Diversification Is King

Dano:
[0:02] We're coming in hot this week. Don't get triggered. I'm sorry I didn't have a trigger warning for you, but that is a picture of Donald Trump and we are

Dano:
[0:10] on the markets from Sonoma Wealth Advisors talking today about diversification. No, Donald Trump is not king. Diversification is king. My name is Dano Weir. I'm the marketing director and podcast host. I'm joined by Daren Blonski, CFP, and Chris Sipes, CFP. Guys, we did see one bounce that no one's talking about this week in the market, which is a 200% bounce in my appearances on this show in the last two weeks. So I'm, I don't know what you guys, if you have a slide for that or not, but, um, it's been pretty notable.

Daren:
[0:43] You feel pretty proud of that, Dan, obviously.

Dano:
[0:46] Yeah. There's, I'm not sure everyone else likes it, but it's fun to be here.

Daren:
[0:49] We like it. Cause you have that sexy rodeo voice that neither of us I have. And, um, you just make us sound so much cooler,

Chris:
[0:57] Dude.

Dano:
[0:57] So thanks for being here. I think you meant to say radio, but it's not a little bit like rodeo voice, in which case I think I might want it. That would be kind of fun to have a rodeo voice. A sexy rodeo voice. Okay. So this week we're looking at some perspective on a down week in the market, maybe actually a down month. We've got a really significant milestone for gold. But first, let's hit the intro.

Music:
[1:26] Music

Dano:
[2:02] Before we get to maybe my favorite economic indicator, which has to do with the tooth fairy, let's start here because this week has been all about tariffs and their impact on the market. Chris, describe for me what is happening in this meme.

Chris:
[2:17] Well, for those of you who haven't checked or been too afraid to check your portfolio today or check the markets, there's going to be a lot of green. Sorry, spoiler alert, I should have said. There's going to be a lot of green. So we got a nice bounce today. And I have some bad news for you, Dan. I deleted the Tooth Fairy one to sub this one in because I thought it was just too good. Too good. But we got a nice bounce today. And the meme says it would be a shame if someone tweeted something about tariffs. That's a nice bounce. But it would be a shame if someone tweeted something about tariffs. And that's really been the story of the markets for what feels like an eternity, but it's only been a few weeks, I suppose. But real quick on the Tooth Fairy one, that was from Delta Dental. And parents out there will know or hear about the Tooth Fairy and how much money they're leaving these days compared to when we were kids and compared to when our parents were kids. It ticks down. And what's funny with this chart that Delta Dental showed is that it has some correlation with the S&P. So the Tooth Fairy must be an investor. And the better she's doing, the more she's leaving, apparently.

Daren:
[3:37] You know what, Chris? I was doing some – the program we use to do this show is called String Yard, right? And so I was doing some cleaning up of that earlier and adjusting some things. And we we were coming up and the reason that flagged me to do that is because we had a limit of storage of 200 hours of recordings on here and we were up at 160 hours of recording that you and i have been broadcasting these shows for 160 hours like that's some serious nonsense you know it's

Chris:
[4:14] A lot of candles.

Daren:
[4:14] It is a lot of kids but what made me think about that was i was like you know i think we've already talked about the tooth fairy and inflation before man things are making full circle now

Chris:
[4:28] Good memory. Good memory. Well, we wanted to talk this week. Obviously, there's been some turmoil in the markets. Nobody has fun when markets are not doing well. And possibly, we never know, this time could be different. The world might be ending. Things might be completely different this time. But if not, if you want to bet on the fact that it's probably not going to be different this time, that the world will continue, that markets will continue. Just looking back through history at the many, many, many times where we've had bad news, good news, the market tends to zig and zag. But when you zoom out, it's been a steady chug upward, albeit with a lot of volatility in the middle, right? In the moment, I should say. So it's never easy, right? And I think that's the point we want to drive home is that if you want to earn returns over what you can get in cash, in the bank, the nice, safe, warm, comfy bed, the mattress, right? If you want to earn those returns, the way that you earn them is going through difficult times. Because if there was no risk, there would also be no reward. And this is the risk. And sometimes it pops up and sometimes it's heavier than normal.

Chris:
[5:56] But without times like this, you wouldn't be getting those returns over and above what you can receive in cash over time. And there would be no point to invest.

Daren:
[6:07] Now chris your inner compliance chief um side will probably cringe just slightly at this but i think and i'm gonna get ready

Chris:
[6:19] To hit the mute button.

Daren:
[6:21] We're at minute number six minutes and 25 seconds i'm gonna say this so you can delete it later We do have the makings, and I'm going to present to everyone today that there is the makings of potential bottom here. So for all those really nervous and really scared, there might be a short-term bottom in the making. And I'm going to show you on the charts in a little bit why technically the

Daren:
[6:44] stock market might be hinting at that bottom. That doesn't mean it won't go up and then bounce right back down, but at least a short-term bottom.

Dano:
[6:53] And hang on that graph just for one second, Daren, because I want to show some of the words that you're showing there on that last graph. You're seeing all those crises, and some of them are really significant crises. The one that's jumping out to me on there is Y2K. If anyone remembers that, if you're old enough to remember that, looking back on that, it's the dumbest thing. Nothing happened. But when you were in it, we did not know. There was a whole lot of not knowing is you know the world is at the end of the banking system is at the end of computing and i'm not saying that that i know that now is that time but it's possible that as we look if we were to look at this graph in another 10 years we would be looking at another little arrow that said tariffs and perhaps feel the same that we feel about y2k so

Daren:
[7:46] So dan i was a freshman at UC Davis in the dorms at Bigsby. That was the name of the dorm room I stayed in. And I remember to this day, the fear that all the freshmen felt of Y2K. And I think there was a correlation between how much partying my freshman class did prior to Y2K thinking that the world was going to end. And I remember starkly feeling right after that, how grateful I was to be in college because I didn't have to worry about the recession that we were dealing with because I was on government scholarships and grants to go to school. Anyway.

Dano:
[8:30] So just some perspective.

Chris:
[8:32] So we talked about this chart last week, but we didn't have it in the deck. So we wanted to include it this week. And this is one of the all-timers from the JP Morgan Guide to the Market that comes out quarterly. This is some of the best research out there. They come out with quarterly, but they always have this chart. And it shows your annual returns. that's the gray bars. And this is the S&P 500, by the way, because that's usually what people are referring to when they say the market. And then within those gray bars, you also see little red dots with minus signs on them that are the intra-year declines. So usually only what's reported is where the market ends on 1231. And they don't talk about what happened in between. And on average, the average inter-year drop is 14.1% going back to 1980.

Chris:
[9:36] Even despite that, we had positive returns in 34 of those 45 years.

Chris:
[9:43] Now, past performance doesn't equal future returns, of course. But it's very normal for the stock market to have a lot of volatility and at least what we've seen so far isn't even to the average yet and i think we're all kind of been affected by recency bias that you know outside of covid we haven't really had a whole lot of big time volatility, really since the great financial crisis at least nothing that has has lasted very long it's been addressed pretty quickly as it's come up.

Dano:
[10:19] So Chris, could you define here? It says intra-year declines. Is this single day? Is this over a couple month period? It's showing basically the worst period within the year in, let's say in 2020 there, it was negative 34%. Was that on one day?

Chris:
[10:38] No, this, this would be from the top to the bottom of that year. You know, so if it, if it was up 10% and then, you know, went down, uh, 20% from, from there, they would measure it from the top to the bottom entry year. Um, and they usually measure that in days, like number of days it takes to get to the bottom number of days it takes to recover, which we'll see on the next uh chart from charlie biello um and he shows all all these corrections that were over five percent since the march uh 2009 low uh let's see if we can go to that next so.

Daren:
[11:17] Hold on it's

Chris:
[11:18] I i'm not changing not done yet okay gotcha gotcha.

Daren:
[11:21] So this is probably the most, so, you know, on this show, for those who watch us that we love charts, right? We love looking at charts. We love studying charts. It's a really bad habit and a nerdy habit, but, um, this is probably one of the most important charts. If you're an investor in the U S stock market, if you took no other chart, I've showed you over the 160 hours that we've recorded over the last three years, it's this chart right here. Now let me tell you why okay first thing this each one of these gray bars represents a year in the market right and that red number is the the entry year decline and the gray is where things finished up so what that tells you since 1980 the market has finished up one two three four five six seven eight, nine, 10 times since 1980. Okay. So that's 45 years, right? So of 45 years, am I doing that right? 45 years? Yeah. 80 to 20.

Chris:
[12:35] No.

Daren:
[12:37] 1980. Yeah. I can't even believe that. Wow. That means I'm 45 years old today,

Chris:
[12:43] Guys. So nine of the 45 were negative. Is that what you're 1.

Daren:
[12:46] 2, 3, 4, 5, 6, 7, 8, 9 is 10 because you got to look at 2015. Remember, it's just slightly negative one. It's 10, not nine. So 10 years of 45 years, you ended the year negative, yet in every single one of those years during the year, the market was at some point significantly negative. So first lesson, it pays to bet that the market will be positive for the year. In our minds, when we're going through this volatility and this up and down, it's scary. It freaks you out. All this tariff talk and world war and blah, blah, blah, blah. It's all noise. That's first thing. Second thing is, in every single case since 1980, that's 45 years of history, my entire life, The market has finished up December 31st Higher than its Intra-year, worst-inter-year decline

Daren:
[13:52] So what that tells you, if you're an investor, that if you're ever going to bail and get out of the market because you're freaked out about who, whatever, whoever, whatever, it pays to wait until December 31st. The odds are in your favor. This is math books. This isn't like opinion here. Like, so we don't know if this is the lowest it will be this year, but in every case from the lowest point that year, it finishes up positive.

Daren:
[14:19] Now, we might have, this might be the best it is all year. We just don't know. But at least when we look at statistics over the last 45 years, it pays to be patient. And if you're going to bail, bail on December 31st. All right. Does that make sense? Dan, I'm going to ask you that because Chris and I can talk nerd all day at each other and no one would understand it.

Dano:
[14:43] It does. And you actually just made a point that I didn't even realize. So I did glean that this chart is saying that despite being down at some point during the year, those other 35 years, it was ultimately up. But what you're saying is, let's look at 2008, for example. If you had, say, a single stock in 2008, at the worst point, it's down 49%. If you had an S&P index fund, it's down 49% in 2008. But you're saying, okay, so then you consider, wow, I better get out. it's at the very bottom. What you're saying is if you held it that year until December 31st, you would have recouped 9% of it, which still stinks being down 38%, but being down 38% is better than being down 49%.

Daren:
[15:30] Correct. That's exactly what I'm saying. So what I tell clients all the time is like, look, I know you're scared. I know you don't agree with what's going on right now, it's difficult depending on what your politics are, but the reality is it's not in your favor to sell now. It's not in your favor to get out now. Stats do not support that. If you're going to get out, fine, but do it December 31st. In every case in the last 45 years, the market closes higher than its worst point. I don't know if this is the worst point it's going to be at this year. In fact, I'd be surprised if it is. However, it just doesn't pay to bail.

Chris:
[16:13] Plus the market's going to be closed 1231. So you can't get out then anyway. Right.

Daren:
[16:18] Well, besides, okay, now you got to throw that in. Right.

Chris:
[16:22] There, there's been one year.

Daren:
[16:25] I know. It is fair. It's a fair point. Chris, right here in 2018. Remember where we were December 31st in 2018. Yes.

Chris:
[16:35] Yes.

Daren:
[16:36] I think we were seeing a Starbucks because the power was out. Rebalancing accounts. Maybe.

Chris:
[16:43] Um, I forget that was the Christmas. Well, it was down 20%. Uh, it was the Christmas massacre. Right. And then pal pivoted, um, you know, and the market bounced right back. That's the other thing is especially these days, you never know what the response is going to be from the authorities, the regulators, the government, the, this, that, and the other thing. They can turn on a dime and and change things instantly and if you're not there to take advantage of it boom you get left behind right and so uh you know i don't have all the stats in front of me but most of the best days comes come right after the worst days so it's hard like today's like today we got a great we got ahead we had a big day today what if today was the,

Chris:
[17:35] was the bot yesterday was the bottom and today starts going back up again. Right. And you missed today. Well, um, that, that's really tough. So if you do get all the way out, it's really tough to decide when do I get back in? Um, cause it's not, it's not like it's going to be apparently clear that I don't ring the bell and say, okay, all the, all the bad stuff is over. Jump back in.

Daren:
[17:59] What's really interesting, Chris, and you and I have talked about this anecdotally many times, that there's something about negative 10% down, which is technically viewed as a correction. When the market S&P or NASDAQ is down 10%, then it's quote-unquote a correction. There's something that happens with a large percentage of clients where that's their puke point. And we tell this to clients all the time, regardless of what you say, negative 10%, usually feels like a puke point for most people and aggressive conservative doesn't matter right

Dano:
[18:35] Doesn't matter right risk

Chris:
[18:36] Tolerance yeah yeah and it's not even like they see their portfolio hit that magic 10 it's almost like the dollar value gets to that 10 and people people really freak out and then it feels like there's calm again until 20 right 20 is another it's something about those those round numbers seems to seems to hit people.

Dano:
[18:59] I just like the visual of you two boys in your suits with a 3g maybe it was old enough that it was a singular mobile hotspot and you're sitting there just at starbucks working on your little accounts together with maybe like a Daren would have had a vanilla latte and chris would have had something probably still eating a can of tuna that

Daren:
[19:23] Was so cute. He doesn't eat tuna, he eats sardines, okay?

Chris:
[19:30] Hey, it's a good way to find an empty seat in the coffee shop. If there's not empty seats, there will be as soon as you open that can of sardines. Okay. So we've got the S&P 500 corrections over 5%. This is from Charlie Bielo. And the thing I like about this is all the reasons under stocks fall on, which when you think about these times, if you were an investor during these times or you were paying attention to the market, all of these felt really bad at the time. But now in hindsight, you probably don't even remember these down periods where the market's fallen over 5%. So this has happened many times in the past. It's going to happen many, many times in the future. And controlling your emotions as an investor is the hardest part. And also the most important part of being successful and investing in the long term.

Chris:
[20:36] Now, this one was included. This is showing first term Trump, Trump 1.0 versus Trump 2.0.

Chris:
[20:46] And it's got the days since the inauguration day. And this is not to, you know, troll the president or anything, but it is to show those that invest based on politics that even when you have the same person, there can be two completely different outcomes. And, you know, those that have been watching the show know that it's my personal belief they're climbing an uphill battle with the S&P already being on a 15-year run, being pretty highly valued, in some spots probably overvalued. And so if you're someone that says, well, you know, I vote this way because they're going to be good for the market or I vote based on that, it's always been our contention that the market is going to move on its fundamentals, on its earnings, and over time, that will have more gravity than who is in charge, good or bad. And so just a reminder, you can't invest that way. But here's to the point about the current valuations. This is from Vanguard, the mothership. This is not from some crank value investor that's been deranged by this market.

Chris:
[22:15] This is showing the expected returns. And what I like about this one is that it also shows the range. Because we all know it's not a specific number. It's going to be a range, a range of probabilities. And they've got a five percentile all the way up to a 95th percentile, meaning that on a 10-year basis, if the market moves to these different percentages where you get the annualized number over this time period, for example, for U.S. Equities to hit 11% over the next decade, like they have in the previous decade, they would have to have returns in their 95th percentile. Is that possible? Yes. Is it probable? Well, not as probable as the 50th percentile, which is they're calculating for a 3.9% compounded, which you'll notice is actually less than bonds on the 50th percentile. Also look at U.S.

Dano:
[23:16] Growth stocks. Go ahead. When you're talking about the percentile, you're saying like in U.S. equities, that's a stock. So if you're saying if we were to look at all of their returns across all of their years and we were to put them into percentages, it would be within that percentile. What is a percentile piece? I'm missing that.

Chris:
[23:37] In order for it to, say, return 11% over the next decade, see that under the 95th percentile, that means we'd have to have a market that was better than 95% of all previous markets in the past in terms of strength. Yes. Now we've only got a hundred and some years of, of history, which when you look at statistics is not, is not statistically significant, especially if you think about the fact that like we all base that on a hundred years of U S market history while the U S was becoming a world power, you know, going from a non-world power to being the world power. So that's an end of one as well so it's not like these things are going to be repeated over the next hundred years um but it's just to go to show you like hey what are the probabilities here um and the reason for diversification what they're always preaching right because despite the fact that hey u.s stocks are are expensive well we could still have a way better than expected.

Chris:
[24:48] Outcome. So you want to have some in there. You probably don't want to have everything in there though, because if you look at the downside, we could get that fifth percentile where we actually have a negative return over the next 10 years. And so this range of outcomes, it's easy to look back and say, the outcome that happened was the only outcome that was possible to happen. This was the path.

Chris:
[25:14] That was just one of the paths that happened out of many possible paths. Maybe you got too deep there.

Dano:
[25:25] No, no, I was letting it sit. That was great. I get it.

Chris:
[25:30] So probabilities of recession based on these different asset classes. You'll notice here that based on the returns that we've seen in the Russell 2K, which that's the U.S. Small companies, base metals, five-year treasuries, those are all putting the probabilities of a recession closer to 50% now. But then you look at the credit spreads, which we talked about, I think maybe two shows ago, Dano, I know you and I discussed that. The credit spreads are still pretty tight. So there's not, you know, investors are not yet demanding a lot more return from poor credit quality companies versus treasuries yet. So that is one thing that you would expect to see in a recession. But hey, we could look back and we could say, well, given the U.S. Government's financial picture, it was obvious the reason why people would rather be in corporate debt versus U.S. Treasuries. And that's why the spread's never widened out. So you can't use one indicator because things could be different in this environment.

Chris:
[26:45] But based on the action that we've seen so far this year, you'd have to say that the probabilities of a recession are increasing. My favorite number, there's some famous gurus, their newsletters, right? They always peg it at 30%. It's not looking so good. Well, let's throw a 30% probability on it. I guess that's better than the 100% probability that we were seeing in 2022 when we never got the recession.

Dano:
[27:13] How about all the people who were seeing a bull market in January? Oh, absolutely. Bull market in January. 2025 is going to be amazing. Oh, yeah. Oh, yeah. Definitely. Definitely. Great point. How's that looking now?

Chris:
[27:27] Great point. Now, we've got the sentiment indicators from AAII this week, again, under 20% bullish, just shy of 60% bearish, which is really high. Let me read this stat real quick. um the bullish 19.1 has never been below 20 percent on three state for three straight weeks before neutral 21.7 below 33 out of the last 35 weeks and bearish 59.2 which is above 57 percent uh on uh which that's never happened for over three weeks since 1990 so awful sentiment in the market um just awful now historically that's been a sign of an extreme that's one of the reasons why we even look at these indicators um and usually that's a contrarian indicator meaning that if everybody's feeling awful that's usually in hindsight a buying opportunity everybody's feeling really really good in hindsight that's usually the time you want to be getting more cautious um cnn fear and greed index were at um 21 which is still extreme fear but up slightly from 18 one week ago bitcoin at 27 fear down from 34 fear last week.

Chris:
[28:56] Now, this chart on the Dow Jones Industrial Average, this is the price between 1960 to 1982, courtesy of Bank of America. And this is another reason for diversification. So we talk about it a lot from a risk mitigation standpoint, because you can never know what a market is going to do. This is one of the risks, though, that most people don't think about that diversification can also mitigate against, which is markets going nowhere for several straight years. Last week, we talked about the U.S. small companies in the same range that they've been in for four years now, which seems like an eternity. Well, how about from 1960 to 1982, an 18-year period of the market being within a range? So, if you're an investor, if you're a retiree and you've got to live off your portfolio for that time period, that's really tough to go through. If you're diversified though and you're in different markets, that lessens the probabilities that you'll go through a stagnant period for that long. Will you still go through stagnant periods? Yes, that's going to happen. But hopefully they're much shorter and less frequent than if you're concentrated in one particular market or another.

Chris:
[30:26] Okay so got a couple here from jury and timmer at fidelity and let me just read his commentary on this first one he says we know that in the u.s the baton has been passed to earnings which are now growing at double digits the price to earning side which has been contributing to the market's return is now starting to detract from it. This is normal during stages of a bull market, during the later stages of a bull market. Sorry. So that price to earnings ratio is basically how much are people willing to pay for those earnings? Are those earnings expensive or are they cheap? And we've seen a lot of what they call earnings expansion, basically people paying more for the same dollar

Chris:
[31:11] of earnings that they had in the past, which is common with the bull market. So earnings are going to have to keep up, and that sentiment is going to have to turn around to keep that price-to-earnings ratio expanding to keep the bull market running at the pace that was priced in just a few months ago.

Chris:
[31:35] Okay. And then we've got another one here from Jurian. He says, the good news is that valuations are indeed coming down now, which of course is by definition true when price corrects while earnings are growing. Below we see that or i guess above in this case uh we see that the s&p 500 cap weighted price to free cash flow ratio is down five points compared to the equal weighted price to free cash flow ratio is down more than uh three points so um uh that will show you that um And, you know, there's certain companies within the S&P, the regular cap-weighted, meaning the traditional vanilla S&P index, where they give more of the dollars to the bigger companies, the heat map that Daren shows it each week. Some of those companies are selling for a lot more in terms of earnings, price-to-earnings ratios, versus the equal-weighted is actually a lot cheaper than the cap-weighted.

Chris:
[32:40] And last one we got here from warren pies at 314 research and he says uh negative wealth shock so negative wealth shock because households are massively overweight stocks i think you'll remember from the fall we were talking about the allocations to equities reaching uh near all-time highs, meaning the average household had about 70% in stocks, which is historically high.

Chris:
[33:10] So back to what Warren was saying, households are massively overweight stocks. The current 10% market decline has created a wealth shock equivalent to 12% of GDP. He says 10% corrections um the current um uh 10 corrections are typical there's been 53 since 1950 but wealth shocks are rare there's only been 13 the uh and so in his opinion that makes the economy more vulnerable to a stock decline meaning that like hey the fact that people are losing money on their stocks could filter through to the economy they might not do as much spending if they're feeling negative about the future, if they're feeling less wealthy from their portfolios and such, the tooth fairy effect. Hey, if the tooth fairy is not making as much in the S&P, maybe she's not doling the money out at the same rate that she was previously. So something to keep an eye out. Interesting that we've seen that wealth shock facilitating just a short period of time here as we kick off 2025.

Dano:
[34:17] Can I find a way to make that last graph about football real quick?

Chris:
[34:24] Absolutely.

Dano:
[34:26] So one thing that happened this past week.

Daren:
[34:29] Dude, every week you got like, oh dude, we got to have one football analogy, right?

Dano:
[34:35] This past week was the beginning of what's called free agency in the NFL, which means that players whose contracts expire can now go wherever.

Daren:
[34:43] When the Niners, you traded their entire team on the first day?

Dano:
[34:46] So the 49ers let all of their free agents go. It's an unprecedented exodus. And they lost between what those guys signed for. It was like a $270 million swing between what they lost and what the guys ended up signing for. And all my friends in the group chat are like man we're not spending we're not spending i wonder why we're not spending and i'm the conspiracy theorist and i have this job and i go well i kind of wonder where jed york the owner of the niners might have his assets right now because there is this massive thing happening in the market like so i just i just wonder i and i have no basis for that but i just it could be an example of what you're saying wealth shock which is that you kind of presume that it was just going to keep going up and to the right. And then all of a sudden it's like, you know, we're getting a little bit of a U-turn at the moment.

Daren:
[35:38] Well, it turns out he probably owned all NVIDIA. Just kidding.

Dano:
[35:40] I'm just saying that's a real thing. You got to put it somewhere.

Daren:
[35:45] Yeah, that's true. So what we're looking at here is a heat map. A heat map is just a visual way of looking at a relative size of the companies in the S&P 500. So the S&P 500 is the largest U.S. 500 U.S.-based stocks. And largely when people refer to the market, they're either referring to the Dow Jones, which is 30, or the S&P, which is 500. I tend to pay attention more to the S&P 500 just because it's a bigger barometer of what's out there, but certainly not the end-all be-all.

Daren:
[36:15] On the S&P 500, though, you can see the green represents stocks that went up this week. Red represents stocks that went down this week. And if they're kind of like brown, gray, whatever, more in the middle. And you can see nvidia actually had a great week had nvidia not had a great week we would have had a much worse week in the markets um and what so this shows you that so these mag seven this microsoft nvidia apple uh amazon tesla google being the big dogs that have really driven this market higher and concentrated the market it sucked up a lot of the oxygen in the room when it comes to the market when we look at this on a chart and we look at on the weekly map a chart you can see this is the mags which is the magnificent seven stocks that really have driven this market higher if you remove the performance of the mag seven out of the market over the last few years we really have not seen a very um nice market at all now i mentioned earlier i'm on my um

Daren:
[37:16] When I said, hey, we might have seen a bottom here. And here's why I say that, because this is the Magnificent Seven. And on the MAG-7 weekly chart on this ETF that tracks the MAG-7, so if someone wants to just own all the Magnificent Seven, they could buy this ETF. It's not a recommendation. It's just one way of taking exposure into the market. You can see a couple of things happened. We traded into this green line. So what does this green line represent right here? This is a simple moving average. In a simple moving average, this is the 50 day moving average right so it's a moving average that has a lot more support on it and on the 50 this is actually looking at the 50 week at this moment but which is even more supportive the 50 week moving average represents the last 50 weeks in the market um uh and what you see from that is that we traded right down into it and we printed what's called a doji chart or doji candle. Ooh, doji. So you can see that there. And what that represents is price was down here,

Daren:
[38:18] but it got bought up at the end of the day and closed above that 50. That tells you that ultimately in that area of the chart that there were buyers in this range saying, you know, we'll take it there. We think it's a discount. We like that. So let's put that on the side of the chart. Hey, we might've had a bottom or the beginnings of a bottom. Let's look at the S&P S&P 500. What happened there on the weekly chart? Again, this is the SPY. This is the S&P 500.

Daren:
[38:43] We traded right into that, lo and behold, that 50-week moving average in this case. We traded into it, cut below it, plunge below it, and traded back up. Well, why is that important?

Daren:
[38:55] Look how important it was just recently. Well, I guess back in 2023, that was the bottom. So there are reasons here to suggest, wow, that could be a bottom for the S&P for this particular sell-off. Doesn't mean it's done. It could go like this.

Daren:
[39:10] It could go like this. We don't know, right? Or it could go like this. We don't really know. However, we are seeing the makings here of the potential bottoming effect in the S&P 500, which is good news for those who are very concerned about their portfolio at this juncture. All right, so I want to talk about gold. Dan talked about gold early on. This is the weekly chart for gold. And gold is now currently trading at $2,984 per ounce. It did touch $3,000 today, an all-time high for gold.

Daren:
[39:48] And that makes sense with all the uncertainty going on out there right now. There are a lot of marginal buyers buying the precious metal of gold.

Chris:
[39:57] Um interesting though that you you're still not hearing anybody talking about it right i mean outside of some gold bugs and finance nerds like the average person i don't think uh is paying attention to the gold rally whatsoever you agree with that yeah.

Daren:
[40:17] I would say that's generally true True, but I would also suggest that I actually, for almost a year now, whenever Costco started offering those gold ounce bars, I would go into Costco out of curiosity just to see if there was any left, and they fell out like hotcakes. And I did notice the first one in inventory at a local Costco. Which I thought was interesting. Either they've got a lot more supply in now and demand isn't as high, or I just caught it on a day and it was anecdotal.

Daren:
[40:53] But definitely, it's interesting that Costco carries gold-ounce bars now. And what's interesting is the gold-ounce bars they carry at Costco are almost at what's called spot. So when you buy gold or silver, you're always buying it at a premium generally. And they were selling them really close to spot, which not much premium, not much profit on it. So, they were pretty interesting to a lot of investors in gold. We've talked a lot about the 10-year and how important the 10-year is for setting the rates in the market, for setting all kinds of things. The Trump administration, the Treasury Secretary has been particularly clear that they need to get this 10-year down. And for this 10-year to come down, it's really important because that gives them a little bit more room to stimulate. Should they need to stimulate, that's really helpful to the real estate market. And notably, we've got a lot of CPI or consumer price index inflation appears to be coming down substantially. You can see this is 2021, 22, 23, and now we're down. And it seems it looked like it was going back up and now it's just falling back off a cliff.

Daren:
[42:03] So like him, hate him, whatever, regardless of politics, inflation is coming down. And I mean, that makes sense when you think about it, because when you look at all the job hires that we've talked about on this channel over the last couple

Daren:
[42:17] of years, they came from government hiring. Right. And so if all of a sudden you cut off government hiring and let go a bunch of government workers, boy, that's going to impact the system really fast.

Dano:
[42:26] I did look it up this week, Daren, top three all time federal hiring Joe Biden's administration was.

Daren:
[42:34] He was top three of all time.

Dano:
[42:35] Top three. Number one was Lyndon Johnson. Number two was Ronald Reagan. And Biden's administration hired the third most federal workers ever.

Daren:
[42:44] Wow. That's interesting. Right. And that can be used as a form of stimulus. Right. In the event that there needs to be that, what the Trump administration has really been saying is like, hey, we need to get rid of the government workers that we need to privatize everything. That transition in and of itself is going to create headwinds in the economy, right? Like, it almost feels as if they're actually trying to manufacture a slight recession. And then transition away from government jobs to private sector jobs. They don't get that 10-year down, though. They won't be able to stimulate if it goes too far, right? Like, that's the grand experiment. Like, if you change, start messing with things, then, well, an experiment. We'll see what happens. So this right here is the, this is what's called the yield curve. So it's looking at the 10-year, 2-year. Some people don't look at the 10-year, 2-year. they look at the three months, 10, whatever. There's a bunch of debate about it. But the story here is that this is an inverted yield curve that we've had for many years. It was just reinverted. Unfortunately, when this reinverts, that's when we are at risk of a recession. And you can tell our last recession here in 08, we saw that reinversion when we go back above that green line. And in 2001, back above that green line, you go back above that green line.

Daren:
[44:08] We're definitely in that window. So regardless of all the other statistics, all the other politics, all the other junk noise that's out there,

Daren:
[44:15] you just look at the yield curve. Statistically, we're in the time frame or zone where you would expect a potential recession to happen. So that doesn't mean it's going to be a massive one. It doesn't mean it's going to not be a massive one. We don't know. But it is worth noting, nonetheless, that we're in that window risk. Federal fund mortgage rate, we're not really seeing mortgage rates come down, right? That's important for real estate sector. They're still just kind of hanging up there. That's interesting to me. But if you look at the 10-year, you're not really seeing the 10-year collapse at all, right? Like it's pretty much in this channel and you'd want to see that 10-year coming down even more than it has. I think you have to argue just from a chart perspective, you could say that like, hey, we're still in an uptrend. If we lose, let's call it

Daren:
[45:11] Hmm. We'll call it 4% on the 10 year. Then I think things get interesting, but that really impacts our diversified investor folks, right? Cause, um, bonds have been absolutely pitiful the last couple of years. Um, but we did have a double bottom here. You can see we broke the neckline. We went up that extension is just about done. Um, that moves done. So we'll wait and see. We're coming up into a lot of resistance here, um, on the, in the bond market. But I would expect if the 10-year continues to go down and Besant and Trump are successful in lowering the 10-year and not doing without much damage, or if they do with a lot of damage, then you'd see bonds going up. Although we haven't seen the negative correlation with bonds that we'd like to see. Just for perspective, this was COVID right here. All-time high, double top, down to a double bottom, basing, moving up. And we talked about this a couple weeks ago and I'm like hey I think that's a bottom in the ag for now and that came true so we'll see don't want to get too confident there for our diversified folks because really only thing that's driven the markets over the last few years has just been the magnificent seven when we look at IWM which is a market leading indicator it doesn't look great you can see it's just all red on the screen there.

Daren:
[46:39] But I would expect there to be a lot of support right here. So support broken through this week. And I would expect there to be quite a bit of support right there,

Daren:
[46:49] around $200 on that chart. You can see it coming into there. So that means support just means that buyers would step on in to that. We look at Dow Jones Transportation, the arteries of the economy, quote-unquote. That chart doesn't look good, but we're really just down in this kind of channel. I would say if we lose $1,400 on that one, then I would start to think something bigger was up. But right now, I sort of look like, to me, my gut read of the markets is, my reading the tea leaves here is, the move's in for now. Now, what we've learned over the last few weeks is that who knows, right? Because anyone can come out tomorrow and scream about tariffs and blah, blah, blah. And the markets can move in different directions. we look at developed markets like actually really good so the markets seem to be telling us that peace is coming for europe um we look at the merger markets those look pretty decent too what

Dano:
[47:46] Do you mean what do you mean that the market is telling you that peace is coming because i've heard you say that before that the market knows these things first

Daren:
[47:53] Well you have to look at the market is like an absorbent of every all information that exists right it can absorb and price in a massive amount of data points. And so when you see, for example, early on that as the developed world, which is largely Europe, when you see that chart looking positive, so I read that chart and we're about to break out right here. It looks like a bull flag. It looks like it's positive to the upside. The risk is to the downside. It's more likely this breaks out just on my read of this chart um the fact that we went up there we got rejected came back down it found support right along um this area of the chart here and you can see the support right there it came down it came in and went back up and it's contending with this all-time high in the developed world that's telling me that

Daren:
[48:50] Because again, charts like stability. So what it's telling me is that in markets like stability, what it's telling me is the market is feeling more stabilized in the developed world, which is not what you would read in the financial news, but the market's like, well, you know, maybe there's going to be peace here. And I think that's what you see in the chart right now. So I actually feel positive from that sense. I mean, like, Hey, it'd be really great to stop watching people from Russia

Daren:
[49:17] and Ukraine getting slaughtered at shooting at each other. So, just something to, I think, a positive note. Lots of news about Bitcoin. And guess what? Bitcoin's doing what Bitcoin does. Bitcoin goes up, it goes down, it's super volatile. I like, actually, that it held support right here. And we're going to close out here in a couple hours, and we held along that line. It's kind of a weak close, but a strong close in the sense it went up. But the fact that it didn't go to a point and bounce really high up,

Daren:
[49:47] I'm not sure how I read that yet. other than there's some strength there, but still definitely some weakness in the water there. Big old double top on Bitcoin. So it's going to take some work to get it past this 92,000 level again. But Bitcoin does what Bitcoin does. And man, just one piece of news can shoot that thing up or shoot that thing down. So anyway, I think we're going to leave it there for the week. I hope everyone has a wonderful weekend, enjoys the winter weather upon us. We got our early spring and now the winter is back here in Northern California. Have a great weekend. And as always, reach out if you need anything.

Music:
[50:30] Music