Transcript:
Easan Arulanantham:
Why is the market going up as recession fears increase? You know, you talked about how like good news is now being taken poorly by the market. Can you explain that a little bit further?
Tom Vaughan:
Yeah, so recession fears are going up. And that at least this week, and even last week, for part of it, the markets going up, and so doesn’t make sense. I mean, so much of the news that is coming out is pointing towards more recession. So many of the analysts and different people that are out there that talk about the market, are talking about recession, more and more, I actually think recession on Google search, you know, trend, jump dramatically, right, so people are looking it up. And here goes the market to the upside. So there’s a couple of reasons that could be happening. First of all, it could just be a counter move, right. So in other words, if the major trend is down, which it is now, and for me, one of the ways I look at major trend is the 200 day moving average. So when that’s down to me, that means a major trend is down. And so that means is that the bigger move is on the downside, and you can get these minor moves or counter trends. So we could just be having a counter trend we’ve had, I think this is the fourth one this year, markets down, down, down, but we’ve had four up trends. So the minor trend so far this year has been up. So that could be one reason, kind of irrelevant to the recession or anything, it’s just kind of the way it works.
So many people get negative at some point in time that they’ve already sold out. The only people left are the are the buyers, they come in a smaller group, but they can move because there’s nobody else to fight them on the other side. Eventually, that price gets up high enough, and some more people sell off at those use those points to kind of lighten up more and more. Right. And so you know, that’s why we’ve had failures on all of these run up. So that’s one reason why the market could be moving up, even though the recession talk and thought process and indicators are more aggressive. A second reason that the market could be moving up is just because the market looks forward. Right. And it looks six to 18 months. And so one of the things I keep reading about is that there’s now some expectations that the Federal Reserve will raise rates so much, that they’ll slow down the economy too much. And I’ll actually be lowering rates by this time next year. Oh, right. So 12 months from now. So the market is going to start moving up. If on those on that basis. Now, that parameter might fail, you know, or get readjusted, and people realize that there’s other things happening or what have you. And maybe they won’t be lowering rates till 2025, or, you know, whatever it might happen. But that is one of the calculus that’s happening right now, if you read the articles, there are a lot of people thinking that the Federal Reserve is going to have to shift to the other side and start to reduce rates. And that’s usually good for the stock market. And so the stock market is starting to respond to that now, right?
Easan Arulanantham:
So is that why growth, stocks are running a little bit more than value, because as interest rates, the prediction of interest rates coming down, means that these companies are able to grow a little bit better?
Tom Vaughan:
That’s exactly right. So, you know, because we’ve seen growth stocks struggle here, as you know, rates have come up. And as you know, interest rates have gotten higher and higher due to higher inflation. So just the opposite would happen if they start to lower rates next June or something we’d see, you know, obviously, the technology stocks doing better. So we’re already seeing that run happen, at least this week, right? I mean, we’ve seen the videos and the apples, and what have you outperformed the market pretty heavily this week. So, you know, there’s some other things too, I mean, it is, this concept of the dip buying is much more prevalent than it used to be. And it’s especially prevalent and, you know, the group that became involved in the market since 2020. And they’re pretty aggressively, you know, buying on these dips and continuing to move up, and they’re moving up the same stock.
So even when it didn’t make sense for technology to run in some of these run UPS we’ve had earlier this year, technology has often been the lead. So there is a group that really wants to buy those stocks, that whether the archetype funds, right, they have the big runs, and these timeframes are the stocks that are in those or you know, Apple, Microsoft, you know, Google, some of those have had some big gains here in this last couple of weeks. So sometimes it’s just that there’s a group out there that is small, but very powerful when nobody else is playing. Right. So, you know, it’s, there’s, there’s a lot of reasons that could be going up right now. And whether it holds up is I think, more important, as far as that goes. Because we’re now running into resistance right where we are now. There was very light resistance for what we ran through. So that’s pretty easy to move up. But now we’ll get past that. What’s the catalyst to jump us through that resistance, and then we have another big jump of light resistance so could jump again. But then there’s actually a really big resistance point. above that so you know those are the things we have to see to see a true bottom that happened you know back a couple of weeks ago but yeah it’s it’s a good question