Fed’s Rate Decision: A Market Earthquake Ahead?

Andrew Brill 0:00
Hello, and welcome to Wealthion. I’m your host, Andrew Brill. The market started the second quarter of trading with a thud after great first quarter economic indicators seem to back Jerome Powell has comments about pumping the brakes on talks of rate cuts. We’ll discuss all of that coming up right now.

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Bret Kenwell 0:52
Yeah, thanks so much for having me back.

Andrew Brill 0:54
Absolutely. Now, let’s get right into it and talk about the economy. And it seems like everything hinges on whether it’s Jerome Powell says something or some economic indicators come in, but the market seems to go way up or way down with the newest economic data whenever it comes out.

Bret Kenwell 1:14
Yeah, you know, if we go back a couple months and look at what the bond market was pricing in and where investors expectations were, you know, go back to December, really was not that long ago, investors were expecting upwards of six rate cuts for this year to start in March. And the Fed acknowledged that that was probably a little people were a little too far over their skis on that expectation. And it didn’t take long for that to pan out. And to prove right, we got the hot inflation report in January. And it’s not as if the market hasn’t been hinging on every CPI report we get. But I think that really set in motion. Investors focus on all of the really relevant economic reports, right, the labor market, the jobs reports, the retail sales, PC and inflation, especially those reports, and they’re hanging on every word from the Fed, looking for clues on rake high skews, not rate hikes at rate cuts, wondering how many we’re gonna get when they’re gonna start. And it’s it’s really just been hinging on every single report for the last three months. And now you have the vice chairman who spoke on Monday who said, Well, maybe we’ll we won’t get any rate cuts this year. And you now you see where the market is going? You know, we were up 10% In the first quarter, and first couple of days of the second quarter. Not so much. Sure. Yeah. You know, our approach at this point is we’re optimistic but also realistic, right? So the s&p rally, like you said, 10% in the first quarter, and also really more than 10% in the fourth quarter. So we’re working off back to back quarters of 10% or more gains. Index is up five months in a row. So is the NASDAQ and the Dow. So after that kind of performance, it is hard to be bearish. And to be clear, we’re not we are optimistic, but at the same time, we’re realistic, you know, we can’t expect these types of returns quarter after quarter. I mean, I wish we could, but we can’t. So, you know, at some point, you know, it’d be it would make sense to have some weakness in the market and a pullback. Kind of the tough questions around that are when will that happen? And when it does, what’s the magnitude? But in either scenario, you know, we’re staying constructive on the markets, because we’re constructive on the economy. And until those two things change, it’s hard to be you know, it’s hard to be too pessimistic.

Andrew Brill 3:34
Is there and I know there’s the bulls and the bears, I don’t know what’s in the middle. I don’t expect or, I mean, you’re the expert, and you’re telling me maybe it’s not gonna be a 10% return. But maybe it’ll continue to creep higher, but not by anywhere as near as much of a percentage.

Bret Kenwell 3:51
Yeah, you know, it’s it’s hard to, it’s hard to put a number on it, you know, you see, estimates change all the time as as the market moves, has a funny way of changing sentiment, right. But the way I look at it is I look at it as a path of least resistance, right? And right now that’s to the upside, I don’t know how far that that path leads to or how long it takes. It could take, you know, we could be in the earlier innings of a multi year bull run, you know, we just don’t know. And until things really change and deteriorate, I don’t really plan on getting off the train, you know that that’s my, you know, my personal belief in the market. And, you know, when we stop when we pull back a little bit, you know, that’s probably a good opportunity for investors who have been under allocated or have been looking for their moment to get in, that’s probably their chance.

Andrew Brill 4:42
So we looked at, you know, consumer expenditures, which just came out on Friday, ticked up about two and a half percent, I guess it’s around two eight to 9%. The Fed wants to see that and it’s, it’s just being really stubborn to get down to that 2% level, but we do see a shift in expenditures, where we were looking at a lot of people with discretionary spending luxury goods, that sort of thing, but now consumer staples were up 6%. And the discretionary spending was only up 2.8%. So could there be a shift in the way people are spending their money?

Bret Kenwell 5:19
That’s a good question. Um, there could be a shift in the way that they’re spending their money. But it also could just be, you know, seasonally kind of readjusting a bit, you know, we just came out of the holiday quarter, and people are kind of working off those expenses, as, as we, you know, go through the first couple of months of the year, we had Spring Break kind of early this year, and, you know, wouldn’t be surprising to see people kind of, you know, sticking a little bit more to the necessities over the, you know, the needs instead of the wants. But, you know, we have the summer travel season, not too far away, and overall, the consumer remains fairly healthy. So I wouldn’t necessarily read into too much and how, where they’re spending their money just more so that they’re still spending it.

Andrew Brill 6:04
Right. But wouldn’t it? Wouldn’t it make a difference if people were spending it on staples, rather than luxury goods, because these are things that and manufacturing in those areas are is seemed to have ticked up a little bit Also, recently, whereas, you know, people need these things. And it’s nice to be nice. It’s nice to see people spending things, spending money on things that they actually need, rather than just things that they want.

Bret Kenwell 6:26
Yeah, that’s no, that’s a great point. I mean, look, I think we see it also in the sector performance, when you look at discretionary names, you know, there have been a lot of there has been laggards in that group. And the spending has been really mixed, right? You see certain pockets of strength and certain pockets of weakness. And it does kind of go back to questioning like the consumer is doing well. But there’s obviously certain pockets within the consumer that that is, has been vulnerable, that is maybe a little bit more sensitive to energy prices, or is more sensitive to higher interest rates. So it’s kind of just finding that balance and taking, I think, a larger view of the consumer overall, and not trying to get not not getting too bogged down on one or two months of data. And I think that when you listen to the Fed speak, I think they they kind of illustrate that purpose pretty well, right? Like when they’re looking at the inflation report, and they see a couple hot numbers, you know, they they asked, Are we Is this a bump in the road to lower inflation? Or is this something bigger that we need to be aware of, and that’s part of the reason why we see them being so patient when it comes to cutting interest rates. And they have, you know, they’re lucky enough to have a strong economy where that is really buying them time, they can they have the they can afford the luxury of waiting before making a decision on interest rates, because they want to feel confident. So I think, if we were to see, you know, staples, outpacing discretionary spending to kind of get back to your point. And that was a larger trend that continued to gain steam, then that would be more of a concern, I think on the consumer overall versus just how they’re spending their money and where but it’s one of those things I think time will tell with let’s get a few more reports under our belt and see where the see where the chips fall.

Andrew Brill 8:18
That seems to be what the Fed keeps saying is like, oh, we need more data. We need more data. Let’s see where it’s going. But some of the data says that prices actually ticked up a little bit, which isn’t great for the country, I guess it’s good for the economy keep going. But it’s not good for the inflation rate or interest rates to be lowered anytime soon. So you know, we have prices ticking up. And the unemployment numbers seem to still be really low at this point. I we’re looking at two years under 4%. How much longer can we go? I know, we’ve been in this, this, you know, place where interest rates have been up for a while now. But unemployment now is still at a level that is very, very acceptable to leave interest rates where they are.

Yeah,

Bret Kenwell 9:02
Yeah, as long as the labor market holds in. And to be very clear, the labor market in the US is the lifeblood of the economy. 70% of US GDP is consumption driven. So we’re a nation where we’re a nation that spends right we need to have jobs, we need to be employed, to not only feel confident in our spending, but to have money to spend overall. And as long as the labor market holds together. The Fed has a long runway in terms of how much time they have to decide on what they want to do with rates and kind of getting back to the bigger picture, I guess. As as the Fed kind of goes forward and and takes into consideration when to cut rates. The labor market is going to play a big role. Right. So we came into the year labor market was doing just fine. We had a really hot strong number in January the January number was very strong. But it was also revised lower and The prior report also had unemployment rate ticked up from 3.7 to 3.9. That was not expected. And average hourly earnings were below expectations as well. So I wouldn’t necessarily, I don’t know if I want to go as far as to say there’s cracks, forming and showing there. But there are certainly little pockets of vulnerability, if we want to call it that. I know that the Fed has spoken quite a bit about the labor market. And at this point, it does seem like they are not willing to sacrifice the economy, that they’re not willing to sacrifice, throwing the economy into a recession, just to finish this battle with inflation. But if we can find the sort of harmonious level of existence where the labor market stays strong, and interest rates have to stay higher for longer than, you know, that’s an environment we might just have to get more comfortable with.

Andrew Brill 10:48
But there is a you know, I know that we don’t want to say there’s cracks in it. But there’s there’s is some weakness showing that wages are definitely up the data shows that wages are up, but 25% of the the working class people I guess their wages haven’t gone up at the same percentage, as they’re showing now with prices going up and that 25% not meeting the inflationary rate. There could be a slowdown in spending relatively soon, I would assume.

Bret Kenwell 11:19
Yeah, so far, we haven’t had any abrupt like any abrupt breakdowns in consumer spending, we have had some retail sales numbers that have kind of brought into question how strong the consumer is. And it’s really is certain parts of the of the consumer class that are being squeezed harder than others. And I think that’s not necessarily a surprise. But it is reality. And for now, the unemployment rate and the labor market, it remains in an okay situation, like you said, you know, early, like you said, I said, hesitant to call it say there’s cracks forming, right. But there’s certainly little areas that I’m paying attention to like this Friday, early April, you know, we’ll get the latest update at the jobs market. So be very curious to see the revisions from the prior month very curious to see average hourly earnings and see if that unemployment rate moves at all, I think it’s worth pointing out that in the Feds last press conference in their last meeting, they also released their economic projections. And in that projection, they did have a little more leniency on the unemployment rate, I think they had an expectation of 4% for the year, or maybe it was 4.1. But either way, it was fairly close to where it now quickly found itself. And they still expect three rate cuts this year. So obviously, all those things can are subject to change. And, you know, the Fed is goes data by data and month by month. So we’ll kind of see how their opinion forms over the next few months in that regard. But I think it is worth pointing out that maybe the Fed won’t be so patient, if they see them employment rate, get up to four and maybe a little above it before they start really thinking there might be a risk to letting it kind of get a little more out of control than they want it to be and force their hand to cut rates,

Andrew Brill 13:09
I would assume with your expertise, obviously, you research this stuff, you know, fourth quarter of 23, we saw we listened to all these companies saying oh, we’re laying off this percentage of our workers. And we even saw that a little bit of the first quarter with economic data that came in in earnings. And that hasn’t seemed to trickle down to the unemployment rate at all. But I have to assume at some point, their their benefit from you know, getting let go or their, you know, relief package or whatever it is that they got is going to run out. And then they’re going to go and fly for unemployment. I’m assuming the fed with their numbers thinking, oh, you know, what we might look at 4% 4.1% is thinking the same thing.

Sure.

Bret Kenwell 13:53
Sure. And you know, the thing about the headlines, it was like there was a stretch there where I felt like it didn’t feel like a recession, but almost by looking at the headlines and the jobs market, it almost seemed like it could have been, you know, I mean, but it was being hit. So disproportionate, versus certain other sectors and industries, especially in tech. I mean, those really made the headlines when any big tech name was laying off. Employees it was it was kind of making a lot of news. And in tech, we have seen a lot of job layoffs. And that’s one pocket that is one area of of concern, but on the other hand, over the overall jobs market continues to hum along fairly well. The labor market remains fairly strong. Until we see the unemployment rate I think breach that 4% mark, and we start maybe coming in light on the headline numbers. There’s not a lot to worry about in the labor market. But as for me, especially it’s just it’s something I’m definitely keeping an eye on because at this rate when I’m looking at the stock market when I’m looking at the global stock markets, all those different sectors strength we’re seeing that That is really kind of the one main risk I see in the, in the stock market. There are other smaller ones, but that’s the main one, given how important the consumer is to the US economy.

Andrew Brill 15:10
And when we look at the inflation number, year over year, it’s come down. But when you look at it at a much smaller timeframe, month over month, you kind of see it creep up a little bit. And that’s has to be a little bit of a concern, because if they start to cut rates, it’s gonna go even further in the wrong direction.

Yeah,

Bret Kenwell 15:30
Yeah, it’s the Fed could find itself in a little bit of a pickle. If we do have a weakness, maybe a little weakness in the jobs market, but stubbornly high inflation, it kind of says, like, what are you guys going to do? Are you going to cut rates because of the economy or worries about the economy? Are you going to leave them elevated, putting a little more risk on the economy, but in an effort to fight inflation, and thankfully, they haven’t been put in that pickle yet. And my hope is that we don’t find ourselves in that pickle. And it kind of circles back to what we were talking about earlier with the speed bump, you know, is the last couple of months because, you know, coming into the year, we were on an annualized basis. core PCE was, basically back down to the inflation to the Feds 2% Target. I mean, there is a little wiggle room, and certainly arguments you can make the other way. But there was a moment there where you could argue we’re at the 2%. Mark, it’s time to cut rates. Now, we’ve seen an uptick a bit in inflation, so it was good that the Fed was patient and didn’t jump to those conclusions prematurely. But now we have to find out is, is this a speed bump in inflation, we just have a slight uptick. And we’re gonna go back on the trend we were on, you know, coming into this year, or is this an uptick, that is going to be a little bit more stubborn, and not go away, whereas that would warrant, you know, keeping rates higher for longer and not being so quick to cut them.

Andrew Brill 16:51
In your meetings at eToro. And the you know, I’m sure you guys talk all the time. And I know that Chairman Powell said, and I want to get this right, he said the timing of the cut is just as important as the cut itself. Do you see the timing it now? I guess we have to wait for the numbers, but kind of you know, and I almost feel like we you know, we have to go to FanDuel to figure out the percentage of what when the cuts is we all take bets and say now it’s gonna be June, it’s gonna be July, and we can all do it that way. But it’s now seems like the June cut is less than 50%. That July cut is a little above 50%. When you guys talk, how many cuts Do you think there will be? And the timing of those cuts? And I know it has to do with the numbers, but you guys crunched numbers. And that’s what you do?

Bret Kenwell 17:39
Yeah, it’s you know, it’s tricky. Just to be honest with you, it is tricky to kind of figure out when that’s going to be and I hate to kind of err on the side of like fed speak, but it is data dependent. You know, if we get a hot number, a couple more hot inflation reports and the the, you know, the labor market stays strong. It’s, it’s hard to be, it’s hard to be in a rush to see the Fed cut rates. And it’s, it’s funny, because you’re thinking, okay, one rake, they already raised, they raised rates, you know, how many cup two dozen times we’re up to five and a quarter? What difference is 25 basis points gonna make it doesn’t really make up a much of a difference when it comes to the restrictive nature of monetary policy. But I think it sends a different kind of message, right? And so it’s like, there’s a lot of focus on one cut, even though it won’t make a big difference. Like if rates were four, four and three quarters versus five, doesn’t really make a huge difference, right? It’s a few basis points. But look at what happened when we went from there’s basically three main phases of of interest rates, especially in our current cycles. There’s a rate hiking cycle, which we went through, and we saw the repercussions of that we saw it in mortgage rates, auto loans, the stock market got hammered when interest rates went flying higher. And then we went on this stretch where we had a pause. So we had a pause and hikes. And we just kind of the Fed just maintained interest rates. And you saw what happened in the market, the market really shifted it. It’s how it was behaving when it realized when investors realize there’s no more rate hikes when they realize that the market exploded. And that was, you know, in the early parts of q4. And now, you know, we find ourselves in q1, are we in q1, we find ourselves looking for that first rate cut. And now in beginning q2, we’re still looking for it. But once the market gets the idea that we’re out of the we’re done with the hikes we’re done with the pause now run to the cuts. That could just be our next catalyst for for the market, but for everything that interest rates impact, you know, from mortgage rates to auto loans to borrowing in general. So I think that’s kind of the main focus from investors and why one hike might not or one cut might not make a big difference on you know, a corporate balance sheet, but it makes a big diff trends in how investors and how C suites are approaching capital markets and how they’re approaching the stock market.

It’s

Andrew Brill 20:06
It’s really affected the bond market, I, you know, just, you know, the 10 year, Bond just hit a new or a new high for 2024. And, you know, looks like it could go a little bit higher. And that’s the mark that everybody looks at for mortgage rates and credit card interest rates. So if when that continues to go up, mortgage rates will do the same credit card interest rates will do the same. So it’ll really affect the consumer. And that’ll affect debt as well.

Bret Kenwell 20:37
Truly, it’s a very important mark to keep an eye on in it just today, I think it touched a six month high or very close to a six month high. And same with the US dollar. That’s also at a six month high. So those are two smaller headwinds for the equity markets. Obviously, you know, if you had told me, you know, in December, when the markets had gone on this blistering rally, I think, you know, they came into mid December on a like a nine week win streak. s&p ended up the end of the quarter up 10%. And investors are pricing in six cuts starting in March, didn’t take very long for those expectations to get cut in half down to three, you know, three cuts for the year. And obviously, March got pushed back really quickly. And if you had told me that, I would assume that the market was going to would would pull back and correct it after I’d already done so well in q4, and it was at all time highs, it would have made sense, but it’s just continued to go higher. So I think the tenure yields are a headwind, I think the rising US dollar are also a headwind. How much it impacts the market. That’s the part I wish I knew. And I don’t know, is it? Do we just kind of pause and chop around? Do we have some kind of meaningful correction in the you know, two or three to 5% range, something really minor? I don’t know. I think it’d be healthy though, if we did have some type of correction, there’s a lot of people waiting to get in on the on the sidelines that are waiting to put money to work, there’s funds that are ready to put money to work. And there’s a sort of sense that like when the when the train leaves the station, if you think you can get at the next stop, it’s one thing it’s when you don’t feel like it’s going to stop moving, that’s where it becomes difficult to get back in. And a pullback would just be healthy, I think just sort of reset a little bit and give give the market set the market up for a nice second half.

Andrew Brill 22:25
You said the US dollar is strong. Can you explain to us a little bit more about why that’s important and how that helps the country.

Bret Kenwell 22:33
A strong dollar impacts different companies a lot differently if you’re if it was a fully 100% domestic company operated in the US a strong dollar is a good thing. But a strong dollar for a multinational company can make things a little tricky when it comes to currency conversions. And, and taking their top line sales and converting it to bottom line profits. And so all companies are kind of created a little bit differently. And in the DOL currencies are not the only consideration for multinationals, they have to navigate a lot of tricky waters. Um, you see that right now with companies that are operating in China are having a little bit of you know, trouble getting getting their engine started, if you will. And, you know, it’s just multinationals are difficult. It’s the only way I can put it, I guess there’s a lot of moving parts. There’s currencies, there’s their own own economies in these different countries. And then obviously, different regulatory environments, we see the regulate regulations in Europe hit a lot differently than they do in the US. And that puts these like big multinational companies just kind of in tough spots when things don’t line up for them.

Andrew Brill 23:49
And you talked about in in, in our pre interview, little meeting, you talked about a lot of cash being on the sideline, and you had just mentioned it again. And the markets here at the very beginning of the second quarter is selling off a little bit. I think people taking some of that 10% profit off the table figuring like you are they Yeah, it would be healthy for there to be a little bit of a correction. Let me keep my cash here. So if it comes down 346 7% I’m gonna put that cash to work for me. Is that how it works? Or is there some other reason for people to keep cash on the side?

Bret Kenwell 24:25
So I think that for being such a basic asset, cash, it actually has a fairly it can be a little bit complex when you look at all the moving parts and sort of the whys. Why people hold cash and, you know, look at where interest. Look at where interest rates are now, right like you can put money in the bank and a savings account or money. Money market accounts are at an all time high. People can go and get a risk free return just by parking cash in the bank. And that kind of X is a hedge, I think a little bit. I don’t know that a lot of people talk about it like that. But I kind of think of cash on the sidelines as a hedge for the market. Because when the market does pull back a couple of percent, that’s an opening for investors to take some of that cash off the sidelines and put it to work. And, you know, eToro does a quarterly survey every year. Or every year, every quarter, we do a quarterly survey with 10,000 retail investors. And it’s got actually some pretty unique insights into how they’re approaching the markets and what they’re thinking about. And we found that in our last surveys, 77% of retail investors were holding a cash asset, which is fairly high for our findings, and was the highest that we can go back over several years. But with interest rates on expected to decline, a majority of those clients were looking to put that cash to work. And I think that kind of speaks volumes, not just at the retail level, but also at the institution level of interest rates are going to come down at some point this year. And that’s the expectation, though, that cash is going to earn less money pretty much overnight, it’s going to that rate is going to come down. And so investors are going to say, well, if I’m only getting, if I’m not getting 4%, and I’m only getting 3%, or I’m only getting X percent, I might as well try to find somewhere where I can find that money to go back to work. And when you look at the stock market’s up 10% in the quarter, it seems like it’s a natural place for them to start putting money back to work, just so they don’t miss the next move up.

Andrew Brill 26:28
Right, you know, and I just, I actually just move money into high yield savings account, because it was, you know, getting that point 1% Kind of, it drives that knife in and you’re like, ouch. But it’s like, you know, that’s why instead of putting into the market, and it is money that, you know, I revolve and use so I put that into high yield savings. So businesses are doing the same.

Bret Kenwell 26:49
Yeah, I mean, it’s a safe, you know, you feel safe doing I think it gives them investors a level of confidence knowing that a not only do they have cash, which always just says nice feeling. But it’s also nice to know that it’s it’s earning something, so there’s not a huge rush to move, move away from it unless there’s an opportunity, right? So when we do have a notable pullback in the market, or when interest rates do come down, that’s when investors start to think, okay, what can I do differently with this money? Where can I put it best to work to make a better return for myself?

Andrew Brill 27:23
So let’s talk about the market a little bit, we went through a, I guess, the, in the fourth quarter, and the first quarter talking about AI, and how fantastic it was. And all the talk was about The Magnificent Seven, which is now the Fabulous Four. And, you know, those are, those are actually companies that have cash to spend on AI. And some of these others have to go out and borrow money or have other issues like Tesla, now that they’ve delivered fewer cars, and their stock is coming down. So it’s, you know, a huge issue. Energy was the top sector this past quarter. And look, I know that oil prices are going up. And we can get into that a little bit. But how did energy creep in there when Tech was all the rage?

Bret Kenwell 28:12
Man, lucky for me, I pay a lot of attention to the sectors and the various sectors strengths would do a week by week analysis and keep a close eye on it. But even for me, energy snuck up, right? I mean, it didn’t do exceptionally well to start the year. It was actually kind of a disappointing start, but energy ended the quarter on a seven week win streak. And it really, you know, that was enough to take it from doing okay to doing to being the best sector in the entire market. So it’s it really just I think speaks a little bit to the broadening sense of the participation in this rally. You know, if we’re looking at just the the, just the US markets, right, we have the Dow the s&p and the Nasdaq all new highs, but we also have so much sector participation if we go back, you know, it was it feels like a long time ago, but it was really not, you know, nine to 12 months ago, we were coming out of a regional banking scare, which seemed you know, like it was going to be a huge problem. And we had an if you want to call it The Magnificent Seven plus Eli Lilly, the magnificent eight, maybe they was like there was the only stocks rallying and even when you go through the whole year, all of 2023 in that really strong fourth quarter from a lot of different groups. Communications and tech were the two leaders and they’re both up more than 50%. And community you might as well call that both of those names tech. They’re so dominated by by, by the large company by the large tech companies. So this year we have I believe, it was seven sectors. Seven out of the 11 s&p sectors were up 8% or more on the quarter that’s really significant. And it really shows how much the participation Israeli has broadened. It’s not As tech and for once tech looks like they’re just treading water. They’re just they’re coming along for the ride in the market. They’re not necessarily underperforming. But short of a few really strong pockets like in videos, one metas another Netflix is doing well. But outside of some of those areas, they’re just they’re being normal. They’re being like a normal sector, and we’re seeing strength in other sectors, which is so great. Especially the cyclicals like, look when I look and see industrials, doing well financials doing well. I have a really hard time being bearish when I see those names doing doing quite well.

So

Andrew Brill 30:36
So we’re seeing uh, you know, for a while and everybody’s like, Oh, you know, the s&p is being buoyed by the, The Magnificent Seven. Now we’re seeing a point where others are others other stuff, 493 stocks, they’re kind of a lot of them, not all of them, but some of them are actually catching up. And something you should keep your eye on if you’re looking to hedge your bed or stay safe, or not put all your eggs in one basket.

Bret Kenwell 31:02
Yeah, you know, and I think it just goes back to the more to more participation in the market, when you look at the s&p equal weight fund that for a long time was a one of the bears big arguments was okay, yes, the index is hitting new highs, but the equal weight is really lagging. So that just shows like you said, how strong the magnificent sevens benefits, it’s booing the index, we were putting too much stock in the market thinking it’s strong. And it’s not, it’s really just a handful of names. Well, now the equal weight is also at all time highs. So it really is highlighting how many different names are participating in this rally. And it just speaks to the strength in the bull market that we’re seeing, really, for the last six months.

Andrew Brill 31:45
So if there is a correction coming and I’m not talking 10 15% There, there could be a you know, a correction come coming this to someone protect themselves against that, like they could take profits now I guess leave cash on the side for when that happens, or is there someplace they could put their money? I don’t know if it’s gold, precious metals, Bitcoin, Is there someplace you put your money to kind of hedge your bet like that?

Bret Kenwell 32:11
Yeah, it’s um, there’s, there’s so many options in the investment world, figuratively. And literally. When I look across the board I that also kind of catches my eye. It’s it’s the US indices are doing well, with the exception of the Russell 2000 is really the kind of the laggard of of the group but when you look at Bitcoin that recently hit all time highs, a little bumpy sense. But you know, for that, to get back to all time highs, I think speaks a lot of that of that asset class. The fact that it made it through yet another bear market and once again, found its way back to all time highs, I think it just speaks to its longevity and gives probably long term bulls some confidence that, you know, it’s not going to be it’s not going to be killed off. It’s it is it does have a relevancy in today’s investor. And you can argue the same thing with gold, gold goes through its through its ups and downs, and where people love it and hate it. And you have certain investors who will always love it. But, you know, gold’s at all time highs. So it’s an it, it’s not limited to the US, if you want to look at different countries, they’re finding themselves at all time highs. I mean, Japan is hitting a multi as an all time high, but it took decades for them for that to happen. Germany, France, Denmark, I mean, we’re seeing strength really across the board. And it’s really encouraging. If you’re, if you’re a risk on investor and a gold does not typically fall into the risk category, but in general, it just is reassuring to see so many different assets across so many different groups performing so well.

Andrew Brill 33:45
You brought up other countries, and I like to talk a little bit about oil and the geopolitical problems we’re having. And I know that, you know, oil is starting to creep up. It’s now in the mid 80s. It was 78 $79 for a little while it’s creeping up. We have the summer travel season coming up. How much does the geopolitical problems in the Middle East and the Ukraine and stuff like that affect oil? And now we have OPEC saying, You know what, we’re going to cut production. So you see oil is something that’s going to continue to creep up into the 90s at some point.

Bret Kenwell 34:25
Yeah, you know, oil is one of those. It’s one of the really trickier commodity commodities out there. It’s it’s it’s a supply, supply, demand driven market. But it faces a lot of a lot of things that can impact it from Dollar strength dollar weakness to geopolitics, which you just mentioned, especially with everything going on. Over on the Middle East it does bring rise up a worry that oil prices can continue higher and the unfortunate part about oil prices CES is it has a direct impact on the consumer. And it doesn’t necessarily have to be, oh, I drive, you know, whatever, an hour and a half every day in my commute to work, it can be effects, a lot of different things, whether that’s just shipping, transportation, logistics, and driving, of course, you know, and that’s where it really pinches a lot of Americans, especially Americans who don’t necessarily have a lot of wiggle room, in their budgets, who, you know, it might cost someone you know, after oils run enough, it might cost them an extra, you know, $20 to fill up their tank, but you multiply that out over maybe two cars in the household, you know, everyone filling up once a week, you know, that could really pinch them at the end of the month. And that’s the unfortunate part of oil, I don’t know that. I don’t know how long it can rally or how far it will rally, the low to mid 90s kind of seems to be sort of the kind of topping point where at least enough need at least enough supply comes back on the market to kind of temper prices back down. My hope is that that’s the case. I just, I personally don’t like to see high oil prices, because I don’t like to, I know that it just acts as an invisible tax on the consumers and, and costs of doing pretty much anything that involves moving one product from one place to another. So the goal of the hope is that it doesn’t really too far. If it does get into the 90s. And and stay in there. I don’t know maybe that gets the calls going for 100. You never liked to see that. But you know, we’ll just see play by ear the summer driving seasons not exactly. Not exactly a great time for it to be running into. But we’ll see how it is in a couple months.

Andrew Brill 36:45
It seems to always be that way that OPEC somewhere around you know, March April decides that we’re kind of production? Well, of course you are because now I have to drive to you know, wherever I’m driving to for a little vacation. But we have. Bret, last topic is we have earnings season coming up again. Now that first quarter is over. Its earnings season is right around the corner. What are we expecting? I know, you know, last earnings season, it was all about AI, you’re heard about meta, you heard about Amazon pouring billions into AI. Is there something that you guys are expecting or any surprises that that you think are on the horizon?

Bret Kenwell 37:21
Yeah, so we’re coming into first quarter earnings. It’s always it’s more of a how, how does? How do stocks react to the news? Not necessarily what is the news? And when you start to see some of the smaller headwinds creeping into the market, we touched on earlier, the rising yields the rising dollar, do you start to wonder, are expectations a little too high as this maybe act as a catalyst to take? Take a little profit off the table? I don’t know. Maybe it could have the complete opposite effect. Honestly, I mean, earnings could send the market back up to new highs. But it is a scenario where I do wonder, you know, maybe it’s a moment where we either you know, maybe we sell off a little bit into earnings and take those expectations down. That really would be the nice thing to see. But if not, if we run right into earnings, may might act as an excuse for things to come in a little bit. I hate to keep saying expecting a pullback and looking for a dip because I really do look at it constructively. And I look at the at the fundamentals constructively to like, you know, q1 earnings season isn’t anything necessarily to write home about we’re not you know, we’re not seeing gangbusters growth or anything like that. But, you know, for the year, it’s expected to have the s&p is expected to have a good year of growth, expectations calling for more than 9% earnings growth for the year. And for next year is calls for an acceleration up into double digits. So I think investors are looking just for reassurance, they’re not necessarily looking for anything this quarter that you know, blows them away and Wiles them, but more of a reassurance that, hey, we’re still on the right path. They want to hear the guidance, they want to hear management teams speak optimistically. And it’s important for investors to remember, you know, the market is a forward looking, you know, mechanism it, what do you want to say it looks forward six months, nine months, 12 months, whatever, like, you’re kind of whatever you think it is, I guess, personally, but the market looks forward. And you know, the market is looking ahead and says I don’t know when the first interest rates going to come. I don’t know if it’s June or July, but a year from now I see lower interest rates a year from now I see nine, nine or 10% earnings growth under our belt with a little more growth to come in the next 12 months. So I think that’s an important thing to remember is that the picture looks pretty good. The outlook looks pretty good for us and the economy continues to hum along now if things change then obviously everyone has to change their tune a little bit but where we stand right now, things look okay. And I think one argument that people do like to kind of drum up as a valuation argument. They like to say, oh, right, all time highs or Oh, the s&p is trading at about 21 times forward earnings, which is a little rich, but what When you look at when you dig down a little bit into the sectors, it’s only actually really a few sectors that are commanding a premium valuation you look at, I believe was like eight out of 11 sectors are actually trading at a discount to their pre pandemic valuation. So when you kind of look at it like that, it’s there are catalysts that continue this market moving forward and moving higher, and, you know, unless we really run, scream higher at this point, and those valuations just become absurd. We, we do have the catalysts and the fuel to keep this thing running. It’s just a matter of, you know, how does it How does it get to where it’s gonna go?

Andrew Brill 40:39
And how expensive will that fuel be? Bret, we thank you so much for joining us. And, you know, we’ll get through earnings season and then we’ll talk to you again, and we’ll figure out where we are, where we’re going. Hopefully, by then, we’ll be on the cusp of an interest rate cut. And like you said, it’s not going to do a ton for us. But it’s It’s the trend, it’s like, you know, you you sell on the news because it’s gone way up. It’s hopefully it’s the trend that that people are bullish about.

Bret Kenwell 41:10
Yeah, we can only hope and thanks so much for having me. I can’t wait to be back.

Andrew Brill 41:14
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