Tom Vaughan:
I do always like to start the show off with a summary of kind of what I saw happen in the stock market this week. And this was a really fantastic week actually going back to the end of last week, we actually had seven days in a row where the S&P 500 went up. And that was really exciting, actually, because we had this big downturn that happened in September in October. And in those seven updates, we managed to get back to an all time high again on the S&P 500. We closed at that all time high yesterday, and really fantastic wiped out all the losses that we’d had in that previous timeframe. That sort of, I call it a melt up, it was just very powerful, lots of different participation from different types of stocks. And I think this is really great. So today, you know, it’s a little bit down, we’ll see what happens, maybe we won’t get to the eighth day, but it’s not over yet. So we’ll see how that plays out. But I’ll talk about some of the catalysts that I saw and then some of the headwinds that are coming at us here.
So the catalysts really were pretty simple. Number one, the the decision to negotiate the debt ceiling and come to some kind of resolution to put the debt ceiling out too early December, market turned around pretty much immediately at that point. So the next thing is really, I think the market is factoring in a lot of the positive information that’s coming out around the negotiation on these big bills, we have the infrastructure bill, and we have this bill back better plan, both of which, if they got passed, would be stimulative to the market. But more importantly, they would most likely include a debt ceiling increase in those bills. And that would give a huge relief, I think to the market to have that debt ceiling, you know, pushed out to early December of next year instead of this year. I think there’s some good news happening there. I think the markets responding positively to that.
The other big catalyst is earnings. So throughout the timeframe of the third quarter here before earnings have been announced a lot of pessimism, you know, the supply chain is going to bring earnings down with all the issues there the short shortage of labor, it’s going to bring down the inflation. Well, it didn’t at least in the third quarter so far, for the for the companies that have reported they’ve been very good. It looks like we’re on track to maybe have about a 30% increase in earnings on the S&P 500 in the third quarter, which is fantastic. And so those are the pieces that are driving it forward. Looking forward, the things that we want to think about in terms of headwinds are really just two main things. I mean, I talk about a lot of different subjects. But for me, I try to boil things down to the basics and watch how those are working. So number one is the debt ceiling is only pushed off currently to early December. So it’s something to watch, it looks like they might push these bills through well before that, but who knows, if they get close to an early December timeframe. Again, what we did last time was we pulled some of the stock market portions that we have off the table, just because a debt ceiling is a you know, a default would be a really big deal. Hopefully, we don’t have to do that. So we’ll see what happens.
And the other headwinds has to do with the Federal Reserve. And just you know, they’re going to cut back on purchasing those bonds, and potentially start to raise interest rates in effect today, the market was up in the morning. And then the Federal Reserve Chairman, Chairman Powell, made some comments at a conference about cutting back on the bond purchases, and the market came down. So you, you can see that’s an important component of what the markets looking at. But I want to I want to kind of bring something in a little bit more specifically, because I think this is super important. You know, we talked about all these things, and all these hurdles these companies have to jump through, we talked about the S&P 500, or at least I do quite often, you know, as this big kind of amorphous blob of companies. But I think it’s really important to understand what is in those indexes and the way the S&P 500 works, it’s what’s called a market cap weighted index.
So bigger companies have a bigger portion of the price movement of that index. I’m going to read you a list of the top 20 companies on the S&P 500, which makes up 37% of the price movement. So it’s a big piece of it, of that S&P 500 index. And I want you to think about these companies, and how well they’ve done in dealing with adversity and different things. And you know, in the past and how well they might do in the future as far as that goes. So these are by size on this list. So Apple, Microsoft, Amazon, Google, Facebook, Tesla and Vidya Berkshire Hathaway, JP Morgan Chase, Johnson and Johnson UnitedHealth, Visa, Home Depot, Bank of America, Pfizer, Walt Disney, MasterCard, Adobe, and Netflix. Think about that list. Those are some unbelievable companies that have done really, really well. And here’s my key point. Basically, we have these issues. Think about it. We have this supply chain issues. We have shortage of labor, we have the inflation that’s being caused. We have the Federal Reserve that might do some different things. Are these companies going to be able to handle that situation? Yes, would be my answer they have in the past. And even though we do have these problems, they find ways around them. And the reason that they’re so large is because there’s some of the best in the world, at running their firms.
And so there are some potential issues that could happen even to these great companies a debt ceiling default, or when they raise rates too many times. So for example, the 2008 downturn, they raise rates 21 times before the markets came down, it came down pretty hard in that environment. And really, you know, again, keep in mind as a real basic concept here, that the first debt, the first increase, they’re talking about and Fed funds rate is in the end of next year, the first one, so we’re a long ways away from having a lot of them. So the basics are there, hopefully, we pass these two bills, increase the debt ceiling, so we can get to through next December. And then obviously, you know, these companies will be able to deal with these different situations that the Fed is having. Now, I’m not saying that the market won’t come down some and that always happens, I’m just talking about the bigger downturns are a lot less likely in this environment. And the overall upward movement of the market is a lot more likely in this environment when interest rates are this low. So anyway, really good week. Very, very fun to watch, actually, usually, markets come down fast and go up slow. This is coming up really fast. It was really fun to watch that as far as that goes. So look forward to being able to talk to you about what’s happening next week.