The Compound and Friends - Bears Are Back

Episode Date: August 13, 2024

On this TCAF Tuesday, join Michael Batnick and Callie Cox for an all-new episode of What Are Your thoughts! They discuss: recession odds, bearish sentiment, household spending, individual stocks outperforming the S&P, and much more! Thanks to Rocket Money for sponsoring this episode! Visit http://rocketmoney.com/compound and cancel your unwanted subscriptions today! Sign up for The Compound newsletter and never miss out: https://www.thecompoundnews.com/subscribe Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: LinkedIn: https://www.linkedin.com/company/the-compound-media/ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholt's Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholt's Wealth Management may maintain positions in the securities discussed in this podcast. Hello, hello. Good evening everybody. It is five o'clock on the East Coast, so you know what time it is. What are your thoughts? My name is Michael Bannack and I'll be hosting today. Downtown Josh Brown is down in Miami with sprinkles. They're taking TJ

to the University of Miami, which makes me feel very old. When I started with Josh, I think she was, I don't know, six. Younger than Kobe. So this is weird. Time flies. Sitting in my seat tonight is the amazing Callie Cox. For those of you who don't know who Callie is, she is the chief market strategist at Middlesworth Management. Callie, welcome to the show. Mike, what is up? I'm so excited to be here and I feel like I have really big shoes to fill. You're filling my shoes. I kind of do. I kind of do. Yeah.

So last week was a quiet week on Wall Street. The S&P closed flat. No big deal. I mean, nothing happened, right? Boring week. Nothing happened. Somebody emailed me actually, a friend of mine said, I went on vacation last week. Was without a phone, came back. Nothing happened.

There's a market lesson in there. Yeah, there you go. Callie, we have a sponsor for today's show. It's Rocket Money, which is a personal finance app. I use it all the time. I like when I get refund detected, large transaction. Did you do that? Hey, what is this?

Oh yeah, that's mine. That's mine. So every week I see how much money I spend compared to the average. It lets you cancel unwanted subscriptions. So for example, I found that I was subscribed to things more than once. I should you not. So, Rocket Money is over 5 million users. They've saved a total of $500 million in cancelled subscriptions, saving members up to $400,

no, $740 a year when using all the app's features. So, stop wasting money and time on things you don't use. Cancel your unwanted subscriptions by going to rocketmoney.com slash compound. That's rocketmoney.com slash compound. That's rocketmoney.com slash compound. All right, let's get into it. Last week, there was a narrative shift. It actually started two weeks ago, a big narrative shift. The song will was triggered, which says, I don't know, you could,

you probably know better than I do the three month moving average of the unemployment or the unemployment, something like that, whatever. You got it, Mike. It triggered. Oh, it triggered. It triggered. Oh, it triggered. It triggered. It happened. So there was a hardcore narrative shift of soft landing to why didn't the Fed cut, to

oh shit, the data is really slowing. And I think at the epicenter of the narrative shift was or is the jobs market. Charter on please, Sean. So we have initial jobless claims trending up and to the right. And luckily, we got a surprise reprieve last week. But the unemployment rate has kept climbing, or it keeps climbing.

And these sort of things, the unemployment rate, once it gets going, it tends to not slow down. What are your thoughts on the overall labor market and where the economy is today? Well, Mike, I think you set that up really well. And I think the reason why people are worried is we see this data breaking down. The job market has been slowing for, gosh, over a year now. But we're at the point where it feels really uncomfortable in real life. I don't know about you, but I walk around Charlotte and I see a lot more, uh, we're closed signs than find, uh,

then like we're, how we're hiring or find help guys. It's, it's 5 p.m. My brain is scrambled. You've got a lot of TV's last two weeks. So getting used to this hour. But anyway, I feel like we experience in our life experience, you experience, we feel that the job market is slowing down. And I'm feeling that too. And now the data is confirming it. So everybody's like, all right, well, here we go. This is the big one. And if you're worried about the job market, you're actually worried about the right thing

in the economy. Consumer spending is 70% of the US economy. And it's as simple as if you're making money, you're probably spending money. And that's consumer spending right there. So, Mike, I think people are freaked out by the unemployment rate. I think they're a little rattled by what we saw in the SOM rule. And the SOM rule was triggered. It was, I think it's the three month average of the unemployment rate over like the 12 month average, maybe. But let me you a counterpoint. We have a counterpoint. All right. Chart on, please, John.

So this is Torsten Slak looking at the SOM rule itself. And he says, actually, the SOM rule doesn't work because it was designed for a decline in labor demand, not a rise in immigration, which is where a lot of the shenanigans are coming from in the data. But if he looks at the job cuts, and this paints a much different picture. So yes, unemployment is climbing, but job cuts, there's not a lot here to be worried about within this particular data series. Your thoughts?

Yeah. Claudia Somm, she's the economist who created the Somm rule. She would say the exact same thing. In fact, I'm pretty sure she talked to Josh last week and said exactly that. But that's right. Something that I think throws people off is that there can be good unemployment and bad unemployment. Bad unemployment is what we think about.

I get laid off. I'm technically unemployed. I'm looking for another job. That's unemployment. That's obviously bad. I didn't want that to happen. But there are other people who enter the labor force. They start looking for another job. That's unemployment. That's obviously bad. I didn't want that to happen. But there are other people who enter the labor force. They start looking for jobs. They graduate into the labor force, and they're counted as unemployed first. That's the kind of

unemployment we've been seeing. I think part of it is you don't really play when the unemployment level is rising. I think that's why people were so frustrated with the Fed. But this is something I've struggled with. I mean, the job market data doesn't look that bad and the unemployment rate needs a little asterisk beside it. So I don't know. I don't know. So if we got the data that we did last Thursday and Friday, or the one before that two weeks ago, and the market didn't do what it did. Would people have been as nervous? I think, I mean, no, right? No way.

Because it's not that bad. It's something to pay attention to, but it's not that bad. And if there was a recession coming, companies would surely be talking about it. So John, next chart, please, again, from Torson Slack. He showed the number of times the word recession was mentioned on earnings calls. And corporations are forward looking, they provide guidance towards investors. And you saw in 2022, rightfully so, they were super nervous about a recession coming, as was everybody. And they started mentioning it all the time. And we're just not seeing that. Fine.

A slight uptick from literally as low as it can go. But if corporations aren't worried about it, I'm not saying like, again, not to poo-poo this, but another area of the economy that would surely be sensitive to an imminent recession are small business owners. And today we found out that the NFIB business optimism index is at a two year high and you just don't see these things heading into a recession. No, you're absolutely right. And my counterpoint for you as you showed that first chart was what about small businesses? Small businesses are 55% of jobs in the US. And it's so hard to track

hiring trends for them. You really only have the NFIB. So if there's something that worries me about the job market, it's that. What's happening to small businesses, the restaurant around the corner, the brewery in your neighborhood, your veterinarian, your doggy daycare, which by the way, I visited that today, seemed to be doing fine. But there's so much job market data, but it's concentrated in the largest companies. So it's hard to see, or excuse me, the smallest companies. It's just harder to see what's happening in that segment. Yeah, this thing is messy.

The economy is over complicated. Lastly, Sherwood had a chart of economists and the probability that they give of the economy entering a recession. Take this with a gigantic grain of, was it salt? That's right, salt. Because we know in 2020, literally 100% of economists predicted a recession, did not come to fruition. But be that as it may, which is a nice transition phrase, thank you very much, be that as it may, only around 30% of economists are expecting a recession.

Yeah. Well, nobody knows anything. The one thing that I've remembered through all these years of bullshit recession calls has been nobody knows anything and the economy is uber complicated. If you're going to focus on one thing, focus on the job market. But if you think there's a recession happening, you almost have to see it happening. It's hard to front run it, right? All of the data points that we've seen in the past couple of years in this really strange economy, how many data points have we've never seen before? Well, we've never seen this before.

We've never seen an economy like this. So I'm not dismissive of a cooling job market, a cooling labor market that is happening definitively, but that doesn't mean that just because historically this has led to a recession, it doesn't mean that we have to have one this time. Rules break all the time. So all right, Callie, over to you. So I'm going to add one more thing before we pivot off. And Mike knows I could talk about the job market for hours.

But as an investor, you don't have to be all in or not in. You can mix it up a little bit. There's a lot of gray here. If you're worried about the future, but you don't want the market rally to pass you by, as are many investors, I would consider myself in that camp, buy some quality bonds.

Put your feet in both buckets. You're totally able to do that. The market is more sophisticated than ever before. So it doesn't have to be black or white. And I think a lot of people forget that. Amen. Yeah. All right. So speaking of black and white bulls and bears, bears are back a chart on John. First time I've ever said that. How'd I do about that? Okay. Okay. So I want to talk about bearish sentiment. I want to talk about fear in the market because

as you can see here, this is the AAII survey. It's the, I forgot what it's the association. No, the American Association of Individual Investors. There you go. This is a survey that they compile every week. They ask a bunch of individual investors, how do you feel about market returns over, I think it's the next 12 months. They say I'm positive on it, I'm neutral or I'm negative on it. So leading into last week, and remember last week was the crazy one with the Japan Yen carry trade imploding, leading into last week, we saw a good amount of bulls. I think about a month ago, bulls were the highest in the survey since early, or excuse

me, late 2021, which is not what you want to hear because you know what happens after that. But we saw this huge swing from investors saying they're super bullish to, oh, wait, we're not feeling so good about this. We're feeling a little shaken up. Bearish sentiment or the percent of investors saying that they were bearish actually rose by I think 12 percentage points, which is the largest climb since late 2022. November 2022, Mike.

Go talk over it, go ahead. Yeah. So like the depths of the inflation crisis, which is kind of crazy to me, but I guess it makes sense. I mean, that was a pretty volatile week, but I want to show you what a chart pro map put in here. You have the S&P overlaid and you can see these uptakes in bearish sentiment in the AAII survey before. And every time we saw this uptick in bearish sentiment,

the market rebounded. And I'm not saying that's happening here, but like, No, I mean, it looks like we're stabilizing. It did happen. Okay. I can say that on what are your thoughts. It factually happened. Listen, we don't make- I mean, I think I'm bottom ticking it here. We don't make any proclamations about the future. We don't know, but we're just saying what happened now is what happened. We've seen this before and I've done a lot of work on this and bulls don't like extreme bullish sentiment could persist for a long time. That is really not a great timing signal, but a spike in bearish sentiment as we just

saw, that tends to be good to carve out at least a short-term bond. What's really unusual about this spike in bearishness is that it came in the context of an 8% sell-off. Yeah. Now, again, I'm not- A little overblown, right? I'm not poo pooing you because we have the benefit of hindsight here. But I think it was just the perfect storm of complacency, a low fix, Buffett selling half of his apple stake, a cooling job market, the Fed not cutting, and the Japan carry trade unwinding. And it was just, it was a perfect storm.

And so I think the worst is behind us. I don't know. We'll see. Yeah, it was a series of unfortunate events. I mean, that's a phrase I'm using, but it's kind of crazy. We actually got a really good ISM services report on Monday, the day when stocks were selling off and nobody paid attention to it.

So when you see sell-offs like this happen, go straight to the data. Look what's happening in the economy and earnings. If we're not seeing a breakdown there, then breathe a little bit easier. Fear is a little premature, if that's the case. I like comparing it, and I know you've heard this before in my XR, I'm going to repeat it again, but I like comparing fear to getting punched in the stomach. Basically, if you know that you're about to get punched in the stomach, of course, you're going to tense up and get ready for it. That's essentially what we saw investors do this past week. We saw the S&P sell off 8%, but we didn't

see the big one and investors are now tensing up ready for it. Uh, they're not going to get sucker punched in the stomach. And that's a good thing. We're ready for it. You know, we've stepped out of the market. If you act on your emotions last Monday and you sold, I mean, this is why you didn't have a plan because what do you do now? I know. And this, I want to throw another chart up.

Go ahead. On John 25 worst and best days, the best days for your portfolio back up against some of the worst days. And if you sell on a 2% down day. So over the past 20 years, if you sold on a 2% down day and waited two weeks to get back into the market, two weeks until the coast was clear, you missed, yeah, you missed out on a third of gains over that period because you missed out on the best days. So just remember that. And the next time you feel like you got punched in the stomach. And this is going to be an analogy I use.

I like it. We keep talking about the consumer because as you mentioned earlier, it's two thirds of the economy. It's everything. So it goes to consumers, so it goes to the economy. So the Federal Reserve Bank of New York does their survey. Is this monthly or quarterly? I think it's monthly. I think it's, I was going to say quarterly. OK, either way. I don't know. They do it here and there.

Let's check the stats. So the respondents who expect their financial situation will be better off over the next year is coming down. It's going in the wrong direction. However, I would also submit to you this next chart, which shows household spending growth expectations over the next year. That's flat.

I think people really have no concept of what their spending is going to be over the next 12 months, so another survey to take with a grain of salt. But there is something that's happening with response to interest rates and what the Fed's going to do that is a little bit worrisome. So Home Depot this morning, which is a stock that I own, the CFO said, categories that are components of large projects, kitchen, bath, floor, and lighting are all under pressure and our customers tell us it's because large projects are being deferred. Everyone's expecting rates are going to fall, so they're deferring those

projects, which isn't great. Not great, but guess what? Rates are going to fall. And so long as between now and then things don't break, people are going to consume. They're going to do those projects that they've been putting off. Yeah. The last part of that, the comment from the Home Depot CFO is the biggest surprise that you just showed me. Everyone's expecting rates are going to fall, so they're deferring these projects. Listen to the first part of that sentence. Everyone's expecting rates are going to fall.

When there's a consensus around something, and Michael's right, rates are already falling. But what I'm saying is you might see a trade that goes from one side of the boat to the other. So when I hear that, I first of all think of how sophisticated Americans are now because like, oh my gosh, could we say this 10 years ago? Probably not. No way. No chance.

But this is deflationary. This in a vacuum is not what you want to see. But again, within the context of rates are falling and the Fed will lower rates and housing activity will pick up. We just saw a giant spike in refis granted all from very low levels, but they are going to fall. Another interesting look in on the consumer is the USTSA checkpoint numbers. Charm on please. The red line that we're looking at is 2024 compares with the previous five years and attracts it over time.

And look, I think this is all to my eyes, but people are traveling. Yeah. I mean, that's bullish. People are spending money on experiences. That's the first thing that goes when you're worried about the future. So I always hesitate to make these blanket statements about consumers because I know the experiences are so wide in this economy. But if you're looking at this in an investment lens,

this consumer spending data still looks awesome. And until we see the job market fall apart, I don't see a reason for it to slow down too much. To your point about experiences being different, this is a very bifurcated consumer that we're seeing today. A lot of companies are saying that the lower end consumer is slowing down. I don't think anybody's like, it's not a dire situation, but they're slowing down.

They're all saying the same thing. The area of the economy or consumer spend that's not slowing down is the higher end. So Ferrari said, we don't see any sign of weakness. Again, these are Ferrari, so the richest of the rich. We see there's no trend at all in the reduction of visits. So Ferrari total shipment going up and to the right. Simon Property, which owns Roosevelt Field and a bunch of other malls. We haven't seen a slowdown in the hiring consumer.

And then also Uber also caters to the same audience. So based on what we're seeing today, the Uber consumer is in great shape. But they say the Uber consumer, people with money. While our consumers tend to be higher income, we're not seeing any softness or trading down across any income cohort. So it is not a one size fits all. It is not 2023 when everyone was spending

and there was extra savings all over the place. People are being more picky. They're choosing. And so I think that a softness, a moderation, a slow down to normal, I understand that that like triggers people and alarm bells and the hair on your back, your neck stands up, but it's okay. Like it doesn't mean that a slowdown has to lead to a catastrophe.

Yeah. And I'm going to counterpoint you really fast. Please. Because I love being devil's advocate. I'm standing in your shoes, Michael. I need to do it. So one other thing that worries me in the job market is almost the distribution of hiring that we're seeing.

And especially in like white collar industries, professional jobs, that's actually something that the BLS breaks out. And I wish I had a chart on hand, but hiring in professional sectors has been basically at zero for months now. So is that upper middle class? I mean, we talk about higher end consumers.

I don't know if that's the executive or if that's the coder. But if we see a breakdown in the job market, if we start to see a lot of layoffs come through white collar sectors, then the higher end consumer, or at least the upper middle class consumer, could break down pretty quickly. Yeah. All right, Callie, you're up. Let's talk about the stock market.

What's going on inside the market of stocks? Well, fresh breath. I'm glad I can't smell your breath right now, Michael, because I might have to change my title. I'm just kidding. Fresh breath, chart on, John. OK, so this is as of the end of June. Remember, this is outdated, but I want to show you where we were and how far we've come. So at the end of June, we had just 25% of S&P 500 stocks outperforming

the S&P 500 so far this year. That's wild. Yeah, that is bad. That would be the worst year since it looks like since 1970. So for people that are listening and not watching, this chart that we're showing is the current year again, when was this, Callie, as of a few weeks ago? End of June. Okay. So there was nothing really even close resembling this. I guess the late 90s got there a little bit, but this was dire.

If you are picking individual stocks, good luck. Yeah. Good luck to every portfolio manager on Wall Street. Right? And like last year, last year was bad. We only had about 30% of stocks that outperformed the S&P and people were complaining about it then. It didn't feel like a bull market to the majority of investors because the bull market was only

happening in a few stocks. And this year it's even worse. But good news, chart on John, August 8th. So this is, yeah, this is as of August 8th, 38% of S&P stocks are outperforming the index. Look at that jump. Wow. I mean, that's the rotation right there, the rotation into small caps, rate sensitive sectors, basically everything else but tech. So Chart Kid made a chart a couple of weeks ago. We were looking at the number of stocks

outperforming the index over a rolling, I can't remember, 20-day period. And it went from effectively zero to I don't remember what it never spiked to, but it was a wild swing. And it's funny because that all happened, I guess, was it like six weeks ago or something when data started to cool and we said, okay, feds get a cut, small caps, equal week got ahead of that and had a great run.

So you like to see that. But Ecoin's had a decent year. I'm looking right now, it's up 7% and change through whatever, eight months a year, not so bad. Yeah. And I'd want to know how well it's done in the past month or so. I know it's done well. I don't have the numbers, but I mean, this is what you want to see in a bull market.

Like rising growth and declining rates, that is the best potion for your portfolio. And this is what's supposed to happen. Of course, you know, there are risks out there. We just talked about the job market. I'm not trying to get too excited, but this building of the foundation in the bull market is incredibly bullish. Like that's great. That's what you want to see. I'm not trying to get too excited, but this building of the foundation in the bull market is incredibly bullish. That's great. That's what you want to see. It feels like a bull market now. It does. The broadening rally is you love to see it. As far as how should, do you think that the story of so few stocks outperformed the index, is that a Wall Street story, a portfolio manager

story? How concerned should the average investor who goes to work, contributes to their 401k, they're not market professionals, they're not watching us, does this matter to them that so few stocks are outperforming? Yeah, well, of course it matters to Wall Street portfolio managers. They make their pay based on how they're outperforming the benchmark. And you as an individual investor have the ability to have a longer time horizon, hold these stocks or hold these underperforming stocks until they, if you believe in the story, until they turn back up and start blowing the S&P out of the water. So it's a problem for Wall Street, but also it's been incredibly painful for all of us.

I used to work at a retail brokerage and we heard over and over again, why does everybody say the market's up, my portfolio is down? And this chart basically encapsulates that. Were you ever an individual stock picker? I picked a few. I'm not good at it. Most people are, myself included. But speaking to the difficulty of how hard it is to pick individual stocks, Eddie Elfenbaugh,

a friend of the show, tweeted earlier today, if you had to invest in $10,000 in Apple on June 6th, 1983, by April 17th, 2003, so 20 years, you'd be sitting on $8,400. That shit's hard. Even the best companies. Thinking about how long has it been since Disney has had, how many years has Disney delivered 0% returns for its investors with a lot of ups and downs and nothing to show for it? What happens? And the ups, too. I mean, you have to think about the good days, seeing a really strong rally and saying,

OK, it doesn't get better than this. I'm taking it off the table. You have to ride the bear markets, but also the crazy bull markets that make you want to cash out every single day. Over the last 10 years, total return for Disney, take a guess. One of the bluest blue chip names in the entire planet, one of the best companies of all time. Last 10 years. 20%.

Seven. Oh, I was kind of close. Seven percent. That's not that bad. For a 10-year return. Well, it's not a bad guess for individual investors, for Disney investors. Oh, it's not a bad guess for individual investors, for business investors. Oh, no. Not a great return. 7% over the last 10 years. Again, clearly one of the premier companies and the S&P over the same time for some comparison

is 10 years. 400. That sounds pretty high. I'm going to guess the... You know what? I have it right here. Are you going to look it up? I'm not going to guess.

I'm not going to guess. I'm just going to the, you know, I have it right here. Are you going to look it up? I'm going to guess. I'm not going to guess. I'm just going to go to the screen. 234. So 234. Okay. 234% versus seven. Not good. No. Not good. Wait, before we go on, before we get on, I want to show one thing. So can you put the

chart back up, John? The last one. The percentage of S&P stocks outperforming as of August 8th. Okay, perfect. I just want to show you the best year for stock pickers was 2001, which is so crazy to me because that's a year when the S&P fell 13%. Yet two-thirds of stocks did better than negative 13%. Yeah, be careful what you wish for. Yeah, yeah, true. Like if you're outperforming the index, it might be on the way down too. But you got to remember that was during the tech bubble. If you're a tech investor, you got slammed. But everybody else got hit too, but not as hard.

I thought that was really cool. So interesting. Callie, you were the chief strategist at a brokerage firm. One of the things that individual investors love to pay attention to are the analysts, the upgrades, the downgrades, the buys, the holds, the sells. Where do you stand? I don't think we've ever spoken about how analysts cover the stock market.

Do you pay attention to that stuff? Well, I have to tell you about how I started my career with this stuff. So I was a stocks reporter at Bloomberg. So, well, actually, even before that, I was a tech tech reporter. I was an intern on the tech desk. And my day in, day out was just reading about upgrades and downgrades because that's, I mean, that's one of the catalysts that moves the stock. And if you wake up one day and you see your Disney, for example, is up 5%, there's a good chance that an analyst stepped out and said, I'm upping my price target. I'm upping this from a hole to a buy. It matters.

But I think to you and I, Mike, it probably leads us down a bad path. As long-term investors, I mean, I'm assuming here, but long-term investors who are likely investing on the story, investing on the brand, a lot of those price targets that analysts put out are 12-month price targets. I don't know if you're going to buy and sell in 12 months, but I'm not. I'm buying, selling, holding, and buying and selling in 12 months for sure. All right. So your former employer, Bloomberg, did a report about analysts, upgrades, and downgrades and what moves the market and how you might be able to outperform the market.

I thought this was interesting, fairly intuitive, but I don't know if it would be to most investors. So a company that has consensus buys, Apple, has 47 buys, zero holds, zero sells. I'm making that up, but like, right? So when a company is universally adored, there's nobody left to upgrade it, chances are that a lot of the optimism is baked into the pie. Now, in the case of Apple and all these tech giants, they just kept jumping over the high bar, but most of the time time it doesn't work that way. So actually, when analysts do upgrade a stock because the story changed, that tends to be fairly bullish if you invest in that way systematically.

So not just picking and choosing, oh, I follow this as a whole. So here's what Bloomberg said. They said, sometimes the best equity investments are not necessarily the most beloved companies. Contrary to intuition, investors can capture outside returns by investing in stocks that are not the highest rated by analysts, but are becoming better rated, which makes sense. It's not bad news or good news. It's better or worse news. So they say avoid the consensus buy recommendations from analysts and instead invest in stocks whose consensus analyst ratings have improved the most in the recent past. So they did a quantitative study, chart on please, John, showing the yellow line, which

is their US large and mid cap total return index, versus the red line, which they're calling it the improveers, the ANR, which is the analyst function of Bloomberg, the ANR improveers total return index, and they show that, let's see, the performance was significantly better. 1,028% cumulative returns over a 20-year period compared to a 700% for the cap weighted index. That's 10.4% a year versus 12.25%. So what do you think? So analysts can keep their jobs, right? Sounds like they're doing good things, right?

It matters. Yeah, but I think you hit the nail on the head. Markets are all about expectations. If you're getting in when the good story is baked in, then that means you probably missed it, right? I think also, if you think about a lot of the companies that get upgraded, almost by definition, these are companies that are probably struggling, but by the time they get an upgrade, analysts aren't upgrading the stock for no reason. Their reputation, their job is on the line. They're upgrading it probably ostensibly after a big move, right?

Because that's what happens. You get an earnings report. You say, okay, now I know four times a year I get the earnings report. The story has changed. The fundamentals of the company, the competition, the guidance, whatever. But if you were to do that systematically,

if you were to buy upgrades, quantitatively, which by the way, maybe this is an ETF coming, who knows? But I thought it was interesting. Not a bad idea. Not a terrible strategy. Anything to add here, Callie? Well, I mean, I think that's it. The other thing I'll throw out there is price targets, analyst ratings. They're marketing too. It's not all, you know, authentic research.

Who are they marketing to? It's mostly institutional. And with price targets, like that's definitely marketing. I don't know a single strategist who would step out and say, I actually believe the S&P 500 is going to 6,000 at the end of the year. They're like, I ran it through my models. I did my calculations wrong. 8% to 10%.

Interest rates in the economy and yeah, 8% to 10%. We have to throw a number out there. Our institutional clients need a number to input. So I don't wanna be like super, super skeptical and super jaded, but there's an element of that too. And I think that probably erodes the value a little bit. All right. You're up. Topics X, Callie. What do we got? All right. So we're going to go international here.

Talk about a pivot party. Chart on, John. Okay. So global central banks. So central banks all around the world, of which there are many, cutting at the fastest pace since COVID. And obviously we haven't cut yet, but the ECB has cut. I believe the Bank of England has cut. We have banks cutting rates, and that matters, right? I mean, we just talked about a yen carry trade imploding. The Bank of Japan hiked rates, surprised everybody,

and screwed up one of the most popular trades on Wall Street. I think this is really interesting, Michael, especially if you're waiting for international stocks to finally outperform and you believe elucidating a policy can get us there. I don't know, nobody knows, but this is interesting. Economies are falling out of step with the US economy. I'm looking at the CME FedWatch tool, and it's showing that 53.5% implied probability of a 50 basis point rate cut is basically 50-50 between 50 and 25.

What are central banks around the world doing in terms of their cutting? Are they doing it like, is it a baby cut or are they going big? I don't think many of them are going big. Maybe smaller central banks are going bigger, but the ECB I think had a 25-bit cut, which is a baby cut in my view. And to be fair, we haven't seen this cutting and this expectation for looser policy and better growth, we haven't seen that bleed into international stocks yet. The ACWI, the MSCI All Country World Index, beat the S&P 500 by a percentage point in July, which isn't great. That's pretty normal.

You see that come back and forth from time to time. The dollar is falling, but at the same time, international stocks can't really get off the mat. Get off the mat. You know, I'd expect a little bit more from them. Um, but I want to show you something else, Michael, and I'm not sure if all of you have seen this yet, but this, this chart blows my mind. It's a good one. Go ahead.

Try it on. Try it on. Okay. This is so crazy to me, this breakdown. And it makes sense, right? Like the U S market isn't the same to me, this breakdown. And it makes sense, right? The US market isn't the same as developed markets, isn't the same as emerging markets. But markets overseas are much more exposed to value stocks

than they are tech. Look at the financial slice of the pie and developed and emerging markets. Europe's biggest sector is banks right now. And that's really good news, A, if you can get higher growth out of it, but B, if we see the value-oriented sectors come alive. And you have to remember too, the US is the center of all financial markets. So if we see banks on the US side get a little bit better, catch a bid, which they have been.

Yeah, they're acting very well. Yeah, we could see that bleed into Europe as well. Maybe this is wishful thinking on my end because I just really want international stocks to do the damn thing. Me too. It's been a minute. Callie, you pay more attention to the Fed than I do. What are you expecting, hoping, curious to see at Jackson Hole? Which is not an official Fed meeting, but it sort of is. to see at Jackson Hole, which is not an official Fed meeting, but it sort of is. Yeah. Powell speaks for 30 minutes.

So, I mean, that's all that matters, right? I'm just kidding. The decision matters too. But everybody listens to what Powell says and they extrapolate based on that. Well, you have to remember last year, he had, so actually two years ago, I'll start with 2022, the Jackson Hole speech was five minutes long. It was basically Powell coming to the podium and saying, inflation is much too high. We need to deal with this. Slamming his hand on the podium, walking away. Then last year, it was a little more

ornate. It was like 20 minutes long. He was talking about balancing risks and steering policy by the stars. He had a really, really illustrative line at the end that was talking about navigating by the stars. He was a little less hammered down and more, we're trying to balance things out. This year's going to be interesting. I think he walks it back a little bit, Michael. I think he talks a little bit more about the unemployment rate rising. I don't think he capitulates and says

that the job market is weak by any means, but I think he softens the language around it a little bit more, especially because if the cuts coming in September, this is the perfect time to take a step down, at least in rhetoric. We got softening producer prices today. What is the street expecting for consumer prices tomorrow?

More of the same, basically. The street's expecting, I think, a modest uptick in month over month CPI, but for the most part, we're looking at year over year data and the three month average of month over month changes. Basically, what I'm saying is one month doesn't really change a trend. You have to see a trend of reports. So yeah, probably just more of the same, slowing in services, slowing in rent. Based on PPI, I think you could say pretty easily that we're going to see pretty low goods inflation. I looked at CPI consensus today and it wasn't too shocking. I think

core CPI year over year was about 2.9. And you have to remember too, the Fed cares about PCE. PCE runs, I believe, a little bit lower than CPI. So if you look at the Fed's targets for PCE, I think they're expecting around 2.8 as the median this year, and we're already there. So the Fed is- And PCE, that's consumer spending effectively, right? It's consumer spending, yeah.

But CPI could be that first hint to what we could see in PCE in August. July, had my months wrong. Over the years, we've seen the market react to, like in the aftermath of the GFC and like, I don't know, 2013, 14, whatever, it was non-farm payrolls. That was a big economic event for the market. Over the last couple of years, it's been inflation, CPI, PC, whatever, what have you. And last week, we rallied the shit out of stocks on initial jobless claims coming in not as hot as we feared. Do you remember a time that the market was moving on a weekly job report? Actually, I do. Go ahead. Hit me. 2013, 2014, around the taper tantrum. It happened. I was a stocks reporter. I had to watch that happen.

Yeah, jobless claims are really cool for a hot minute. And then I think it pivoted along to the job market or, sorry, the jobs report or retail sales or something. But it's so fascinating to see the markets focus just jump around to different reports. And looking back, understanding why the environment was that way. And to be fair, I mean, I'm looking at initial jobless claims. I'm looking at continuing jobless claims. That's a leading indicator in the job market.

I don't think your signal gets any better than that. OK. We're going to skip to make the case, but I will make the case for a movie that I saw last night that was a hell of a lot of fun. One of the most absurd movies I've ever seen in my life in a good way. Uh, the movie is called trap and that Shyamalan you've seen of stuff. You know who he is.

He's a one of one. Nobody else could have made a movie so ridiculous and so utterly enjoyable. So if you want to support the theaters like I do, particularly I'm max, I'm a shareholder, uh, go see Trap. A lot of fun. Okay, chart, chart. The mystery chart is that that didn't make sense. Chart off, please.

Let me set that up a little bit better. Thank you. Let's roll that back. Chart, chart, chart. We're doing the chart. We chart that chart. All right. So one area of the stock market that is concerning to me, and I respect the stock market, even

though it's predicted 97 of the last two recessions, I respect what the market is doing. To me that there's a lot of noise, but sometimes there's some signal there too. So I saw this chart and I'm like, that's not great, it's not exactly what you wanna see. So I'll talk over the chart on please, John. This is a ratio chart.

And I'm going to give you as many clues as possible so that you can nail this, Callie. And the denominator is the S&P 500. And on top of that is one of the most important sectors. I know there's only 11. They're all important. But this is a sector that we spoke a lot about today. And it's going the wrong direction.

You don't want to see this. So what's the numerator, Callie? Any guesses? Money supply, obviously. No, I'm sorry, I'm sorry, I'm sorry. It's a sector. Just kidding, I'm kidding, I'm kidding. That's good, got it.

Nerd joke. Way over my head. Oh gosh. Financial, it wouldn't be financials though, because financials are doing better. Wait, wait, wait. Tech? Is it the tech sector? Close-ish, I guess. Retail? Sure. Yes. It is consumer discretionary. And this is breaking down. It's consumer discretionary and this is breaking down. It's consumer discretionary divided by the S&P 500. I'm sorry. I'm sorry. That's not what this is. It's sort of a spot. I apologize. All right.

Equal weight. It's the equal weight. So the chart that I saw, John, next chart, please. My bad. So this was the chart that I saw. It's XLY divided by SPY. And I thought, all right, well, whatever. Tesla and Amazon are 40% of the index, what happens if we normalize it? And John, previous chart. And then I said, okay, let's look at the equal weight. And I was like, oh shit, this doesn't look better.

This doesn't look any better. So you want to see these consumer names leading the market. And you've seen a ton of breakdowns, two companies that I bought as they got destroyed, Starbucks and McDonald's, one stock that I sold, Nike. There's a lot of pressure out there and a lot of consumer retailer names, and that is like, it's not great. It jives with a lot of what we've heard from these companies, which is moderating softness at the lower end.

So I'm going to be keeping my eye on that. Yeah. I would be interested to see which industries within the retail sector are breaking down because I remember looking at this at the end of last year and there was just such a gap between goods producers and services companies like Travel Stocks, for example. And of course, you have to put like the huge asterisk if you're not looking at equal weight beside Tesla and Amazon because like Michael said, 40% of the sector. Totally. You can't ignore that.

I'm looking at XRT divided by SPYN. It's no better. All right, Callie, did you have fun today? I had so much fun. That was a phenomenal, phenomenal debut. I hope I brought the fire. You did. Phenomenal debut.

I want to point out our listeners and viewers and thank you for tuning in today on this summer Tuesday. I want to point out our listeners to Callie's incredible blog, Optimistic Alley. How do we, where do we send people to? Yeah, optimistically. So optimistically like the word, except with IE instead of Y at the end. Optimistically.com. I talk about markets in the economy and more of what I said today. Hot and fresh stuff every Monday.

Subscribe. All right. Thank you to Rocket Money. Thank you everybody for tuning in. Josh will be back next week. Back to usual. Callie, you were incredible. Thank you so much everybody. Have a great night and we'll see you next week.

Happy trading. Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ridholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ridholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on

animal spirits. Thanks for listening.