Transcript:
Tom Vaughan:
For starters, what I’m going to do, is talk about the market as a whole; kind of a summary for the week, but I’m gonna do something a little bit different. About once a quarter, I do what I call “Positive Friday.” And so on “Positive Friday”, what I’m trying to do is show all of the things that I think are good about the stock market, why you would want to be an investor right now in the stock market. One of the things I’ve noticed over the years is that negative news sells better. So there’s all kinds of articles and information out there about why you shouldn’t be an investor in the stock market, or why the stock market is gonna crash, or all those things. And so I’m just trying to create a counterbalance. It’s not that I’m ignoring the negative side of the market, but I do want to show you all the positive things, and I don’t know that they are all emphasized enough, in my opinion. So, I’m just going to start with a little sharing of my screen here and show you, some of the things that I think are important.
So first of all, one of the issues that’s really happening is the fear of inflation has been making the market very volatile lately, and this is a chart that came out of a Market Watch article, just showing the top five price increases, from April to May. And these are big numbers: Rental cars up 12%, used cars up 7%, just for the month. Airline fares, etc., the overall was up .6%, which is again, a big number for a one month piece. So lots of fear about hyperinflation coming and those types of things. But when you really dug behind this, you started to realize that a lot of these were sort of short term anomalies, based on the fact that a lot of companies just weren’t ready for the surge in demand that came because the vaccine, at least here in the US came out so quickly. So that’s a good thing, and so what’s happened here is, we started to see some of these prices increases slow down, and that’s a good thing.
The one big thing that you really got to watch out for, in my opinion, inflation, I think is doing okay, and that’s average hourly pay, increase. So this chart shows, back to 2019, every 12 months, year over year, that increase was around 3.6% a year, then we had this big spike, in average average hourly pay, because a lot of people that were lower paid got laid off, and the white collar stayed. So that jumped to kind of an anomaly dropped again, sort of anomaly. Now look at where we are, we’re right back where we were in 2019. So that’s something to watch, but right now, the wage increases that have happened or average for what we were seeing prior when 2018 was a really good year for the stock market also. So I think that’s important. That’s the key piece that you’d look at for inflation, in my opinion, is labor.
Now, the other way to look at this, this is a chart of the 10 year Treasury going back to the end of 2018. And so you can see it was around 3% back then, and it dropped. And then we had a big drop due to the pandemic as they lowered rates. And it got down to a record low here 10 year Treasury about a little over a half a percent. But what happened after that, scared the market because it went all the way up to one in three quarters. And so we had a reopening the vaccine rolling out, we had stimulus bills coming out, we had talks of infrastructure and family plan and it really scared the market, like too many things. And but what you see now, though, in that since that peak is this, the bond markets coming down. Again, that is if you’re going to look at one thing, that is a signal for future inflation, it would be the yield on the 10 year Treasury, in my opinion. And so anyway, this is moderating, it’s better again, and this scenario that we’re in right now, I think that’s a positive for the stock market. And we are seeing a really good market today. And I think part of that is because this fear is reducing. I think this is maybe the biggest threat is this inflationary threat, and I think it’s okay at the moment.
Then there’s this government spending and these charts come from the Wall Street Journal. And this is these are the proposed American Jobs Plan, otherwise known as the Infrastructure Plan. So we’ve got all of this money that’s being proposed to spend. And again, this might change, it might not even pass, although I do predict that there will be some type of infrastructure bill that does get passed. And because there’s a lot of public support for this. So we’re looking at transportation and money coming out for highways and roads and electric vehicles, etc. Here’s manufacturing, domestic, they’ve already passed a bill actually, in between times here on the semiconductors. Clean energy, small business money to jobs creation & research, National Science Foundation, all the climate technology, etc, and then the last one is, housing buildings utility, affordable housing, high speed broadband, improving our power grid, that’d be awesome, honestly.
So these are all things that if they come to fruition, even in smaller dollar amounts, would be stimulative to the stock market, okay? And one of the things that the market was scared was that this is going to be too stimulative was gonna be too hot. But they are talking about spreading this over eight years now, which I do think it would make it less likely to cause a hyperinflationary event with this money coming out. But this could be a really good thing.
So, the next subject that’s kind of a threat is the virus, this chart with all these crazy colors comes from Blackrock. And so what they’re showing here is the number of cases per country per week, per million. And so you can see here in the US, for example, we got down to 35 cases, but it’s coming back up. You see here in the UK, it’s coming up, it’s coming up in Spain, Netherlands, Belgium, right? Denmark, Ireland, Russia, South Africa, etc. If you look at most of these, in the last week or two, you see some upward movement. And so this is the big fear right now is that the Delta variant coming back, everything’s going to close down again, and we’re going to end up you know, in this scenario, like we were before.
But, there is a solution to that, and that is the vaccine. So here’s the vaccine, total vaccination percentage of the country for every 100 people, basically UK, US, Germany, Italy, and France, for example. What I really want to point out here, just look at the trend, it’s up. And so we’re hearing a lot of news about how people aren’t taking the vaccine, it’s still up. And you can see here in the US, it’s kind of flattened a little, but it’s still up. And so the solution to this big Delta variant, that’s coming out will be more vaccine development and more distribution of that. And I give you a great example. This is another chart from Blackrock, this just shows by country, how many people have had one shot and these red dots or how many people have had two shots or are fully vaccinated. And you can see, you know, it’s actually pretty good. There’s a whole bunch in here, but I’ll point out Australia, because a couple of weeks ago, when I looked at this chart, Australia was at about 8%. And then they had some Delta variant cases come and they locked down. And lo and behold, now they’re at over 25%, at least with one shot. So again, there is a solution for the variant right now.
So we’ll see how this plays out. It’s something to watch for, there’s no doubt. But I think that this is supportive. And I think looking forward, the vaccine is one of the reasons that you might want to invest, because it seems to be working and it is getting distributed pretty well. Maybe not as fast as we would think or like but it’s happening.
And then what happens there and this I call this stored energy, this is another piece to look at just how much are people moving around versus what how much they were moving around before the vaccine hit. And you can see this big squiggly line, and they’re looking at cell phone data and how much it’s moving. And of course, everybody stopped moving, quite a bit, down at -70%. So they’re moving 70% less than they were prior to the virus happening. And but if you look here, most recently, this year, almost all of these trends are up, right? And so there is people are starting to get back out starting to move and I equate motion with economic potential growth. So, the more people are moving around, the more international travel we have, the more they’re going to restaurants, the more they’re driving to work and all those types of things. Those are all potentially economically stimulative events. And this shows by country, essentially, the the activity. So let’s take a look at the US here, the US is basically -20%. So it just means that here in the US, we’re moving 20% less than we were prior to the pandemic; this line here is February of 2020. This is stored energy, right? This is not in the economic numbers right now. When this moves over to the other side, and I think it will, I think once you pent up people and let them out, eventually they’ll start to move around even more than they were before. Once people feel more safe. And so this, this is potential. And this is potential growth in the economy, which would equate to potential growth in the stock market. So again, I think that’s a good thing to look at.
I showed this last week, this is gross domestic product, right? So this is the overall kind of production of the country. And again, we see the big drop here, and then look at we’re above where we were, but look at the trend: Very strongly up, all the way through from this low point, and continuing up. We are doing really well on Gross Domestic Product right now. And here are the number of job openings, high record 9.3 million job openings, unbelievable. And so I think that’s important, that’s potential growth as these jobs start to get filled. And I showed this chart from basically the Wall Street Journal last week, just shows the number of jobs that were in February ’20, how much we lost, and look, we’re gaining them back. Okay, so that’s important. I think that’s an important component. You know, we’re seeing fairly consistent growth in the job market, but this is also stored energy. There’s still 6.8 million people that are unemployed. Eventually they get out there and start to work that creates more money for the market and we’re able to do the same gross domestic product without those people, that’s high profits, and I think that’ll just continue as this workforce comes back into play.
All right, cryptocurrency. I think people aren’t paying enough attention to cryptocurrency and how much impact is having on the stock market. So if you look back here, you know, this is the last couple of years, really strong growth. Peaked out in May, well now it’s falling. That’s a good thing for the stock market. If people aren’t buying crypto and they’re selling crypto or not interested in crypto, they might start to take a look back into the stock and bond market. And we have seen some increases in a lot of the areas that did well last year prior to this big cryptocurrency run for the beginning of this year. I mean, this is just 2021. This is called the CMC crypto 200 index. This is the top 200 cryptocurrencies by market cap, wait, this is a cool index to follow. So, again, that’s a positive for the stock market that it is falling, because I think that is a distraction from investing in the stock market.
And then last piece, I’ll show you, and probably the most powerful piece, if you pay attention, this is the Fed funds rate. This is how much the Federal Reserve charges banks. And this is what they set, and this is what they’re always talking about. If you look right now we’re basically at zero, all right, for the Fed funds rate. But these little gray pieces going back to 1955: They’re all recessions. And most of these recessions equate to stock market downturns, and some of them are huge stock market downturns, like we saw here in 2000 and 2008, for example. And so but look at the pattern here, how many of these great recession periods happened when interest rates were going down, or were low? None. Look at everyone: Up, create recession, up, create recession, up, create recession, up, create recession. Maybe you can make an argument there a slight argument there, but mostly, it only happens when interest rates are increasing. And so right now we’re super low, they’re talking about increasing rates in 2023. So that’s making some problems from the market, it’s worrying about that. But look at the numbers and look at the facts. So go back to 1995. So rates were low, they started raising rates, and then it went sort of sideways, and then they raised them again, and then finally, we ended up with roughly a 45% drop in the S&P 500. But this was 19 increases, before that happened. And so if you really think about this, that was the best five years in the history of the stock market. We’re not going to see a massive crash right away just because they’re going to raise rates in 2023. So this is one of the more important pieces when you’re looking at the market, is what’s happening with the Fed funds rate. And the market is going to get volatile is it worries about it happening in increasing rates, and we also have these bond purchases that they’re doing, it’s gonna be very hard for the Federal Reserve to navigate this scenario. But in terms of big downturns, we’re probably a ways away just looking at this chart.
So anyway, that that’s what I think is happening altogether. Really fascinating timeframe right now, lots of positives that could be grabbed on to. Again, I don’t mean to ignore the negatives, I think they’re super important. You got to look at all of them. And I want to be a resource here for some of this for what I see is the positives, and honestly, I don’t see anybody else even covering these things as a whole.