October 14, 2024 • 38 mins
Chuck Zodda and Paul Lane discuss markets looking beyond Big Tech in this earnings season. Soft or hard landing? Bank results are showing a path to no landing. Boeing to cut 10% of workers amid ongoing strike. Why social security matters to young people, not just retirees. Big-cap bull market turns two, leaving small-cap stocks further behind. China keeps the world guessing on the size of stimulus.
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Speaker 1 (00:00):
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(01:03):
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Speaker 2 (01:11):
Chuck, Paul and Tucker kicking off another week here on
the Financial Exchange. It's a busy one that we've got
for you this week. Not so much on the economic
data front. A couple key pieces of data that we're
gonna be looking at. Thursday we get retail sales and
jobless claims. Friday we're gonna be getting building permits and
housing starts. So little bit of data, but we are
(01:34):
right in to earning season. Paul, Tomorrow, here's let's let's
let's go through some of the names. I'm only going
to do companies with market caps above one hundred and
fifty billion, because below that, what are you really you know? Tomorrow,
United Health, Johnston and Johnson, Bank of America, Goldman Sachs. Wednesday,
(01:56):
Abbott Labs, Morgan Stanley, Thursday, Netflix, Blackstone, Intuitive Surgical, Friday,
Procter and Gamble, American Express. So getting right into some
big names, and then next week is just the monster one.
Next week is where all of the action is at.
Next Tuesday, October twenty second, Microsoft Alphabet, Visa, General Electric, Danaher,
(02:19):
Texas Instruments, Philip Morris, Verizon, rayth the On, Lockheed Martin.
That's just next Tuesday, Wednesday, October twenty third, Meta, Tesla,
Coca Cola, T Mobile, thermofitsh Er Scientific, McDonald's IBM service
now next Era Energy, at and T still somehow above
(02:40):
one hundred and fifty billion dollars in market cap Thursday,
October twenty fourth, Golly g Willkers, we got Apple, Amazon, MasterCard, Caterpillar,
S and P Global, Union Pacific.
Speaker 3 (02:52):
Honeywell, I mean, good day for a live broadcasts.
Speaker 2 (02:56):
If you can't get excited about this, then you are
just not a nerd. You are just not a nerd.
But this is the kind of stuff that gets us
all excited. And you know, looking at where we are
right now, Paul has the S and P five hundred
fallen apart in September, No, it did not exactly.
Speaker 3 (03:17):
We're two weeks.
Speaker 2 (03:18):
Into October now and continuing to make new all time highs.
The S and P five hundred over fifty eight hundred
on Friday for the first time ever.
Speaker 3 (03:26):
At the close.
Speaker 2 (03:28):
And look, I know that there is a lot of
fear out there in markets. I can't tell you how
many people are you know, freaking out all chuck, what's
gonna happen to the markets because this election, Guys, the
next time that an election causes a bear market will
be the first, at least in the United States.
Speaker 3 (03:49):
It's just not how it works.
Speaker 2 (03:52):
And like, this is not a statement on either political party,
because look, I got friends who were Republicans Democrats into
and I don't know if I know anyone in the
Green Party, but.
Speaker 3 (04:04):
I'm sure they exist too. It would be a good
time that grabs the people. I'm sure they're real people.
Speaker 2 (04:10):
But here's my point is, I look back at the
last several elections twenty eight, twenty twelve. I can't tell
you how many Republicans I knew that said, hey, if
Obama wins, market's gonna crash and this is gonna be horrible.
And you know what, that's not what happened to either time.
Both Obama turns terms had positive returns in the stock market.
(04:34):
I can't tell you how many people I know who
were Democrats who said back in twenty sixteen, hey, if
Trump wins, it's over like that that's gonna be it
for markets. And it wasn't again positive returns over the
course of the term. Twenty twenty, Joe Biden. Can't tell
you how many Republicans said, Hey, if Biden wins, it's over,
(04:55):
and markets continuing to hit all time high. So I
don't know who's gonna win the election in three weeks.
I'm not a political prognosticator. I don't do polls. I
don't have any scientific input into any of that. But
what I can tell you is, look, when there is
fear in markets about something, it's rarely the thing that
(05:16):
actually ends up causing problems in markets, because once the
market knows about it, it can be afraid of it. Okay, well,
everyone's prepared their portfolio for it, and you get on
with your day. It's the unexpected stuff that freaks markets out. Hey,
you know what, We're shutting down flights to everywhere and
shutting down the whole world. Back in twenty twenty, no
(05:39):
one had that on their bingo card, and so market's
freaked out. Twenty twenty two, Hey, guess what. Price inflation's
running nine percent right now. And by the way, Russia
just invaded Ukraine, and so commodity prices are through the roof.
Gee stocks and bonds get hammered because it was not expected. Like,
I know people were about inflation, but you still don't
(06:01):
expected it nine percent.
Speaker 3 (06:02):
No, definitely not the stuff that spooks markets.
Speaker 2 (06:07):
Hey, Bank of Japan earlier this summer, late July early
August unexpectedly decides to raise interest rates S and P
five hundred seals off ten percent because no one's positioned
for it. The bond market's freaking out, Like, what the
heck do we do here? Remember all the talk about
that back then.
Speaker 3 (06:24):
Carried interest trade was that it Yeah, it was the
the what is that? The carry trade? Carry trade?
Speaker 2 (06:31):
You know, everyone in their grandmother learned about the carry
trade that day. Like, that's this stuff that freaks markets out?
Is the stuff that people aren't expecting when everyone is
nervous about the election happening. That's very rarely the proximate
cause of a sell off. Now, you could certainly, don't
get me wrong. You get an escalation of something in
(06:51):
the Middle East or something else unexpected happening. The banker
Japan decides that it's taken interest rates to the moot. Sure,
we could have something here, but ultimately, what powers markets
in the long term, it's not who's in office.
Speaker 3 (07:10):
It's not.
Speaker 2 (07:11):
Any it's how much stuff can you sell to people
and how wide are your margins on selling the stuff.
Speaker 4 (07:21):
The Federal Reserve to us as what we do on
a data basis has far more impact that we monitor
than the presidential election. Their decisions are stuff that we
speak about a lot, prognosticate about it. That is the
more significant one on our end of things. On the
economic side.
Speaker 2 (07:38):
I'll even go so far as to say, look, who
wins control of Congress is more important? Sure, because absolutely, again,
a president can't make a budget on his own, president
can't write legislation on his own. And so like, if
if you want to say, hey, this is an important election,
fine focus on Congress because that's where the appropriations actually happen.
(07:59):
Like I'll make I'll make a case for that. Yeah,
sure we can say that. So as we look at
this earning season that is upcoming, and remember, as our
old friend Larry Kudwell used to say, earnings are the
mother's milk of stocks, and so that's what drives it.
Speaker 3 (08:14):
You woke over the history of the s and P.
Five hundred.
Speaker 2 (08:16):
The compound annual growth rate of earnings in the S
and p five hundred is six and a half percent.
That's how you get the growth in stocks over the
long term, it's by earnings growing, it's by nothing else.
And the short term, sure, you can have fluctuations in
price to earnings and this and that. But when we
look at this earning season, the thing that is wild
that we're finally starting to see a little bit of
(08:38):
earnings growth creeping in aside from those big tech companies.
Speaker 3 (08:40):
Paul, Yeah, we are.
Speaker 4 (08:42):
In terms of the numbers that we're looking at for
this quarter, we're anticipating a four percent growth in profits
from a year ago. And then really it's the Q
four numbers that have a lot of analysts quite excited
with an anticipation of perhaps fourteen and a half percent
earnings growth coming for the fourth core of the year,
and that Doublege's number would be tremendous.
Speaker 3 (09:03):
It's always a little tricky.
Speaker 4 (09:04):
Check when you have navigating earnings season because of the
adjustments that are made beforehand, and I think JP Morgan
and Wells Fargar were good examples of that on Friday,
where the bar, if you think about hurdling, was lowered
to let's say about our ankles and you can easily
clear that. So when you make that adjustment prior to
it makes the earnings look relatively positive. So obviously the
(09:27):
numbers I'm quoting here, that's just numbers growth. But I
always hate when the expectations piece gets brought in when
they say, oh, seventy percent of companies in the S
and P five hundred have beaten earnings expectations this quarter,
because oftentimes those are kind of manipulated a little bit beforehand.
Speaker 2 (09:41):
They are, I mean like it's consistently manipulated, which is
something that it's predictable with what you see. Like generally,
this is actually a great topic to discuss. So generally,
from the start of the quarter to the end of
the quarter that you're going to be measuring, you typically
have anywhere between about it two and a half into
three and a half percent decline in earnings projections. That's
(10:05):
completely normal, and it's it's basically the game that gets played.
So if you know to expect that, then what you
can do is say, Okay, how much are those they
called they're called earnings revisions, like the revisions of the
earnings projections. How much are those revisions actually changing over the.
Speaker 3 (10:22):
Course of the quarter.
Speaker 2 (10:24):
When you see larger earnings revisions, it's usually a sign
that hey, there's a bigger problem than we think. When
you see smaller earnings revisions, it's a sign that, hey,
things are actually holding up pretty well and we're not
overly concerned about where things are going here. Twenty twenty
two as an example, remember S and P five hundred
was down. You know, we went into a bear marketing
(10:45):
twenty twenty two. Yep, the earnings revisions that we were
seeing in the quarters were like seven or eight percent
a quarter. They were big, big drops that we were seeing.
This year as an example, you're running basically kind of
standard two to three percent over the course of the quarter,
and so there hasn't been anything that has been concerning
(11:05):
to analysts over the course of the quarter that would
lead to those larger projected drops. The question is going
to be, look, this is a market that's over twenty
one x forward earnings right now and forward earnings next year,
by the way projected S and P five hundred projected
see almost fifteen percent earnings growth next year according to
data compiled by fact Set. That's a that's a big
(11:28):
number that you got to hit right it's a big
number you gotta hit. So it's an expensive market with
a lot of growth priced in. But counter to this
is look valuation is a horrible timing tool. You can
have markets overvalued for years on end before they finally,
you know, come back down to earth. And just because
something looks expensive doesn't mean that it has to fall
(11:50):
apart tomorrow. Let's take a quick break here. When we
come back, let's talk a little bit about what we
saw from banks last week as they kicked off earning season,
talking JP Morgan and Wells Fargo in their view on
the economy.
Speaker 3 (12:05):
Right after this, get up.
Speaker 1 (12:08):
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Speaker 5 (12:31):
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Speaker 2 (13:07):
Paul, what's your favorite kind of taco? Softer, hard shell,
soft tucker?
Speaker 5 (13:12):
Depends on the day, but usually soft.
Speaker 3 (13:13):
Interesting.
Speaker 2 (13:14):
I'm a hardshell guy myself. When it comes to the economy.
The question is soft landing or hard landing?
Speaker 3 (13:20):
And do you do the standing stuff though? That's the
question I have for you. No, no, no, So when
I do the.
Speaker 5 (13:25):
Hard shells, a normal hard shell, you know, if you
overload it then it's just gonna collapse in you. To
standing stuff is like, oh, there's a base here.
Speaker 2 (13:33):
Two options Number one, Okay, my wife and I may
actually have You know, when you go to a restaurant
they got those metal taco trays.
Speaker 5 (13:40):
Oh yeah, yeah, that's the way to do it, by
the way, but keep going.
Speaker 2 (13:43):
You get a couple of those, they're not expensive, they're
a few bucks each and they're good for the rest
of your life. So that's way number one is, Hey,
you have those set up instead of just trying to
lay them on the plate and then it's spilling and everything.
Speaker 1 (13:54):
Yeah.
Speaker 2 (13:54):
Yeah, Also a big fan of the taco salad mash
that hardshell every Tuesday, actually hardshell up and just get
it all in there, and.
Speaker 3 (14:03):
That's the way to go. So about the economy though.
Speaker 2 (14:07):
About the economy, JP Morgan and Wells Fargo two big banks,
and why banks matter to the economy is obviously, you know,
obviously obvious, which is obvious obviously, And I think that
the big thing is they can tell you a lot
about what's going on in the lending space, which if
you look at where that marginal economic growth tends to
(14:30):
come from, it's from the expansion of credit. You know,
we a lot of times when when we talk about
the amount of loans outstanding or the amount of credit outstanding,
it's done so with an air like an air of concern, like, gee,
there's a little too much lending. You know, we're kind
of nervous about this, but ultimately it is successful lending
(14:50):
that helps to grow the economy. So, Paul, when we
look at what these banks reported last week, what kind
of clues and insights did they give us about the
he health of the lending they've been doing.
Speaker 3 (15:02):
Some of the.
Speaker 4 (15:03):
Takeaways that we had is on the multi family side
of things. GP Morgan mentioned that they're starting to see
a little bit of an uptick and some encouraging signs
there in terms of new originations as some of those
longer interest rates have come down a bit. Granted, you
can make the argument that they've spiked up a bit
recently over the course of the last week or so,
but there was a period of time, certainly on the
(15:23):
shorter end of the curve where we've seen a pullback there,
and that's where a lot of those multifamily debts are
based off of the loans there are based on the
shorter side of things, So a little bit of resiliency
on that point. On the multi family side of things.
We also saw just on the consumer and it's heuse
in general a little bit different from the loan side
of things. It seems as if the CEO of JP
(15:45):
Morgan indicated that the consumer continues to be on a
solid footing and the speedding patterns that are seeing are
pretty consistent. They have seen a slight decline in terms
of card services volume over the course of the last
three quarters from nine percent growth eight percent and seven
percent in Q three, so slowing down a little bit,
but it doesn't seem to be check from any of
(16:05):
the information that I parssed through overly concerning in terms
of where the consumer is. And then, like I said,
Multi family, a little bit of an uptick on the
lending side.
Speaker 2 (16:14):
Yeah, it's it's something where we had started to see
some signs and these might still be here. Over the
summer where I remember Ali Financial came out and said
they had some questions about their auto lending business that
was starting to look a little bit problematic. I can't
remember if it was Capital One or someone else said
that they were seeing an uptick in their credit card
(16:37):
defaults and things like that.
Speaker 3 (16:39):
But overall the.
Speaker 2 (16:41):
Big thing is look, credit card defaults and auto loan defaults.
They're obviously problematic for the individuals who are going through those,
like anyone who's going through a situation where your budget's
so stressed that you can't pay those loans. It's a
real problem from the perspective of the US economy. You've
got to get to, you know, a really high level
(17:03):
for that to be the thing that causes enough drag
for it to slow the US economy. Just because they're
in the context of the overall economy. They're a fraction
of the size of the housing loan market, and so
they just don't drive as much economic activity.
Speaker 3 (17:20):
To begin with.
Speaker 2 (17:21):
Both the credit card and auto loan market are about
a tenth of the size of the mortgage market. They're
a tenth of the size. So it's not say they
can't cause problems, but the scale is much smaller, and
they can be overpowered by something as simple as, hey,
the housing market is you know, starting to you know,
pick up steam. I'm not saying it is, but if
(17:43):
it were okay, that can paper over a lot of
problems in credit cards and auto loans, just because the
housing market is so much bigger in terms of the
dollars involved. So that's what we got going on there.
Boeing continued bad news for them. They announce they're going
to be cutting seven it's seen thousand jobs, ten percent
of their global workforce. They're delaying production on their seven
(18:05):
seven seven X plane, which is kind of a new
version of their seven to seven seven. They're gonna be
booking five billion dollars in total charges as a result
of this, and this is they try to keep things
financially stable as they're now in the midst of a
month long strike that doesn't seem to be getting anywhere
(18:26):
close to a resolution.
Speaker 4 (18:28):
You always know it's bad news, Chuck, when you're dumping
this statement as a company at four point thirty on
the Friday, heading into a high long weekend where the
bank the banks are going to be closed on Monday,
and that's when this information came out. There is a
million different negative stats that I could quote, but they've
burned eight and a half billion of cash this year.
They're on the potential brink of being downgraded to junk
(18:51):
status from a credit perspective, which would just make things
even harder as they go through what is a significantly
high uphill climb to try and get this company in
the right direction. The strike is only making things more challenging.
With thirty three thousand machinists being on strike in Seattle
for more than a month, and as you mentioned, delaying
their seven seven seven X till twenty twenty six. That
(19:12):
was supposed to come out in twenty twenty, so there
are years behind on that front and just in a
really difficult position heading into this quarter, this couple next quarters.
Speaker 3 (19:23):
Here, let's take a quick break here.
Speaker 2 (19:25):
When we come back, it's going to be time for
Wall Street Watch, and then we're talking about social security
and gen Z.
Speaker 3 (19:35):
That's right, not just for boomers, gen Z.
Speaker 2 (19:38):
How does social security matter to you?
Speaker 1 (19:44):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch, a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:04):
Markets are in positive territory to begin the week as
traders ready for a flurry of third quarter corporate earnings
throughout the week. Right now, the Dow is up by
thirty five points, SMP five hundred is up nearly three
quarters of a percent or forty one points, in the
Nasdaq up by one percent or one hundred and eighty
eight points one hundred.
Speaker 3 (20:25):
And eighty two points.
Speaker 5 (20:25):
Excuse me, Russell two thousand is flat edging higher, and
crude oil is down by two percent, trading just above
seventy four.
Speaker 3 (20:36):
Dollars a barrel.
Speaker 5 (20:38):
Taking a look at the earnings calendar for this week,
Bank of America, Goldman Sachs, Johnson Johnson report their latest
results tomorrow morning ahead of the opening bell, while Morgan
Stanley United Airlines are set to release results on Wednesday
and Netflix will follow on Thursday. Meanwhile, bowing down by
two and a half percent after the playmaker announced on
(20:59):
fret Day that it plans to slash about ten percent
of its workforce, amounting to seventeen thousand employees. Boeing also
pushed off its delivery of its seventy to seventy seven
X plane and forecasts a wider than expected loss for
the third quarter as it continues to deal with its
factory workers' strike elsewhere. Warren Buffett's Berkshire Hathaway disclosed to
(21:20):
purchase another three point six million shares of Serious XM
stock last week, bringing in the firm's total holdings of
the stock to one hundred and eight million shares. Serious
shares up by seven percent. Wells Fargo upgraded fan duel
parent company Flutter Entertainment to Overweight, noting a buying opportunity
following its recent sell off. Flutter shares are up four
(21:42):
percent and shares and Hymns and Hers Health up by
nine percent after the FDA said it would allow compounding
pharmacies to sell their own versions of Eli Lilly's weight
loss drug. Manjaro, I'm Tucker Silvan. That's Wall Street Watch, Paul.
Speaker 3 (21:57):
What's your take on Social Security?
Speaker 4 (22:00):
You know, it's an interesting hypothetical I was thinking about
in the break here, is if you were given the option, Chuck,
to just not contribute, not participate in it at this
point in time. Is that something that I would take
them up on and then just instead myself try to
invest those proceeds and save them. And ultimately where I
land on that is I think I would be a
(22:23):
little bit more in the camp of just investing it
on my own, which speaks to the pessimism that younger
people have for Social Security, just because of the concerns
that we have as to its funding through twenty thirty five.
Speaker 2 (22:37):
Do you plan on when when you look in and say, hey,
when I'm going to retire social securities? Do you think
that Social Security is going to be a meaningful part
of retirement when you get there.
Speaker 4 (22:49):
I never calculated that way. To me, it's I need
to build a nest egg. My four on K and
other investment balances need to be at such a level
that I can cover my monthly expenses. You usually the
way I frame in my mind. It's so hard to
gauge with inflation what that number would look like. But
that's really the major focuses. Are there appropriate percentages going
to my retirement and regular savings on a monthly or
(23:12):
an annual basis, rather than if Social Security is going
to pick up thirty percent of monthly expenses or whatever
the average.
Speaker 2 (23:18):
Number is, Tucker, When you think about retirement, do you
think about Social Security as being what do you think
about when you think social Security?
Speaker 5 (23:29):
I hope it's there when i'm bad age, Yeah, I
think about it absolutely.
Speaker 2 (23:34):
So Gallup went out and pulled a bunch of people
and just thirty seven percent of Americans age thirty to
forty nine expect to receive Social Security benefits when they retire. So,
quite honestly, the other sixty three percent are just wrong.
Social Security is not going to pay out nothing at
that point, like that's just not how the program works.
If we keep up with the current structure and abide
(23:55):
by the rules that are set for funding in this
and that, you can see about a twenty percent drop
in Social Security benefit payouts starting in eight years, and
so it just means that the benefit would be smaller.
Speaker 3 (24:07):
Uh, sixty six.
Speaker 2 (24:09):
Percent of people age fifty year older think that they
are going to be receiving Social Security in retirements.
Speaker 3 (24:15):
Now.
Speaker 2 (24:15):
I'm guessing that they pulled in such a way that
we doubt people that aren't eligible, such as people on
public pensions and things along those lines.
Speaker 3 (24:23):
But the fact is.
Speaker 2 (24:28):
Congress is not going to let Social Security break to
the point where it's just not paying anything, right, that's
just not realistic. We can talk about, hey, are they
going to do anything to fix it? Are they just
gonna you know, run it more debt to fix it?
Are there going to be changes in the tax structure
or the payouts? But they're not just going to say, well,
(24:49):
it's gone, Yeah, I guess we better call it a day.
So I think that when we look at the initial
reasons for Social Security, they are very simple and straightforward.
They're to provide a baseline of income or it's to
provide a baseline of income so that you don't have
seniors living in complete poverty with no income like that.
(25:10):
That's the reason that the program exists. I don't believe
that it was ever meant to be something where hey,
this is you know, this should be the only thing
that you necessarily live on. Though there are a large
number of retirees where that is the case, where social
Security makes up their only income. I forget the exact percentage,
but I think it's generally somewhere around a third of retirees.
(25:31):
All that they have is social Security and retirement, and
so there are some who have to just live on
that and and don't have anything else. So when we
look at this in the context of this piece from
the New York Times, it's talking about why social Security
matters for young people, not just retirees. The big thing is, Look,
you're paying all these payroll taxes into the program. Ultimately
(25:54):
that's not going like it's it's not in your social
Security account. Like the money, the money that we're paying
right now in uh in payroll taxes, it goes to
our parents' Social Security. So it's you know, in addition
to mooching off our Netflix. They get to mooch off
our payroll taxes, which is again it's it's great like
(26:14):
every younger generation supports you know, people.
Speaker 3 (26:16):
When they get they get older. That's like kind of
how it is.
Speaker 4 (26:19):
Sure a lot of parents would argue that it can
go the cut the other way too, with phones and
things like that.
Speaker 2 (26:24):
Well, look, honestly, if you're over twenty five and still
on your parents' phone, it's time man, Like it's it's.
Speaker 3 (26:31):
Agree with you. I'm just telling you. There's a lot
of parents out there that are subject to that. I
get it.
Speaker 2 (26:36):
But you know, look, every generation mooches off all of
the other, like we all cross mooch and you know,
there's there's a lot a lot of cross moochs.
Speaker 3 (26:44):
Applying, is what I'm getting at. Yeah, would you can
I ask you that hypothetical?
Speaker 4 (26:48):
Would you just let's say there, say, Chuck, you can
either decide whether you want to continue paying the payroll
tax or you can be on your own from here
on out or your working career. Where would you land
on that? I don't know if I have a definitive answer.
I've kicked it around on my head.
Speaker 2 (27:00):
So I look at it in that I think Social
Security provides a valuable service to a large number of Americans,
And even if it's not necessarily something that I believe
to be in my best interest, I think that having
the program exists is something that's important, right, and the
risk doesn't leave the system, like if if it were
just gone, Sure, some of us could potentially do great
(27:23):
investing the money on our own, but it also presents
a risk where hey, you might end up you know,
kind of true if it goes badly for you. So
I think I'm someone who believes that it does serve
an important role just in backstopping Americans retirements, and I
believe that risk taking. Risk taking is enabled through having
(27:50):
a baseline level of safety and security for anything, and
not just in investing. Let's say you want to start
a business. You need to have some level of comfort that, hey,
if this goes badly, I'm going to be able to
figure it out.
Speaker 3 (28:03):
And this is where, just.
Speaker 2 (28:05):
Like the overall, you know, even like starting a business,
you think about the stuff that that we don't even
think about on a daily basis, like what I call
what's called basis risk. Like let's say that you decide
to start a business. How do you know that someone's
not going to come in and rob that business tomorrow?
How do you know that the rules aren't going to
(28:26):
change tomorrow and your business is going to be shut down?
How do you These are things that I think we
take for granted an awful lot. But having the baseline
level of safety, stability, and security in these things is
what allows us to risk take and actually go forward there.
So even though I might personally believe, hey, I could
(28:48):
probably get a you know, hopefully get a better rate
of return than what you know, what the Social Security
Trust Fund returns for you know, all of us, I
also believe that it provides that baseline, say, and security
in retirement that is important because if it weren't there,
I know, there's an awful lot of people who would
be in a real pickle. Sure, and so I think
(29:10):
that it's important where where we can sometimes say, look,
this might not be best for me, but it's best
for society. And as such, I think it should still
you know, exist in that format, and I'm okay paying
into it even if I don't think it's the best
for me. Sure, it's kind of where I land. I guess,
let's see. So we want to talk about this piece
(29:31):
from market Watch why raising more cash is a smart
portfolio move even with stocks at record highs.
Speaker 3 (29:38):
I just love, not sure if I'm ready to go there.
Speaker 2 (29:40):
I just love when publications, you know, put these pieces
out and you know, give all kinds of investment advice
that they don't give on a daily basis. And so
then you make a move based on this, and now
you're like, oh, now what do I do? When do
I move it away from cash? Like when do I
move back into the market this? It falls that category
(30:00):
for me. Of Look, if you're taking investment advice from
any financial publication CNBC, Bloomberg, the Wall Street Journal, market Watch,
whoever it is, I'm dropping all my stuff on the ground.
I don't even know where that thing went. If you're
taking financial advice from any of these places, how do
you know when it's time to change course if they're
(30:22):
not publishing something, you know. That's kind of where I
tend to land on this, And ultimately, how you build
your investment strategy, it has to be based on two
main things. How much risk and volatility are you will
in the stomach and how long do you have before
you need to spend the money you've saved. If you
can answer those two questions, then you can figure out
(30:43):
the right thing for your situation without needing MarketWatch to
tell you whether or not now is a good time
to raise cash.
Speaker 3 (30:49):
I'm with you. Just take a quick.
Speaker 2 (30:51):
Break when we come back. Hmm, do you want to
talk about Okay, we got a couple options, Paul, small
cap versus large cap or China.
Speaker 3 (31:01):
Small cap versus large cap. Okay, we'll do that when
we return.
Speaker 1 (31:06):
Banking, business and financial news first throughout the day, only
here on the Financial Exchange Radio Network. Text us six
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comments and questions about today's show, and let us know
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is the Financial Exchange Radio Network, all right, Paul.
Speaker 2 (31:37):
So the S and P five hundred. In October twenty
twenty two, it found its bear market bottom and has
since risen sixty three percent, including reaching a new all
time high last Friday and additional all time highs today
on Monday. It just it's been up, up, up, up up.
(31:57):
Some brief interruptions, but it's generally been on an upward
trend for really the last two years. Now the small
cap Russel two thousand, home to well forty two percent
of its constituents aren't profitable, correct, which is kind of
a problem when you're a stock.
Speaker 3 (32:17):
It's an issue.
Speaker 2 (32:18):
And so the Russell two thousand is only up thirty
five percent from it's low, and it's still nine percent
short of its all time high that it hit in
November of twenty twenty one. It's not just the last
couple of years though, that this is the trend, including
twenty twenty four. So far, the S and P five
hundred is now outperformed the Russell twenty twelve of the
(32:39):
last fifteen years.
Speaker 3 (32:41):
That was staggering. That was staggering to read. Now.
Speaker 2 (32:43):
Typically it's thought of that small cap stocks have something
called the small cap premium, which is, hey, small caps
are typically more volatile, but what you receive for that
volatility is expected to be greater returns. Thus, the question
is raised, Hey, if small cap stocks are going to
underperform the S and P five hundred for twelve out
(33:06):
of the last fifteen years, why would one own small
cap stocks? And the answer is found in every disclosure.
Ever in the investment world, past performance is not predictive
of future success. If you looked at the fifteen year
period before, this wasn't the case, right, Like the last
ten years have been dominated by the S and P
(33:27):
five hundred, But if you look at the early two thousands,
emerging markets and international did way better than the S
and P. So just because something has done well, even
for what feels like a lifetime, doesn't mean that you
might not be reaching an inflection point where things can change.
Speaker 3 (33:44):
Totally fairpoint.
Speaker 4 (33:45):
I do wonder if the way that capital markets have
changed over the course of the last decade plus or so,
where there is a lot of venture capital financing that
you can get a lot of private equity financing, and
you have these companies that are delaying IPOs further than
they would have in past market cycles, does that lead
to the makeup of some of these small cap companies
(34:07):
you pointed out the profitability piece there. Does it lead
them to have a different sort of makeup that they
are not no longer as attractive as they once were,
just because you have companies like Facebook back in twenty
twelve or others who wait till they reach these meteoric
valuations before they go public. So something that I continue
to kick around, but like you said, we will see folks.
Speaker 2 (34:30):
The Armstrong Advisory Group is hosting a seminar at the
Double Tree Resort and Suites in Hyannis on October twenty fourth.
Ed Lambert, host of the WXTK Morning Show, is going
to be joining us there. We're going to be doing
a live broadcast of the financial exchange followed by an
educational lunch with the Armstrong Advisory Group. What are we
(34:53):
going to be talking about. We've got the upcoming election,
We've got different economic policies that both candidates have proposed,
the current macroeconomic landscape, what does it look like? And
how different market volatility that we're seeing might influence investment decisions.
You can sign up for the event by going to
Armstrong Advisory dot com slash Events. Again, it's at the
(35:16):
Double Tree Resort in Suites on Hyanas on October twenty fourth,
and again you go to Armstrong Advisory dot com slash Events.
Just fill out the form that's Armstrongadvisory dot com Slash Events.
Speaker 1 (35:31):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (35:47):
China has been rolling out almost daily stimulus announcements for
the last several weeks. There was a brief period during
Golden Week where Chinese markets were closed and we didn't
hear anything. But we keep hearing about, hey, there's gonna
be you know, more stimulus, and just wait till we
roll you see.
Speaker 3 (36:06):
What we roll out next.
Speaker 2 (36:08):
And yet we're still not getting a ton of details
as to what's coming next. But I'm also kind of wondering,
like why don't you just do this all at once
and tell people like what's going on?
Speaker 3 (36:20):
Like what's with the daily roll out? Like keep you guessing,
keep the optimism going. I don't get it, man, I
don't get it.
Speaker 4 (36:28):
Maybe they're still trying to figure out what to do
because a lot of these moves, I would argue, and
maybe you dispute this that they're on the margins. These
aren't really the biggest problem that the Chinese economy has, well,
they have many, but is getting the consumer back out
there and building back up their confidence and getting some
spending on that side of things. And to me, through
(36:49):
the measures that I've read through, none of these are
particularly stimilar than that fashion that would really increase consumer consumption. Yes,
they've made some changes on the housing front, a property
market that's been absolutely demolished over the course of the
last five years or so. But to me, I'm waiting
for something that perhaps would create stimulus and create an
initiative out there for households to get out there and
(37:12):
spend it. To me, I just haven't really gleaned that
just yet from some of these changes.
Speaker 2 (37:16):
Yeah, it's it's still doesn't quite seem like they want
to pivot away from trying to support the real estate
market and the manufacturing you know that.
Speaker 3 (37:27):
They do there, right, and.
Speaker 2 (37:30):
Ultimately like that that still seems to be a problem
because there's still too much real estate. And when we're
talking about supporting you know, Chinese manufacturing, it's okay, here's
a bunch of money to make stuff that isn't necessarily
needed anywhere in the world, and then you end up with,
you know, too much steel, or too many solar panels,
or hey, here's you know a million evs that who
(37:53):
knows if people want to buy.
Speaker 3 (37:54):
Them, and I don't know.
Speaker 2 (37:57):
I'm I'm struggling to see the Chinese government being able
to accurately determine from a top down level where to
invest money, because that's just not how good economies typically work.
Let's take a quick break here. We got our two
coming up in just a little bits
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the hosts. Do not reflect the opinions of Armstrong Advisory
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(01:03):
presented by Veterans Development Corporation. This is the Financial Exchange
with Chuck Zutta and Paul Lane.
Speaker 2 (01:11):
Chuck, Paul and Tucker kicking off another week here on
the Financial Exchange. It's a busy one that we've got
for you this week. Not so much on the economic
data front. A couple key pieces of data that we're
gonna be looking at. Thursday we get retail sales and
jobless claims. Friday we're gonna be getting building permits and
housing starts. So little bit of data, but we are
(01:34):
right in to earning season. Paul, Tomorrow, here's let's let's
let's go through some of the names. I'm only going
to do companies with market caps above one hundred and
fifty billion, because below that, what are you really you know? Tomorrow,
United Health, Johnston and Johnson, Bank of America, Goldman Sachs. Wednesday,
(01:56):
Abbott Labs, Morgan Stanley, Thursday, Netflix, Blackstone, Intuitive Surgical, Friday,
Procter and Gamble, American Express. So getting right into some
big names, and then next week is just the monster one.
Next week is where all of the action is at.
Next Tuesday, October twenty second, Microsoft Alphabet, Visa, General Electric, Danaher,
(02:19):
Texas Instruments, Philip Morris, Verizon, rayth the On, Lockheed Martin.
That's just next Tuesday, Wednesday, October twenty third, Meta, Tesla,
Coca Cola, T Mobile, thermofitsh Er Scientific, McDonald's IBM service
now next Era Energy, at and T still somehow above
(02:40):
one hundred and fifty billion dollars in market cap Thursday,
October twenty fourth, Golly g Willkers, we got Apple, Amazon, MasterCard, Caterpillar,
S and P Global, Union Pacific.
Speaker 3 (02:52):
Honeywell, I mean, good day for a live broadcasts.
Speaker 2 (02:56):
If you can't get excited about this, then you are
just not a nerd. You are just not a nerd.
But this is the kind of stuff that gets us
all excited. And you know, looking at where we are
right now, Paul has the S and P five hundred
fallen apart in September, No, it did not exactly.
Speaker 3 (03:17):
We're two weeks.
Speaker 2 (03:18):
Into October now and continuing to make new all time highs.
The S and P five hundred over fifty eight hundred
on Friday for the first time ever.
Speaker 3 (03:26):
At the close.
Speaker 2 (03:28):
And look, I know that there is a lot of
fear out there in markets. I can't tell you how
many people are you know, freaking out all chuck, what's
gonna happen to the markets because this election, Guys, the
next time that an election causes a bear market will
be the first, at least in the United States.
Speaker 3 (03:49):
It's just not how it works.
Speaker 2 (03:52):
And like, this is not a statement on either political party,
because look, I got friends who were Republicans Democrats into
and I don't know if I know anyone in the
Green Party, but.
Speaker 3 (04:04):
I'm sure they exist too. It would be a good
time that grabs the people. I'm sure they're real people.
Speaker 2 (04:10):
But here's my point is, I look back at the
last several elections twenty eight, twenty twelve. I can't tell
you how many Republicans I knew that said, hey, if
Obama wins, market's gonna crash and this is gonna be horrible.
And you know what, that's not what happened to either time.
Both Obama turns terms had positive returns in the stock market.
(04:34):
I can't tell you how many people I know who
were Democrats who said back in twenty sixteen, hey, if
Trump wins, it's over like that that's gonna be it
for markets. And it wasn't again positive returns over the
course of the term. Twenty twenty, Joe Biden. Can't tell
you how many Republicans said, Hey, if Biden wins, it's over,
(04:55):
and markets continuing to hit all time high. So I
don't know who's gonna win the election in three weeks.
I'm not a political prognosticator. I don't do polls. I
don't have any scientific input into any of that. But
what I can tell you is, look, when there is
fear in markets about something, it's rarely the thing that
(05:16):
actually ends up causing problems in markets, because once the
market knows about it, it can be afraid of it. Okay, well,
everyone's prepared their portfolio for it, and you get on
with your day. It's the unexpected stuff that freaks markets out. Hey,
you know what, We're shutting down flights to everywhere and
shutting down the whole world. Back in twenty twenty, no
(05:39):
one had that on their bingo card, and so market's
freaked out. Twenty twenty two, Hey, guess what. Price inflation's
running nine percent right now. And by the way, Russia
just invaded Ukraine, and so commodity prices are through the roof.
Gee stocks and bonds get hammered because it was not expected. Like,
I know people were about inflation, but you still don't
(06:01):
expected it nine percent.
Speaker 3 (06:02):
No, definitely not the stuff that spooks markets.
Speaker 2 (06:07):
Hey, Bank of Japan earlier this summer, late July early
August unexpectedly decides to raise interest rates S and P
five hundred seals off ten percent because no one's positioned
for it. The bond market's freaking out, Like, what the
heck do we do here? Remember all the talk about
that back then.
Speaker 3 (06:24):
Carried interest trade was that it Yeah, it was the
the what is that? The carry trade? Carry trade?
Speaker 2 (06:31):
You know, everyone in their grandmother learned about the carry
trade that day. Like, that's this stuff that freaks markets out?
Is the stuff that people aren't expecting when everyone is
nervous about the election happening. That's very rarely the proximate
cause of a sell off. Now, you could certainly, don't
get me wrong. You get an escalation of something in
(06:51):
the Middle East or something else unexpected happening. The banker
Japan decides that it's taken interest rates to the moot. Sure,
we could have something here, but ultimately, what powers markets
in the long term, it's not who's in office.
Speaker 3 (07:10):
It's not.
Speaker 2 (07:11):
Any it's how much stuff can you sell to people
and how wide are your margins on selling the stuff.
Speaker 4 (07:21):
The Federal Reserve to us as what we do on
a data basis has far more impact that we monitor
than the presidential election. Their decisions are stuff that we
speak about a lot, prognosticate about it. That is the
more significant one on our end of things. On the
economic side.
Speaker 2 (07:38):
I'll even go so far as to say, look, who
wins control of Congress is more important? Sure, because absolutely, again,
a president can't make a budget on his own, president
can't write legislation on his own. And so like, if
if you want to say, hey, this is an important election,
fine focus on Congress because that's where the appropriations actually happen.
(07:59):
Like I'll make I'll make a case for that. Yeah,
sure we can say that. So as we look at
this earning season that is upcoming, and remember, as our
old friend Larry Kudwell used to say, earnings are the
mother's milk of stocks, and so that's what drives it.
Speaker 3 (08:14):
You woke over the history of the s and P.
Five hundred.
Speaker 2 (08:16):
The compound annual growth rate of earnings in the S
and p five hundred is six and a half percent.
That's how you get the growth in stocks over the
long term, it's by earnings growing, it's by nothing else.
And the short term, sure, you can have fluctuations in
price to earnings and this and that. But when we
look at this earning season, the thing that is wild
that we're finally starting to see a little bit of
(08:38):
earnings growth creeping in aside from those big tech companies.
Speaker 3 (08:40):
Paul, Yeah, we are.
Speaker 4 (08:42):
In terms of the numbers that we're looking at for
this quarter, we're anticipating a four percent growth in profits
from a year ago. And then really it's the Q
four numbers that have a lot of analysts quite excited
with an anticipation of perhaps fourteen and a half percent
earnings growth coming for the fourth core of the year,
and that Doublege's number would be tremendous.
Speaker 3 (09:03):
It's always a little tricky.
Speaker 4 (09:04):
Check when you have navigating earnings season because of the
adjustments that are made beforehand, and I think JP Morgan
and Wells Fargar were good examples of that on Friday,
where the bar, if you think about hurdling, was lowered
to let's say about our ankles and you can easily
clear that. So when you make that adjustment prior to
it makes the earnings look relatively positive. So obviously the
(09:27):
numbers I'm quoting here, that's just numbers growth. But I
always hate when the expectations piece gets brought in when
they say, oh, seventy percent of companies in the S
and P five hundred have beaten earnings expectations this quarter,
because oftentimes those are kind of manipulated a little bit beforehand.
Speaker 2 (09:41):
They are, I mean like it's consistently manipulated, which is
something that it's predictable with what you see. Like generally,
this is actually a great topic to discuss. So generally,
from the start of the quarter to the end of
the quarter that you're going to be measuring, you typically
have anywhere between about it two and a half into
three and a half percent decline in earnings projections. That's
(10:05):
completely normal, and it's it's basically the game that gets played.
So if you know to expect that, then what you
can do is say, Okay, how much are those they
called they're called earnings revisions, like the revisions of the
earnings projections. How much are those revisions actually changing over the.
Speaker 3 (10:22):
Course of the quarter.
Speaker 2 (10:24):
When you see larger earnings revisions, it's usually a sign
that hey, there's a bigger problem than we think. When
you see smaller earnings revisions, it's a sign that, hey,
things are actually holding up pretty well and we're not
overly concerned about where things are going here. Twenty twenty
two as an example, remember S and P five hundred
was down. You know, we went into a bear marketing
(10:45):
twenty twenty two. Yep, the earnings revisions that we were
seeing in the quarters were like seven or eight percent
a quarter. They were big, big drops that we were seeing.
This year as an example, you're running basically kind of
standard two to three percent over the course of the quarter,
and so there hasn't been anything that has been concerning
(11:05):
to analysts over the course of the quarter that would
lead to those larger projected drops. The question is going
to be, look, this is a market that's over twenty
one x forward earnings right now and forward earnings next year,
by the way projected S and P five hundred projected
see almost fifteen percent earnings growth next year according to
data compiled by fact Set. That's a that's a big
(11:28):
number that you got to hit right it's a big
number you gotta hit. So it's an expensive market with
a lot of growth priced in. But counter to this
is look valuation is a horrible timing tool. You can
have markets overvalued for years on end before they finally,
you know, come back down to earth. And just because
something looks expensive doesn't mean that it has to fall
(11:50):
apart tomorrow. Let's take a quick break here. When we
come back, let's talk a little bit about what we
saw from banks last week as they kicked off earning season,
talking JP Morgan and Wells Fargo in their view on
the economy.
Speaker 3 (12:05):
Right after this, get up.
Speaker 1 (12:08):
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Speaker 2 (13:07):
Paul, what's your favorite kind of taco? Softer, hard shell,
soft tucker?
Speaker 5 (13:12):
Depends on the day, but usually soft.
Speaker 3 (13:13):
Interesting.
Speaker 2 (13:14):
I'm a hardshell guy myself. When it comes to the economy.
The question is soft landing or hard landing?
Speaker 3 (13:20):
And do you do the standing stuff though? That's the
question I have for you. No, no, no, So when
I do the.
Speaker 5 (13:25):
Hard shells, a normal hard shell, you know, if you
overload it then it's just gonna collapse in you. To
standing stuff is like, oh, there's a base here.
Speaker 2 (13:33):
Two options Number one, Okay, my wife and I may
actually have You know, when you go to a restaurant
they got those metal taco trays.
Speaker 5 (13:40):
Oh yeah, yeah, that's the way to do it, by
the way, but keep going.
Speaker 2 (13:43):
You get a couple of those, they're not expensive, they're
a few bucks each and they're good for the rest
of your life. So that's way number one is, Hey,
you have those set up instead of just trying to
lay them on the plate and then it's spilling and everything.
Speaker 1 (13:54):
Yeah.
Speaker 2 (13:54):
Yeah, Also a big fan of the taco salad mash
that hardshell every Tuesday, actually hardshell up and just get
it all in there, and.
Speaker 3 (14:03):
That's the way to go. So about the economy though.
Speaker 2 (14:07):
About the economy, JP Morgan and Wells Fargo two big banks,
and why banks matter to the economy is obviously, you know,
obviously obvious, which is obvious obviously, And I think that
the big thing is they can tell you a lot
about what's going on in the lending space, which if
you look at where that marginal economic growth tends to
(14:30):
come from, it's from the expansion of credit. You know,
we a lot of times when when we talk about
the amount of loans outstanding or the amount of credit outstanding,
it's done so with an air like an air of concern, like, gee,
there's a little too much lending. You know, we're kind
of nervous about this, but ultimately it is successful lending
(14:50):
that helps to grow the economy. So, Paul, when we
look at what these banks reported last week, what kind
of clues and insights did they give us about the
he health of the lending they've been doing.
Speaker 3 (15:02):
Some of the.
Speaker 4 (15:03):
Takeaways that we had is on the multi family side
of things. GP Morgan mentioned that they're starting to see
a little bit of an uptick and some encouraging signs
there in terms of new originations as some of those
longer interest rates have come down a bit. Granted, you
can make the argument that they've spiked up a bit
recently over the course of the last week or so,
but there was a period of time, certainly on the
(15:23):
shorter end of the curve where we've seen a pullback there,
and that's where a lot of those multifamily debts are
based off of the loans there are based on the
shorter side of things, So a little bit of resiliency
on that point. On the multi family side of things.
We also saw just on the consumer and it's heuse
in general a little bit different from the loan side
of things. It seems as if the CEO of JP
(15:45):
Morgan indicated that the consumer continues to be on a
solid footing and the speedding patterns that are seeing are
pretty consistent. They have seen a slight decline in terms
of card services volume over the course of the last
three quarters from nine percent growth eight percent and seven
percent in Q three, so slowing down a little bit,
but it doesn't seem to be check from any of
(16:05):
the information that I parssed through overly concerning in terms
of where the consumer is. And then, like I said,
Multi family, a little bit of an uptick on the
lending side.
Speaker 2 (16:14):
Yeah, it's it's something where we had started to see
some signs and these might still be here. Over the
summer where I remember Ali Financial came out and said
they had some questions about their auto lending business that
was starting to look a little bit problematic. I can't
remember if it was Capital One or someone else said
that they were seeing an uptick in their credit card
(16:37):
defaults and things like that.
Speaker 3 (16:39):
But overall the.
Speaker 2 (16:41):
Big thing is look, credit card defaults and auto loan defaults.
They're obviously problematic for the individuals who are going through those,
like anyone who's going through a situation where your budget's
so stressed that you can't pay those loans. It's a
real problem from the perspective of the US economy. You've
got to get to, you know, a really high level
(17:03):
for that to be the thing that causes enough drag
for it to slow the US economy. Just because they're
in the context of the overall economy. They're a fraction
of the size of the housing loan market, and so
they just don't drive as much economic activity.
Speaker 3 (17:20):
To begin with.
Speaker 2 (17:21):
Both the credit card and auto loan market are about
a tenth of the size of the mortgage market. They're
a tenth of the size. So it's not say they
can't cause problems, but the scale is much smaller, and
they can be overpowered by something as simple as, hey,
the housing market is you know, starting to you know,
pick up steam. I'm not saying it is, but if
(17:43):
it were okay, that can paper over a lot of
problems in credit cards and auto loans, just because the
housing market is so much bigger in terms of the
dollars involved. So that's what we got going on there.
Boeing continued bad news for them. They announce they're going
to be cutting seven it's seen thousand jobs, ten percent
of their global workforce. They're delaying production on their seven
(18:05):
seven seven X plane, which is kind of a new
version of their seven to seven seven. They're gonna be
booking five billion dollars in total charges as a result
of this, and this is they try to keep things
financially stable as they're now in the midst of a
month long strike that doesn't seem to be getting anywhere
(18:26):
close to a resolution.
Speaker 4 (18:28):
You always know it's bad news, Chuck, when you're dumping
this statement as a company at four point thirty on
the Friday, heading into a high long weekend where the
bank the banks are going to be closed on Monday,
and that's when this information came out. There is a
million different negative stats that I could quote, but they've
burned eight and a half billion of cash this year.
They're on the potential brink of being downgraded to junk
(18:51):
status from a credit perspective, which would just make things
even harder as they go through what is a significantly
high uphill climb to try and get this company in
the right direction. The strike is only making things more challenging.
With thirty three thousand machinists being on strike in Seattle
for more than a month, and as you mentioned, delaying
their seven seven seven X till twenty twenty six. That
(19:12):
was supposed to come out in twenty twenty, so there
are years behind on that front and just in a
really difficult position heading into this quarter, this couple next quarters.
Speaker 3 (19:23):
Here, let's take a quick break here.
Speaker 2 (19:25):
When we come back, it's going to be time for
Wall Street Watch, and then we're talking about social security
and gen Z.
Speaker 3 (19:35):
That's right, not just for boomers, gen Z.
Speaker 2 (19:38):
How does social security matter to you?
Speaker 1 (19:44):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch, a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:04):
Markets are in positive territory to begin the week as
traders ready for a flurry of third quarter corporate earnings
throughout the week. Right now, the Dow is up by
thirty five points, SMP five hundred is up nearly three
quarters of a percent or forty one points, in the
Nasdaq up by one percent or one hundred and eighty
eight points one hundred.
Speaker 3 (20:25):
And eighty two points.
Speaker 5 (20:25):
Excuse me, Russell two thousand is flat edging higher, and
crude oil is down by two percent, trading just above
seventy four.
Speaker 3 (20:36):
Dollars a barrel.
Speaker 5 (20:38):
Taking a look at the earnings calendar for this week,
Bank of America, Goldman Sachs, Johnson Johnson report their latest
results tomorrow morning ahead of the opening bell, while Morgan
Stanley United Airlines are set to release results on Wednesday
and Netflix will follow on Thursday. Meanwhile, bowing down by
two and a half percent after the playmaker announced on
(20:59):
fret Day that it plans to slash about ten percent
of its workforce, amounting to seventeen thousand employees. Boeing also
pushed off its delivery of its seventy to seventy seven
X plane and forecasts a wider than expected loss for
the third quarter as it continues to deal with its
factory workers' strike elsewhere. Warren Buffett's Berkshire Hathaway disclosed to
(21:20):
purchase another three point six million shares of Serious XM
stock last week, bringing in the firm's total holdings of
the stock to one hundred and eight million shares. Serious
shares up by seven percent. Wells Fargo upgraded fan duel
parent company Flutter Entertainment to Overweight, noting a buying opportunity
following its recent sell off. Flutter shares are up four
(21:42):
percent and shares and Hymns and Hers Health up by
nine percent after the FDA said it would allow compounding
pharmacies to sell their own versions of Eli Lilly's weight
loss drug. Manjaro, I'm Tucker Silvan. That's Wall Street Watch, Paul.
Speaker 3 (21:57):
What's your take on Social Security?
Speaker 4 (22:00):
You know, it's an interesting hypothetical I was thinking about
in the break here, is if you were given the option, Chuck,
to just not contribute, not participate in it at this
point in time. Is that something that I would take
them up on and then just instead myself try to
invest those proceeds and save them. And ultimately where I
land on that is I think I would be a
(22:23):
little bit more in the camp of just investing it
on my own, which speaks to the pessimism that younger
people have for Social Security, just because of the concerns
that we have as to its funding through twenty thirty five.
Speaker 2 (22:37):
Do you plan on when when you look in and say, hey,
when I'm going to retire social securities? Do you think
that Social Security is going to be a meaningful part
of retirement when you get there.
Speaker 4 (22:49):
I never calculated that way. To me, it's I need
to build a nest egg. My four on K and
other investment balances need to be at such a level
that I can cover my monthly expenses. You usually the
way I frame in my mind. It's so hard to
gauge with inflation what that number would look like. But
that's really the major focuses. Are there appropriate percentages going
to my retirement and regular savings on a monthly or
(23:12):
an annual basis, rather than if Social Security is going
to pick up thirty percent of monthly expenses or whatever
the average.
Speaker 2 (23:18):
Number is, Tucker, When you think about retirement, do you
think about Social Security as being what do you think
about when you think social Security?
Speaker 5 (23:29):
I hope it's there when i'm bad age, Yeah, I
think about it absolutely.
Speaker 2 (23:34):
So Gallup went out and pulled a bunch of people
and just thirty seven percent of Americans age thirty to
forty nine expect to receive Social Security benefits when they retire. So,
quite honestly, the other sixty three percent are just wrong.
Social Security is not going to pay out nothing at
that point, like that's just not how the program works.
If we keep up with the current structure and abide
(23:55):
by the rules that are set for funding in this
and that, you can see about a twenty percent drop
in Social Security benefit payouts starting in eight years, and
so it just means that the benefit would be smaller.
Speaker 3 (24:07):
Uh, sixty six.
Speaker 2 (24:09):
Percent of people age fifty year older think that they
are going to be receiving Social Security in retirements.
Speaker 3 (24:15):
Now.
Speaker 2 (24:15):
I'm guessing that they pulled in such a way that
we doubt people that aren't eligible, such as people on
public pensions and things along those lines.
Speaker 3 (24:23):
But the fact is.
Speaker 2 (24:28):
Congress is not going to let Social Security break to
the point where it's just not paying anything, right, that's
just not realistic. We can talk about, hey, are they
going to do anything to fix it? Are they just
gonna you know, run it more debt to fix it?
Are there going to be changes in the tax structure
or the payouts? But they're not just going to say, well,
(24:49):
it's gone, Yeah, I guess we better call it a day.
So I think that when we look at the initial
reasons for Social Security, they are very simple and straightforward.
They're to provide a baseline of income or it's to
provide a baseline of income so that you don't have
seniors living in complete poverty with no income like that.
(25:10):
That's the reason that the program exists. I don't believe
that it was ever meant to be something where hey,
this is you know, this should be the only thing
that you necessarily live on. Though there are a large
number of retirees where that is the case, where social
Security makes up their only income. I forget the exact percentage,
but I think it's generally somewhere around a third of retirees.
(25:31):
All that they have is social Security and retirement, and
so there are some who have to just live on
that and and don't have anything else. So when we
look at this in the context of this piece from
the New York Times, it's talking about why social Security
matters for young people, not just retirees. The big thing is, Look,
you're paying all these payroll taxes into the program. Ultimately
(25:54):
that's not going like it's it's not in your social
Security account. Like the money, the money that we're paying
right now in uh in payroll taxes, it goes to
our parents' Social Security. So it's you know, in addition
to mooching off our Netflix. They get to mooch off
our payroll taxes, which is again it's it's great like
(26:14):
every younger generation supports you know, people.
Speaker 3 (26:16):
When they get they get older. That's like kind of
how it is.
Speaker 4 (26:19):
Sure a lot of parents would argue that it can
go the cut the other way too, with phones and
things like that.
Speaker 2 (26:24):
Well, look, honestly, if you're over twenty five and still
on your parents' phone, it's time man, Like it's it's.
Speaker 3 (26:31):
Agree with you. I'm just telling you. There's a lot
of parents out there that are subject to that. I
get it.
Speaker 2 (26:36):
But you know, look, every generation mooches off all of
the other, like we all cross mooch and you know,
there's there's a lot a lot of cross moochs.
Speaker 3 (26:44):
Applying, is what I'm getting at. Yeah, would you can
I ask you that hypothetical?
Speaker 4 (26:48):
Would you just let's say there, say, Chuck, you can
either decide whether you want to continue paying the payroll
tax or you can be on your own from here
on out or your working career. Where would you land
on that? I don't know if I have a definitive answer.
I've kicked it around on my head.
Speaker 2 (27:00):
So I look at it in that I think Social
Security provides a valuable service to a large number of Americans,
And even if it's not necessarily something that I believe
to be in my best interest, I think that having
the program exists is something that's important, right, and the
risk doesn't leave the system, like if if it were
just gone, Sure, some of us could potentially do great
(27:23):
investing the money on our own, but it also presents
a risk where hey, you might end up you know,
kind of true if it goes badly for you. So
I think I'm someone who believes that it does serve
an important role just in backstopping Americans retirements, and I
believe that risk taking. Risk taking is enabled through having
(27:50):
a baseline level of safety and security for anything, and
not just in investing. Let's say you want to start
a business. You need to have some level of comfort that, hey,
if this goes badly, I'm going to be able to
figure it out.
Speaker 3 (28:03):
And this is where, just.
Speaker 2 (28:05):
Like the overall, you know, even like starting a business,
you think about the stuff that that we don't even
think about on a daily basis, like what I call
what's called basis risk. Like let's say that you decide
to start a business. How do you know that someone's
not going to come in and rob that business tomorrow?
How do you know that the rules aren't going to
(28:26):
change tomorrow and your business is going to be shut down?
How do you These are things that I think we
take for granted an awful lot. But having the baseline
level of safety, stability, and security in these things is
what allows us to risk take and actually go forward there.
So even though I might personally believe, hey, I could
(28:48):
probably get a you know, hopefully get a better rate
of return than what you know, what the Social Security
Trust Fund returns for you know, all of us, I
also believe that it provides that baseline, say, and security
in retirement that is important because if it weren't there,
I know, there's an awful lot of people who would
be in a real pickle. Sure, and so I think
(29:10):
that it's important where where we can sometimes say, look,
this might not be best for me, but it's best
for society. And as such, I think it should still
you know, exist in that format, and I'm okay paying
into it even if I don't think it's the best
for me. Sure, it's kind of where I land. I guess,
let's see. So we want to talk about this piece
(29:31):
from market Watch why raising more cash is a smart
portfolio move even with stocks at record highs.
Speaker 3 (29:38):
I just love, not sure if I'm ready to go there.
Speaker 2 (29:40):
I just love when publications, you know, put these pieces
out and you know, give all kinds of investment advice
that they don't give on a daily basis. And so
then you make a move based on this, and now
you're like, oh, now what do I do? When do
I move it away from cash? Like when do I
move back into the market this? It falls that category
(30:00):
for me. Of Look, if you're taking investment advice from
any financial publication CNBC, Bloomberg, the Wall Street Journal, market Watch,
whoever it is, I'm dropping all my stuff on the ground.
I don't even know where that thing went. If you're
taking financial advice from any of these places, how do
you know when it's time to change course if they're
(30:22):
not publishing something, you know. That's kind of where I
tend to land on this, And ultimately, how you build
your investment strategy, it has to be based on two
main things. How much risk and volatility are you will
in the stomach and how long do you have before
you need to spend the money you've saved. If you
can answer those two questions, then you can figure out
(30:43):
the right thing for your situation without needing MarketWatch to
tell you whether or not now is a good time
to raise cash.
Speaker 3 (30:49):
I'm with you. Just take a quick.
Speaker 2 (30:51):
Break when we come back. Hmm, do you want to
talk about Okay, we got a couple options, Paul, small
cap versus large cap or China.
Speaker 3 (31:01):
Small cap versus large cap. Okay, we'll do that when
we return.
Speaker 1 (31:06):
Banking, business and financial news first throughout the day, only
here on the Financial Exchange Radio Network. Text us six
one seven three six two thirteen eighty five with your
comments and questions about today's show, and let us know
what you think about the stories we are covering. This
is the Financial Exchange Radio Network, all right, Paul.
Speaker 2 (31:37):
So the S and P five hundred. In October twenty
twenty two, it found its bear market bottom and has
since risen sixty three percent, including reaching a new all
time high last Friday and additional all time highs today
on Monday. It just it's been up, up, up, up up.
(31:57):
Some brief interruptions, but it's generally been on an upward
trend for really the last two years. Now the small
cap Russel two thousand, home to well forty two percent
of its constituents aren't profitable, correct, which is kind of
a problem when you're a stock.
Speaker 3 (32:17):
It's an issue.
Speaker 2 (32:18):
And so the Russell two thousand is only up thirty
five percent from it's low, and it's still nine percent
short of its all time high that it hit in
November of twenty twenty one. It's not just the last
couple of years though, that this is the trend, including
twenty twenty four. So far, the S and P five
hundred is now outperformed the Russell twenty twelve of the
(32:39):
last fifteen years.
Speaker 3 (32:41):
That was staggering. That was staggering to read. Now.
Speaker 2 (32:43):
Typically it's thought of that small cap stocks have something
called the small cap premium, which is, hey, small caps
are typically more volatile, but what you receive for that
volatility is expected to be greater returns. Thus, the question
is raised, Hey, if small cap stocks are going to
underperform the S and P five hundred for twelve out
(33:06):
of the last fifteen years, why would one own small
cap stocks? And the answer is found in every disclosure.
Ever in the investment world, past performance is not predictive
of future success. If you looked at the fifteen year
period before, this wasn't the case, right, Like the last
ten years have been dominated by the S and P
(33:27):
five hundred, But if you look at the early two thousands,
emerging markets and international did way better than the S
and P. So just because something has done well, even
for what feels like a lifetime, doesn't mean that you
might not be reaching an inflection point where things can change.
Speaker 3 (33:44):
Totally fairpoint.
Speaker 4 (33:45):
I do wonder if the way that capital markets have
changed over the course of the last decade plus or so,
where there is a lot of venture capital financing that
you can get a lot of private equity financing, and
you have these companies that are delaying IPOs further than
they would have in past market cycles, does that lead
to the makeup of some of these small cap companies
(34:07):
you pointed out the profitability piece there. Does it lead
them to have a different sort of makeup that they
are not no longer as attractive as they once were,
just because you have companies like Facebook back in twenty
twelve or others who wait till they reach these meteoric
valuations before they go public. So something that I continue
to kick around, but like you said, we will see folks.
Speaker 2 (34:30):
The Armstrong Advisory Group is hosting a seminar at the
Double Tree Resort and Suites in Hyannis on October twenty fourth.
Ed Lambert, host of the WXTK Morning Show, is going
to be joining us there. We're going to be doing
a live broadcast of the financial exchange followed by an
educational lunch with the Armstrong Advisory Group. What are we
(34:53):
going to be talking about. We've got the upcoming election,
We've got different economic policies that both candidates have proposed,
the current macroeconomic landscape, what does it look like? And
how different market volatility that we're seeing might influence investment decisions.
You can sign up for the event by going to
Armstrong Advisory dot com slash Events. Again, it's at the
(35:16):
Double Tree Resort in Suites on Hyanas on October twenty fourth,
and again you go to Armstrong Advisory dot com slash Events.
Just fill out the form that's Armstrongadvisory dot com Slash Events.
Speaker 1 (35:31):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (35:47):
China has been rolling out almost daily stimulus announcements for
the last several weeks. There was a brief period during
Golden Week where Chinese markets were closed and we didn't
hear anything. But we keep hearing about, hey, there's gonna
be you know, more stimulus, and just wait till we
roll you see.
Speaker 3 (36:06):
What we roll out next.
Speaker 2 (36:08):
And yet we're still not getting a ton of details
as to what's coming next. But I'm also kind of wondering,
like why don't you just do this all at once
and tell people like what's going on?
Speaker 3 (36:20):
Like what's with the daily roll out? Like keep you guessing,
keep the optimism going. I don't get it, man, I
don't get it.
Speaker 4 (36:28):
Maybe they're still trying to figure out what to do
because a lot of these moves, I would argue, and
maybe you dispute this that they're on the margins. These
aren't really the biggest problem that the Chinese economy has, well,
they have many, but is getting the consumer back out
there and building back up their confidence and getting some
spending on that side of things. And to me, through
(36:49):
the measures that I've read through, none of these are
particularly stimilar than that fashion that would really increase consumer consumption. Yes,
they've made some changes on the housing front, a property
market that's been absolutely demolished over the course of the
last five years or so. But to me, I'm waiting
for something that perhaps would create stimulus and create an
initiative out there for households to get out there and
(37:12):
spend it. To me, I just haven't really gleaned that
just yet from some of these changes.
Speaker 2 (37:16):
Yeah, it's it's still doesn't quite seem like they want
to pivot away from trying to support the real estate
market and the manufacturing you know that.
Speaker 3 (37:27):
They do there, right, and.
Speaker 2 (37:30):
Ultimately like that that still seems to be a problem
because there's still too much real estate. And when we're
talking about supporting you know, Chinese manufacturing, it's okay, here's
a bunch of money to make stuff that isn't necessarily
needed anywhere in the world, and then you end up with,
you know, too much steel, or too many solar panels,
or hey, here's you know a million evs that who
(37:53):
knows if people want to buy.
Speaker 3 (37:54):
Them, and I don't know.
Speaker 2 (37:57):
I'm I'm struggling to see the Chinese government being able
to accurately determine from a top down level where to
invest money, because that's just not how good economies typically work.
Let's take a quick break here. We got our two
coming up in just a little bits
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