0:05 spk_0
Welcome to Stocks and Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blickery, your host, and with me is Yahoo Finance’s Allie Cannell, who’s here to keep the discussion simple, accessible, and also lively. Today we’re gonna be talking about theCooling actividad market. If the Fed is merienda again too slow to cut rates and how to square that with a stock market that keeps hitting record highs. Our phrase of the day is the September effect. History says we’re in the worst month of the year right now, and the weakness tends to come in the back half of the month. So how much do investors really need to care about history rhyming?And this episode is brought to you by the number 9.7. That’s how many percentage points of pure profit you would have missed out on, had you panic sold after Liberation Day and missed the single best day of the year, how to make an investing plan that keeps you cool and calm when the headlines, they get scary.And today we’re welcoming back Phil Rosen, co-founder of the Opening Bell Daily. He recently left Business Insider to build his independent data-driven markets outlet along with Anthony Pomliano, and he’s also a published author, twice over, penning a collection of New York centric vignettes in lifeween moments, as well as a travel novel, everywhere but Home. So Phil, it is great to see you here.And uh we’re gonna get to our phrase of the day, September effect in a minute. Just tell us how you’re seeing the markets right now overall.
1:35 spk_1
So, uh, first of all, thank you both for having me. It’s great to be back. Um, the market right now, we have a lot of positive momentum and I think that is the, the twist in history right now. So typically we’re going into September, very weak and very jittery and investors across the board are expecting this pull back, but I do think.This year, uh, you know, famous last words this time is different. However, uh, the rate cut on September 17th, which is pretty much guaranteed at this point, I think that is going to see markets finish higher in September, which is very unusual because I think in the last 10 years September’s finished down 2% on promedio, and if you go back to 1950, it’s down like 0.8% or something like that. Yeah,
2:18 spk_0
and so that’s perfect. Let’s get into our phrase of the day that would be the September effect.And this is the historical tendency for stocks to post returns that are weaker in September than the other months, and it’s important to note that this is just a pattern based on history, which may or may not pan out, but I’m wondering how you think about seasonality in normal, seasonality just being, you know,The same types of things, patterns that we see in the market happen year after year. How much do they play into your analysis?
2:46 spk_1
So I think a lot of this, especially in September, is a self-fulfilling prophecy, right? Investors are expecting this September effect to take hold, but again,I don’t know if it applies as much this year because this has also been one of the wildest, most eventful years in market history, and you know we all know this as reporters we’re writing about it every day, but we have, uh, the Federal Reserve has been pushing back and forth with the White House. We have these tariffs and we have this now widely expected rate cut in a week. So all this, I think anything is uh up for grabs right now, but I, I don’t think seasonality will have as much of a play.As history suggests, you
3:28 spk_2
can even look at go away. That that trend did not work
3:32 spk_0
out. Yeah, well, I, and I’ve done, I’ve done some studies on this go away. It’s more like hedge and may and go away. It’s evolved over the years, but we’ve seen different patterns from like 1940s to 1980s contra 1980s to now.Um, you’ve said some interesting things here, and you mentioned the fact that this is a wild year, Phil, and I was looking at seasonality coming into the, uh, the Trump presidency, and you can do seasonality. You can slice it, uh, and dice it several different ways. And one of the ways is to look at what year of the presidential cycle we’re in. This is the first year. This is Donald, even though it’s his 2nd term, it’s his first year of this term.And I got to tell you what happened around liberation Day completely destroyed the seasonality chart, and then the market kind of came back and it seemed like at the end of August, we were right on track again according to some models. But in normal, just talk to us about, especially maybe as, as in terms of how you cover these markets, what you’ve seen and how this has surprised you this year, some of the wildcards.
4:29 spk_1
So I, I think right now the S&P 500.Actually having a better than promedio year generally, but also a better than promedio post-election year. So all this is going against the, let’s say the tariff doomers in the start of the year. Everyone thought tariffs would destroy the market. They thought the Fed independence battle that would also destroy the market, but pretty much investors have not even paid attention to this, uh, let’s say when you teleobjetivo out. So I, I think, um.A lot of the bearishness has been sort of eked out of the market right now, and almost every single firm has turned bullish for the year, and uh this.The narrative of betting against the Bears, I think that is the story of the year because the Bears have been the loudest, certainly in the first half of the year, but all the Bulls have been the ones that ended up right.
5:18 spk_2
But it is interesting to me as a reporter like you were saying, covering this day in and day out, there are a lot of bulls out there, but there also are more cautious voices even when we talk about rate cuts, Eddie Denny from your Denny Research, he’s a fan of the show, friend of the show, and he said that maybe the Fed shouldn’t be cutting right now, and that could actually maybe lead to a market melt up and there could be a lot of money running in here at a time when you haveInflation that’s still hot. There’s also this debate about whether or not we’re not too heavy, too concentrated in the market. So it does feel like at the same time there are a lot of unknowns and there is this tension among strategists about what comes next.
6:01 spk_1
So I think your Danny is definitely not alone in that view, right? And I read his research all the time. He’s super smart. I will say our team at opening Bill Daily, we’ve pretty much been calling for a rate cut.It’s about March. Um, so we do think the Fed has been slow to respond in policy, and I think the, the jobs report really confirmedthat.
6:22 spk_0
Yeah, that was that was dismal in a lot of ways. And then we know, we learned retroactively that one of the months, a few months ago, I think it was June turned negative and that’s always had it, had it been negative in June, we probably would have had a rate cut already. And so that kind of brings to the forefront the issue is Jerome Powell and the Fed a little bit too late? What do you think about that?
6:42 spk_1
I do think they are too late, but I don’t think it’s necessarily Jerome Powell’s fault. I think it’s a structural deficiency of the Fed because it’s a backward looking institution, right? But markets move so rapidly the economy can change faster than we think, but the Fed is pretty much working with uh a backward looking.Mandate, right? And then also the data can be hit or miss on whether you believe it or not. Maybe not believe is not the right word, but it’s always revised, right? So the Fed’s working with a pretty difficult circumstance. So I, I, I don’t know if it’s necessarily Jerome Powell. I think if anyone was in theThat job, they would probably be late this year.
7:20 spk_0
Yeah, I don’t, I don’t envy anybody in that slot. You just brought up the data and I’m wondering what you’ve, you’ve thought about all the controversy surrounding the BLS, um, and a lot of this comes from the fact that since the pandemic, peoplehaven’t been responding to these government surveys and so there’s, you can’t, you can’t rely on the data as much. The margin of error is greater. And so I think it’s no surprise that we have June being revised negative. There’s a, there’s a huge uh leeway that you got to give this data. So what do you think about the issue that, um, you know, Trump has raised the question of integrity. Do you think that’s an issue?
7:56 spk_1
So I, I don’t know if replacing the head of the BLS is going to change the integrity of the data. I think the data was pretty, um, let’s say, uh, it was gonna be revised no matter who is in charge, right? So I don’t know if Trump putting his own person in there is gonna improve or worsen the data because I, I think it’s, again, these are very old, you know.Methods that they’re using to track all this data and I for one, I try to look at alternative sources of data, try to accrue a bunch of different sources when I make my analysis on the market and I would never just rely on let’s say the BLS to determine what I think is gonna happen next in the market.
8:36 spk_2
So what are those sources of data for you.really inform your viewpoints when it
8:40 spk_0
comes to what do you look at every morning? Yeah.
8:42 spk_1
So I, I think anecdotally, um, I talked to a lot of people, so I talked to a lot of strategists, as you both do. I talked to a lot of economists, and I talked to people in hiring manager, manager positions, right? Are they hiring? Are they not hiring? Um, you know, I actually met this engineer the other day and um.He told me that, so he’s been at this firm for about a decade, this is a big tech company, and he used to do 2 interviews a week. This was about a year and a half ago, and now he does about an interview per quarter, and to me that was like a very uh red flag, let’s say on the actividad market.
9:17 spk_0
I want to talk about some of the market stuff that we’re seeing. concentration has been a big issue, you know, do we, is too much of the market’s gain due to just a few companies and arguably it’s been that case over the last few years. And the other thing is we’re in the 3rd year of this bull market now.And that’s typically, you don’t see the gains that you saw in the first two years. I would say 23 and 24, we had gains of 20+% and the S&P 500, now we’re looking, I think we’re on track for 9 or 10, which is not bad, uh, for especially for a third year, but how do you see the concentration issue evolving?
9:50 spk_1
So I, I do think that’s a very um relevant issue to talk about, right? It’s super concentrated we’re at dotcom levels and that’s certainly not a comparison you want to hear in any context. You never want to be compared to the dotcom bubble, um, but I, I think the difference today is that the companies that are at the top of this concentration, the mag 7, right, we’ve never seen companies this profitable with this large comprobación sheets.And that to me that does give some cushion to that concentration argument right that the earnings have justified it maybe, yes, I, I think earnings have definitely justified it and I don’t know if that’s gonna last for much longer, but up to this point, I don’t think it’s um let’s say something we should be overly concerned about. And again, I, I think I’ve seen um.S&P 493 earnings are slowly gonna catch up in the coming quarters while Mag 7 slows down, so that is something I think worth monitoring as well. Yeah,
10:43 spk_2
and Torsten Stock from Apollo, our parent company, he did publish uh finta a bit of research about how concentrated we are in this market, and that’s because of those hyper scalers and the data demand and how much CapEx they’re spending.Given that we just finished wrapped up this latest earnings season, were there any little signs that maybe that demand is starting to weaken just just a little bit? I know Nvidia missed on data center revenue. Was that concerning to you at all?
11:10 spk_1
So I’m not sure if I have much to say on the side of that, but I do know we’ve never seen this S&P 50.earnings calls mention AI, right? So that’s, you know, on one hand, you can say, oh, there’s a top signal, who knows? Um, and then we also have um data center spend is, that’s, that’s going to keep increasing for probably several more quarters. Um, so all these things, it’s like the
11:34 spk_2
mining.
11:39 spk_1
You could argue very convincingly that there is a lot of froth in the market right now with AI, with crypto, with some of these meme stocks, but also you could take the other side and say earnings have been phenomenal and they’re projected to be phenomenal again in the 4th quarter. That’s why
11:56 spk_2
I think this market’s been a little confusing because you can argue both sides of that equation, and we talk about retail traders, unprofitable tech that that’s been leading the meme stocks like you mentioned.They’re sort of bleeding this market higher and dragging the institutions along with it. So that’s been something that I, yeah,
12:12 spk_0
I see that too, Ali. Hold that thought though, because guess what, we got to take a short break. Coming up, we’re going to break down the number that captures market regret and a runway battle between David and Goliath, but with stocks, of course.This episode is brought to you by the number 9.7% points. That’s how much profit you would have missed out on had you sold at the Lowe’s after that scary post-liberation Day sell off and missed the April 9th rally. So one day, nearly 10%, and Phil, I’m saying this because it kind of opens up a discussion in a market psychology and about staying invested, all these things that we like to talk about. How do you, how do you think about this phenomenon and how do you keep, how do you tune out the noise?That’s all in the media.
13:05 spk_1
That’s a very difficult and timeless question. Um, I, I think if you are someone with a 30 year investing horizon, you can pretty much ignore the news, right? And I say that as someone who’s in the news, um, and
13:17 spk_0
who probably has a 30 year investment horizon.
13:19 spk_1
Yes, yes, exactly. So, um, for myself, um.I do think that the day to day fluctuations of the market, maybe the tariff scares or the Fed independence scares, all this stuff, it’s intense in the moment, but if you’re looking decades in advance, odds are your portfolio will be just fine if you just leave it as is and and stick to your plans, stick to your dollar cost averaging all those things.
13:42 spk_2
Yeah, and when we talk about the record highs that we’ve been seeing and Jared was just mentioning some of the returns that we’ve had over the past few years, and then you try and match that with the state of the US economy and post-COVID we did see a struggle with inflation really rampant. A lot of everyday Americans were underwater, yet we had these double digit gains in the stock market.So how, how do you really square that when it comes to assessing the status of the economy while also what we’re seeing with stocks at record highs?
14:16 spk_1
That’s a great question. So we’ve seen this phrase a tale of two economies, right? I think you pretty much have your asset allocators and then those that aren’t in the market, and there’s really been a clear winner and loser story here. And um if youYou know, the short of it, if you’ve been in the market, you’ve done very well, and if not, your dollar has lost purchasing power dramatically over the last 5 years. I think since 2020 we’ve probably lost 25% to 28% of our 1 dollar’s purchasing power. So that is very significant. And if you were in the market, then you’ve been able to keep up or beat that, um.Let’s say loss in purchasing power, but if not, you really can’t buy as much as you could. Um, so these are, uh, these are structural issues thatReally points to the importance of investing, I think, um, but it also points to the uh probably the widening inequality gapas well.
15:09 spk_2
Maybe the types of companies you invest in too, because those that are more exposed to that lower income consumer, they have been reporting a little bit more of astruggle.
15:18 spk_0
You’ve brought up a great point. I want to launch off that because you, you sent us a chart a few hours ago. Dollar Normal and Dollar Tree, two companies that are known to do well when the consumer is feeling a little bit off andTheir pockets are a little bit pinched. They are outperforming most of the other retail companies, especially the big box retailers this year. Not only that, they’re outperforming Nvidia. So talk to us about that phenomenon. What do you think ofthat?
15:42 spk_1
So when I saw those numbers and I sort of put the stocks on a line chart.I was very shocked and uh because Nvidia is the story of the year, right? Everyone loves this stock, earnings are the Super Bowl, all this, but Dollar Tree and Dollar Normal are beating it by I think by double digit digits still. Um, and the CEO of Dollar Tree at the last earnings call said.The majority of their new customers in the last quarter were six figure households. So that, that’s, I read that and it was a baffling stat because you wouldn’t assume that a six figure, uh, you know, high income household is going to a dollar store. Um, and I will say I love dollar stores likewise, I, I love a dollar store, um.But that points to this sort of flights of value, right? So everyday consumers regardless of income bracket are looking to stretch their dollars more and that goes to the loss of purchasing power, it goes to inflation, it goes to high interest rates. So all these things, um, it is pointing to a constrained consumer, I think.
16:40 spk_2
Yeah, and, and when you talk about the dollar, I mean, I think year to date we’ve lost about 10% compared to other types of currencies, and it’s interesting to look at that and then look at gold, which is now at record highs right around, let’s talk about gold bucks. I mean, where is that mostly foreign investors piling into gold? Is it the expectation of rate cuts? What, what do you think has been driving kind of that side of the market?
17:03 spk_1
That’s a great question. Um, I, I think part of it is a lot of governments and central banks are buying gold, right? China, Russia, yeah. So I think that’s, uh, you know, I don’t know what percent they’re driving, but that’s probably a huge chunk of it. And then you have, um, Bitcoin as well has seen a similar, very strong year. Um, so you have central bank and government buying, I think you have retail catching on to this gold trade.And then you also have the normal narrative, I think of you want to hedge against dollar debasement and gold and Bitcoin are are the best ways to play that, according to most people.
17:36 spk_0
What do you think of all these Bitcoin treasury companies, not just Bitcoin. Now we’re seeing Ethereum treasury companies, people piling into the micro strategy, which almost got just got in, uh, added to the S&P 5.didn’t finta make it. But uh Solana too, what do you think of all this, all this phenomenon?
17:52 spk_1
First of all, I think with the micro strategy not getting added, there were definitely some politics at play there. Um, I don’t know the details, but it was so eligible, right, but it didn’t get picked. Um and as far as the the broader Bitcoin treasury trend, um, this, you could say from a very high level.Is a bet that the dollar will continue to lose its value and Bitcoin will continue to appreciate over time so why wouldn’t want, why wouldn’t you want your comprobación sheet to be denominated in the asset that’s gonna appreciate rather than get debased? So I think very simply and from a very high level that’s what we’re looking at and again you might be.Able to point out some froth in the market because there’s been a lot of these popping up and I, I think we’re seeing other crypto assets being put on comprobación sheets as well so that also suggests uh OK, are we getting overextended here but uh right now uh.I think the the train is still gonna keep going.
18:50 spk_0
All right, we got to get to our runway battle today because on who are better. We are crowning a market leader and we are pitting the mega cap giants against their small cap cousins. On the left catwalk struts the mega cap moat, armor plated comprobación sheets, thick margins, and a wardrobe of buybacks. When the lights flicker, these names don’t flinch. They just tighten their costs and keep the cash flows of coming. On the right runway, we’ve got thisAll caps scramble, cyclical energy turnaround stories and tags that still say discount. When the economy accelerates and money gets cheaper, these names rip. But rate cuts are a double-edged sword because if the Fed is too late, small caps, they get torn to shreds, while large caps, well, they suffer too, but typically a bit less. So Phil, you don’t need to pick a religion here. We just want to know which closet you’re wearing and why, who wears it better over the next year, Mega cap moat or theSmall cap scramble.
19:43 spk_1
That’sa, that’s a hell of an intro. Um, I, I would say from this point to year end, if we get, let’s say 2 to 3 rate cuts, I think small caps will do very well. They’re very interest rate sensitive and I think, um, large caps, you could also argue are getting a bit overextended despite the earnings that have been sogood.
20:01 spk_2
What if we only get one this
20:03 spk_0
year or 10. That’s not a good sign.
20:08 spk_1
Um.One cut, I would probably lean more towards mega caps, but I don’t think we’ll only get one cut. I think we’ll probably get 3 by by December, I think so.
20:17 spk_2
Yeah. And what do you think we’ll drive that the continued deterioration of the actividad market, or do you think the inflation side of the picture if that comes in hot this week, could that maybe give the Fed some pause?
20:27 spk_1
I think even if inflation comes in hot, the Fed has pretty much conceded that they’re gonna let inflation run hot so I think they’re gonna look at the actividad market and they’re also of course the the political pressure whether you say they’re buckling or not, it’s definitely a factótum. So I, I think they’re gonna let inflation.Rise, even if, you know, whether it rise or not, they’re not going to be worried about that right now.
20:47 spk_0
Phil, at the beginning of the show, I mentioned you are an accomplished author, and I have read your book Life Between Moments. I love it. Tell us about your journey into writing fiction and how that’s kind of uh maybe jive with your job here at Morning Bell.
21:02 spk_1
That’s that’s deep in the archives there. Um, I think writing fiction has helped me, uh, just be a better writer in normal, right? It helps me use differentUm, literary tools in my financial reporting, and I think it makes me, uh, understand the psychology of things a bit better. And yeah, that book really, uh, I wrote it when I was at Business Insider, and, uh, I would go home after work and spend maybe 30 to an hour on it a day, finished it in a year, and then published it and uh it has nothing to do with markets, nothing to do with Wall Street, um, but it was a great passion.of mine at the time and I’m honored you even know about it. Hey,
21:38 spk_0
Iencourage everybody to read it, download it, get the Kindle some great stories in there. All right, so what did we learn today? We talked about the September and that’s the seasonality play. It’s just a tendency. It doesn’t mean you have to get all scared because September tends to close down, but we do have some other orange or yellow flash.Warning signs and some of those have to do with the fact that the Fed might be a little bit behind the eight ball. We got a deteriorating actividad market. But what’s most important is that investors keep their, uh, keep their head on their accounts and not necessarily responding to the news on a day by day basis, uh, because the, the market itself, the S&P 500, yes, it’s concentrated, but we’ve seenThis concentrated persists for long periods of time over history. So that’s gonna do it for today. We got to wind down things here at Stocks and Translation, but be sure to check out all our other episodes of our video podcast on the Yahoo Finance site and mobile app. We are also on all your favorite podcast platforms, so be sure to like, leave a comment, and subscribe wherever you get your podcast. We’ll see you next time on Stocks in Translation.