and I just thought, wow, this feels like what I'm experiencing just in a chart as far as, you know, we had all this stuff happening in COVID. It was a brave new world in COVID. And then it's just over. And we're kind of back to not even back to reality because now we're back to an AI reality. So kind of interesting.

[58:06] Chris: I want to pull up at the debt to equity ratio of, of TSEO. It exploded in COVID and just kept going up. So you wonder, how much interest rates are having an effect on that, right? Because you mentioned, Dan, that they started borrowing a lot of money. So yes, they did. And those interest rates, because it looks like they borrowed pre-pandemic, and interest rates have just gone sky high since then. And I'm sure a lot of that debt is adjusting in value. So I wonder how much that has to do with it as well.

[58:49] Daren: You know, one of the stocks I've been watching pretty closely is FICO. I've had a theory for a while that this one was going to get substantially disrupted, right? Fair Isaacs kind of had this lock on the market on credit reporting for people. But like now with AI, there's all these more intelligent ways to determine if someone's worthy to borrow money in debt. And this stock just continues to get punished. And now we're back all the way down to the 2023 numbers, which I think is notable. And I'm looking at this one as like one of those stocks that's ideal for AI disruption. Anything that has like a lock on the market, I think is going to get disrupted substantially.

[59:41] Daren: And the agents can determine this way more intelligently than... I'm sure their algos can. But look at FICO. I mean, that's just, talk about just destruction. And talk about a stock that's done nothing for 10 years. Or 12 years, my bad. Literally Disney 12 years. Like that's insanity. I mean, it's just been a dog. Meanwhile, look at McDonald's. But this is also interesting. Look at McDonald's getting pushed.

[1:00:13] Dano: Wait, Go back to Disney. Go back to Disney. Darren, I am a fan of Disney parks. And so I learn a lot from them, including customer experience, which they are great at. And I try to apply it in our own firm, customer experience, customer clients first. Chris, would this not be an example of something that's a clear dog? And when the narrative is obvious, perhaps there could be a surprising result.

[1:00:43] Chris: Perhaps.

[1:00:44] Daren: And you waited 12 years for your surprising result.

[1:00:47] Chris: I think it's an illustration, though, because, you know, the old saying of Peter Lynch, buy what you know. Right. And he was famous for that book. I think it was. Went up on wall street or something where he's just talking about like, you know, my wife and I drive a Volvo and we love it. And so I bought Volvo stock and of course it did well. And like, it's not that easy because you have companies that, that, that everybody, you know, knows or experiences and you're like, wow, this is a great experience. And I'Ll, but that doesn't mean it's necessarily a good investment. Right.

[1:01:22] Dano: Right.

[1:01:23] Chris: Look at Nike. I mean, Nike is off like 80% off of its high. And you're thinking like every person you look at is wearing Nike something. And yet that stock has been taken to the woodshed. So it's not that easy.

[1:01:40] Daren: Dan, I think this is actually an example of being in love with a company and something you really like and really wanting it to do well. And it just doesn't. And I mean, that's another, I'm poking fun at you a little bit, but it's something that we all fall into, right? It's like... Oh, I love this product. I love what this thing does. I totally believe it. This is going to be amazing. And it's not. When it comes to investing, and again, just a reminder, we have to remove our emotions, our perspectives, and all too often investing is that. And that's the opportunity to say, look, don't fall in love with a stock. I'Ll never forget one client who brought in these stock certificates.

[1:02:23] Daren: Her dad said, never sell this stock. And it was a company. It was like the New York real estate company. And the time when she inherited it was worth a half a million bucks. Her dad passed away and said, don't sell it. She never sold it. She brought it in and it was bankrupt by the time she looked at it again. It's like, you don't.

[1:02:42] Dano: If she had sold it, you told me this story. If she had sold it when it was still kicking, it was worth like a couple million bucks, right?

[1:02:50] Daren: I feel like it was a half a million, but I can't remember exactly what it was, but it was worth a lot. It was not nothing. Yeah, it was not nothing and it was worth a lot. And all too often, people who buy investments, especially when you pass on investments to family members, you don't want to leave them with the legacy of like, don't ever sell this thing because you literally cripple them because then they're going to feel awful about selling it if they have to sell it.

[1:03:22] Dano: And if you're going to buy something that you love, make sure it's a very small. Portion of your portfolio.

[1:03:27] Daren: That's right. That's right. Well, let's leave it there. I think all in all, we're probably looking at the bottom of this pullback and this has turned into a larger correction. So get excited for October should be a nice ride.

[1:03:42] Dano: Is that the face Chris will make when he's looking at a bottom?

[1:03:47] Daren: No, just when he watches his bond still not doing good when the market continues to go higher.

[1:03:52] Dano: You give Chris a hard time about being in love with bonds. All right. You next time you guess we, we got to win more and I'Ll get on you about Bitcoin. All right. Hey, thanks so much for checking out the show. We appreciate your time very much. We put this together for you, education for you, and we're looking to hear from you. So wherever you found this show, you can add comments even after the fact, and we will see them. Wherever you found this show, make sure to like, and subscribe, interact with the show. That helps us. If you enjoyed it, if you said, Hey, this was some great free education. Love these guys subscribe, hit the bell on YouTube, and that'll get you a notification. And also subscribe.

[1:04:33] Dano: If you're listening to the audio or audio listeners on Apple Podcasts and Spotify and shout out to the people who listened to us in their Tesla. I can see Tesla motors.com as the podcast download source. We appreciate you pulling us up on your Tesla. For Darren Blonsky and Chris Sipes, my name is Daniel. We are, we are Sinema Wealth Advisors, Fermata Advisors. We'll see you next week on The Markets.

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