The 282 Group of Wells Fargo Advisors
Patience & Money October 2024 podcast
PM-04102026-7174135.1.1
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Speaker 1
Welcome to the Patience and Money podcast from the 282 Group of Wells Fargo Advisors. Our hosts, Ryan Culpeper and Sam Pennell, are senior vice presidents investment officer and PIM portfolio managers at Wells Fargo Advisors. Patience and money is a financial advisory podcast examining current market and economic conditions and other relevant topics in the world of investing. This podcast is for informational purposes only, and your individual risk tolerance and investment objectives must be reviewed prior to taking any specific recommendations.
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Speaker 1
Investment and insurance products are not insured by the FDIC or any federal government agency, not a deposit or other obligation of or guaranteed by the bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested. Let's get to it. Here's Ryan and Sam.
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Speaker 2
Well, welcome, welcome.
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Speaker 3
Welcome, everybody. Thank you so much for joining us on another patience and money. I'm Ryan Culpepper.
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Speaker 2
And I'm Sam Pennell. Thanks for joining us.
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Speaker 3
Yeah, thanks for joining us. I tell you what, ladies and gentlemen, we've got kind of a lot here on the docket here. So we're going to try to be easy with you. But chances are if if you're in tune to just about anything in the news right now, you might be a little nervous. I don't know, you know, whether it's global warming, Middle East conflict, presidential elections, are earnings going to be like I mean, the amount of fear that the news media is pumping right now, man, they've they've got to be making a lot of money on advertising.
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Speaker 3
And.
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Speaker 2
Yeah, well there's there's definitely fear peddling. But there's also real things that are fearful. We we just saw that here in the Carolinas with, Hurricane Helene man. And you know, just the heat just west of where we are here in Charlotte and the amount of destruction and pain and and just the magical things that happen out of that.
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Speaker 3
You know what? Yeah, I know that we've got people listening, you know, essentially coast to coast and even outside of the States. And being here in Charlotte, we lost power. And yeah, you know, you had some of that and some downed trees, but you go two hours west and some of the stories that have been coming out of there about lost children or grandparents or, oh my gosh, you know, we were talking about earlier on the set, I actually, you know, my, my silly but starts to drive up to Asheville on Saturday not thinking it's going to be that bad.
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Speaker 3
I can go around some mountains, and some of the destruction that I saw just firsthand was just like a bomb went off and blew buildings off our foundations. I just it was just my heart still hurts.
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Speaker 2
Well, and towns wiped off the map. And, you know, for every sad story like that, one thing that's very encouraging is the resilience of, and the the big hearts of the people.
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Speaker 3
That's right.
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Speaker 2
Around here. We've seen awesome volunteer opportunities even here at Wells Fargo, just really stepping up. And, you're seeing the community come together.
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Speaker 3
Even you you you went to go volunteer your church. You were getting ready to gear up the whole family. Go make it a trip just.
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Speaker 2
To be there today. Yeah.
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Speaker 3
Supposed to be there today. And there was just too many volunteers, you know, you know, I'll tell you. Right. We're we're not the type to kind of dwell on that. We want to find the positive outlines and what can we learn from things like that. And the thing that I came away from that, especially after kind of driving through some of some of the destruction that these flash flooding rivers caused, was just be thankful, you know, like you're sitting in traffic, bumper to bumper, you know, take a instead of worrying about that, just take a second and watch the sunset.
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Speaker 3
You know what I'm saying? Like watch the sunset in traffic. But be thankful that, you know, it can always be worse, right? If even if, well, you know, gosh.
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Speaker 2
You can find some the good even in the small things, right?
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Speaker 3
That's right. I'm sure a lot of people here that that are listening, your heart goes out to everybody out there. And, you know, I tell you what, man, there's a lot of pain out there everywhere, right? So, you know, we're we're certainly continuing to pray and be thankful for the people out in the mountains and on the coast of Florida.
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Speaker 3
And throughout that God affected by the disaster. But there's I mean, there's some disasters, you know, globally, too, I've gotten I've gotten some calls with some clients that are very concerned about what's happening in the Middle East conflict right now. And, you know, I'll tell you. Right. I, I have my own thoughts and opinions on how this affects the market.
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Speaker 3
And that's ultimately where we're going to take it is what are our views on this on the market, our hearts and prayers go out to the those involved there. I don't know what do you what's your take on that and how do you feel like that's going to affect the bond market or, or the stock market. Wait.
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Speaker 2
So Israel Iran that that's the only ratcheting up. It's not cooling off. What we're seeing. So we're now coming up to the year anniversary from the Hamas attack. And it's amazing how fast that year went. So there's there's ways you can see their stress and things to be concerned about in the markets. And, I think it's good we're starting here.
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Speaker 2
Maybe we we can talk about the markets and where things are in just a moment. But with, with the political landscape, let's.
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Speaker 3
Address the fear that the pumping. Yeah.
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Speaker 2
I mean, you're hearing it on phone calls and it's it's it's tangible, with Israel and Iran, I think that, ways to measure that is what you see in, in commodities, things like crude oil, things like precious metals, for example, gold, where you're seeing, gold as a, as a spot index, it's, it's at all time highs or at or near all time highs.
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Speaker 2
And that jump has really happened in the last couple months here. For crude oil, it's a little misleading that it's starting to jump up because it's coming off of annual lows. But, not surprising that when bombs start going off in the Middle East, you do see oil go up. Now, what does that mean for the economy?
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Speaker 2
If it cost more to transport any good across the entire globe? That does have an impact. We're not there yet. We're not there yet. So what are your thoughts on maybe how to measure that from our seat.
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Speaker 3
Well you know what I and I tell you what man, as you were saying that it's you know, I've been doing this now for nearly I don't even want to say it, but nearly 30 years right, is where I'm coming. It's like I've got to update my LinkedIn profile says 25 years and I'm like, man, I'm coming up on 30.
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Speaker 2
But, well, the graying your beard says it for you. I know.
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Speaker 3
Or they're paying off my head.
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Speaker 2
But that's why I shaved mine, you know?
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Speaker 3
Yeah, I got a shine on my head, too. But I tell you, I mean, really, I think there's a playbook for this, right? And doing this for 30 years, a conflict in the Middle East is not new. Okay. The idea of certain precious metals going up, oil going up. Right. There's almost a playbook to this story. The thing that I think is unique here, and we didn't talk beforehand.
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Speaker 3
The thing that I think is unique here is it does seem like the rest of the Middle East is kind of backing off and really not trying to play this play in this, sandbox here, you know, kind of watching. So it's going to be interesting to see how it affects the markets. I kind of feel like, as we're coming up on earnings season, right?
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Speaker 3
I get I get emotionally involved to what's going on on the TV. But then when I come back to the office and how does it affect, I don't know, pick a stock, not an endorsement to buy. But like Microsoft, how does it affect Microsoft's earnings? Actually, I don't know if it has an impact. Maybe it has even more of a positive impact because of some of their social medias or their their their technology outlets.
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Speaker 2
Yeah. So will you even think about, just the broad exposure to a commodity, things like oil. Well, you really most people aren't buying barrels of oil or even the futures on those things. But what does that do to maybe energy companies? You could see historically we've we've pared back our exposure to that, just the energy sector.
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Speaker 2
But, for, for something like gold, we do have exposure to that for, for certain cases. And in certain, clients, there's.
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Speaker 3
There's nothing wrong. Right. You know, with, with hedging some equity exposure with some precious metals or something to diversify from equity risk. You know, certainly if you're.
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Speaker 2
You could almost make the case that gold is doing well for a number of reasons, one of which is just the geopolitical concerns. But it also historically has done well when the fed starts cutting rates. Right. So which is it?
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Speaker 3
Right. Maybe both. You know, long ago I, I quit trying to predict the price of oil or gold or very difficult. You know, we, we were, fortunate enough to be able to, to hedge that and put that in the portfolio just as as things were happening. And it's just a historical thing, right? I mean, it tends to do well in periods of war.
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Speaker 2
And, you know, and stress in general.
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Speaker 3
So, you know, well.
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Speaker 2
We'll go ahead. Yeah. So just maybe to even talk about some other political concerns. Here it is, October 3rd, 2024. We're a month away from the the presidential election. I don't know, I haven't been able to avoid those conversations. I'm trying to avoid them like the plague. But we talk about that here in the office, too.
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Speaker 3
It's awesome. It well, it's awesome because. Right, everybody says don't talk money, don't talk politics. And that's what we that's.
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Speaker 2
What we do every.
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Speaker 3
Day. Whoever calls. Right. Yeah. So yeah we have an opinion on that. You know I'm just going to go directly I'm going to I'm going to sidestep the presidential, you know, kind of yeah. What's the go great to Congress. How do laws get passed? Right. There's executive orders, but then there's laws that stay in place. Right? Yep.
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Speaker 3
So, as the CFO of XYZ company, fortune 500 company, right. If you have a deadlock Congress. And that seems to be really the case no matter who wins the president seat. Right. Most likely Congress is going to be deadlocked, even if there's a majority of them, one party or the other. There are such extremes for those parties to get the.
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Speaker 2
It's hard to get anything.
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Speaker 3
Passed to get the votes right. You really the whip's got a job, right? They they're going to have a hard time. So you know what it does for the companies that we invest in? Fortune 500 companies, some of the largest blue chips on the planet. It allows them to plan. It allows them to actually go into areas and, you know, put in that that warehouse before laws do get passed right there before the EPA comes in and changes something makes it better or worse or whatever from, from a logistical standpoint.
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Speaker 2
It’s basically a clear runway for them to make decisions on long term capital.
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Speaker 3
Right. They can plan. So, you know, what I would say is, as as we came into this year, we said that we based off of research, historical stats and those types of things that we came across, we said, hey, look, we thought the stock market was going to be up this year. Don't pay attention to the news. You know, don't get too scared.
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Speaker 3
Stocks are going to be up. And then we had a couple other stats that were back up. The point that stocks are going to be up double digits. Here we are S&P 500 up 20%. Nearly. Yes. You know and we're only touching in on on October. Pretty awesome right. So you know I don't know if it's as big of a deal as they want you to think it is.
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Speaker 2
Well, so from the all these political things we're talking about right now, I think it just makes more the case to lean in to things You and I talk about a lot quality and liquidity. And where do you find quality in the stock market? It's usually the big blue chips. Where do you find quality in the fixed income markets?
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Speaker 2
Well, they have grades. They're called credit ratings from big agencies, third party agencies that come in. So if you can keep your quality high, usually there's better liquidity in the higher the quality. So you get that same day liquidity if you need it. So those are still things that are very important to us. So regardless of blue or red elections and you know, I think we can't help but talk that perhaps next time we meet and we know who has won elections, hopefully we get results very quickly.
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Speaker 2
But then going into 2025, we can and should talk about some of the tax rate cuts that are supposed to, sunset at the end of next year. That becomes a much more real subject. Right now. It's just you and I guessing. Right. But, from a planning standpoint, it is going to be on the next Congress to figure out what they want to do with, the 2017 tax cuts from, President Trump's term.
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Speaker 3
Yeah. Well, and and that was awesome, whether you know it or not, you actually talked a little bit on on something I want to touch on. And that's the bond market interest rates. Yeah. Let's do it. What's happening there right now I got to give you some credit too, by the way. I you know, we play these games a little bit on the podcast.
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Speaker 3
And where do you think what do you think the Fed's going to do. And hey you called it right 50 basis points. You called it when it was a little bit of an outlier. Right. Everybody was saying, you know, look, you know, I feel like we're back to the beginning of the year where people are saying this might even be the regime of a new six eight interest rate cut.
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Speaker 3
And, you know, gosh, we're going back into recession with what you're seeing in the bond market world. Is that just people do you think kind of preaching their book and their stance, or where do you see interest rates since you called it so well?
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Speaker 2
Well, thank you buddy.
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Speaker 3
He's my brother and I normally don't give him comments like that. So he did really.
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Speaker 2
He usually punches me in the arm. Yeah, he did good. So, what I do think is we are now and perhaps we've seen the the peak of rates here for this cycle. But what is interesting is I don't think we're going to have this race to zero, which is what I think a lot of people are maybe hoping for to get more out of stocks.
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Speaker 2
I think you and I take the other side of that trade to say that there's a lot of disruption and innovation and growth out of the economy. That's what's going to keep rates up. Not the fact that, the fed is going to cut, cut and cut and cut. So, we had an inversion, the longest inversion in history.
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Speaker 2
That means the two year bond.
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Speaker 3
Well tell Telegraph to, by the way, rate inverted yield curve. Go ahead.
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Speaker 2
Yes. The inverted yield curve means that the two year treasury was paying you more yield than the ten year. That's a sign of an unhealthy economy. And every economist on the planet was saying that we have a recession coming. Where was it?
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Speaker 3
It? It was almost like an inverted an inverted yield curve equals recession. Yeah, like a mathematical equation. That has to happen.
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Speaker 2
Yeah. Well, the if you really get into the weeds, a lot of those guys would even tell you exactly the date that the recession was happening. And that's why people were pounding the table over the last few years. And it just hasn't come to fruition. So early September, we had the yield curve. Un- invert. The two in the tens are now more normalized or however you want a word that.
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Speaker 2
So does that mean we get it land.
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Speaker 3
Right. It's it's not inverted. It's slightly.
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Speaker 2
Yeah. I could pull it.
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Speaker 3
Away either way.
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Speaker 2
But what essentially what we're seeing is that, you now have the normalized yield curve. So does that mean we're back to expansion and growth and everybody feels good? You're not hearing it. You're still hearing the recession birds out there.
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Speaker 3
Well it's crazy I even saw somebody. Right. So we coming into the inverted yield curve. This means recession right. And we push back on that. Now what I'm hearing is typically when the yield curve flattens, we're in recession. And it's like, but we just came off a 3% GDP print. I'm not seeing a lot of layoffs.
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Speaker 3
I'm seeing, you know, hiring is slowed, but I'm not seeing the firing, is it? Maybe we're at peak employment.
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Speaker 2
Slowing, but growing.
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Speaker 3
Slowing but growing. You know, I don't know. Are you in the, I'm curious. Are you in the, like, 6-25 basis point cut camp or, where do you see things?
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Speaker 2
I would rather see…Maybe I'm not saying what I see, but what I would rather hope for is that you have a more measured pace. I think Powell kind of came out and said that here recently that, he's he doesn't want to show his hand. Thankfully. But I would rather see him pause, wait around, see how the economy takes this before you just hit the elevator to the first floor on rates.
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Speaker 2
I, I just don't see the need for that.
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Speaker 3
I think to more 25 basis points and we're done. That's that's what I think I don't think I mean, from what I'm hearing, everybody's hanging in there, right? I mean, yeah, things are normalizing. We're getting back to a normalizing thing. Right.
00;17;07;19 - 00;17;16;06
Speaker 2
You know, and to that point, we've seen where stocks and bonds now have a negative correlation, meaning they zig and zag. This is the first time in a couple of years that's happened.
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Speaker 3
That's pre 20 almost 20 right. Since really ‘08 where they cut interest rates down. Here's the zero. Oh look at you.
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Speaker 2
All that green is the positive correlation.
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Speaker 3
There is a reason why I hired you. You know. But you know I'm speaking off of experience. You're speaking off of a chart because I lived it right I was there,
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Speaker 2
Got got the t-shirt to prove it.
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Speaker 3
I did. Yeah. Yeah.
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Speaker 2
So. Well, let's just spot check it. So the two year treasuries at 370 here today, the ten is at 385. So 15 basis points more good. And just a spot check even where the S&P is. It's at 5700 here today at the close of business October 3rd Dow Jones is at 42,011 and the Nasdaq at 17,918.
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Speaker 2
Sounds like a bull market you know.
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Speaker 3
No. Absolutely. You know, the thing that I really like about it is it means just straight up when interest rates were low, we had clients overweighted to equities. It was kind of like, I think equities are going to do better than 2% and you kind of have to do it right. So, you know, when you're sitting there and you're you're kind of like, okay, we're at 1% bond.
00;18;26;24 - 00;18;35;01
Speaker 3
Well, now we're at four and a half, five, whatever it is. Yeah. You know, on the bus there's some meat on the bone. It's back to the bond market isn't broken anymore.
00;18;35;02 - 00;18;37;18
Speaker 2
No. You get a real return now.
00;18;37;18 - 00;18;43;10
Speaker 3
Exactly, exactly. And, you know, and I'm going to always try to take it back to equities is kind of what I like. And but yeah.
00;18;43;10 - 00;18;45;16
Speaker 2
Let's talk a bit more but more fun to talk about.
00;18;45;20 - 00;18;56;22
Speaker 3
Well you know I don't know depends on the month. But I tell you what, you know, one of the things that a stat that came across my desk and I think this came from Birinyi. Is that where it came from Sam?
00;18;56;22 - 00;18;57;05
Speaker 2
Yes.
00;18;57;12 - 00;19;07;06
Speaker 3
So this is a research house we love. And they come up with very cool mathematical statistics, right. They're they're they're not dependent on their view. You know, you can kind of tell it's all based on math.
00;19;07;09 - 00;19;08;00
Speaker 2
It's numbers.
00;19;08;00 - 00;19;31;13
Speaker 3
So it says so look, here's the deal, ladies and gentlemen. Then this is really where you're going to get our invite, our advice and guidance, or at least mine on my view on the equity markets is, the fed. Right. We're at stock market highs and the fed cut rates okay. The fed has cut rates with stocks near all time highs 20 times okay.
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Speaker 3
20 times the S&P 500. So this is 21 times 20 times the S&P 500 was higher a year later. How many times you think.
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Speaker 2
Well it’s not fair I know the answer.
00;19;43;29 - 00;19;48;19
Speaker 3
Is I'm sure you guys can tell the way I'm ten a mock 20 times.
00;19;48;19 - 00;19;49;15
Speaker 2
20 for 20.
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Speaker 3
20 for 20. Now listen that's like better than Steph Curry.
00;19;55;02 - 00;19;56;11
Speaker 2
You know in the Olympics.
00;19;56;11 - 00;20;20;19
Speaker 3
You know I'm gonna I'm gonna throw that on the line all the time right. So you know look here's the deal. When when the fed cuts rate at all time highs. Don't think oh my gosh we're going into recession. Because actually 20 times out of 20 the S&P 500 is higher a year later. And on average it's up nearly 14% higher.
00;20;20;25 - 00;20;27;26
Speaker 2
So let me ask you, we've had a heck of a run here. We're running above historical averages on the S&P.
00;20;28;02 - 00;20;28;27
Speaker 3
Absolutely. It's been fun.
00;20;28;29 - 00;20;41;00
Speaker 2
So yes oh yeah it's great. So as our equity manager where are you putting our base case for the next. We'll call it the rolling 12 months. You got a base case. Sure. Bull case. Bear case.
00;20;41;04 - 00;20;59;28
Speaker 3
So I'm going to piggyback off of the Birinyi research and the the piece that they put across our desk. Right. So if the average return. So that means that there were some that were better and some that were worse, but the average was 13.9%. 14%. Yep. So we're just I'm just kind of going with the the averages of statistically what has happened 20 times out of 20.
00;21;00;03 - 00;21;14;12
Speaker 3
Right. So you know, you guys have heard I really wouldn't be surprised if the S&P 500 finished the year around 6000. That would give maybe another 5% on top of where we are today. That's not crazy in my opinion. No, it kind of
00;21;14;14 - 00;21;16;12
Speaker 2
In fourth quarters are historically pretty.
00;21;16;12 - 00;21;35;11
Speaker 3
Good, right? There's a saying don't fight the fed. Right. They're stimulating. They're cutting. Right. You've got China. So the idea that stocks could be higher year later is, is pretty cool. What I would do is I would actually say my base case right. Or my bear case okay would be kind of what happened 20 out of 20 times.
00;21;35;11 - 00;21;41;01
Speaker 3
That's like it never went down. So I would say that we're at 5750 wherever we are right now.
00;21;41;01 - 00;21;41;16
Speaker 2
That's fair.
00;21;41;23 - 00;21;43;20
Speaker 3
That's my bear case.
00;21;43;22 - 00;21;45;23
Speaker 2
Probably a lot of moving around to stay put.
00;21;45;26 - 00;22;07;02
Speaker 3
Yes. A lot of walking to go nowhere. Okay. Right as well, you know. Yeah, I like that one. Yeah. But what I would say is our base case, Sam, I would say, what is that? Probably 6250 using that number. Right. So that's a year from now. And this this report came across like mid September. We're up slightly from then.
00;22;07;04 - 00;22;17;05
Speaker 3
But to say 6250 a year later where we are here coming in in the fourth quarter, I don't think I think that's average from what happened. Right.
00;22;17;07 - 00;22;24;19
Speaker 2
It's funny because those numbers just sound big on the S&P and for it to be within the averages.
00;22;24;19 - 00;22;32;13
Speaker 3
Remember we used to put out the 100 point story where the Dow Jones moved 100 points. And then finally it was like, man, that's only like that's nothing.
00;22;32;13 - 00;22;33;14
Speaker 2
Well the Dow just get half.
00;22;33;14 - 00;22;34;04
Speaker 3
A percent right.
00;22;34;04 - 00;22;37;07
Speaker 2
Because it's 42,000. Now what's 100 points on 42 thousand?
00;22;37;07 - 00;22;48;19
Speaker 3
Now that's 400 points right. So you know some of it is just the numbers are getting bigger. So you know that's what happens. But right. So 6250 year from now I think is kind of like the base case that's base. Yeah. Right.
00;22;48;26 - 00;22;50;08
Speaker 2
So where are you as a bull?
00;22;50;08 - 00;23;07;24
Speaker 3
And this is where my heart is because I think we're in a bull market. And I think there's something special going on with AI and what we're going to see in productivity over the next ten years, an innovation that comes out. Yeah. So 6500 or above. Okay. Is, is I would not be surprised to see.
00;23;07;27 - 00;23;08;11
Speaker 2
I'm going to be.
00;23;08;12 - 00;23;09;10
Speaker 3
6570.
00;23;09;12 - 00;23;10;29
Speaker 2
I'm going to write that on a piece of paper.
00;23;10;29 - 00;23;13;02
Speaker 3
I'm attached to it on my forearm.
00;23;13;05 - 00;23;16;10
Speaker 2
Well, that that seems rather permanent for a 12 month number.
00;23;16;13 - 00;23;18;25
Speaker 3
That's how convicted. Yeah. That was that was a little overboard.
00;23;18;29 - 00;23;19;07
Speaker 2
Yeah.
00;23;19;09 - 00;23;32;13
Speaker 3
Yeah. But the point is, is, is really I wouldn't be surprised just with some of the other things that are popping in, you know, global stimulus, how negative things are to actually see us top that bull. Yeah.
00;23;32;16 - 00;23;42;16
Speaker 2
So that's actually it's actually good. We're going to do this in October because do you know what happened two years ago October 14th 2022?
00;23;42;19 - 00;23;45;04
Speaker 3
I don't I do, but I know.
00;23;45;07 - 00;23;57;13
Speaker 2
We we bottomed. We did. The S&P bottomed at 3583. Here we are at 5700. So it'll be the three year anniversary. Your 12 month target.
00;23;57;13 - 00;24;11;01
Speaker 3
Back that up a little bit. Let everybody hear those numbers because listen coming into 2023 the narrative was we have to retouch those low right before the market could go forward. And we pushed back against that. We said no.
00;24;11;01 - 00;24;20;24
Speaker 2
So the yeah, middle of October 2022, the S&P 500 was at 3583. And today it closed at 5700.
00;24;20;26 - 00;24;26;24
Speaker 3
That's nearly 50%, bro. Just off the top of my head. Right. What is that 40. Yeah something like that.
00;24;26;24 - 00;24;28;10
Speaker 2
Yeah. So so.
00;24;28;10 - 00;24;29;03
Speaker 3
That's wild.
00;24;29;06 - 00;24;47;27
Speaker 2
Yeah. So let's look 12 months from here and see where she is. Three years into this bull run I still think we're in a bull market. Now you know, people have said to me lately, you don't sound as bullish. Well, the market's been on a tear. It's kind of hard to be as bullish as I was. And you were.
00;24;47;29 - 00;25;06;08
Speaker 3
In 23 right where we had 3500 and Nvidia was down 50%. And you know some of the biggest right I mean the world operates off their their chips. And Amazon was down. And you know there was just the world was on sale as far as big blue chip innovation and goes.
00;25;06;10 - 00;25;30;21
Speaker 2
I tell you I think the the only thing that's really a head scratcher to me here now, two years after that, that low point is that we have all time highs on money markets. You can go straight to the Federal Reserve's website and see that that's $6.25 trillion worth of money on the sidelines right now. And yes, we started the podcast talking about the fear component.
00;25;30;21 - 00;25;38;19
Speaker 2
So a lot of that probably has to do with fear. But you're watching the money market yield go is now sub five.
00;25;38;20 - 00;25;43;19
Speaker 3
You're losing money on a real return basis versus inflation. Right? Right. So because it's.
00;25;43;19 - 00;25;57;13
Speaker 2
This this Fed cut was a was the equivalent to almost a 10% cut in your yield in money markets went from 540 at the high this year to now around 485 490 depending on your money market vehicle.
00;25;57;13 - 00;25;57;29
Speaker 3
That's right.
00;25;58;01 - 00;26;04;16
Speaker 2
So, we're not suggesting go buy high flying small caps instead of being in cash.
00;26;04;19 - 00;26;07;06
Speaker 3
Or even big blue chip stocks. But it's just.
00;26;07;08 - 00;26;15;09
Speaker 2
There's steps into things like bonds, bond funds. You're now seeing where some of the biggest bond funds on the planet are outperforming money markets.
00;26;15;09 - 00;26;17;08
Speaker 3
By like 202 point.
00;26;17;08 - 00;26;19;03
Speaker 2
Five. It's not even close. It's not even for.
00;26;19;03 - 00;26;25;28
Speaker 3
Almost, you know, getting 50% better now by being in rates of on market than you are being in money market.
00;26;25;28 - 00;26;46;17
Speaker 2
Yes. So we've been pounding the table on this, and there's reasons to have cash and even strategic cash. But once you have those limits, obviously cash becomes a drag. I'm not sure what that $6.25 trillion is doing, or what people or their mindset is with that. But, there's better ways to deploy that capital.
00;26;46;17 - 00;26;55;15
Speaker 3
And the thing that is so sticky with cash is, gosh, it feels so good. After you turn off Fox News or MSNBC or whatever, you.
00;26;55;18 - 00;26;56;20
Speaker 2
Open up your account.
00;26;56;22 - 00;27;20;27
Speaker 3
And you look there and it's like, oh, I've got that nice big cash. Okay, so it's not paying me 5.4 anymore, but boy, it's still right there at some point, right? If this is a bull market and this is why I'm really interested in earnings season on these next two earnings season. Yeah. So what I've seen as I've seen analysts reduce their earnings growth projections from last quarter was just under 8% earnings growth year over year.
00;27;20;28 - 00;27;54;08
Speaker 3
Now the earnings projections are 4.8. That's a much easier bar for some of our stocks to you know overcome. So I'm kind of on the edge of my seat. I really almost want to make no phone calls and get some popcorn and just kind of watch some of our earnings of the stocks that we own for our clients, because this is really where either being in cash is going to start to hurt, that they start to roll into, or the bears are going to start to say, see, I told you that cape ratio, right.
00;27;54;08 - 00;27;56;27
Speaker 3
The cap ratio is like this price to earnings ratio.
00;27;56;27 - 00;27;58;11
Speaker 2
Where things are broken for 40 years
00;27;58;11 - 00;28;18;09
Speaker 3
But there's hey, Case-Shiller, he won the Nobel Prize on it. Right. So you know, but. Right. So this is to me, these next two earnings cycles to me is are we seeing a broadening or are you going to see earnings growth or or is the recession right. Are people going to come off because of their. Yeah. And what.
00;28;18;10 - 00;28;23;22
Speaker 3
And you and I both know the market could go down 20%. It's still almost impossible to get people to buy it.
00;28;23;23 - 00;28;26;06
Speaker 2
It's funny you say that because. Right.
00;28;26;09 - 00;28;28;07
Speaker 3
Folding up your little paper, I just said something.
00;28;28;07 - 00;28;52;17
Speaker 2
This is a separate Birinyi, report. And it shows how bad earnings estimates are from the analysts, and they get it wrong. And you can do this in a year. But just for this year Q1 they were really negative Q1 outperform Q2. Same thing we're about to see Q3. So we don't have those numbers yet. But historically they get it wrong.
00;28;52;24 - 00;29;03;25
Speaker 2
And it's just the same thing with interest rates. Here's another chart. This one's from fidelity. And you can see it almost looks like hair blowing on the chart because these I God bless them, they get it wrong.
00;29;03;25 - 00;29;12;00
Speaker 3
I don't even care really what they're predicting. What I look to do is see are they getting bullish or bearish. And I'm going to go take the other side. Yeah actually.
00;29;12;00 - 00;29;15;03
Speaker 2
Well and take the cues from the company themselves. Not the analysts.
00;29;15;05 - 00;29;40;21
Speaker 3
Exactly. Yeah. But it's it's kind of like I'm seeing them you know, almost cut their earnings growth projections by half. That's a much easier bar as we're coming into school season shopping season holidays. Right. We're going to start to see not just past buying. Now here's the deal. Is, is I think, maybe some consumer discretionary stocks are going to be a little bit disappointing as we're coming into an election year.
00;29;40;21 - 00;29;55;07
Speaker 3
I'm hearing that people are tightening up, not so much because they're worried about their job, but just the uneasiness of an election. You know, people don't go out as much. They don't, you know, for whatever reason, there's something in the psyche. Well, somebody actually cited to me that.
00;29;55;09 - 00;30;13;04
Speaker 2
And there's there's certain businesses that are going to be susceptible to this. One thing we didn't talk about on the political front, in the economic front is this strike. Yeah. And on on the East Coast with all the dockworkers, you and I, and we talked before him, we don't have much of an opinion because we went back 50 years.
00;30;13;04 - 00;30;21;21
Speaker 2
There's only been three strikes and two of those were on the West Coast. One was only on the east coast, but two out of three times the market was up while this was happening.
00;30;21;21 - 00;30;28;07
Speaker 3
And I'm old. And one of those were when I was one years old. I don't even know if I was one, you know? So it's like it goes back.
00;30;28;07 - 00;30;42;02
Speaker 2
So far, we just don't have enough data to say, yes, this is good or bad, but, you know, something to keep an eye on. I think certain retailers will get hurt worse than others, but that if it is protracted and and prolonged. Right.
00;30;42;05 - 00;31;02;20
Speaker 3
I, you know, to support the bull case and stuff that we've said in the past just to kind of put my, my stamp on where I feel and where we are on the on the bull market. Last time we talked, we talked more about it. I'm expecting to see more of a broadening, less of a leadership through some of the Mega-cap techs and, you know, the the Mag Sevens, if you will, that they were getting so much press.
00;31;02;22 - 00;31;21;02
Speaker 3
But when we started to make the case that trim those and maybe what we're doing with clients is buying some of those that didn't quite participate as much, I tell you, you go back now over the last quarter, that's exactly what we saw. We've seen the equal weight S&P 500 double the market cap S&P 500 in performance.
00;31;21;05 - 00;31;33;26
Speaker 3
And what that means is those big, huge companies, the Microsofts and Apples and Googles and Amazons that are huge in the in the market cap. They weren't leading the way. It was the areas outside of that. Right, right.
00;31;34;02 - 00;31;36;19
Speaker 2
So the other 493, that's exact.
00;31;36;19 - 00;32;02;16
Speaker 3
And actually I've got a stat here. Right. Oh, right. To our mathematical lovers of Birinyi. But really basically what it does is it just says that, the first half of the year, the top 10% of the company was responsible for almost 50% of the S&P 500 growth. Now, the bottom 400 and somewhat companies are responsible for nearly 70% of that growth.
00;32;02;16 - 00;32;04;07
Speaker 2
That sounds very bullish to me, brother.
00;32;04;11 - 00;32;18;27
Speaker 3
That sounds like a consolidation. I'm getting ready to bubble up and have a nice little spillover, have a nice little run. You know, I think once we get past the election. Right. You know, I don't I don't know if the market really cares that much, actually.
00;32;18;29 - 00;32;21;00
Speaker 2
Yeah. It's just knowing who's in, who's.
00;32;21;00 - 00;32;27;04
Speaker 3
Going to win. Right? We've seen both administrations already, so it's not like, what's she going to do? What's he going to do?
00;32;27;07 - 00;32;29;19
Speaker 2
Yeah we know. Hey, you just dust off the playbook.
00;32;29;20 - 00;32;50;28
Speaker 3
That's right. Keep you sharpen your pencil on some of those stocks that are going to benefit or not. That's right. But you know, at the end of the day I don't think the bull market stops. Okay. Now that said we are continuing to take profits as this thing moves up right. That's the best way to hedge against market risks, in my opinion, is just to take it out.
00;32;51;04 - 00;33;06;02
Speaker 3
Right. Taking profits. Put it in a nice IOU bond. Right. You know, a nice bond, right? Take it out of the market. And that's how we're going to mitigate risk okay. But I think the show goes on.
00;33;06;08 - 00;33;27;04
Speaker 2
And you're able to do that now because yields are at a point where you're still getting paid in compounding interest. Exactly where prior to this rate hiking cycle, it was it was less of a trade. You say, hey, Mr. Client, you just made 40%. Let's take some profits and buy something. Paying 1%. That's it's not attractive.
00;33;27;05 - 00;33;29;26
Speaker 3
You're not against inflation. A couple of years ago.
00;33;30;02 - 00;33;31;15
Speaker 2
Oh, it was a horrible trade.
00;33;31;15 - 00;33;33;26
Speaker 3
You. It was. You were losing money. But now.
00;33;33;28 - 00;33;34;16
Speaker 2
You're not.
00;33;34;17 - 00;33;40;18
Speaker 3
You're not. Inflation is cool to sub 2.5. Yep. Right. And you're getting four point something.
00;33;40;18 - 00;33;42;12
Speaker 2
So you got a real return finally. Hallelujah.
00;33;42;12 - 00;33;42;29
Speaker 3
There you go.
00;33;42;29 - 00;33;44;00
Speaker 2
So yeah.
00;33;44;03 - 00;34;01;13
Speaker 3
So you know you take profits. Nobody really knows right. Do I think the market's getting expensive or am I getting a little bit you know not fear of heights but am I as bullish as I was coming into 2023 no. Right. I'm a little bit more cautious right. I'm a little bit more active on on taking profits.
00;34;01;13 - 00;34;05;19
Speaker 2
So that analogy here at these peaks enjoy the view.
00;34;05;21 - 00;34;25;26
Speaker 3
Yes. You know, it's a if the news is getting you right, unplug. Go for a walk. It's pretty go. You know, I was shocked at the mall today at how mobbed it was. I was just kind of what's going on? Is something going on in Charlotte? But the point is, is the economy's humming. You know, bull market on I still think.
00;34;25;28 - 00;34;27;12
Speaker 2
I think so too.
00;34;27;14 - 00;34;43;29
Speaker 3
So you know, expecting for a decent fourth quarter. We got to get past the election in my heart of hearts. But once we get through that, there's not a lot of bad news outside. Unless you're really looking for it. But then you have to ask yourself, how does it affect my holdings? Yeah, the names that we're buying.
00;34;44;01 - 00;34;55;25
Speaker 2
Well, and by the time we record again, we'll probably be a week or two removed from the election. So we'll have more of an idea of the path forward on that. So it'll be good to plug back in on that.
00;34;55;27 - 00;35;18;10
Speaker 3
Yeah. But you know, at the end of the day I think what what you're also saying is just be thankful where you are. Right. Kind of like how we started off with the segment and what's happening in some of these natural disasters here locally and and abroad. Right. It's you know, it's happening out on the West Coast. And, I would just say be thankful you're blessed that you have enough money to be investing in stocks.
00;35;18;10 - 00;35;29;09
Speaker 3
They're long run. Don't get caught up in the short term noise. If you're nervous and the volatility is getting too much, the probably means you have too much stocks. And go buy some bonds that are getting interest, I don't know.
00;35;29;12 - 00;35;49;18
Speaker 2
Well, it's even cool to be able to say to we've seen this with certain clients. They've they've already taken profits and they've they've got big charitable hearts. There are plenty of ways you can help, especially at the Florida coast, in the North Carolina mountains and in Georgia. You know, Red cross, you name it, Samaritan's Purse.
00;35;49;19 - 00;35;50;16
Speaker 3
There's there's yes, there's.
00;35;50;16 - 00;35;52;07
Speaker 2
So many ways to help.
00;35;52;08 - 00;35;53;12
Speaker 3
Adopt a dog.
00;35;53;13 - 00;35;54;08
Speaker 2
Adopt a dog.
00;35;54;11 - 00;36;09;10
Speaker 3
You know, there's I mean, it's not just people that are homeless, right? All of a sudden you're worried about your kids and you lost your dog. Well, you know what I mean. There's if you have a heart for that, right? I mean, it's just there's a million ways to help. Maybe, maybe turn your your pain into passion. Right.
00;36;09;10 - 00;36;24;21
Speaker 3
If you start to get a little bit upset about what's happening out there, maybe you say, you know what, I'm going to go do that, right? I'm going to go help. If you're upset about your what's going on politically, maybe go pick up a, a volunteer time and go help your political candidate locally or something like turn your pain into a passion.
00;36;24;21 - 00;36;46;20
Speaker 2
Yeah, I like to think of that as, like, planting a sequoia. You know, the the giant sequoias that grow to, what, like 150ft, something like. But do you know how long it takes for them to get to that height? 50 years. What if you did something in western North Carolina? What if you actually gave to the. It's a you're not going to see it.
00;36;46;20 - 00;36;56;01
Speaker 2
I want I want to have something that I'm investing in that will long outlive me. Right, right. So here's your chance to go plant sequoias.
00;36;56;08 - 00;37;04;10
Speaker 3
There you go. You know, if it if you get a little bit nervous, go do something great. I think that's what I heard. Right. Like go be actionable.
00;37;04;12 - 00;37;05;26
Speaker 2
Yeah. So be fearful.
00;37;06;00 - 00;37;19;20
Speaker 3
That's our that's our advice for you, you know? But, ladies and gentlemen, I think that's about all we got. We're coming up on time. Yeah. If you listen to this entire thing. Thank you. So much. Yes, all five of you, we really appreciate it.
00;37;19;23 - 00;37;24;23
Speaker 2
Well, if you have insomnia, just plug us back in. There you go. There you go. You’ll get a good night's rest.
00;37;24;24 - 00;37;43;10
Speaker 3
But listen, we're very bullish still. Believe it or not, we think there's a lot to, to be invested in. We thank you so much for giving us your time. And, please reach out to us with individual questions. You did hear us mention a few things. Stock names and that such those are not endorsements to buy, but maybe an a reason to pick up the phone or shoot us an email.
00;37;43;12 - 00;37;46;02
Speaker 3
Ask us a question. Yep. Right. Well, we'll figure it out.
00;37;46;05 - 00;37;47;23
Speaker 2
We'd love to continue the conversation.
00;37;47;23 - 00;37;55;00
Speaker 3
Absolutely, absolutely. So thank you very much. On to Halloween and the holidays. Yeah. Here we go. Yeah, a fourth quarter on!
00;37;55;02 - 00;37;55;27
Speaker 2
See you next time.
00;37;55;27 - 00;37;58;19
Speaker 3
Thanks so much.
00;37;58;21 - 00;38;18;09
Speaker 1
This podcast is for informational purposes only, and your individual risk tolerance and investment objectives must be reviewed prior to taking any specific recommendations. The two two group of Wells Fargo Advisors is a full service wealth management group, providing financial advice to both individual and business investors for a comprehensive menu of professional services, or to learn more about the 282 groups professionally managed portfolios, please contact us at (704) 571-7173.
00;38;18;11 - 00;38;35;28
Speaker 1
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00;38;36;00 - 00;38;41;24
Speaker 1
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00;38;41;26 - 00;39;07;03
Speaker 4
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