Transcript:
Tom Vaughan:
I want to start with just, kind of talking about a summary of what happened this week inside the stock market. Really interesting week, actually. And so I want to point out some of the highlights and kind of the things the analysis from what I see and where things might go from here as far as that goes. So I’ll start with just sharing my screen here. And we’ll look at this one chart, okay? So this is the S&P 500, this week, okay? Actually, this is last Friday, here’s Monday, Tuesday, all the way through to now. And what’s happening here, is each one of these bars is a 10 minute increment, and so you can kind of see what’s happening. We had a down day, Friday down big downtown Monday, actually, it’s just the biggest down day of the year, as far as that goes, and then just an amazing recovery. And we’re, as of right now, we just hit an all time high on the S&P 500. Going back, 1957, I think is when the S&P 500 1st came into existence. Today, we’re at the all time high: The highest it’s ever been. And so really amazing kind of how this recovery happened. Oftentimes, in order to really move into new highs and to new areas, you need to see some downturn. It just creates momentum, it creates buying, and people come running in buying the dip, so to speak, and then, you know, essentially, that created this momentum to get us where we are. If we look at kind of where the leadership was this week. This is from Morningstar, this is the what we call the style boxes, the nine style boxes. And so they put companies in these different categories, so you’re either a growth company or value company or core. And so growth is high growth company, value is relatively inexpensive, and core is in between. And we got large, mid, and small cap companies, as a whole. So you can see what’s happening this week, is the growth side is definitely winning. And it makes some sense.
One of the things that’s happening this week is we’re getting a resurgence of this delta variant of the COVID-19 virus. And so what we normally see in the reopening side is over here in the value arena. And that has obviously started to sell off because there’s some thought process that the reopening might be delayed, or at least, somewhat compromised. And the growth stocks often are able to operate quite well, without having physical facilities. So, software companies like Microsoft, Apple, those types of things. And these are the ones that did quite well last year also, is this particular column as far as that goes. So really fascinating arena right now for what’s working. And this is definitely the area. And if you look at what’s happened in the last one year, so this is the S&P 500. Now, each one of these boxes is now one day, and this is going back, you can see we had a downturn, September, October. Prior to the election, there was some concerns, but all together, this is a phenomenal run. And here we are, at the all time high today, really strong. I mean really, really good all together. The 200 day moving average is moving really strongly up the price is way above that. This is a great stock market right now. And yet, one of the things that I really wanted to try to emphasize this week is that there’s especially since we had a down period: Thursday, Friday and Monday, were all down and Monday was down quite a bit. The people that are always talking about crashes come out of the woodwork every time the markets fall. So here’s a here’s a headline from today. So “Rich Dad, Poor Dad, author tells investors prepare for a terrifying market crash”, okay? And then here’s one from a couple weeks ago, Harry dent, “Stock market crash likely within three months,” okay? So this is every day, this is coming out and it’s hitting us all.
One of the things in from of my Investor Education standpoint, you really want to know what to focus on and what to kind of ignore. And I’ll talk about kind of what to focus on, at least at this point. But these types of things tend to keep people at a much, much lower equity exposure than they might. And here’s some examples of it. Let’s go back to October, okay? Remember October, we’ll show you the chart again here in a minute, “Feels like a classic October crashes on the way”, market strategist warns, again, that’s from the end of October last year. Here’s another one from the Motley Fool, “new data suggests a stock market crash, maybe eminent.” These are out every day. I mean, you can find one of these pretty much every single day that’s out there. And again, let’s examine the chart. So here’s what they’re talking about. Those two articles that I just mentioned are right here. Terrible, terrible time to sell and lighten up the load on your equity exposure and what have you. So really, you just want to be quite cautious about, those types of articles and here’s what I would focus on. Number one, I think one of the biggest threats right now is inflation. It’s a potential as far as that goes.
There’s kind of two big things that I would focus on. So if you’re worried about inflation, then what you want to do is watch the 10 year Treasury yield, because the Bond Market is very sensitive to inflation, especially the Treasury Bond Market. And so you can see that this is the yield on the 10 year Treasury, and it fell, right? Right during the April March timeframe of last year, that’s when we were shutting everything down. The Federal Reserve is lowering rates, basically to zero at that point in time. And then we went sideways, and then the interest rate started to recover. And Matter of fact, it really started to move February, March this year, and that’s because we had a stimulus package that came out in December, another one that came out in January, and the re-openings happening, and there’s this pent up demand, and there’s all this cash on the sidelines. And people were worried that things might get too hot. And so we saw this big run up, but now, okay, look at what’s happening now. It is coming down, right?
I mean, what the 10 year Treasury market is telling us right now is that inflation is softening; the threat of inflation is less. That’s a good thing. Normally, when the 10 year Treasury is coming down, there’s some fear that the economy might be coming down here in the future. Well, in this case, because the economy is expected to be so hot, having the economy slow down some is good, it kind of puts us in this Goldilocks zone that they talk about. So that’s number one. Watch that that’s doing really well right now, that’s a good thing. And then of course, here I shown this chart, I’ll show this chart every time probably because this is a really important area right here. If you look at what’s happening with the Federal Reserve, the what’s called the Federal Funds Rate, the Fed Rate, is essentially what they charge the banks, this goes all the way back to 1955. And you can see these gray areas are recessions. And look at all of these: Every recession was basically accompanied by a higher interest rate increase, right before those recessions. When you look at the low points in those interest rate periods, there were no recessions. And oftentimes, the recessions are associated with some of the big downturns. This is our big 2000 downturn or big 2008 downturn.
We did have a recession, actually last year, but it only lasted two months: It was the shortest recession ever. The pandemic was an economic impact, that was fairly short lived because of the stimulus money that came out. But right now, the Federal Funds Rate is around zero. We haven’t had big significant terrifying market crashes, when the Fed Funds rates are at zero. So I would be a little bit cautious about some of these headlines as far as that goes. So that’s kind of what I’m looking at right now. It was a really great week actually all together. You know, obviously, you’d rather have it never come down and just go up every single day. But that’s not really how the stock market works. It’s not how life works: Life is not a straight line, either as a stock market. The stock market is a representation of human emotion. And essentially, sometimes you need to see those downturns to get that next upward leg as far as that goes. So, very good week, look forward to seeing what’s gonna happen next week. And thank you.