Is The Market A Spidey Meme?

DANO WEIR: You are about to go on the markets with Sonoma Wealth Advisors. Happy Friday, happy summer, happy July. I hope you're having a great week so far. And we're going to check in on the stock market with Chris Seip, CFP, one of the managing principals of Sonoma Wealth Advisors. What are we talking about this week? Spider-Man, I guess.

DANO WEIR: First of all, we're hitting inflation this week. What's really going on with inflation? And what is Truflation. We're going to look at the shocking number of countries that still have limited internet access and which asset class is more than doubling U. S.

DANO WEIR: Large cap stocks in 2025. Here's a spoiler. We've told you about it before. And also, we're going to ask the question, is the market a Spider-Man meme? And what does that actually mean? But first, let's get things started with the introduction.

CHRIS SIPES CFP®: Please keep listening. Please keep listening.

DANO WEIR: All right. I think I mentioned it before, but I'm the marketing director. I'm Dan O'Weir. I'm one of the co-hosts of the show, Chris Sipes. Chris, Daren usually roils me a little bit.

DANO WEIR: He usually kind of ribs me because I'm always trying to bring pop culture into things that I do because I'm a fan of it. He is the one who suggested using the Spider-Man meme this week. So what are we actually looking at? Why is the market maybe a Spidey meme?

CHRIS SIPES CFP®: Well, so what we're looking at is the Spider-Man meme where, you know, the two Spider-Mans. Get out of the, the, the police truck and they're pointing at one another, like, wait, it's you, it's you, right. You know? And, and the one person to clarify that is, that is Jay Powell. The other one's unmistakable.

CHRIS SIPES CFP®: Everybody knows the other one, Mr. Trump. And, there's been a lot of finger pointing and, Mr. Trump feels that Jay Powell is keeping the interest rates too high for too long. Of course, that leaves out some nuance in the fact that it is a voting situation. There are members of the, the board of governors that, that, vote on, on the rates.

CHRIS SIPES CFP®: Also, you know, the president's thrown out the number 1% many times, which seems a little crazy given that, 1% would be kind of like a, an emergency type level of, of interest rates. When the economy doesn't seem to be in anywhere close to an emergency. So I don't know, the market really isn't taking it very seriously, it seems like.

CHRIS SIPES CFP®: So I guess at this point, it looks like Mr. Powell is going to serve out his term until I think it's May of next year. And that the betting markets are expecting Waller to be the next Fed chair. And Waller has been pretty consistent through many different presidential or administrations. So I think the market would be okay with Waller if it was Waller.

CHRIS SIPES CFP®: So as long as the independence of the Fed is maintained in the market size, I think that's the most important thing.

DANO WEIR: And we're talking about Christopher Waller. He's one of the Federal Reserve's governors already. And I think the idea here is that Trump's saying that the market's doing what it's doing because of Powell and the economy's doing what it's doing because of Powell. And then yet.

DANO WEIR: On rumors perhaps that Powell might resign, you know, the market itself kind of responding negatively to that, you know, it didn't really seem to particularly like that, similar to when rates were dropped, I think it was last year by the Fed, but then rates actually went up. So it's a little bit of some fingerprint pointing going on. And, and really just a great, just such a great meme.

DANO WEIR: It's just it's from an episode of the animated series from like, I think it was the 60s even. One guy dresses up as Spider-Man, then you have the real Spider-Man, and they're both with a suit, and they're both like, I'm the real Spider-Man. No, you're the fake. No, you're the fake. And that's a little bit of what we're dealing with right now.

DANO WEIR: All right. So we are, as I said, Sonoma Wealth Advisors. Our family of brands includes Fermata 401K, Fermata Tax Advisors. We have some of our fast facts there on the left. We're a financial advisor and this is our show on the markets. Let's dive in, Chris, with more humor.

CHRIS SIPES CFP®: Yeah. You know, this is a great meme from Hedgeye. When it comes to investing, we can't, We cannot direct the wind, but we can adjust the sails. Of course, it's the... Famous adage around sailing. And I personally love to go sailing. So this is a good one for me and the way you approach investing in the mindset that you should have.

CHRIS SIPES CFP®: And the one key I like here too, is the, the word adjust, right? So many times we want to make wholesale changes to our portfolio, something, you know, something about it. We don't like, we want to, we want to start from scratch and go a totally different direction. And that tends to be the wrong decision for most folks because you tend to make that decision when a strategy is kind of going through its trough.

CHRIS SIPES CFP®: Every strategy is going to have its pros and cons. Every strategy is going to do well sometimes and then not well other times. And what you don't want to do is jump out when it's doing poorly right at the time when it's about to turn the corner. So making adjustments sometimes can be the best.

CHRIS SIPES CFP®: Best way to go because you still feel like you're taking action, but you're not making huge sweeping changes, which kind of leads to the second quote here from Larry Swedrow, who's written a lot of books and he's kind of, I think he still works for a wealth management firm. I could be wrong. He might be retired now, but he's been writing papers and been kind of a thought leader.

CHRIS SIPES CFP®: Investment world for a long time. And he says, a good strategy is when you know it before the fact, not after the fact. One should never judge a strategy by the outcome, but by the quality of the decision. And so Annie Duke, the famous poker player talks about this in her book, which I'm blanking on the name of it right now.

CHRIS SIPES CFP®: I think it's called Thinking in Bets, if I remember correctly. And she talks about in there how, you know, if you equate things in life to a poker match, a lot of times you have to make a decision based on the probabilities because there's never, you know, the outcome is only apparent in hindsight. But when you're looking forward, there's a range of possibilities that can happen.

CHRIS SIPES CFP®: And so she uses, I think she uses the analogy of if you drive through a stop sign with no seatbelt on and you just. And you make it through and it happens to be no other cars coming through that hit you at that time. Was that a good decision just because the outcome turned out to be okay?

CHRIS SIPES CFP®: Probably not, because if you do that a hundred times, it's not likely that the outcome is positive every time. And the one time it's not positive, it could be deadly. So you want to make your investment decisions that way as well, where, you know, the strategy going into it makes sense. And it's not just total luck that, that you, that you had, that you did well and that you made it through.

CHRIS SIPES CFP®: All right. So we got the sentiment indicators this week from AAII. We're getting, we're still a little bit bullish, a little bit on the bullish side.

CHRIS SIPES CFP®: You know, like so many things in our society, there's less, there's less in the middle. These days, it's people are very bullish or very bearish. And so we're a little bit outside of our normal ranges of about a third in each one of these buckets. The CNN fear and greed index still is at 75, which is just the beginning of extreme greed.

CHRIS SIPES CFP®: So it's just dipping barely into the extreme greed zone, which is unchanged from last week. Now that one isn't a, Hey, how do you feel about the markets? That is an actual positioning of seven different, indicators within the market where they come up with that number. And then we've got Bitcoin at 73, which, is greed up slightly from 71 greed last week.

CHRIS SIPES CFP®: You know, that's after we got the genius act passed this week, which is going to be, more cryptic. Crypto-friendly regulation, at least my understanding on the surface of it, and around stable coins and backing of those stable coins and trying to make electronic payments supposedly more efficient.

CHRIS SIPES CFP®: And so Bitcoin has gone from the, you know, the crazy, you know, weird asset to now it's been in an ETF. It's being accepted by the man, including the government. So full circle for Bitcoin now, which is a surprise, by the way, I did not expect to see that. I mean, from my understanding with the Genius Act, it's not necessarily like accepting Bitcoin, but the fact that they're there.

CHRIS SIPES CFP®: You know putting regulation around stable coins and such i think it's more of a an acknowledgement of crypto and an acceptance of crypto as an asset class so consumer sentiment we got an uptick in consumer sentiment today specifically around inflation now this chart is not that chart but the University Of Michigan does a sentiment survey and asking people what their expectations of inflation are over the next year.

CHRIS SIPES CFP®: And that bounced back, meaning that people have a lower expectation of inflations. And it's one of the biggest bounces in the history of the survey in a positive direction. So people expecting less inflation.

CHRIS SIPES CFP®: It's been kind of a manic survey here lately where people are kind of all over the board. And you can tell that by overall consumer sentiment here. If you look at this on the long-term, Dano, we're roughly where we were at the bottom of the great financial crisis in 2009, 2010. Now imagine that.

CHRIS SIPES CFP®: Great financial crisis literally was the implosion of the financial system largely.

CHRIS SIPES CFP®: And we've gone through nothing of the sorts here with the market, at least in the U. S. Stock market now. I think you could say the bond market's been hit that way. I think you could say the real estate market's been hit pretty hard.

CHRIS SIPES CFP®: So there's areas and pockets of the market that have felt a lot of pain. But the fact that consumers feel as negative about, you know, their sentiment is as negative now as it was during a great financial crisis. And I think you'll also notice that there really haven't been other times where we've been this low on sentiment outside of a recession.

CHRIS SIPES CFP®: So those... Gray shaded areas are recessions and you tend to see these big drop offs and the extreme low feeling sentiment only in recessions. And somehow that has not been the case with this one.

DANO WEIR: And look at the dot com crash late 90s into 2000. Look how high that was. And there's so much similarity right now in the market with overpricing that. It just, in that time, you can just eat not only with what they were overpaying for stocks, but then also the sentiment too is like just a, a really euphoric feeling heading into the year 2000 and it's, and, and just nowhere near ever hitting that point ever again.

CHRIS SIPES CFP®: Yeah.

DANO WEIR: Yeah. I blame the internet.

CHRIS SIPES CFP®: My, my, my most, I guess, vivid recollection of that time was the whole Y2K anything? And how all the computers were just going to shut down at the end of 99, you know, because they couldn't figure out how to read 2000. You remember that scare?

DANO WEIR: Oh, it was totally, I mean, it was the fears that people are having. Everything that you're hearing about AI right now, right? Everything about all the jobs it's going to take and all the terror and all the God knows what. It was that level for. We don't know what's going to happen when the date rolls over back to double zero.

DANO WEIR: It was that level of panic. It was going to be the nukes are going to go. It was going to be all your money is going to be gone and nothing happened. So that we know about, that we know about.

CHRIS SIPES CFP®: Yeah. And that's the whole concept of the black swan events. The black swan events are the ones that have the biggest impact on the markets and they're the ones that nobody sees coming.

CHRIS SIPES CFP®: You know Ray Dalio has this famous saying where he says, if you worry, you don't have to worry. And I think what he means by that is that if it's a known worry, it's priced in. It's priced in. So the probabilities are priced in. And what's cool, I think, about the betting markets, although I'm not a huge fan on how speculative that induces people to be, but you can bet on everything now.

CHRIS SIPES CFP®: But the beauty of it is kind of showing the efficiency of large numbers and how when people bet on things, a lot of times it's right. Very rarely is it wrong in those black swan events, the unexpected happens. That that's that's what's not priced in.

DANO WEIR: Ok, so wait. Hold on. So speaking of betting, speaking of betting and memes, of course, everyone saw the let's just call it the Coldplay couple this week. And I know you wanted to talk about this, Chris.

DANO WEIR: There is a bet going on right now as to whether that guy is going to get a divorce or not. People are betting real money on that. That's a real thing you can bet on. How weird is that? This is a weird this is a weird point in American history for sure.

CHRIS SIPES CFP®: Yes. Wow. That's almost used.

DANO WEIR: Almost use. We almost use that meme this week, Chris. I spared you and did Spidey instead.

CHRIS SIPES CFP®: Yes. Thank you. Thank you. I feel like I've seen it everywhere. So.

CHRIS SIPES CFP®: Okay. So inflation now. So we already talked about consumers are pretty positive on inflation, at least according to that University Of Michigan sentiment survey. And so are corporations, apparently, according to Bloomberg. And this is from Lizanne Saunders at Schwab. So it shows that the mentions of inflation and S&P 500 transcripts was the lowest since early 2021.

CHRIS SIPES CFP®: Now, apparently nobody saw inflation coming in 2020 because we all remember 2021 was when that inflation just took off. So I don't know if this really... Is good or bad saying that, you know, companies saw this coming or not.

CHRIS SIPES CFP®: But anyway, they're less worried about it based on the mentions of it in transcripts. And you can see that it's taken a while for that to kind of come off of the off of the radar of companies. We're still, you know, above where we were prior to 2021, of course. But it looks as though companies are starting to worry less about inflation. In, in the markets.

DANO WEIR: When you say transcripts are these like written transcripts of, or digitized transcripts of their earnings calls, like what the CEOs are saying?

CHRIS SIPES CFP®: Yes, that's right. Yeah. So the earnings calls are all, you know, public and then there's transcripts of those. And now there's all these, you know, even before AI was big, there was ways that they could kind of scrape that and figure out how many times certain things were mentioned.

CHRIS SIPES CFP®: Right. Which is kind of cool. And so but now with AI, I'm sure it's even easier. And and so, yes, you're correct. It's the it's the earnings call transcripts of the S&P 500 companies.

DANO WEIR: Well, as you may know, Chris, we have transcripts of this show, which you can read on our website at cinemawealth.com. And in that text at this very moment from my voice, you're going to read the phrase Darren Blonsky enters the chat because he is here as well. Welcome, Darren. Good to have you.

CHRIS SIPES CFP®: All right. So go on to the next slide. We highlighting what is inflation here today. Right. And one common Web site that people use to track this is is a site called Trueflation. So the one we're usually talking about when we're talking about inflation is the CPI, the Consumer Price Index. And that is the one that. The government puts out.

CHRIS SIPES CFP®: And that's the one that things like social security are tied to tips. So inflation protected treasuries that are issued by the government. That's like the official, you know, government sanctioned, I guess, measurement of inflation. And of course, there's a lot of people say, oh, that's not true. And so let's use true inflation, right?

CHRIS SIPES CFP®: As, as another option. And there's, there's other, I forget the university, there's a university that does it that measures, you know, thousands of goods in their prices as well. So anyway, true flation to at a roughly 2%. So right at the Fed's target these days. And why do people care so much about inflation?

CHRIS SIPES CFP®: Well, a couple reasons. One is because it's it's one of the two things that the Fed policy drives Fed policy, right? So we started the show talking about like, well, should Powell be lowering rates or not. Well, one of the things that they have to keep an eye on is what they call price stability, which is IE that we don't get too much inflation and that we don't get too much deflation.

CHRIS SIPES CFP®: And then the other thing is full employment. So they want to make sure that the unemployment rate stays low, which seems like we're there, right? We have a very low unemployment rate. The inflation rate, at least according to Truflation, is at least in the ballpark of the feds.

CHRIS SIPES CFP®: Desired wishes. And so To me, as a market watcher, do I look at that and say, okay, we definitely need emergency levels of low interest rates? To me, I look at that and say, I don't know how you could say that. We're not getting deflation. If anything, there's a tick up in inflation, a slight one, but there's a tick up.

CHRIS SIPES CFP®: So that wouldn't argue for easier money. And then we've got the unemployment rate is still very low. So that doesn't argue for easier money. Either. And, and so where, where is the, where's the argument for an emergency level, interest rate of 1%, to the market? I just don't see, I just don't see how that, is being communicated.

DANO WEIR: Darren, how do you feel about that?

SPEAKER 3: I think it's dead on. I don't think, well, one, I don't think that we get accurate numbers on the place from a 42 us. I think, And I think the other thing about inflation too is that, I'm getting a repeat back from your mic, Dan.

SPEAKER 3: When it comes to inflation, one of the challenges with it and measuring it effectively is each of us has our own basket of stocks or our own basket of goods that we buy, right? So each of us has a personal inflation rate.

SPEAKER 3: Debating about where inflation actually is on micro levels kind of nonsense but i generally look closer to the true inflation rate than i do the CPI all.

CHRIS SIPES CFP®: Right so now there's other market-based expectations of inflation and this is the five-year and 10-year break-evens what's a break-even And. Well, it's the difference between the inflation protected treasuries and the nominal treasuries. So an investor can buy either one.

CHRIS SIPES CFP®: Now, a nominal treasury does not have inflation protection, whereas a inflation protected security, what commonly referred to as tips, they do get inflation protection, meaning that they they are issued with the terms that the government will go ahead and adjust the value of your bond based on inflation so that you do not lose your purchasing power on that bond. And so there's a differential in those rates.

CHRIS SIPES CFP®: And that's where these break-evens come from. Now, you'll notice that we've really been in this range for... At least since late 2022, and probably even you could say early 2022. Now, it's been a little noisy up and down, but overall, we've been in a sideways motion here on the inflation expectations over the next five and 10 years due to the market.

CHRIS SIPES CFP®: All right. Now, you mentioned this, Dan, and I think this is a point to drive home. Just because the Fed lowers their rate does not mean that the market is going to lower its rate. Now, the market by the market, I mean, what supply and demand says the price of a 10 year treasury in this case should be to illustrate that where you see that red dot is where we lowered interest rates in 2024.

CHRIS SIPES CFP®: The Fed lowers their rate, the Fed funds rate, which has a lot of influence over the short end of the curve or the short term interest rates. But it does not control interest rates. The Fed cannot do that. They can influence it, but they don't fully control it.

CHRIS SIPES CFP®: And so the market, when that happened, what you can see on the purple line is that the interest rates went down. Initially, but then just went right back up and have kind of gone sideways. And so things like mortgages, as an example, car loans, credit cards, etc, etc. Most of those rates are somewhat tied to what the US 10 year treasury yield is, because that's considered a an intermediate term.

CHRIS SIPES CFP®: Investment that has the credit backing of the United States government. And so, you know, if you think of a lender, if they can go lend money to the government at a certain price, well, if they're going to go lend money to Joe Schmo that wants to buy a car and has a 600 credit score, they're probably going to want a little bit higher rate of return than they would get on a, on a treasury.

CHRIS SIPES CFP®: And so, So those rates are always going to have a spread built in for those people that are borrowing.

DANO WEIR: Chris, do you think specifically, I believe it was in October and it was right before the election when they dropped that rate. Do you think that's the market saying like, yeah, we don't we're not buying, we're not biting.

DANO WEIR: Like we know you dropped this for possibly political reasons and we know you're just going to yank it back up. We're going to get we're going to keep rates high while we can. Is it? I mean, what does that sound like to you? Does that sound reasonable?

CHRIS SIPES CFP®: I don't necessarily think that the market cares about the politics per se, like it wouldn't be pegged to one thing or another. I'm sure there's a lot of market participants that think that. However, in terms of like how these bonds are priced, it's more complicated than that because you've got economic buyers and non-economic buyers.

CHRIS SIPES CFP®: So people that have to own them versus people that are buying them for certain reasons. Right. And so the other thing is if you get more growth, interest rates are higher. So if all things being equal, if there's more demand for money in the market, if there's more growth, the higher the demand for the money, the higher the price is going to be. And so, Higher interest rates most of the time reflect growth.

CHRIS SIPES CFP®: And so there's that. There's also the fact that the U. S. Government's fiscal situation isn't the greatest. So people are too keen on lending money to the U. S. Government for 30 years at a half a percent anymore, like they were in 2020. And the Fed is no longer as involved in the.

CHRIS SIPES CFP®: In the, in the treasury market as they were, you know, back during COVID when, when they were, you know, implicitly backing, you know, corporate bonds and such. So, so there's a lot of different factors. No, I don't think it has to do with the fact that the market's like, oh, you just did that to try to goose the market before the election.

DANO WEIR: It'll be less about the political aspect and more about that. They can just tell it short term. They can tell that, oh, you know, this is just versus Covid where it's clear like, hey, we slam this to the floor and it's not going anywhere. That's what I mean.

CHRIS SIPES CFP®: Yeah, absolutely. So, I mean, usually in lower interest rates are in response to some sort of crisis, you know, that that is usually when you get lower interest rates. And I guess what I'm saying is bottom line, I don't see the crisis right now. I mean, if you look at the two-year treasury rate versus the Fed funds, yeah, there's a little extra spread in there.

CHRIS SIPES CFP®: So maybe they're a little tight. So maybe they need to come down a quarter or a half. But to say that they need to go from where they're at now down to one, especially if they did that overnight, I think that would be a massive shock to the market and not a good thing. So anyway.

CHRIS SIPES CFP®: Higher interest rates, higher inflation expectations. There's all the things that everybody knows that we're all afraid of happening. Now, what are some things that could be driving that inflation lower? Well, this is from Gallup by way of Lizanne Saunders at Schwab. And she says, in 28 countries surveyed in 2024, Less than 50% of adults reported having access to internet via mobile phone, computer, or some other device.

CHRIS SIPES CFP®: 83 countries have at least 80% access. So you can see here the areas of the world. And what I thought was so fascinating about this was India being one of the countries with less than 50% access. And of course, that's one of the largest countries in the world by population.

CHRIS SIPES CFP®: And so you think about the potential. Productivity gains of introducing something like the internet to a massive portion of the global population those productivity gains could drive prices down it could create deflation technology tends to create deflation because think people can do things faster and cheaper than they could before so So...

CHRIS SIPES CFP®: I think this, along with, of course, all the gains in AI, and it's kind of crazy to think about.

CHRIS SIPES CFP®: Where we're at in a developed world and talking about sentient beings being created through AI. And then you've got the other half of the world that doesn't even have a cell phone yet, right? So there's a huge, huge potential for this to create a lot of deflation globally over the next five to 10 years.

CHRIS SIPES CFP®: The other piece is housing. And we look at the housing index, the National Association Of Home Builders, that's the NAHB housing index. And what this is based on is a monthly survey of the National Association Of Home Builders members. And it's designed to take the pulse of the single family housing market. The survey asked respondents to rate market conditions for the sale of new homes.

CHRIS SIPES CFP®: At the present time and in the next six months, as well as the traffic of prospective buyers of new homes. Now look at this chart and see that we're like, you know, outside of recessions and outside of probably the biggest recession in housing market history, which was during the 2008 collapse, we've not seen the sentiment this low in the housing market. So we're seeing a big slowdown in housing.

CHRIS SIPES CFP®: This being a big part of how they measure inflation will have a huge impact on the inflation numbers. And not only the government's measurement of inflation, but I think the average person's measurement of inflation is largely tied to housing and housing costs, given that it's the largest expense for most of us.

CHRIS SIPES CFP®: So if housing prices start to come down a bit or incomes start to catch up. To those housing prices, that's going to have a massive impact on, on inflation.

DANO WEIR: Darren, do you want to take a moment and, show us what, what happened in the charts this week? Or would you like to talk maybe about the genius act?

SPEAKER 3: You really want to cue me up for the genius act?

DANO WEIR: I can.

SPEAKER 3: The, the, one of the funniest parts when they signed it earlier today, that I thought was pretty humorous is that. Donald Trump was like, yeah, this new act is so great. And they named it after me, of course. And he said it with a straight face, which I thought was pretty funny.

DANO WEIR: Classic.

CHRIS SIPES CFP®: Classic.

SPEAKER 3: Exactly. But anyway, yeah, let's go ahead and I'm going to share my screen here.

SPEAKER 3: Let me get that going for us.

SPEAKER 3: All right. So let's talk S&P 500 to start the... Let's see, is it... There you go. We can see it. So now, a few weeks back, we talked about how things were going to break out to all-time new highs in the S&P 500.

SPEAKER 3: And we saw that really starting in this area on the chart, right around the 6,000 Mark, and then we broke back above it. What I'm waiting for now is we've had a nice little run, but I'm waiting for that test to come back into that 6,000 Mark, which is right around here.

SPEAKER 3: That's the next spot that I think we need to see to make sure that this breakout is going to continue. Oddly enough, I think it's very likely that that breakout is going to happen.

SPEAKER 3: Or that breakdown, I think we could probably see that around the September timeframe. I think generally August tends to float higher, but we'll see what happens. But I guess if we're looking at this from a timing perspective, not that we're timing the market, I think we're going to see kind of a nice August. And then I think we'll see a correction in September. That's what the charts are kind of leaning up for on the S&P 500.

SPEAKER 3: So if we look at the S&P 500, what's driving the S&P 500? Well, again, it's the mags, right? The magnificent seven stocks are ripping and they're right below all-time new highs. They're driving the predominance of the market concentration. You can see these big squares here on our heat map continue to stay large and growing.

SPEAKER 3: So as long as these guys are growing, then the market's going to keep moving. We have a very concentrated stock market at this point, which is problematic long term. Eventually, we'll probably get some type of correction. Eventually, we shall see. One of the things we've been watching really closely is that 10-year.

SPEAKER 3: The 10-year is the crux of much of the debate around Powell and Trump in the media that you're hearing. Trump is trying to get this 10-year to go down, and Powell is being resistant to lowering that rate. So the market's really watching that area, but then you go back to the inflation argument and whether or not it makes sense. Feeling is that with the tariffs, that there'll be a lag, and then inflation will kick in.

SPEAKER 3: We're not seeing any significant movement there yet on rates going up or down, but really we've just been in this sideways channel here for a while. So when we see something happen with the rates, then you'll start seeing things improve in the bond market.

SPEAKER 3: So our diversified investors out there, the bonds still are not doing very well because of that. Albeit we did have bonds go up a little bit today. The fact that it kind of broke out then broke back down, it's not particularly a good look for the bond market. But I actually do like the close today on the bonds that we've gone down. We kind of tested this area and we're...

SPEAKER 3: Back above and we closed above this downward trend line that gives me some hope that this 10-year actually might be coming down but don't feel particularly committed to it until i see that line on that trend line hold NVIDIA really hit the the play button this week what's interesting is this chart used to look an awful lot like some of the the blow-off top charts that we used to see and but it's kind of invalidated blow-off top charts that we've talked a lot about in the past.

SPEAKER 3: Pretty interesting when you really think about it. Why is NVIDIA doing so well? Why is AI doing so well? Well, I think because it's going to start absorbing a huge portion of GDP, gross domestic product. It's going to take jobs. It's going to change jobs. It's really going to recreate our world we live in. And so I think the charts are telling you that at this point. Gold has been doing rather well.

SPEAKER 3: It looks to me like we have a giant bull flag in the making happening with gold, which usually indicates it's going to go higher. But a lot of the talk of the town this week with all the things going on in the political arena was Bitcoin, Ethereum, all these various tokens.

SPEAKER 3: Cryptocurrencies are doing pretty well Bitcoin broke out to all-time new highs came up to right at 9 120 we're seeing resistance at 120 right now but i wouldn't say that's ready to sell off you have more of a bull flag look at this point we look at ethereum which is the number two crypto really ripping pretty hard and moved quite a bit this week on the charts with a lot of the legislation's getting pushed through with the genius act and the crypto act and whatnot that's creating a process of banking integration with tying all the cryptocurrencies into the banking system which boy we could do a whole episode on that one could be kind of scary in some ways one of the particular cryptos XRP this is the XRP futures you can see just ripping right now but this is the particular cryptocurrency that there's some speculation is going to be tied into the banking system.

SPEAKER 3: So watch that one. That's XRP.

SPEAKER 3: So overall, I'd say the market looks pretty strong, pretty good. I think we're in for a kind of float higher August coming up. And I do think we'll get a correction in September. We'll come back in on the 6,000 Mark, maybe a little bit higher before we correct, but I do expect a correction here in the incoming. Months and weeks. Really don't see the market ripping a lot higher until we get past kind of mid-October.

SPEAKER 3: So then we get maybe a little more bump, come back on down, we'll test the 6,000 Mark and then finish out the year really strong. I have a pretty positive outlook on the year right now. But I do think in September, there's going to be some kind of freak out moment. There'll be something in the media that everybody freaks out about and sells the market off.

SPEAKER 3: And magically, it will go to 6,000, hold and move higher. If it doesn't hold at 6,000, then we invalidate the upward trend we're on and we're going to be looking at something more drastic. What would be below that is support. I think this blue trend line is pretty important. So you could see a test right in here sometime in September, that area.

SPEAKER 3: I'm going to keep it short and leave it there this week. I don't think I have anything else. But on that, have a great summer, everybody, and we'll be back next week.

DANO WEIR: All right, Chris, you want to jump back in on this next slide?

CHRIS SIPES CFP®: Okay. We're switching it up a little bit.

DANO WEIR: Yeah, moving. We're moving a little bit.

CHRIS SIPES CFP®: I thought you just were cutting off the rest of my slides, Dan.

DANO WEIR: Sorry, buddy.

CHRIS SIPES CFP®: You don't have to go home, but you can't stay here.

DANO WEIR: No, we got to get Darren while we can.

CHRIS SIPES CFP®: All right. Well, we've got more inflation discussion here from Ryan Dietrich at Carson. And what this is showing is the real estate. Portion. So going back to why is real estate so important for the CPI calculations? And he said.

CHRIS SIPES CFP®: Yes, core good prices are jumping due to tariffs, but not many are talking about the continued improvement we are seeing in shelter inflation. We've been expecting this to come for a long time and it's finally starting. What if this helps to offset the higher tariff prices? Now, what you're looking at there is the dark line is the apartment list index.

CHRIS SIPES CFP®: Now, that is somewhat like the true flation. Marker of this because this is like an index that's put together by apartment list that is more like what are current rents, right? And then you've got the CPI measurements of rent of primary residents and owner's equivalent rent.

CHRIS SIPES CFP®: So that's what they put in there, meaning like, if you own a home, what could you rent that house out for is how they are trying to measure this, which is Kind of a crazy measurement when you think about it. I don't know too many people that would know the answer to that first off, but anyway, that's how they measure it for CPI.

CHRIS SIPES CFP®: And you can see that it's heading in the downward direction. And we would expect to continue to see that if the apartment list index is correct and that we should see further downward motion in real estate prices. So, So something to keep an eye on there with inflation moving forward.

CHRIS SIPES CFP®: Now, we're halfway through the year. And let's take a look at the top performers so far this year on a country basis. And I don't, I listen to a lot of investment, you know, podcasts and such, watch a lot of Investment related content. I did not see one strategist saying they thought Germany would be the highest performing equity market.

CHRIS SIPES CFP®: So perfect example of why, you know, being diversified is a smart and somewhat aggressive strategy because you want to be in those countries where the growth is happening. Also would not have thought that China would outperform. Based on, everything that we had heard in the, in the headlines and everything.

CHRIS SIPES CFP®: And, and even in video, we, we talked about the performance of NVIDIA and a lot of that is due to their, pipeline of, of sales being, opened back up to China. And so, you know, it seems like things are not playing out the way we expected when the year started.

CHRIS SIPES CFP®: But, so So major country performance, a lot of growth outside the US here. And then we look at the asset class returns. And again, emerging, international, both doing really well. Now, there have been a lot of market commentators saying that we should see growth in that segment of the market for many years now. I'm talking three, four, five years, and we just have not seen it until this year. So.

CHRIS SIPES CFP®: You know, that's a perfect example of not timing the market. Then you've got commodities, U. S. Large cap stocks, tips kind of in the middle of the road there, and bonds, tips and bonds. Both tips and bonds outperforming U. S. Medium and small companies so far this year.

CHRIS SIPES CFP®: And really the small companies have just been on the ropes and have been so for... Really since 2021. And so we'll see if that starts to change moving forward, because if you look now at relative valuations using price to earnings ratios, you can see that the U. S.

CHRIS SIPES CFP®: Large caps continue to be priced fairly highly relative to where they've been priced historically and also relative to small and medium-sized companies. In the US. So the gold is the medium sized companies and the gray is the small companies, both trading at roughly 17 and a half times earnings right now, which is kind of average to low.

CHRIS SIPES CFP®: It's definitely not dirt cheap, but it's also not as expensive as the large caps have been. So. When we look at these asset class returns this time next year, it'll be interesting to see where the chips fall there moving forward, given that the prices on those U. S. Large caps are elevated, but have been for a while.

CHRIS SIPES CFP®: With bonds, finally, the flip side of all this, well, rates are higher, right? So if you're a borrower, that's not great for you. But if you're a saver, that's been a good thing. People that are in money markets, people that are in both short and long-term bonds can now finally get a yield, which is something that you couldn't get even a few years ago.

CHRIS SIPES CFP®: And really, since the great financial crisis, it's been tough to get any type of yield out of out of bonds. So a lot of investors have been asking themselves, well, why even hold bonds? Right. And, and this, this is a, a graphic showing the win ratio, basically how many years out of, out of 10 or how, what percentage of the time do you get a positive year? And this is going back to 1990, so 35 years.

CHRIS SIPES CFP®: And you can see the further to the right you go, the more bonds you have. So typically when you quote like a ratio, you quote stocks first, then bonds, the most famous of those being the 60, 40, 60% stocks, 40% bonds. And so the, the further you go to the right up to, up to a certain extent, you're getting a higher win ratio, more consistency with bonds.

CHRIS SIPES CFP®: And that's because of their lower volatility. Outside of the last three years. And they're more consistent income streams. And so getting those combined with your stocks tends to give you a more consistent experience within the markets. And this was striking to me because if you think about eight to nine times out of 10, eight to nine years out of 10, your portfolio being positive, that's a pretty high win rate.

CHRIS SIPES CFP®: Of course, you know, you're not winning all the time. And, if you are, you're probably questioning what's going on behind the scenes. Right. But that's, that's a pretty high win rate to be winning 80 to 90% of the time. So the diversification can help.

DANO WEIR: What needs to change for bonds to be a winner? And is there an opportunity right now in bonds, as you mentioned, the last three years have been a dog.

CHRIS SIPES CFP®: Well, it kind of depends on how you term it a winner.

CHRIS SIPES CFP®: You know, I think bond investors would say a win right now is just not getting crushed and having negative price returns like we've had over the last three years. And so I think right now the chances of that happening are pretty high, meaning the chances that you have a consistent year where you don't see losses in bonds.

CHRIS SIPES CFP®: Losses in bonds happen when interest rates go up and when they go up quickly, especially. And so as long as we keep kind of a consistent yield, a consistent rate in the interest rate market, then bonds should do pretty well. Now, inflation. If inflation surprises and comes back, inflation is the kryptonite to bonds because interest rates typically go up to fight inflation.

CHRIS SIPES CFP®: And so, that, that would be the flip side of, okay, you know, if all of those charts that I just showed you about inflation being relatively benign turn out to be, incorrect, if there's a black swan event and inflation spikes unexpectedly, that would be a very bad thing for bonds.

DANO WEIR: All right, Chris, do we figure out which one's the real Spider-Man?

CHRIS SIPES CFP®: I don't know, but I think, you know, as usual, the drama in the headlines is much overstated, in my opinion.

DANO WEIR: Do you think Powell's going to resign?

CHRIS SIPES CFP®: I don't think he will.

CHRIS SIPES CFP®: Based on interviews he's done in the past saying that he would not. And I think it would be a bad precedent for the independence of the Fed. And so...

CHRIS SIPES CFP®: I hope he does not, and I don't think he will.

DANO WEIR: Thanks so much for checking out the show this week. We are Sonoma Wealth Advisors. This has been On the Markets. Wherever you found us, we'd love a subscribe, a follow.

DANO WEIR: Make sure to keep up with us, and that way you won't miss future episodes. You can learn more about our firm at sonomowealth.com. If you're watching the YouTube, just so you know, we do have podcast versions of these shows as well on Apple Podcasts and Spotify and vice versa.

DANO WEIR: If you're on Apple Podcasts and Spotify, you can see these slides and you can watch this show live on our YouTube Channel. Just search for Sonoma Wealth and you'll find it everywhere. Chris Sipes, Darren Blonsky, my name is Dan O'Weir. Thanks for checking out our show and we will see you next week.

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