Joey Loss | 0:01

It is Friday, October 2nd, 10 AM. Market's been open for about 30 minutes, and this is another episode of Wealth Unplugged Market Chatter. My name is Joey Loss.

Adam Van Wie | 0:12

And I'm Adam Van Wie.

Joey Loss | 0:14

And September was an eventful month. I mean, it was on the surface, it was kind of quiet. Like the S&P was only down half a percent, but under the surface, I mean, there's just 40 stories we can pick from. As far as what is happening. As far as breadth, I mean, that was kind of one of the bigger stories of the month. Only 7 of 21 trading days had more advancers than decliners. It's pretty bad. The cumulative advance-decline line for the month ranks as the 13th weakest breadth month since 1990. Pretty notable.

Adam Van Wie | 0:51

Yeah, that doesn't seem positive.

Joey Loss | 0:53

It does not. And for listeners, breadth is like who is responsible for the overall market performance. And when you see very good breadth, that means the entire market's participating, or most of the market's participating. That gives investors confidence. When you see what we've seen over the last few years at times, and there's like 10 or 15 companies that are responsible for 90% of the performance, you say there's low breadth in the market, and people don't love to see that because it means the bottom could fall out a little bit more easily.

Adam Van Wie | 1:24

It's weird too, because we're coming off a period where the opposite was true, where the breadth was near an all-time high for a period, and then it just fell off. It was quite the reversal.

Joey Loss | 1:37

Yeah. I mean, it was all— what's interesting is I mentioned the S&P was down 0.5% in the month of September. The NASDAQ had a completely different experience. It was up like 5%. So tech is back to doing what tech does while everybody else is kind of hanging out for the moment.

Adam Van Wie | 1:56

Do you think that's all interest rate driven?

Joey Loss | 1:59

I think it could be. I don't know. What are your thoughts? Like, what do you think is beneath that? You probably get to read more than I do on that.

Adam Van Wie | 2:06

I'm not sure exactly. I think it's got to be a combination of things. I think interest rates play a part. I think that the political tension plays a part to some degree. Those tech companies are now the safe play to a lot of people. The last thing— the joke is a lot of people say that the last thing people can cancel is their Netflix.

Adam Van Wie | 2:32

So I'm not 100% sure why the sudden change though. I don't think that we've had any sea changes in the economic situation over that same time period, but investors are certainly thinking about it differently.

Joey Loss | 2:48

Yeah. Well, and the bespoke AI infrastructure basket's up 76% year to date. Meanwhile, S&P equal weight's up 8.6%. So, there's obviously almost a 10x difference in the way people are interpreting the performance, like the behavior and safety of tech AI versus everything else.

Adam Van Wie | 3:09

Yeah. I think we're back. We keep ping-ponging back and forth between AI is going to kill us all And AI is the only thing driving the economy forward and it's amazing.

Joey Loss | 3:22

Well, in September it was literally both at the same time, it seems like. I mean, we just started that. We just hit the peak of it's going to kill us. And also I'm putting all my money on it. Because I guess, I don't know, I guess what's the thought there? Like, it's either going to, it's either going to kill us and money won't matter or it won't.

Adam Van Wie | 3:38

And it's going to be, make us all rich. Yeah. Yeah. It's a, there's a lot of extreme theories in this market, it feels like. I think interest rates have been the one that's been on my mind the most. We saw the Fed raise rates recently. As we've documented on many platforms and many podcasts and many radio shows, I just don't think that that was warranted. I'm not 100% opposed to it, but I'm probably 80% opposed to it. And then we got the jobs report today and that kind of backed up what I was thinking about it, but the market just seems to be driving interest rates to the moon, and I'm not sure that I'm on board with that either.

Joey Loss | 4:28

Yeah, I think that particular phenomenon touches on something else we brought up maybe 5 or 6 of these ago, and that is typically rising rates is a signal of a lack of certainty, which obviously there's some of that going on. It's a perceived higher risk in owning US bonds is part of it. But also, when you have a lot of competition from other corporate bonds at similar yields, you can end up with that same phenomenon. And if equities are just doing such a great job performance-wise, that can also put upward pressure on what rates have to be because for people to give up the upside opportunity of equities, The carrot has to be pretty sweet on a bond, even though it's a bond and it's not quite the same category. It does end up putting some upward pressure, which is for one, why forecasting bond yield behavior is almost impossible because you have all these up and downward pressures that could show up any day of the week. But secondly, because the AI buildout has now kind of moved into this next phase where it's not just free cash flow, it's also corporate bond debt paying 8%, you've ended up with a lot more competition, which pushes these yields up. I think that's where some of it's coming from. Does that— what do you think on that?

Adam Van Wie | 5:45

Yeah, I definitely think that plays a part. I think that if you have the opportunity on a relatively safe investment to earn 8%, you're going to give that thought over stocks and certainly over treasuries. And I think that will absolutely play a part in the decision. I don't think it's all of it, but I think it's a part.

Joey Loss | 6:04

Well, and the irony is the higher those rates go, the more downward pressure there is on equities. Like, the risk premium starts to fade because you can't just have everything rising indefinitely, right? Like, if honestly, I mean, it's just me, just take yourself as an investor. Like, if I can get a Facebook bond paying 10%, like, I don't know if I want to own stocks that year. That's pretty awesome, you know? So the upward pressure that my little demand puts on buying a Facebook share versus buying a Facebook bond starts to lean more towards the bond, which has downward pressure on the equity price. And I think that can happen if these— that's what would keep these bond yields from going too high is because people just teeter-totter wherever they think the greatest risk-adjusted return is going to be. Can't just go indefinitely.

Adam Van Wie | 6:56

Yeah, I think the math is probably more like, should I make my 60/40 portfolio a 40/60 portfolio? But yes, I think that the point is the same.

Joey Loss | 7:04

Yeah.

Adam Van Wie | 7:05

Because at that margin of that last, you know, 20% of your portfolio, what do I do with it? If bonds are that attractive, then it hasn't been this way in a long time. This is the first I've seen of it. And I mean, really, gosh, probably since I've gotten in the business. where you really have to make a really serious calculation about what's better. I mean, for the first 10 years I was in the business, you couldn't find a bond yielding more than 2%. It was really frustrating. We were having to do all sorts of things to generate yield that I wasn't— that I didn't want to do. I wanted it to just be easy. And why can't I just buy corporates and treasuries? But they just weren't paying anything. And then we got into a situation where finally rates were a bit higher, but then 2022 hit And it was the worst year for bonds that anyone can remember. And so it's just been, it hasn't been like this ever since I've been in the business. This is uncharted territory for me and definitely, I assume for you as well.

Joey Loss | 8:11

Yeah, definitely. And historically, it's kind of, these rates are a little bit more normal, but they don't feel that way because of what you just said.

Adam Van Wie | 8:18

Oh yeah. This is not, these conditions have existed. We just were not working as financial planners at the time. And in fact, you're right that if you look at the long-term historic averages, we're way closer to them now than we have been over the last 15 years.

Joey Loss | 8:34

The 10-year closed September at 5.28%, which is up a little over half a percent on the month, 95th percentile of all months since 1962, and the biggest monthly jump since September of '23. Trading about 5.22% this morning. The 2-year is almost at 5, it's like 4.8. So yeah, they're certainly rising. The grind yields rose on 16 of 21 trading days for the month, the most consistent month of increases since April of 1981. So people feeling like this is a steep climb, you're correct. Objectively, it is.

Adam Van Wie | 9:13

Yeah, it has been. That's been another factor in all of this is just how fast the yields have risen, way faster than what the Fed has done, way faster than I think anyone probably would've expected. It's been a little bit shocking.

Joey Loss | 9:31

Well, and then we also have revised Q2 nominal GDP at 8.5% annualized, the fastest since 2022. And it is the case that faster nominal growth means higher yields. So it's not all bad.

Adam Van Wie | 9:46

No, no, definitely not.

Joey Loss | 9:48

And yeah, to your point, I think we were making the joke like the Fed probably had a hard time making the decision to raise rates. I think like you kind of pointed out, you could make a case either way. I think we have our thoughts, but when you see a jobs report come out badly after a big part of the premise for raising rates, being that jobs looked good, they had to be like, oh, come on, like, we've just had this conversation.

Adam Van Wie | 10:14

Yeah, but that's kind of how the jobs report has gone recently. There's— it's been very volatile, more so than I remember in previous years. It seems like you have a good report, then a couple bad ones, couple good ones, a bad one. It's just, it's been all over the place.

Joey Loss | 10:30

So the main thing this hurts, I mean, obviously, Rising rates. Whenever the Fed raises rates, that influences things like car loans. It's the overnight rate. So anything at the short end of the curve, any sort of short-term credit, credit card rates, things like that go up. Your Klarna sub-delivery rates financing are going up too. So just be aware. But it obviously affects mortgage rates, and housing is an area that just did not need more pain. So I'm— that's an area that I feel like needs a break somehow. I don't know what's going to be the help it needs, but—

Adam Van Wie | 11:06

I mean, I think you're going to see some downward pressure on prices. I don't know to what extent, but I think we're already seeing it in Florida, especially in certain pockets. I don't think it's everywhere, but I do think the second home market, the condo market, I think those are pretty obvious locations where you'll see downward pressure. And I think you're already seeing it, especially in vacation homes. I've read several articles recently about the fact that people that bought in the early 2020s bought a vacation home when that was— and turned it into an Airbnb, and then the market got saturated, and now they can't sell it for anywhere near what they purchased it for. Yeah.

Joey Loss | 11:49

We have a couple young clients who really got into that. And I tried to pull up data and say, hey, I don't think this is— you do follow your heart, but you'll be fine either way. But I think this will be an expensive lesson. And I'm sad to be right because it was hot as heck for like a year getting these short-term rentals. And now it's just dead and everybody's trying to sell theirs. And if you're anywhere from Maggie Valley, North Carolina, that whole stretch, Yeah, you have a commodity that there are 1,000 of that everybody thinks is worth more than it is.

Adam Van Wie | 12:23

Yeah, not that it's not a beautiful area with a ton of reasons to go and visit, but there's only so many people that are going to do that every year, and that number is way down since 2022.

Joey Loss | 12:37

Yeah. Yep. So good news, the economy was stronger than we thought. Again, that's part of why the bond yields are rising. But if we look at real GDP instead of nominal GDP, Q2 revised up from 1.5% to 2.2%. First half growth now at 2.4%, and it was at 1.8%. So I guess from the Fed's perspective, that, that is more of the good news on which they made the decision to raise rates before today's jobs report. Q2 consumer real spending was up 3.8%. It's the best quarter since Q4 of last year or Q4 of 2024, savings rates also revised notably higher, which that's pretty interesting for savings rates to be rising in the current environment.

Adam Van Wie | 13:23

Yeah, that is unusual. I don't, I'm not sure that it doesn't add up with the other data, like loan delinquencies are rising also. So usually you don't see those 2 things rise together because If people can't pay their bills, they're certainly not saving more. Yeah.

Joey Loss | 13:44

It sort of seems like you have debt, you have consumer real spending, and then you have savings. Like, where else is money going? They're all rising. So how does that work?

Adam Van Wie | 13:53

I mean, I'm not sure how that math works. Maybe, I guess, again, you could point to the K-shaped economy. There's a certain subset of people that are becoming more delinquent on their loans and are doing worse. And then you have the other part of the K where you're saving more and spending more, I guess.

Joey Loss | 14:16

Yeah.

Adam Van Wie | 14:17

The spending more could be across all the whole spectrum. It's just how much more do you have to spend? And if it's more than you are spending, you're saving it. And if it's less than the increases in your annual expenditures, then you're probably becoming delinquent the, on your credit cards and your other loans.

Joey Loss | 14:40

Yeah. Or maybe everybody's just going on margin and saving.

Adam Van Wie | 14:45

Oh, I hope not.

Joey Loss | 14:47

I hope not too. That would not be good. Corporate profit margins were revised down half a point in Q2. The Q3 GDPNow tracker fell from 5% to 3.7% as AI hardware imports widened the trade deficit about 50% in 3 months. So none of this agrees with itself. I think we're just in a period where every month you're going to get a very different snapshot. And you're good about saying that what we need to watch is the trend, not any snapshot, because snapshot in time, I guess, just doesn't really make any sense. And clearly, this is the case.

Adam Van Wie | 15:22

Yeah, I agree. It's kind of like evaluating a company. A balance sheet is nice, but it's just a snapshot in time. You really need an income statement to parse out what happened over a time period. And so you can't just make a decision about whether something is investible based on a balance sheet.

Joey Loss | 15:43

In bond markets, I don't think— I may have spent less than half a percent of my time thinking about investments over the last 10 years focused on international bonds, but there is some interesting activity in international bond markets right now. People often criticize the US deficit, as a reason not to love US debt as much as maybe in times in the past. But the European bond market is having real trouble, and France is at the top of that list. The France versus German 2-year spread is at crisis levels. 10-year spread is at 152 basis points and 30 years at 170. Now price— these now price France somewhere between BBB and junk.

Adam Van Wie | 16:27

Wow.

Joey Loss | 16:28

Bespoke leans toward a dislocation that unwinds, not necessarily a true downgrade, but given all the rate movements, both by central banks and by people's participation in the international bond markets, I think certain markets are having a very hard time figuring out where they stand in reality.

Adam Van Wie | 16:47

Yeah. France is having some other problems too. There's A little bit of civil unrest.

Joey Loss | 16:53

Yeah.

Adam Van Wie | 16:54

It's, I guess, not too surprising that it's showing up in the financial markets as well. Europe just hasn't set up a structural environment where growth and new innovation is leading them forward like America has. I mean, where is Europe in AI? Are they even on the radar? I've, I have not heard a single thing or company based in Europe that is that is innovating in that space, which, how does that happen? How do you have an entire continent group of countries that is as advanced as anywhere else in the world and they're being just not talked about in this discussion? I just, I think the thing that keeps people buying American treasuries despite our deficit is that we have a system that promotes innovation and growth, and there is a path out of our deficit through growth. Can you say that about any country in Europe?

Joey Loss | 17:56

Yeah. I mean, the challenge that they have is, I mean, it's a cultural one. I mean, Americans place such a premium on innovation, and that's a huge cultural difference, but that alone doesn't explain it. I think another big component of it is America has 50 states that really work together for the most part, whereas the EU is— they just destroy the capacity for scale to be an asset for any of these companies. So the EU is as unified as it has to be for people to take a train from one place to another, but it seems to struggle when it comes to recognizing the business permissions of their neighboring countries so as to allow countries— certain companies to grow at scale across the EU. Like, if you planted an Apple tomorrow with all the skills that Apple's ever had, it just could not scale in Europe as it would in America because of all the different rules they'd have to fight to get anywhere across all the European countries, whereas America just doesn't have that hamstring.

Adam Van Wie | 18:56

That seems pretty accurate as well. Structurally, it's just kind of a mess. Makes it less attractive from an investment standpoint and from a buying their bond standpoint as well. I mean, I, yeah, I'm not surprised to hear about those problems. Yeah.

Joey Loss | 19:14

You've been following oil this month?

Adam Van Wie | 19:17

Just the, mainly the price and what's happening in the strait. But outside of that, not any more than usual.

Joey Loss | 19:25

I saw something yesterday saying that volume is up like pretty close to where like volume of oil leaving the strait is getting reasonably close to where it was pre-war, but people aren't really talking about it. Is that what you're seeing?

Adam Van Wie | 19:40

That's accurate from what I've read. And the reason that you're not seeing the price come down immediately on that news, I think, has a lot of reasons. One is the inherent risk in that. That could stop overnight potentially. I think you've got a lot— oil is a global commodity, obviously. There's a lot of futures contracts that have already been paid for. And so you're not going to see an immediate move in the price of oil just because we get— even if that were to sustain for a week, 3 weeks, I think it has to be a longer sustained period of pre-war shipping levels. The other problem that I've read about is China has— their oil consumption has been way, way down and it's starting to rebound right as things get back to pre-war levels. So the fact that their consumption has been so far down has really this situation. I know it doesn't feel like it, but it actually has. But if they were to ramp back up to pre-war levels or pre— where they were prior to the decline, that could be a major problem because demand would be way up.

Joey Loss | 20:50

Yeah. Well, and you have all these countries that are now interested in refilling their reserves. So even if we went back to some sort of confidence that the strait was open and was going to stay open, I think you'd see It would take 6 to 12 months

Joey Loss | 21:05

to get back to pre-war levels of gas prices and diesel and everything because of how much supply people need to backfill at this point.

Adam Van Wie | 21:15

Yep, that makes sense. But they may, if there was a pretty clear downward, I guess, pricing trajectory on oil, they may wait until next year to redo that. I'm not sure. how low everyone is. But if they're not in critical levels, then there could be some strategic reasons to wait and see what happens with pricing.

Joey Loss | 21:41

True. Yeah. One thing that helped recently was the US pleaded with France to get 50 million barrels of European diesel released through the IEA. Diesel futures are back to their 50-day average, which is down $0.80 a gallon from the mid-September highs, which I think a week or two ago when we went to our radio show, we were like, Diesel's pushing $6 and change in Florida, which is not an expensive oil place. So obviously diesel's probably the biggest part of this. I think all the natural gas and capabilities of America when it comes to oil protected us a good deal from like really bad regular gasoline issues. But diesel's its own beast and we don't— we can't just pull that out of the ground.

Adam Van Wie | 22:26

No. And diesel is what so much of the— so much of our shipping and what the

Adam Van Wie | 22:33

When you talk about the cost of goods and the price of oil's effect on those, a lot of what you're talking about is diesel.

Joey Loss | 22:42

Yep, for sure. All right. Well, we've talked about a lot of things that feel kind of negative. Honestly,

Joey Loss | 22:51

the market in the 4th quarter tends to be the best of any quarter of all years. I have that right, right? I think that's It's November, December in particular are excellent months.

Adam Van Wie | 23:02

Yeah. The 3-month period around Christmas is generally one of the better times of the year.

Joey Loss | 23:09

Yeah. So here it is. It's median S&P gain after a period like this, particularly from October 2nd on. The median S&P gain is 1.1% over 1 week, 1.2% over 1 month, and 6.4% over the next 3 months. So probably the best couple months of the year. Midterm year pattern, Q4 of a midterm year, which obviously we have elections coming up, through Q2 of the pre-election year has been the strongest 9-month stretch of the presidential cycle since 1929.

Adam Van Wie | 23:43

Really?

Joey Loss | 23:44

That's really interesting. And so based on the previous notes that the next month is going to be 1.2 versus 6.4 over the next 3 months, obviously post-midterms through mid next year, I guess, is representative of the best performance period of the whole 4 years.

Adam Van Wie | 24:02

That's really interesting because typically the second year of a presidential term is the worst of the 4 years too. So I would not guess that.

Joey Loss | 24:12

So I guess the takeaway is if we get to November 3rd and the market's anywhere near where it is right now, then we made out like bandits because it's been such a good year. And it's supposed to be kind of a zero burger net from start to finish.

Adam Van Wie | 24:26

Yeah, very unusual to see the gains that we've seen in the second year of any presidency based on historical data. Of course, that isn't an accurate prediction for future data, but it is something to note.

Joey Loss | 24:42

Yeah. And so, I mean, going into Q4, this to me, this looks like a perfect year to, especially when breadth is declining. to look across your portfolio and see what opportunities you have to maybe offset some gains with some losses and get back to a target allocation you want to be at. I think sometimes these moments are kind of a gift from a planning standpoint, even if they don't feel great. What do you think?

Adam Van Wie | 25:06

Yeah, definitely. I think there's some real opportunities out there to tax loss harvest. I think that a rebalance right now is worth considering if you haven't done one in a while. Yeah, I totally agree. I think these times don't always feel good, but they do provide great opportunities.

Joey Loss | 25:25

Yeah. And bonds probably don't feel that exciting right now, especially if you've bought one 2 or 3 months ago or bought a bond fund or something and you've just watched the face value fall. But just realize that the higher rates go, especially relative to 10 and 15-year averages, The more upside you have in the face value of your bond fund or your actual bond as rates eventually turn around.

Adam Van Wie | 25:46

And it's on 2 fronts, which is even better because you're— all the bonds that the fund is buying now are paying a lot more than what they were a year or 2 years ago. And then if rates do come down, the value of all the bonds in the portfolio is going to go up and you can recoup some of those losses that you've probably had over the last month or 2. And so it's kind of doubly good news in that you're making more money on 2 fronts potentially.

Joey Loss | 26:14

Yeah. It takes discipline to commit to that and just kind of turn your head until things change. But there's certainly rewards there for those that should own them. And of course, we're not talking about a 30-year-old with a Roth IRA. This isn't the place to be trying bonds for the first time, probably. But if you're edging near retirement or you have an account that represents 5 to 7 years spending, you might buy a house in a couple of years. Bonds are probably a pretty good place to be after all the run in equities. Just something to think about.

Adam Van Wie | 26:46

Definitely. I personally think that they're pretty attractive right now and getting more so every time I see another spike in the 10-year yield.

Joey Loss | 26:59

Awesome. Well, any other thoughts or closing considerations for people as we wind down the episode?

Adam Van Wie | 27:07

I'll just remind people that we did talk about a lot of negatives today, but a lot of, if you look at the underlying fundamentals of the, especially the US economy, companies are still making a lot of money and that's what's really important in the long term. All the short-term stuff, especially the political stuff, I, it does not matter What you think about what happens in the midterms, it does not matter to the stock market barely at all. Sure, there are some, some things that may change and companies will have to adjust based on the results, but honestly, it's nothing to worry about as far as your investments. What you should be watching is, are the increases that we've seen in corporate profits going to sustain over the next 3, 6, 12 months, 24 months? If they are, I think that all of this noise surrounding the stock market right now and all of these worries are not going to be what drives the market forward in the next couple of years. So just think about that as you're making decisions with your portfolio.

Joey Loss | 28:08

Yeah, that's good advice. I mean, just think about how many times these red lights have turned on and then 2 weeks later, they're all off, market's booming. I mean, 4 or 5 times in the last 36 months.

Adam Van Wie | 28:21

Yeah. Today we're, we're, the market's up substantially on objectively fairly bad news. The jobs report was kind of a stinker and yet the market's up over 1% on the S&P. So the, you can't try to predict what's going to happen in the market is a, is a losing game. Just don't do it.

Joey Loss | 28:43

Yeah.

Adam Van Wie | 28:43

Just look at what is happening with corporate profits. What direction are they headed? And Are companies growing and making more money as they do so?

Joey Loss | 28:53

Yeah, totally agree.

Adam Van Wie | 28:55

All right.

Joey Loss | 28:55

Well, we will take a pulse in another 2 weeks, see where things are. I guess we'll be coming up on another Fed meeting pretty close by that time. So, it'll be interesting to see where things stand.

Adam Van Wie | 29:06

Definitely looking forward to it.

Joey Loss | 29:08

Yeah. Thanks for your time, Adam.

Adam Van Wie | 29:09

Thank you.