Transcript:
Tom Vaughan:
Let me let me share my screen here real quickly. And we can take a look at some things that I think are important that happened this week. Okay, so this is a chart of the s&p 500. It’s the vanguard version of that view, oh, is the ticker symbol. And this is the last month, you can see last week, we dropped about 2.1%. This week, we gained about 2.7%. And in the last month, we’re up about 2.2%. So what has happened this week has a lot to do with what actually happened last week. So the Federal Reserve met, they talked about raising interest rates, they talked about the possibility of cutting back on their bond purchases, and the market didn’t like that, at least, you know, in the short term, and it kind of sold off. And we ended up with, you know, that 2% downturn. And so what happened this week was kind of just the opposite. And the Federal Reserve came out, had lots of different interviews, where they were talking to fed governors, and they were much more positive about, you know, what they were, you know, going to be doing, you know, the rate increases and coming until 2023, at the, you know, at this point, and that such too. So I think what’s important here is to understand, this has been a pattern that Ben has done quite often now, where, you know, during their meeting week, they’ll say some things, you know, to try to get the investing public knowledgeable about the fact that interest rates are going to go up. And then during the next week, they try to kind of talk things up.
And, you know, they don’t want the market to go down too much, or go up too much. And so this is part of their process, at least in my opinion. And so, one thing to keep in mind about the Federal Reserve’s though and just to kind of put it into context, if we look here, this is the Fed funds rate going back to the mid 90s. And so we went from 3% to six and a half percent prior to the 2000 downturn. So we had a 40% down her turn here, and they had to lower rates to kind of stimulate the economy. And then we went from, you know, 1%, all the way up to five and a half percent. And then we had the 2008 downturn. And so you know, we ended up with really low rates a little run up before 2018, and then the pandemic. And if you look, now, we’re at basically zero. So keep in mind that, you know, during these big rate increases, here, the market still went up for a long time before it finally went down. So they’re talking about raising rates in 2023. And honestly, even if they’re wrong, and they have to raise them sooner than that, I don’t think it’s that big of a deal, you will see volatility, like we’ve seen in the last two weeks, but you’re not going to see the market fall apart. In most of the cases that we’ve seen here in the last, you know, basically 25 years, you’re looking at a scenario where you need to see a lot more rate increase, I mean, this is 21 rate increases in a row before we had the 2008. downturn. So that’s, that’s really critical as far as that goes. The other thing to take a look at this week that I think’s important is just, this is from Morningstar, we call this the nine boxes and got large cap and mid cap and small cap stocks, and value stocks, you have chord growth stocks.
And if you look here, at this past one week, we’re up in the growth area all the way down. And so the growth area was the area that did really well, last year, driven by all these new investors, and we saw tons of money coming into that area. And now we’re starting to see that come back. But they It was not doing well, from the middle of February until about the middle of May. And I have a pet theory as to why that might be happening. And I’ll show you here. So if we take a look at the last three months, and we look at Bitcoin, for example. So Bitcoin really started to kind of take off in the middle of February, and I think people kind of left you know, these stocks, these growth stocks, innovative technology, and clean energy and those things, and they went out and bought Bitcoin. Well, unfortunately, now Bitcoin has kind of really been falling, you can see here, it’s down almost 40%, just in this three month period, as well as a lot of the other cryptocurrencies and one of the things and I’ll show you this is our innovative technology, ETF XI tk that we use in our portfolio. And this is a pattern I’ve seen quite often here, it hit it’s low in this timeframe on the 13th of May. And if you look it kind of correlates with that cryptocurrency falling apart. So I think they’re coming back and they’re buying the things that they bought last year, that did so well. And you can look at the same thing. here’s here’s our clean energy piece PB w that we use in our portfolio, again, hits low on the 13th of May, again, that correlates to the big drop that’s happening there in cryptocurrency and it’s had a nice ride. So I think you know, that’s the other component of it as far as that goes. If we look at you know, the last piece of my summary is just this really nice movement that we had in history.
Yesterday, they announced an Infrastructure bill as a, you know, a collaborative agreement 21 senators, 11 republicans and 10 Democrats. And I think the market really liked it, you saw the market go up. And I believe that the things that the market would like about that is number one is smaller than was originally intended. It’s 1.2 trillion instead of 2.2 trillion. And so that takes the pressure of possible inflation on, you know, down, which the market is concerned about. It also spread out over eight years instead of five years, again, that takes that pressure of inflation off. And at least in its current structure, there is no taxation increase on corporations, which of course, the market loves. Now, we’ll have to wait and see what happens, right? This is the beginning of the process to a certain degree, but at least they got somewhere and the market was pretty excited about that. So anyway, I think that’s one of the things that, you know, we really would look at here as far as that goes, really what happened with the Federal Reserve this infrastructure bill and kind of cryptocurrency falling, those are the big subjects that I saw this year, this week. And I think, you know, this is a really big deal for the market. Having that kind of run up that we’re having right now. There’s a lot of strength that I’m seeing, I think that can carry through for quite a while here. So anyway, that’s my summary for the week.