Transcript:
Tom Vaughan:
I always do like to start the show with a you know, summary of kind of what’s happening with the market. And you know, we’ve had in the last two weeks now some downturns across the market really kind of peaked out in early November. So I think this is a really great time to kind of do what I call ‘Positive Friday.’ The idea behind this is I’m going to go through what I see as the positives in the economy in the stock market. And the idea isn’t so much that I think things are going to go up, you know, constantly forever, I’m not that person. But, you know, matter of fact, right now, I’d have to say that probably the market comes down some more from here, just because we have this little downward momentum. But I do think it’s really important understand what is positive. So that as we’re going through these downturns, you kind of have some balance. You know, the stock market is a representation of human emotion, and specifically kind of fear and greed. And fear is a much more powerful emotion, you can even see it in the stock chart, you know, you see this kind of slow upward motion, and then sort of a, what looks like a cliff on the downside. And so that’s why as a group, we tend to click on negative articles more often. And that’s why we see more negative articles about the stock market in the economy. And it’s very difficult to find this positive information. So I like to kind of gather this all together, you know, once in a while and just kind of go through it. And let you kind of get a balance between this negative that we all know about. And the positive that is out there. These are all facts. And hopefully that helps you kind of decide what to do during these time periods that we’re dealing with now.
So let’s start with Omicron. So obviously, this was the big news, specifically on Black Friday, that’s been kind of creating, you know, waves throughout the market, as far as that goes, seems to be quite transmissible, has lots of mutations. But one of the things I would caution people about is that we just don’t really know that much about it yet. We are seeing cases that seem mild so far. But we don’t know the severity of the you know, symptoms that are happening. The World Health Organization did come out today and say that they don’t have any reported deaths so far from the Omicron variant. And I think that’s interesting. And they’re asking for people to not panic, which is I think, good advice as far as that goes.
And so here’s one of the things that I look at, though, we’ve been dealing with variants in this virus for over a year and a half. We’ve had an unbelievably good stock market in that timeframe. And if even just look at the last big variant, the Delta Variant that’s out there, you know, retail sales were up as the Delta Variant was here, we ended up with unbelievable earnings that happened during that timeframe. And so people are still spending money and things are happening. And every single wave that we’ve had throughout this entire pandemic has had less and less economic impact. And so hopefully that’s true for this particular one. Also, matter of fact, the President this week came out and said that they weren’t expecting any, you know, lock lock downs and things like that that might really hurt the economy as far as that goes. We saw report today that factory orders were up. 12% of the economic activity is related to factory orders. So that’s a really good thing. We’ve had negative news in a way this this week from the Federal Reserve talking about them cutting back their stimulus faster. So they’re buying bonds, and they’re keeping rates low. And maybe they’ll move that, you know, up in terms of what they were talking about before in terms of reducing that stimulus.
But the one good thing there, if you look at it kind of from the other side, is that one of the big concerns for the market is inflation. And when they cut back on that stimulus at a sooner rate than they were planning, that might also help to mitigate inflation, which would be very good for the market. When inflation gets really hot, it’s tough for companies to control their costs. And sometimes that can hit their earnings. And so that’s what people worry about with that. So the Fed moving quicker, has that positive side to it, that it could help fight inflation. Now, we had a labor report that came out today and so as 210,000 new jobs created. The expectation was for 573,000 jobs, so that’s a pretty big miss. But I think if you back up for a minute and just look at the total picture, it’s unbelievable how many jobs have been created month after month after month, since the bottom of this pandemic. The job market is pretty darn healthy right now, altogether, unemployment has dropped all the way back down to 4.2%. It was at 3.2% prior to the pandemic, so we’re getting there. And even if you look at kind of the the overall unemployment picture, which would include the unemployed, the people that have fallen off of the unemployment rolls, that are still looking for work, and those people that are part time that are looking for full time work, that number has dropped all the way down to 7.8%, which is the lowest we’ve seen in the pandemic. You’ll have wages increasing, which is inflationary effect, but it’s also stimulative to the economy, because people are making more money, they can spend more money and what have you too, as far as that goes. And then first time unemployment claims last week, were the lowest since 1969. The job market is really healthy, even though today’s number wasn’t up to expectations. If you look at the big picture, and you look at what’s been happening, this is not looking like a depression era’s timeframe, with that type of job growth as far as that goes. There’s now some concerns about the debt ceiling, because we were you know, move the debt ceiling forward. And it hasn’t been moved. Again, it needs to be sometime between the middle of December and the end of January is kind of the timeframe that they’re saying the debt ceiling needs to be increased. There’s some conversations happening right now in Congress to try to figure that out. We’ve never defaulted on the debt ceiling before, I would guess that we’re going to get close like we always seem to do because it’s sort of a political football. I think the best piece of news I can give you about the debt ceiling is that there’s now finally, a bill in Congress that has bipartisan support to change the way we do the debt ceiling. We will not have to deal with this, again, if they can get that bill through, which would be I think, a huge positive.
Just looking at the market itself, if you look at kind of the price, and the way that it’s moving, the momentum of the market is unbelievable. We’ve had an unbelievable run all the way through this. And even though you know, our accounts are all down from early November, they’re certainly up far from this entire timeframe up for the year. And all those types of things. The 50 day moving average, the 100 day moving average, the 200 day moving average are all up, and facing upward right now. So you know, things can change. We’ll have to watch for that, but the momentum for the market right now is definitely up. If we look at Christmas sales, so Christmas sales right now projected between $843 billion to $859 billion. That would be an eight and a half to 10% increase over last year. Consumer spending is super healthy. The economy runs two thirds on consumer spending. So think about that, as we watch this market fall right now.
And I think one of the other key things to think about is what’s happening inside of these companies. So they’re what they call “insider buying.” So these are people that own or work for these companies that are public, they’re buying stock. So since this market started coming down in early November, we’ve seen a pretty good spike overall in “insider buying.” And what that means is that the people working there are probably working pretty hard because they’re really busy. They’re seeing sales come in, they’re seeing their earnings grow and those types of things and they’re seeing their stock price come down, and they’re pulling money out of their pocket, essentially in buying that stock. I think that’s a pretty good sign as far as that goes. And then we have inflation, which I think is a really big area to focus on as important to see what’s happening there. And we’ve seen some really interesting things just now. So commodity prices and shipping rates, prices have both fallen just recently. Those are really good early indicators that inflation could be softening. Another thing that we look at is the 10 year Treasury yield, which has also come down. Again, historically, that means that inflation could be moderating here in the future. And the other part of 10 year Treasury yield falling as a big deal is that it makes mortgage rates lower.
So if you think about housing, housing is a huge component of our economy, real estate agents, mortgage brokers, title agents, contractors, electricians, plumbers, you know, et cetera, etc, etc. The more that housing can be created, sold refinanced, the more it impacts the positively the economy. And when interest rates come down, and the 10 year Treasury that generally relates to interest rates coming down on those mortgages, which stimulates the housing market. That’s a really big deal and so that’s been going on right now, as far as that goes.
The last thing is just earnings. So all of this stuff. I mean, right now, we’re kind of in this vacuum, where the only news we’re hearing about the Federal Reserve, Omicron, the debt ceiling, is all kind of negative. And that’s exactly what happened, if you think about this back in September and early October, until earnings started to be reported. And earnings were fantastic in the third quarter. And so again, I think that might happen again, here, as the next quarter of earnings starts reported next year, I think we’ll probably see some pretty good numbers. I mean, look at Apple supposed to sell 40 million iPhones between, you know, Black Friday and Christmas: how bad can things be when things are going along those lines? So I do think this is a temporary pullback at this point in time. If that changes, you know, change my tune, I don’t try to make predictions. I really try to make reactions to what’s happening to the market. But I do think it’s important to have that balance and to have an idea of what’s going on on the positive side so you can look at that and say, okay, you know, I’ve heard all these negative things. And here’s this positive piece. And so you get some idea for what’s going on. And I think there’s a lot of positives right now, too. So something to consider. So, you know, let’s keep looking at this. Let’s keep watching this and see what happens. And, and we’ll talk about this again next week.