Transcript:
Tom Vaughan:
Hello everybody, welcome to Tuesday. Unfortunately, it was a Red Shirt Day today. The S&P 500 was down 2.04%, today. Three main reasons why the market was down today, and kind of they’ll tell you what I think about them, and what might happen here. Number one is, there’s a lot of people that are what are called technical analysts, they look at charts and they trade off of chart patterns, and the 50 day moving average on the S&P 500 is one of those things to get used a lot. And so when it gets close to the 50 day moving average on the way down, they’ll buy, expecting a bounce, which we’ve had a lot of times this year. If it falls through, you’ll see a lot of people selling, so that definitely happened today.
And probably the reason it broke through the S&P 500 50-day moving average is because of two main issues, which would be the interest rate increase on the 10 year Treasury. So, the Federal Reserve had a meeting last week, and the interest rates have been going up ever since. It’s at 1.53% now on the 10 year Treasury. And so there’s some fear that those rates go up. That’s a competitive asset class to stocks. It creates higher cost. Maybe from higher inflation for companies, which can affect earnings, etc.
That particular fear we’ve seen so many times over the last 15 years hasn’t actually played out, but we’ll see what happens there. Also keep in mind, that with treasuries they were at 3% before the pandemic started, which is twice as high as they are now. We had a phenomenal 2019 with that in place. So, we’ll have to see how this plays out as far as that goes.
But I think the biggest portion of this has to do with the debt ceiling. As you recall, the House passed a bill to get the debt ceiling increase. It got to the Senate last night, they voted it down. So I think that’s one of the biggest catalysts. Janet Yellen, the Treasury Secretary comes out today and says, “Hey, we’re going to be defaulting on debt by October 18,” which isn’t that far away. The democrats are talking about how hard it will be to get a debt ceiling increase into the reconciliation bill. I guess it’s fairly complicated multiple votes, both on the House and Senate, all of which have to pass for that to happen.
So I still think the short cut here that might happen is to change the filibuster, so that they use, a simple majority of 50 votes to get the debt ceiling increased, and, make an exception for that, what have you. And my preference would be that they eliminate the whole debt ceiling, because it’s not needed. That started in 1917, as a measure to kind of control government spending. In 1974, we put into place, a pretty formal budgetary process, and so the debt ceiling is just still there. Now it’s become a political weapon. It’s not really needed in the budgetary process any longer. So, it’s just kind of a relic, that unfortunately causing these problems.
Now, here’s what I see is that I think is happening. So, you got some phenomenal companies that are down. Apple’s down 10% from its high, and just some really great things. We’ve gotten more defensive, today. We took several pieces of our targeted indexes, especially in our IRAs, and we move them into short term bond funds, just kind of a holding place. We’ll wait for this debt ceiling to play out, and then maybe come back in, and be able to get a hold of some good companies, some good indexes, some things that that look like really good quality, that are on sale.
Sort of like what we did last year, as far as that goes, so we’ll see how that plays out. And we’ll continue to maybe take something off the table to kind of build up a bunch of money that we could use to come back in at some point in time. And then if they don’t solve the debt ceiling, at least we have a some safety side. And one thing I’ll caution you about here is not to get too nervous about what’s happening here. I really feel like this will resolve itself in one way or another. And I just feel like they’re probably going to get pretty close to the edge before that happens: That’s sort of typical of what’s going on right now.
And remember that you have, for most of you, quite a bit of bonds in your portfolio, which did quite well today. The pieces that we have in the bond, pieces were either up, or just down not very much, especially compared to the market. So, that’s exactly why it’s there.
So, relax through this as much as possible. These are chances that we have to take opportunity to be able to maybe gain in the future off of what’s happening here. I think that there’s more clarity in a downward market as to what the market is looking at, and how it’s working, than there is oftentimes in an upward market. So anyway, that’s what’s happening right now. Again, please have some patience with the market and the debt ceiling piece here. I think it’ll play out and I think we’ll be talking about it for a few times here but nonetheless, still really important timeframe. Look forward to talking to you tomorrow. Thank you very much.