Trends in the Market

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Episode Transcript

(00:00):
All topics and securities mentioned on straightTalk from the House or for informational purposes
only, and should not be usedas investment advice. T Anton Investment House
does not offer tax or legal advice. Investments or investment strategies covered are not
a recommendation or solicitation to buy orsell the securities. Past performance is not
a guarantee of future performance. Thisis straight talk from the House with certified

(00:22):
financial planner Tracy Aton right here onthirteen ten WIBA. Tracy comes to us
from t Anton Investment House, afee only fiduciary with an office right in
Middleton. Really easy to get intouch with Tracy and the team and learn
more on the website Tanton Investmenthouse dotcom. That's t a N t O
N investment House dot com mentioned itreally is to get a way to get

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(01:04):
And joining us this morning is certifiedfinancial planner Tracy and Tom Tracy.
How you doing this week? I'mdoing great, Sean, how about you?
Doing really good? And it's goodto see you. And we've got
a great conversation ahead and we're kindof going to talk specifically about the stock
market and what are we seeing rightnow in the stock market. Well,
the SMP five hundred closed more thanten percent below its recent peak in late

(01:27):
July. Some are saying this isa brand new bear market, but economist
Brian Westberry from First Trust says thisis not a new bear. Instead,
it's the same bear we've had sincetwenty twenty two, and then we had
a temporary rally and then the bearmarket reasserted itself. He points out to
the driving forces behind the ongoing bearmarket have not changed, per se.

(01:52):
The federal policy of easy money duringCOVID is over, and the M two,
which is a measure of the moneysupply, is down three points six
percent in the past twelve months.He thinks much of the economic headwinds are
still in front of us, eventhough the economy grew in the third quarter
by an estimated four point nine percent, and of course this increase is due

(02:15):
mostly to consumer spending. So itis worth noting that even though we're down
from the peak in July of aboutten percent, that the S and P
five hundred is up about thirteen percentyear to date as of November three.
Oh that's great to hear. SoI think the question that folks have is
when we start seeing these this typeof discussion and they ask, well,

(02:36):
are we in a recession right nowor what's the what's the status there?
Well, economists predicted an imminent recessionwhen the Fed first increased rates well over
a year, and we've had abouteleven rate hikes. Still we have not
seen an economic downturn. Some argueyes we have, Some argue we haven't.

(02:58):
You know, I obviously people havedifferent points of view here, but
you could look at it too likethere's been a rolling recession. Because what
a rolling recession is It occurs whenindustries rise and fall at different times,
creating pain in different sectors while othersdo really well. So for example,
the travel and energy sectors created intwenty twenty one but have since rebounded strongly.

(03:23):
Likewise, the housing and semiconductors dockslumped in late twenty two before picking
up in the recent months. Soagain, the good news here is that
mini recessions do create opportunities for portfoliomanagers to invest in certain industries that will
have strong rebounds rather than focusing ona timing of a broad recession. Fascinating

(03:46):
stuff this morning talking with certified financialplanner Tracy Anton right here on thirteen ten
WIBA the website Tanton Investmenthouse dot com. That's Ta n TN investment House dot
com gets no tracing the team righton the website. You can also listen
back to this in previous shows podcast. There great opportunity as well if you're

(04:06):
looking for money management or portfolio managementtracing. The team would love to talk
with you. I got to dois pick up phone, give me a
call six of eight, five zeroone, fifteen forty nine, or as
mentioned on the website, Tanton InvestmentHouse dot com, inschedule apployment right there
online at a time and a datethat's convenient for you. So overall,
trends are what are we seeing inthat area? Tracy Well, one of

(04:28):
the most significant trends this past yearhas been inclination of investors to move their
investments into cash and cash equivalents.So money market fund assets reached a historical
hive about five point six trillion asof the end of September. And this
is again information according to Investment CompanyInstitute. So American Funds came out and

(04:49):
they did an analysis that indicated thelevels of cash typically reached their highest point
ironically around market bot and shortly beforemarket recoveries, which I guess makes sense,
right, it's right, the darkestbefore the dawn. So, for
instance, after both the global financialcrisis and COVID nineteen pandemic, the s

(05:14):
and P five hundred and it sawa substantial upswing, delivering returns of at
least forty percent within the three monthsafter each of those market lows. And
so again this is coming from AmericanFunds information. I would just say it's
possible, but of course, youknow, the past performance is not a
guarantee of future performance, so I'mnot saying this is exactly what's going to

(05:38):
happen, but it does. Youknow, back in the thought here of
hey, we're at all time highsand cash, what is likely to happen?
Trends change, right, and interestrates? They did the Fed did
not raise rates on the November firstmeeting, and so we obviously are getting
toward the end of a rate cyclein and so what's what's likely going to

(06:01):
happen once they think inflation is undercontrol, Well, they'll probably reduce rates.
Sure, absolutely, It's just it'sinteresting to get that. What's the
old Mark Twain. History doesn't repeatitself, but it does rhyme. And
that's one of those things too,is we look at this, look at
this stuff and kind of break downwhere we are and where we're going.
There's some positives out there. There'sall some interesting news on bonds. We're

(06:24):
gonna get the details from Tracy injust a moment. Also about some opportunities
as well with peak peak cash.That's a little bit of a tongue twister.
We'll get that from Tracy in justa moment. To me, timme
bit to the website t Antoninvestment Housedot com. Head on over there.
I really easy to get to tAnton Investment House dot com and schedule appointment
right online or pick a bone,get recall six oh eight five zero one

(06:45):
fifteen forty nine. That's six oheight five zero one fifteen four. And
now we'll get all of those detailsnext as Straight Talk from the House continues
right here on thirteen ten WIB.This is straight Talk from the houseman sort
offied financial planner Tracyanton here on thirteenten WUIBA. Great conversation this week.
I'll get a little snapshot of what'sbeen happening in the markets recently, also

(07:10):
the recession word and questions and aboutthat from Tracy. If you missed any
of that part of the conversation,you can always listen back right online at
Tantoninvestment House dot com. While you'rethere, gets no Tracy in the team
at Tanton Investment House. And ifyou are looking for money management portfolio management,
want to start that conversation with Tracyand the team, All I got
to do a schedule appointment to writeonline at Tanton Investment House dot com or

(07:32):
pick up phone, give a callsix oh eight five zero one fifteen forty
nine. That's six oh eight fivezero one fifteen forty nine. That's for
the office right in Middleton. So, Tracy, when we were leaving off
at last segment, we start talkinga little bit about cash and cash equivalents,
and I think folks then were probablyduring the break on, well could
there be an opportunity then if we'rekind of seeing pete cash, is there

(07:53):
something out there that people could cantake away from? Yeah, I mean
that's the question. Is this anopportunity to move back into markets if the
Federal Reserve is close to the endof their cycle of raising rates. So
many investors like the idea of stayingin cash or money markets earning five percent
until the FED starts cutting rates.They'll be like, well, I'm going
to just wait until they do that. But that might be a mistake.

(08:16):
According to American Funds research, therehave been windows of opportunities between the fed's
last rate hike and their first cutright. So American Funds analysis looked at
asset returns after four cycles where theFED stopped hiking rates, and their analysis
showed that the cash and money markets, although they did all right, you

(08:39):
know, the cash did okay,it still had the lowest average return of
all asset classes and stocks, stockand bond accounts, which are balance accounts,
though both of those so basically bondsand stocks solidly beat cash. And
that only makes sense, right becausecash, you're really not You shouldn't be

(09:01):
rewarded that much for taking no risk. You should be rewarded. Those people
should be rewarded long term with betterasset returns in the stock and bond markets
because you are taking on risk andso you know cash will not outperform typically
long term those other asset classes.And so that's what we're talking about.

(09:22):
Is there an opportunity here? Andyou know, I often see this.
People will be like, well,I'm getting five percent and I feel really
good about that. I know,I understand, But is that long term
money that you are counting on,Like when you look at your financial plan
and you run your cash flow analysisbased on six point seven percent rate of

(09:43):
return or seven percent rate of returnor eight percent rate of return depending on
what numbers you're assuming that you canget in your long term investment portfolio,
are you using that number? Areyou using five percent? Because Cat and
and say you have fifty percent incash. I just talked to one and
we've been together a long time,but she had been storing up She had

(10:09):
like twenty thousand extra a year thatshe had been putting more and more into
her cash position, which was great, but then at some point, you
know, she has more in cashthan she has invested. And yet you
know, when we assume are readyto return, we're we're assuming as like
sixty seven percent ready to return somethingconservative on a stock and bond portfolio.

(10:31):
But yet, if you have fiftypercent in cash, you know, it's
highly unlikely that you'll even continue toget five percent over the long term on
cash, right, I think weall can agree on that. So the
question is is it long term money? If it is, you need to
probably re employ that back in thestock and bond markets in order to basically

(10:52):
get the returns that you're going toneed over the next few decades. You
might I know that there were someanalysis to American funds, did some analysis
you were you were kind of talkingabout as well, right, I mean,
they, you know, they lookedat all those cycles and after the
four cycles where the Fed did stopthose hiking rates, you know, their
analysis keep showing that the cash andmoney markets really had the lowest rate of

(11:16):
return of the stock and bond accounts. So you know, those stock and
bond accounts really beat cash significantly.And so you know, I would just
say, relook at how much youhave in cash. It's okay to have
some, obviously, we always wantthe emergency cash. And if you have
a bit more that's probably fine too, you know, but it's a point

(11:37):
where how much what percent of yourtotal assets are now sitting in cash?
You might feel good at five percent, but once they cut rates and they
go and it goes down to,say three percent, are you still going
to feel the same or two anda half percent. And by that point,
if you try to say yourself,well, re employ, stock and
bond markets will likely have already moved. And that's what American Funds is saying

(12:01):
that when they did their analysis,you know, you had a short term
window there, but you need tolike re employ before the Fed says I'm
going to cut rates. Interesting goodstuff, as always from certified financial planner
Tracy Anton here on thirteen ten WUIBAthe website Tanton investment House dot com.

(12:22):
That's spelled t A N t ON investment House dot com. And the
telephon number for the office right inMiddleton six oh eight five zero one fifteen
forty nine. That's six oh eightfive zero one fifteen forty nine. On
the positive side, what are weseeing as far as the US economy.
What's kind of the takeaway there,Tracy, Well, there are a couple
of key factors contributing to positive outlookfor the US economy over the long term.

(12:43):
So obviously a lot of people think, well, we're still going to
go through a recession. That's true, most people agree upon that. But
because the American consumer is relatively healthyright now, with household debt representing only
nine point eight percent of disposable incomeas of June thirtieth, twenty twenty three,
and that figure is significantly lower thanwhat was observed during the Global Financial

(13:09):
Crisis or other previous economic downturns.So we have the fact that the consumer
is a lot healthier going into arecession, and with a robust job market,
this resilient, consuming consumer spending hasthe potential to benefit various sectors.
Obviously we're seeing that and the traveland leisure. So many US companies have

(13:33):
also cleaned up their inventory shown andtheir balance sheets in preparation of a recession.
So you know, it's like therecession that hasn't come right, or
it's like the little engine type thing. It's like we're all waiting, We're
all waiting for it. And UScompanies they've done a good job of cleaning
up their stuff and making sure they'reprepared for a recession. So another interesting

(13:56):
thing to know is the average interestcoverage show, which measures earnings in relation
to interest payments, is currently higherthan it has been in the last three
recessions. So you know, whatthey're saying here is is that you're likely
to see a recession, but it'slikely to be mild for all these reasons.

(14:16):
Absolutely fascinating stuff. You have atrain on the horizon, you can
see the lights, but who knowswhen it's actually going to get there.
Sometimes take a little bit of time, Tracy, before we wrap up this
segment is I know we talk forgood reason about bonds. What if folks
need to focus in on right nowwhen it comes to bonds. So a
lot of people might be familiar withthe guy Bill Gross. He was the
chief investment officer for Pimco, andhe went to Twitter or X as it's

(14:41):
now called, has urged. He'surged a lot of people to buy bonds
because of the recent selloff. Sothere was yields on ten yure government bonds
had peaked at more than five percentabout a week ago, and that's the
first time it happened in sixteen years. So while the thirty year bonds also
are really are basically trading with yieldsat at about five point two percent.

(15:05):
So when the treasury bond bund yieldsrise, obviously treasury bonds prices fall,
right, They have that inverse relationship, and that's why recently you see investors
have been shorting or betting against thebond prices. But Bill Gross has come
out and says he doesn't believe rateswill continue to rise, which again that

(15:26):
might not sound like rocket science,but he wrote this before the FED did
not raise rates. Okay, SoGross said that there will be strong economic
slowdown i e. A recession inthe fourth quarter because of regional banks carnage,
he said, and recent rise inauto delinquencies to long term historical highs

(15:46):
that indicate us that the US economyis slowing. And I guess most people
are thinking that too, right.So another large factor is a weakening housing
market, again he cites and hesays sales have fallen off and back in
March and resulting in home price declinesfor a second straight month, but then

(16:07):
he said that expect prices may havefurther ten percent downside by reacceleration, So
he says this will help limit anydeterioration in household balance sheets, which provide
a boost to consumer confidence. Sobasically he's just encouraging you that we're going
to go through recession, it's agood time to be buying bonds because again,

(16:29):
rates are not likely to increase,they're likely to decrease in their bond
prices will likely increase, and we'veseen a decline in the bonds. You
know, anytime an asset sector isdown, you know, significantly over one
three year number, it's probably somethingto look at. And we would encourage
you to to re employ cash becauseyou can also get like a high yield

(16:55):
of five percent. But then alsoyou know, I've seen bonds do double
digit returns as a comeback, soit's a good place to look to.
And you're not climbing the risk factorthat much, you know, So going
from cash to bonds, yes youare increasing your risk, but it's proportionately.

(17:17):
Talking this morning with certified financial plannerTracy Anton here on thirteen ten,
dou W U I b A.Tracy, of course, comes to us
from Tanton Investment House, a feeonly fiduciary with their office right in Middleton.
The website Tanton Investment House dot com. That's t A N t O
N investment House dot com. Telphnumber six oh eight five zero one,
fifteen forty nine. That's six oheight five zero one, fifteen forty nine.

(17:41):
What might the market look like,specifically the labor market look like if
we were to hit a recession?Also, will it be mild? What
would a recovery look like? We'llget the details from Tracy on that.
Next as straight Talk from the Housewith certified financial planner Tracy Anton continues here
on thirteen ten do w U Ib A. This is story talk from

(18:03):
the House liftser five financial planner TracyAnton here on thirteen ten WIBA. You
can learn more about Tracy and thewhole team at t Anton Investment House all
on the website Tanton Investment House dotcom. Tell phone number for the office
right in Middleton six oh eight fivezero one, fifteen forty nine. That's
six h eight five zero one,fifteen forty nine. Trace. We had
mentioned the recession word in that lastsegment, and I think folks would then

(18:26):
of course go like, well,if we do see a recession, will
it be mild? What would arecovery look like? What are some of
those details, just kind of lookingat some of the some of the history
there that people might be able toexpect. Sure, I said, so,
there are two reasons of recovery maybe stronger than prior cycles. And
first, there may not be aneed for large scale deleveraging like we saw

(18:48):
during the global financial crisis in twothousand and eight, because so many companies
have been expecting that economic weakness.Businesses have acted, they're delaying orders to
work accesses out of the economy already. So while a recession is likely this
year, the expectation will be somewhatshallow, meaning mild. So the second

(19:10):
is that the US consumer sector isstrong relative to pass cycles, and a
healthy job markets, wage growth,and household well should all be factors for
a stronger recovery than in the past. So most of the people I've heard
Sean say over and over again,mild recession, mild recession. That's good
to hear. What about the laborI know labor market has been going gangbusters,

(19:34):
and there's been some changes there.What will the labor market look like
if a recession where do occur?Well, labor markets have been softening lately
and the possibility of recession could driveunemployment higher. Although unemployment rate was at
three point five percent back in March, which was near multi decade lows,
it is expected to rise this fall, and they were expecting around five percent,

(19:59):
but that hasn't quite happen. We'recurrently at three point eight percent and
therefore, obviously consumers are still inbetter shape. You know, they're employed,
and that's that's been you know,kind of uncommon for past recessions.
Interesting. So what about some ofthe other factors we talk about, some
of the other factors that would leadto a strong, strong recovery then well,

(20:22):
moderating inflation to further support consumer strength. While it will take some time
for the FAD to get to thatinflation target of two percent, maybe they'll
never get there, right, itwill most likely be contained near three percent.
So academic studies have shown that theconsumer spending has tended not to be
significantly impacted by inflation around three percent, and so contained inflation will likely boost

(20:48):
consumer confidence and if wages hold up, it can feel like actually a real
wage boost. So you know,basically the consumer does well even if inflations
at three. So a positive changein productivity gains from automation and the increased
adoption of artificial intelligence. This mayprovide an economic tailwind by helping to manage

(21:12):
rising labor costs as well, anda stronger housing demand coming out of the
recession is what's expected. Changing demographicsand rising household formation suggests a likely rebound
in housing demand as well. Absolutelyfascinating stuff in this week's program, not
only fun and informative, a lotof great information this week, which means

(21:33):
you're probably going to want to listenback to the podcast. All I get
to do is head on over toTantoninvestment House dot com. You can listen
right there from the website. Alsoshare the podcast with your friends and family
again the website Tantoninvestment House dot com. While you're there, if you're looking
for money management or portfolio management,a prime opportunity to schedule appointment with Tracing
in her team at a time anda day that's convenient to you. Again

(21:56):
the website Tantoninvestment House dot com.That's e A N t o N investment
House dot com or call the officeright in Middleton six oh eight five zero
one fifteen forty nine. That's sixsoh eight five zero one fifteen forty nine,
Tracy, It's always so much funhanging out with you. You enjoy
this beautiful day. Thanks Sean.Take care,