Tariffs: On Again, Off Again

Dano:
[0:04] Welcome to On the Markets from Sonoma Wealth Advisors. My name is Dan O'Weir, joined by Daren Blonski, CFP, Chris Sipes, CFP. Guys, we've got a lot to get to, and I love our first slide up because our first slide is, it's not a meme. It looks like a meme. It looks like it's almost AI generated. But Daren, if you want to load that thing up, it's a pretty incredible look at inflation.

Daren:
[0:28] Well what you've all pulled that up in just a sec dan but what you've got right here is and i think it's notable news is the nvidia death cross which chris we all know how disappointed you've been in this market with nvidia running up as high as it's running been running up and now you get to say ha ha i was right i knew this would come back down to earth well

Chris:
[0:51] I take i take no pleasure in You know, there's pain, Daren. Let's keep that first and foremost. But yeah, we saw a lot of hype around this stock. I don't know if NVIDIA or Apple, I would say, is the most important stock in the stock market. It feels like most people if they own individual stocks they own one or both of those and man was there a lot of hype around nvidia last year to the point where you start getting the the red flags going off of okay this thing's getting heated up pretty good so maybe that was the end of it i don't know. It's too early to tell, of course, but when you get that 50-day moving average moving below the 200-day moving average, like we see there, they call that the death cross, in the technicals because that is showing that the trend is starting a downtrend.

Dano:
[1:53] And just so we can clarify here, for people who aren't following, so moving average is you've got the stock going up and down and up and down and up and down what's the average that if you were to draw a line through all the up and downs here's the average of what it's done over the last 50 days and here's the average of what it's done over the last 200 days so when the 200 day or when the yeah when the 200 day is worse than the 50 that's called a death cross and why is that so bad because it's just saying generally for real it's going down now

Daren:
[2:27] Yeah, and it's a pretty good measurement of momentum, suggesting that momentum's gone down significantly in this stock. And you can see there was another death cross back in 22 right here for NVIDIA. And you can see that's usually a sign it's going to go down deeper. Does that mean it's over? No, it doesn't mean it's over. Does it mean you probably want to lift an eyebrow if you're an NVIDIA owner, which is everybody that owns the S&P 500 or the NASDAQ, I should say. And there's a lot of exposure in people's portfolios. We've seen that from our clients. We've seen that from people who have come and talked to us. There's a lot of over-technology exposure. This would come to an end eventually, and it appears that might be beginning. Now, how deep does it go? I don't know, and no one can pretend to guess. We've shown the Cisco chart many times. Cisco was a similar stock that went through a very bubblicious blow-off type of scenario like NVIDIA appears to be going through. And it looks shockingly similar to this chart.

Daren:
[3:33] And when you type in bubble, and what does a bubble look like in Google, you'll find a very similar existence. So will NVIDIA do that? I don't know. Is this just a minor correction within a longer leg up? Could be. Hard to tell, but certainly in the short to medium term, I think there's more headwind coming for NVIDIA. And that's going to make it tough for the market to continue to improve i'm going to dive into all that in my segment in depth um first we're going to go to the fundamentals but after we show you our weekly whatever intro if we all right here we go

Music:
[4:16] Music

Daren:
[4:53] All right. Well, Chris, I'm disappointed you came up short on the meme thing this week, but this is kind of a meme, right?

Chris:
[5:00] Well, yeah. With a day like today in the markets, it would have been nice to have something a little lighthearted, which was completely my intention, but just couldn't find anything. It's one of those weeks. Some weeks, Daren, you know how it is where we just got so many memes that I can't even include them all uh this week was not one of those but this is a magazine ad for ti a cref from 1996 i'm sure you like like me and i'm sure dano too we were in our glory days in 1996 just take yourself back imagine flipping through a magazine like people used to do back then pre this is pre smartphones right um your parents had no idea where you were because there were no cell phones they didn't care right um but this ad says they say in 30 years a burger and fries could cost 16 a vacation 12 500 and a basic car 65 000 and here's where it gets a little dark i'm not really sure what the point of this, this ad was, it says, no problem. You'll eat in, you won't drive and you won't go anywhere.

Chris:
[6:19] And it's a boy, it's kind of striking how close they got on some of these numbers. I mean, I guess, depending on where you're eating or vacationing or what kind of car you're getting, these numbers can be pretty spot on.

Dano:
[6:35] The burger and fries, for sure. The vacation is probably a little high. The car is a little high. But, I mean, at that time, you know, you used to be able to walk out of McDonald's for sure. For sure, even later, much later than 96, in like 2002, you could have gotten, I remember I was excited. You could get everything you needed in and out for five bucks. You know, and now it's definitely not that. So, this is definitely shocking to see.

Chris:
[7:05] Right and you know relating this back to investing had you shown this to yourself in 96, and known how strikingly close this would be think about yourself 30 years from now right and that's the reason why we all invest is to try to keep up with inflation you know Buffett talks about the fact that really that's that's one of the only things in the financial world you can bank on happening in the future because it's always been a part of human, financial markets. And that's because we tend to spend more than we bring in on the government side of things. And so inflation is a mainstay and it probably will be over the next 30 years. And so the only way to keep up with that, 30 years ago, 1996, you stick your money in the bank versus you invest for the future and stick with that. Maybe that's what this ad was trying to say. You had a much better chance at keeping up with that inflation, being able to buy that burger and fries and go on vacation and buy that car through investing.

Chris:
[8:17] Very unlikely just going to cash. Very tough to do.

Chris:
[8:25] So what happened today? The market just red, red, red, red. Well, of course, we've got more tariff news on again, off again, jerking around, but that is flowing through to things like consumer sentiment. Now, take a look at this. This goes back to, gosh, the 50s and those gray barred areas are recessions.

Chris:
[8:55] Sort of like 2022, where everybody felt awful, consumer sentiment was terrible. Somehow there was never a recession called in 22, even though something like 100% of economists were calling for it. We've got that sentiment back down. You had that combined with the fact that the University of Michigan's inflation expectations were higher than expected. So people are expecting higher inflation. They're not all that positive about their incomes in the future.

Chris:
[9:29] We've got a higher than expected PCE number. The PCE is the number that the Fed supposedly goes off of the inflation calculations that they look at the most. So if the Fed is fearing inflation, they're less likely to lower rates, which could also slow things down. So a lot, kind of a train of bad news. Now, so far, that's not shown in any of the data. We haven't called a recession because it doesn't look like a recession yet, right?

Chris:
[10:05] However, I think there's a real, a real, uh, danger of these vibes of people's, the way people feel about things translating into their spending, translating into their investing in their businesses, um, which could cause a slowdown, uh, that flywheel starts getting, turning the other direction and, uh, and it can kind of feed on itself.

Chris:
[10:34] Now, if we look at this chart from Brent Donnelly, and he's showing that there's been a lot of S&P corrections, and we'll get more color on this in the next slide. But a lot of 10%, they call a 10% pullback from the top of the S&P, wherever it hits its all-time high, to the trough, a correction. So if it pulls back or a drawdown of 10%, that's considered a correction. It's not a bear market. Bear markets are 20%, so more pain. Now, you can see that in previous times when we've hit these types of turning points in the S&P, it really depends on if we get that recession or not, how much we react. Obviously, if we get a recession, there's probably a lot more downside ahead. If there's no recession, however, it's likely we start to see some recovery here pretty soon in the markets if it's going to move like it has in the past.

Dano:
[11:40] Now, Chris, I want to ask you a question here because I seem to remember, and tell me if I'm wrong here, that an economic recession is not necessarily a recession in the market. And in fact, sometimes the market is ahead of an economic recession. Am I remembering that right?

Chris:
[11:58] That is correct. That is correct. The very important point we've learned over and over over the last five years is that the markets are not the economy and the economy is not the market. The market does tend to lead the economy in both ways. Sometimes it's gone down prior to the economy slowing down and other times it starts to recover. A perfect example of that was the spring of 2009 after the great financial crisis. Um, the markets started their recovery at that point. And had you had the foresight to, you know, either get invested or stay invested in the spring of 2009, you've had a very, very good, uh, decade plus here. However, the economy was spitting and sputtering for many years after that, right? Despite the fact that the markets took off. So it's really important. You can't equate the two.

Chris:
[12:59] They're loosely correlated, but you can't look at what's happening in the economy and predict what's going to happen in the markets because the markets are usually way ahead of what's going to happen in the economy.

Chris:
[13:16] Now, if we look at this chart, this is a great chart from Warren Pies at 314 Research, and he's showing kind of something similar to what we were just looking at with the reaction of the S&P to those 10% corrections. And I'll just read what he says because he puts it pretty well. S&P correction, there have been 53 10% corrections in the S&P since 1950. Historically about 60 percent going go on to decline by 15 percent which is considered a serious correction notably the economic policy uncertainty index continues rising in those cases so and then he wraps it up by saying we doubt policy uncertain declines post april 2nd which is the tariff date, right? So if that policy uncertainty continues to rise, the higher the probabilities are that we see a more significant recession, which is kind of like, well, duh. But the data here is backing that up based on the prior market reactions.

Chris:
[14:30] I forget exactly how chris chavako puts it Daren maybe you remember uh but he says something that i love which is like yeah you can't look at the the past performance it doesn't predict the future but it is nice to know how prior humans reacted to you know similar conditions or something like that he puts it way better but uh do you remember exactly how he says that, guess not so no.

Daren:
[15:02] I don't every time i touch my mic it turns me on mute and i'm gonna remind myself not to but um no i don't remember how shavaka says that

Chris:
[15:13] Well he says it really eloquently i wish i could remember it right now so okay now we've got the uh aaii sentiment indicator notice the bearishness again above 52 percent we've talked about how rare that was. We got the next slide. I'll kind of go over that again. But man, people are just really bearish on the market right now, which lines up with those consumer sentiment numbers.

Chris:
[15:41] And what's weird about this time is historically, you've seen this type of despondency from consumers and from investors after we've already seen a big drop in the market, not before or during a relatively mild correction so this time is a little different in that regard but hey, One good thing is if you've been investing over the last five years, you're used to this time is different, right?

Chris:
[16:11] We've had a lot of things happen since COVID that have never happened before. So this would not be surprising to be another one. We got the CNN extreme fear reading at 22. So the fear and greed index is still an extreme fear, which is actually down from 25 last week. And then Bitcoin hitting 44 fear, which is actually a little bit higher than it was last week at 31. So I've seen a pretty big sell-off in Bitcoin as well over the last year to date. And uh so but the the overall fear in that market is not quite as bad and we look to the bitcoin market as kind of a telltale for risk assets so you know i think it would be a positive thing to see bitcoin start rallying it's likely that you would start to see you know the the the risk assets can uh rally in response to that it's usually the tip of the risk spear if you will So.

Dano:
[17:16] Daren, what do you think Bitcoin is like that?

Daren:
[17:21] I just think it's, well, I think there's a couple reasons. One, I think Bitcoin trades 24-7. And because it trades 24-7, a lot of things happen after the markets are quote-unquote closed. That could be changing if they change hours in the market. So, it can react a little bit quicker to news because it can happen all through the night. It could happen on the weekends. So it tends to move before other things can move secondly i think it tends to be and has been at least historically we always say price is set on the margin and those who own bitcoin it's price on the margin they're trading in and out of it right and so tend to be traders playing with it now there's a ton of the bitcoin or the majority of the bitcoin is not trading and now it's just it's static on chain but there are quite a few people that trade it day to day. So I think it's access, it's the type of people that are generally attracted to it, that I think are the two primary drivers.

Dano:
[18:24] Makes sense.

Daren:
[18:26] It's more speculative in nature, right? So...

Chris:
[18:37] Chris, give me the next slide. Yeah, no, I'm here. Go to the next slide. We're looking at the bespoke slide. They have the best color scheme, I think. I'm jealous of their slide color scheme. Hey, hey, marketing director.

Dano:
[18:58] Marketing director here.

Chris:
[19:01] They say bearish sentiment from the weekly AAII sentiment indicator that's the one we were just looking at survey came in above 50% for the fifth straight week that's the fourth time since 1987 we've had a five-week streak the last one was in October of 22 at the bear market low but prior to that was January of 08 in the early days of the financial crisis. So kind of relating back to those charts, we were just looking at like, hey, we're at the point where this could be the bottom-ish, you know, and we start to see recovery or, hey, there might be further to go based on that direction generated via recession or no recession. This data would seem to back that up as well.

Chris:
[20:03] Now, if we look at the drawdown in the S&P 500, that again is from the high to the low. These are historic drawdowns in the S&P. And you can see where we are now really is not abnormal or extreme in any way. You know we start to get down to 20 and those are a little more uh hair raising um you know in personal experience i'd say that a lot of people start to uh get worried around 10 percent uh they seem to be okay for whatever reason for the next 10 percent but then you hit 20 and the the the fear resurfaces right but you know when you're invested uh if if you're someone that's invested in stocks and we talk about this all the time with clients hey if you're going to be in the stock market especially if you're going to be exclusively in the stock market you have to be okay with big drawdowns you know charlie munger used to say look, if you can't handle 50 drawdowns you have no business being in the stock market so uh it's going to happen it has happened in the past it's going to happen again is this time the time most likely not because they're very rare.

Chris:
[21:19] Anything's possible, right? And so if that's too hair-raising for you, then you might want to reconsider where you are with your overall risk tolerance and consider diversifying. There have been some bright shoots in the market, most notably foreign stocks being one of them. And this is from BarChart, and they're saying European stocks on track to outperform the U.S. Stocks this quarter by the largest margin in history. So you tend to see that at big inflection points, right? Whenever you see huge changes in the relative performance of things, it generally happens early.

Chris:
[22:08] Who knows maybe maybe the foreign stocks peter out again and they go back to their lack of performance in the future but i think it's also possible to consider that maybe we've we're exiting the era of american exceptionalism when it comes to pricing in the markets, we've been through many years where the u.s stock market was priced way higher than all the rest of the world for many reasons. But companies like AQR, Dan Rasmussen at Verdad Capital have shown that, look, it's not that the earnings have grown by that much. They don't account for all the price gains and the performance, the outperformance of the U.S. relative to the other countries. Most of that outperformance can be contributed to the fact that people just are willing to pay more, for those american companies so um maybe we're starting to see the end of that era um it's too early to tell of course but having that diversification at least so far this year has been a real boon to the portfolios um you know other areas like gold and i'm sure we'll see a little bit later bonds are finally you know people people that held their noses and kept their bonds uh are are they wow what's that is that green next to my bonds what in the world what is going on that.

Dano:
[23:35] Chris i want you to take me back to 2022 and you're talking to a client and you're trying to talk them into europe and what what is that conversation like and you know why i guess it just seems like recency bias to be you can always say like oh well i should have known europe was going to blow up, but you know, I know you were talking about it then.

Chris:
[23:58] Yeah, Dan, thanks for reminding me. Unfortunately, we've been talking about it for longer than 2022, because honestly, they kind of went nowhere for a long period of time. And you just never know when that catalyst is going to happen. I mean, how many people said, oh, sure, Trump got elected, Europe's going to rip.

Dano:
[24:18] Right? Right.

Chris:
[24:19] I, let's get into some German cement companies like we talked about, uh, previously. You don't, you don't know what the catalyst is going to be. You don't know when that catalyst is going to hit. Unfortunately, diversification means owning things in your portfolio that you don't love. Um, in fact, you might hate them and you might hate them for a long period of time, but, um, you know, I would say for the most part, most people did not want foreign stocks in their portfolios. If they didn't have them, they didn't want to add them. And if they had them, they wanted to get rid of them. And we talked many times about how a year or so ago, China was quote unquote, uninvestable. And now it's had quite the run since then. So that's typical.

Chris:
[25:08] When investments get to that point where nobody wants them, generally, you can get a great price. It's like buying a house in 2012 when nobody wanted to buy a house. Nobody could buy a house after the great financial crisis. Turns out that was a great time to be buying real estate. And I know that because I spent my wedding and honeymoon money doing a wedding and a honeymoon instead of buying property, which was a great investment for the family, maybe not so great on a financial basis. Um, so part of what's been driving that, uh, U S exceptionalism too, is the fact that, uh, in this chart from Jeff Weniger at wisdom tree, he's showing the average annual wages in the U S in U S dollars. Really the U.S.'s response to the great financial crisis, the U.S.'s response to COVID.

Chris:
[26:15] Those wages were much higher than the rest of the world in the responses that the rest of the world had. So those wages outpaced even the really high inflation that we had, which in most cases, not all, but in most cases. And that's what has driven, also continued to drive the exceptionalism in the U.S. markets until recently. So this could change, you know, if people feel it's less likely that their income is going to go up in the coming year, if jobs start to get cut,

Chris:
[26:50] if we do get a recession, those types of things. But at least so far, the U.S. has led the rest of the world in a big way when it comes to average annual wages.

Chris:
[27:04] And that's led to the U.S. being the biggest portion of the global markets that any one country has ever been. So if you say, well, I really want to be, I feel the U.S. Has the best companies. They have the best regulatory structure, tax structure, whatever. I really want that home country bias. Well, great. Even if you buy the global market, you are overweighted to the U.S. So you will be overweighted. Anything that you have in addition to the 64%, which most people do not have 64% in the U.S. Most people have much more than that.

Chris:
[27:47] You're heavily overweighted to the U.S. And that diversification or lack of diversification so far, at least this year, has hurt. And I think that if this is a turning point in global markets, it might be a good time to consider adding some international exposure. There's been a lot of examples, like prior to the U.S. Being the biggest portion of this market, the U.K., imagine the U.K. empire at one time. Japan, Japan in the 80s made up something like 40% of the global equity markets, if I remember correctly. So the Japanese market reached 100 CAPE ratio. It was very highly valued at that time. Everybody thought Japan was taking over the world. They made up a huge portion. So all of these things are in flux. Nothing stays the same forever, right? And maybe the United States becomes 80% of the global markets. I don't know. But I think it's more likely that other countries start to catch up and make up more of the market. And it would be a good idea to be diversified to that growth.

Chris:
[29:09] Here's what we've been talking about this episode here, the forward price-to-earnings ratio of the rest of the globe versus the U.S. The U.S. is in red. The forward price-to-earnings ratio as of March 19th was 20.8 versus the rest of the world at 13.9. So that's the multiple that you're paying of expected earnings. And so the higher that multiple, the more growth is priced in to the price that you have, the higher the hurdle is, let's say. And so you notice prior to the great financial crisis, these price to earnings ratios really moved in concert with one another. And then since the great financial crisis, and especially since about 2012, the U.S. Has just separated itself from the rest of the world in terms of the pricing of U.S. companies versus the rest of the world. So maybe that continues. There's nothing that says those have to come together, but there's the possibility that that happens.

Chris:
[30:20] So switching gears here for a second from Lizanne Saunders at Schwab. She says the Philadelphia Fed Services Index, so they have the Manufacturer's Index and they have the Services Index. The U.S. Economy is primarily driven by services, not by manufacturing. Manufacturing is a small part of the U.S. economy. The services index down to 32.5 versus 13.1 prior. This is a new cycle low with new orders falling to negative 19.5 versus negative 1.3 prior. So a huge drop off. Prices paid rising plus 36 versus plus 23.4. So prices going up on this measurement. So not the big drop-off that we saw in COVID, of course. And I wouldn't say it's anything that you could say is a trend so far, but there was that drop-off in the services index this week as well, kind of adding to the bad news.

Chris:
[31:30] And mixed up these last two slides. So these are a little out of order. Sorry for the hard left turn here. But remember how we were talking about the U.S. wages going up so much versus the rest of the world. Well, they have not kept up with home prices. And I think this is adding to the overall.

Chris:
[31:50] I don't know what you would call the overall, you know, the feel that's around the U.S. right now, right? People are on edge. Yeah, the sentiment. The sentiment is on edge, right? And Charlie Bielo at Creative Planning has done a great job. He's got a video that I shared with you guys on U.S. Housing data, valuations, et cetera. The bottom line is that U.S. Residential houses are as expensive as they were prior to the GFC relative to incomes and other measurements. And those prices, that national average price has gone up so much more than the national average earnings over the last five years, that it's a real problem. You know, I think this is a societal problem, too, because, you know, it's the American dream, right? Get married, buy a house, have some kids or not, right? But usually the house is a part of the American dream, owning your castle. And increasingly, owning that castle is becoming out of reach for a lot of people.

Daren:
[33:07] Well, that certainly has sociological impacts, but it also has very real economic impacts, right? And we say this all the time, but what's our largest consumption mechanism in a consumption-based economy that we are in the United States? Well, that's our homes, right? You look at your home and all the crap you buy to fill it up. You know, if people don't have houses to fill up because they can't afford it, that impacts directly. GDP impacts the economy overall. Allowing and finding a way for the next generation of Americans to contribute to their consumption levels to proper levels to support our parents in retirement. That's important, right? So if you can't afford the homes, then we got issues. And that's how the economy works. And right now you have that issue. So the question is, do we start just all living in apartments and can't buy homes? Does that change? I think that discussion is being had nationally right now.

Dano:
[34:05] And I will say that this past week, we have another podcast called It's All Money, which is more of a life and finance podcast. And based on all these slides we've seen about the housing data, I sat with six realtors and talked about this and talked about what 2024 was like, what 2025 is looking like.

Dano:
[34:25] Housing crisis is the unspoken crisis. I mean, there's been such headlines about the S&P these past couple of weeks. Look at the the drop in your housing prices in some instances the value you've lost but still that gap between the wages and the prices are still extreme and it used to be you know if you've got a pretty if you got a decent job or a union job you can after a couple of months you can step over and get a car pretty easy um that kind of used to be how houses were as well and now it's become in this case where you can get a house, but sometimes there's some real backflips and really creative things that you have to do to actually make it happen. It's becoming harder and harder for sure.

Chris:
[35:09] Absolutely. So last one, and this is from Kevin Gordon at Schwab. And he says, and what we're looking at is the Richmond Fed manufacturing activity prices paid six months from now. And he says, a stunning expectations for prices paid in the next six months surge to an all time high in March per the Richmond Fed manufacturing survey. So it doesn't really look like anything on this chart going back to 98, anything like that movement that we've recently seen. Now, maybe that's what gold is telling us. Gold has always been considered an inflation hedge. It's always been considered a geopolitical turmoil hedge. People tend to turn to gold in times of unrest and inflation and such. And gold, I'm sure we're going to be looking at here soon, is really having quite the run here of late. And so it's all going into these expected possible higher inflation. Inflation is awful for everything. We do not want high inflation. That is a game changer.

Chris:
[36:27] And, you know, assets don't like it. Society doesn't like it. Inflation is not something any of us want. And so, but there are a lot of these surveys that are starting to say, hey, maybe the Fed needs to start worrying about that again, which would mean they would have a tough time lowering interest rates, which is kind of what the market wants moving forward.

Daren:
[36:53] All right so let's pivot on to some other charts here let's take a look i just want to we look at this fairly often we haven't in recent weeks but let's just take a look at some of the data uh that came in recently because i think that's what's driving the market sell off again no one ever really knows what's driving the market soft there's so many factors that could the financial media loves to say market sold off because of blah blah blah blah but it could have been a whole host of different factors but they have to create a headline right because that grabs eyeballs, sells advertising. That's how it works. So when we look at what data did come in towards the back end of the week here, I think two things are happening. One, we've got this tariffs on again, off again. We have this April 2nd time coming up this next week. And there wasn't a lot of talk. In fact, Trump added more tariffs with the automobile tariff this week. And that said, whoa, maybe he's not going to let these things up. He's really going to put them in place.

Daren:
[37:45] Obviously we're ruffling feathers around the world with putting on tariffs and like them hate them think they're crazy don't think they're crazy but So it's shaking up the political atmosphere. What also came in hot was the core PCE. Personal income came in hot and spending down. So if you have core PCE and personal income coming in hot, that means that people are making more money and inflation's up, right? So what that tells you is that, hey, the Fed can't lower rates. And the market says, oh, wow, Fed won't be able to have the room to lower rates. We're going to have to go lower before we see any relief coming in from the Fed or the money printers getting turned on. And I think we certainly saw that in the chart this week. We'll take a look at it. But you can see even the expected pending home sales was expected to be lower than what it came in at. So that tells you that things aren't as bad as people are saying they are. And if they're not that bad, then the Fed can't move the rates like we thought they might be moving the rates. And that becomes problematic for what the current pricing of the market is. So the market, being that it's a pricing mechanism, has to reprice everything.

Chris:
[38:55] Daren, is there.

Dano:
[38:57] A way to know if the money printers are on?

Daren:
[39:01] Well, yeah, there is.

Dano:
[39:02] Are they off now?

Daren:
[39:03] No. So what's happening right now is there's quantitative tightening. And the Fed came out last week and talked about how, hey, quantitative tightening is probably done. So when the Fed is tightening, quote unquote, the money printers are off-ish. It's a function of to what degree they're on because they're always on on some degree because you can't run up a $36 trillion, almost $37 trillion debt without a money printer turned on. It's just to what degree they're turned on.

Dano:
[39:32] And so that's why these Fed meetings are so important, because that's basically them saying, we're going to turn it on more.

Daren:
[39:39] Yeah. So they come on and they'd say, you know, they call it Fed whispering, right? And you listen to these little hints of stuff. They're actually fairly more open than they have been historically in recent years. But yeah, they come on and they're like, hey, we're going to do this or we're going to do that. And then the market, that's new data. And everyone's hanging to that because at the end of the day, you have fiscal stimulus and you have, so fiscal stimulus is the type of stimulus that we saw with Congress and with the Biden administration. They were doing a ton of fiscal stimulus, right? And we saw that coming through in all kinds of ways, right? But that's where the elected officials are spending money into the economy, whether they're building bridges, roads, those type of things, giving back to our tax money.

Chris:
[40:27] Dropping money in your bank account. That's right.

Daren:
[40:31] That's right.

Chris:
[40:33] Helicopter money, right?

Daren:
[40:34] Um and it still shocks me how fast they got all that money into our bank accounts without like telling us they had our bank accounts but whatever um that

Dano:
[40:44] Happened that happened

Daren:
[40:47] And yeah it did happen right and so there's so the the fiscal stimulus was used really really heavily and we saw that with all the the jobs being um created um in the end of the biden administration, where in the last 2024, it was pretty much all government hiring. And there wasn't a lot of private hiring. And so that's now pulled way back, right? Because we're not seeing that anymore. In fact, we're seeing the Trump administration lay off a bunch of people. And so that has to pull through the economy. So the fear has been like, oh my gosh, they're laying off all these workers, all these people, it's going to crash everything. Well, what they're trying to thread is this needle that allows for them to lay off a lot of the government sector, hire a bunch of the private sector and stimulate it, right? So they've got to thread a needle pretty carefully. And when you look at the S&P 500, so going back to Chris's point, I'm going to show you why the charts are probably leaning towards we're headed towards a recession versus a just a bounce here. Now that doesn't mean that, and we always have to keep in mind that they could just really turn on the money printers. They could just start stimulating, right? They could turn back on the fiscal stimulus in a different way. They've been turning off for a few months.

Daren:
[42:07] Um, um, the fed doesn't have the room to lower rates. That's the bigger issue, right? So if you were looking to the fed to bail out what the Trump administration is doing to slow the economy, uh, at this moment, cause they've been really clear. They want to get that 10 year down in order to get that 10 year down, they're going to slow the economy. Uh, what the S and P 500 on just one day performance tells you today is, Hey, look, what's up utilities, healthcare and real estate, right so if real estate's going up that's saying okay well those are tangible asset utilities are going up those tend to be a risk off and health care tends to be a risk off part of the s&p 500 so the risk off stuff was off but then you've got microsoft nvidia apple amazon google meta and tesla which are your magnificent seven and they just got crushed today and well if they're getting crushed so many of these are smaller stocks have to do so much better i mean think about it nvidia is the size of the whole entire U.S. healthcare market. That's insanity, right? Look, this is utilities. It's almost three times the size of the utilities market. So these kind of risk-off quote-unquote stocks, they won't hold the index up.

Daren:
[43:21] So when we take a look at the S&P 500 from a chart perspective, I know, Chris, you're so excited that I'm pulling out the Fibonacci lines again. Yes. we use these fib lines um during covid quite a bit um because we were watching to see like okay if it gets above this point then it's game on again we're not going to roll over because the real risk at this point is you know you hit about a bottom area which in this case so far it was kind of right right here was our bottom right uh on the chart and so that was on um the 13th of this month so just a few short days ago um we hit a bottom and then we bounced up and very quickly, we recaptured that 200-day moving average, which is that orange line. But we also moved above that 38.2 Fib line. And that's an important kind of geometric line for market geometry. And so when it bounces above that, it says, okay, it's strength. But really what we want to see is this 61.8. We want to clear that before we say, yeah, it's probably from a probability standpoint headed north in the fact that we bounced above the 38.2 um

Daren:
[44:32] Earlier this week on monday so we opened the market up there like wow that's a strong bounce we like that and then that got rejected and sold off and came all the way back down here below the 25 that doesn't bode well so you know probability right now in the market is to the downside right i think that's more probable we get more downside does that mean we're going to implode 08 it's the end of the world? No. Doesn't mean we might get a true correction going on here in the S&P 500. Well, right now we're at 9%. We go down to 10%, then we're officially in that correction, which we tagged earlier. We got 10.3%, which is very normal, right? So the other look of this, right? So this could very easily now, so we came down into this area, went below our 200, got rejected at our 200, came down into here, that's weakness on its face, right? We have to accept that's weakness that it's probably going lower. So then we say, okay, well, where are we looking for possible areas of support? Where would the market go to? Well, you still got quite a bit of support right in this 540 range, in this range, and we didn't quite touch that, right? So I could easily see a trade into here and then a move up, that would be probable, possible.

Daren:
[45:53] If we blow that area though, we're really, then we're looking down at 520, kind of this area. So those are the, what I would say are the two prime support areas. So if we look at how much lower would we have to go to hit those areas? So if we went down to this kind of 542, we're looking at 11% down. If we go blower, then we're looking at 15% down. Not crazy numbers, really, in the scheme of corrections and how corrections work and given everything that's going on. So I think all investors should be prepared to see those numbers if they don't roll out the stimulus van and start printing money and helicoptering it to everybody.

Daren:
[46:37] I think generally there's a pretty pessimistic look out there, and that pessimism certainly seems to be coming through in the markets. We could also see a look like this.

Daren:
[46:47] We do have the potential of what we call a double bottom, right? Because you have that bottom here and we could see some kind of bounce here, somewhere in this area, and then a move up. And that would actually be a good long-term bottoming signal for us to say,

Daren:
[47:03] okay, this will probably go a little bit higher and maybe attack on all-time highs. Hard to see that from what I see right now. And the biggest thing is what I brought up earlier when we started the show, which is nvidia right nvidia is so significant and as is microsoft these two stocks are huge and they make up such a big part of the market that if those stocks are going to sell off there has to be so much more work done by the rest of the market and when we look at nvidia it death crossed it's trading well below the 200 day moving average now um it's finding support in this range still there's still range it's kind of in and i'd say it's in the bottom of that range we lose we closed this gap way back here and that was july of last year so that gaps close which i like that doesn't makes it easier and more less probable that we'll just shoot down to here and grab that gap and back up um but i would say the risk right now to the support i'm looking at 90 on nvidia there'll be a lot of support at 90 on nvidia but that's where i would say the magnet looks like it is most likely headed this point unless something changes.

Daren:
[48:14] Now, I'm just talking in probabilities, right? So anyone who takes what I say and says, oh, you said this, I'm just talking probabilities, right? This is a game of probabilities. I don't know. I don't have a crystal ball and no magic elixir here, but just this is what I see based upon the charts. Okay, now this is Microsoft, the second biggest stock or the first biggest stock in NVIDIA, but you can see that this is a distribution pattern, much like the NVIDIA pattern. And the fact that this was support here and then we closed down below,

Daren:
[48:47] That's telling me we're probably going to lose support. What happens is buyers will step in and go, oh, this area is great. I'm going to buy it. I get a great discount. But eventually those buyers wear off. And so it has to go lower to get more people to step in and say, oh, this is a great deal. I'll put my money long-term on this stock. And you can see this is a support range of buyers here. And then there's also likely to be a lot of buyer support right in the 340 range so i would look to 360 is kind of your your next week's low area if it gets ugly next week and also start to see a lot of support around 340 if it gets that low again we have to take it each day data time data changes information changes and money printers turn on and off all the time so that's really been the driver

Daren:
[49:35] Tenure has been super important, especially for our diversified folk out there. For people who are just invested in stock market and openly concentrated technology, it's all about NVIDIA, right? NVIDIA, Microsoft, Apple, Amazon, those things are really driving their portfolios. But for our diversified folks out there that have spread their market through multiple asset classes and have suffered for it because of the interest rates over the past years, really watching this 10-year bond is critical for that. and watching to see what happens. The fact that we went up, we traded down in the 10-year, and now we're down here, and we're just sitting along this 200-day moving average shows me weakness on the chart. The next area, we're really going to have to contend those at 4%. That's going to have a lot of support in the 4 range. Yeah, I said earlier, Besson and Trump, they want to push this 10-year down, and they're really focused on that.

Daren:
[50:28] And this is conspiratorial, but I'll make the point anyway because I think it's fairly possible. Um, they know they have 16 months till reelection time starts again, right? So they got to start trying to get reelected. Otherwise there's a blue wave coming in. And so if you think about what

Daren:
[50:46] If they had the power to and the control to, you would get the 10-year down, which would give the Fed room to move the rates down, which would start stimulating the economy. The trick is they can't do it too fast, too quickly, right? Because it's all about how fast the market moves from point A to point B. And if they do that correctly and they thread that needle correctly, then they can start stimulating the economy coming right back into the next election. In my mind, that's probably the most probable outcome here. They're trying to make all the changes they're doing and then coming in the next election in 16 months when they start ramping that up, they'll have room to stimulate things through. Question is how deep does it go? Do they keep control of it? Does it get really bad? Does it escalate? See, recessions and sell-offs, the markets are psychology, right? So if too many people get pessimistic and no one's willing to put their money into the market, and everyone's trying to throw all their money into gold, like we see on the chart right here, then that's pessimism. You can see the gold chart just ripping higher.

Daren:
[51:49] Now, Monday has been designated as silver squeeze day. So you're going to see that in the media getting pumped up. And the whole thing with the people who trade silver and play in silver, they're all going to go buy silver on Monday and try and short squeeze the market up higher. So stay tuned for that. But silver knocking on this $34 range, not its all time high. If you go way back here, it's almost, I guess, 50 for a minute.

Daren:
[52:19] And so we'll see what happens. That could be rather interesting, but the silver chart is certainly showing some signs of life. The thing with silver versus gold, gold's much harder to pull out of the ground. It takes a lot more resources. There's a lot less of it. It's more scarce. Silver, there's a lot of it. And it's, you know, it's much easier to get it out of the ground. So that price goes on. High and stays high for a long period of time, then you start to see things happen.

Dano:
[52:50] Daren, can I ask a really stupid question about the 10 year?

Chris:
[52:53] Yep.

Dano:
[52:54] Can you go back to that chart for a second?

Daren:
[52:57] Um, yeah.

Dano:
[53:01] If I'm, uh, an investor, a client of cinema wealth advisors and I sit with Daren and Chris and they tell me to be diversified. And so I buy a bond and now I'm looking at this chart. Do I want this chart to go up or down?

Daren:
[53:16] You want it to go down because bonds are inversely related to the interest rate so you're waiting for this to go down so what happened is um when we we thought um inflation was easing off then we started seeing um you know bonds and we started seeing the egg or the bonds improve um and then the rate started shooting back up and that was problematic and so you can see this right this little tranche here we saw bonds doing better and then they cool off. Now with this going down, that'll be good for the ag, which represents the bond market. And you can see that it started going down inversely and then recovered. And now it's to break out again. So keep an eye on ag. If things get bad next week, I would see ag breaking out. I would see gold going higher, silver going higher, 10-year going down, and then oil also getting smoked. And oil has been sitting right here at the 68, 65 range and starting to see weakness there as well.

Daren:
[54:18] All right. Well, we're going to leave it there for this week. I hope everyone has a wonderful weekend. We'll be watching for next week. As always, if you have questions, reach out and happy chat. Take care.

Music:
[54:30] Music