Please Don’t Be Dumb Money…

Summary

The video discusses the current state of the U.S. stock market, highlighting the $150 billion influx into U.S. stock market ETFs, and a record-high S&P 500 performance. The video compares current market conditions to the late 1990s, including a high PE ratio, low unemployment, and stable inflation. It stresses that while the market is facing risks, such as potential recession and rising inflation, economic growth remains solid, and the Federal Reserve’s actions are supportive of the bull market. The speaker advocates a diversified investment strategy, acknowledging volatility while capitalizing on promising opportunities.

Takeaways

• 😀 The US stock market saw a surge of $150 billion into ETFs recently, a level only seen once before in 2021, coinciding with a record rise in the S&P 500.
• 😀 The S&P 500 has risen by over 26% in 2024 so far, while the PE ratio has reached levels similar to 2021 and the late 1990s, indicating a potentially overpriced market.
• 😀 Despite concerns over an 'irrationally exuberant' market, historical data suggests that the market can remain overvalued for extended periods, as seen in the late 1990s.
• 😀 Economic growth in the US is stable, with growth hovering around 3%, which historically supports bull markets in stocks.
• 😀 Initial jobless claims have been relatively stable, not signaling an imminent recession, despite some fears of an economic downturn.
• 😀 The yield curve, often an indicator of recession, shows inversion, but the current trend in jobless claims suggests a stable economy for now.
• 😀 The Federal Reserve has kept interest rates stable since mid-2023, supporting stock market growth, similar to the late 1990s.
• 😀 Core inflation has decreased significantly, allowing the Fed to maintain its stance on interest rates, though recent inflation upticks are raising concerns.
• 😀 Despite some short-term volatility concerns due to institutional leverage, the overall outlook for the bull market in 2024 remains positive.
• 😀 The portfolio of trades mentioned includes a diverse set of assets: crypto, Turkish stocks, Malaysian and Chinese stocks, uranium miners, and US utility stocks.
• 😀 The presenter emphasizes the importance of diversification in today’s market and advises clients to take advantage of ongoing opportunities, such as the Black Friday offer.

Q & A

What is the significance of the $150 billion flowing into U.S. Stock Market ETFs?

The $150 billion flowing into U.S. stock market ETFs is a notable occurrence, reaching a level not seen since 2021. This indicates a strong investor interest and confidence in U.S. stocks, especially in the wake of the S&P 500's impressive 26% growth in 2024.

Why is the current Price-to-Earnings (PE) ratio of the S&P 500 a concern?

The PE ratio of the S&P 500 is at the 90th percentile of the last 40 years, signaling that the market is highly expensive compared to historical standards. This raises concerns that stocks may be overvalued, leading some analysts to describe the market as 'irrationally exuberant.'

How does the market’s current situation compare to the late 1990s?

The current market situation mirrors the late 1990s in several ways: both periods saw strong economic growth, low unemployment, and rising stock prices. Additionally, Alan Greenspan's 1996 'irrational exuberance' warning did not prevent the market from continuing to rise for several years, suggesting that current warnings may not necessarily result in a market downturn.

What does the phrase 'the market can stay irrational longer than you can remain solvent' mean?

This phrase means that market bubbles or irrational market behavior can persist longer than investors anticipate. It highlights the risk of betting against the market, as timing a correction or downturn can be very difficult, leading to financial losses.

What is the biggest risk to the stock market today?

The biggest risk to the stock market today is a potential recession, which could reduce economic growth and trigger a decline in stock prices. While the economy is stable for now, a downturn in growth could pose a significant threat to the bullish market.

What are initial jobless claims, and why are they important for predicting a recession?

Initial jobless claims refer to the number of people filing for unemployment benefits for the first time. An increase in jobless claims is often an early indicator of an economic downturn, as rising unemployment typically precedes a recession. Currently, jobless claims are stable, suggesting that a recession is not imminent.

What is the significance of the yield curve in predicting recessions?

The yield curve is a graphical representation of interest rates on government bonds of varying maturities. Historically, an inverted yield curve—where short-term rates are higher than long-term rates—has been a reliable predictor of recessions. The current yield curve inversion suggests that jobless claims could rise in the future, signaling a potential economic slowdown.

How has inflation affected Federal Reserve policy in the past few years?

In the past few years, the Federal Reserve has maintained stable or slightly lower interest rates due to declining inflation, allowing the stock market to flourish. While inflation has recently ticked up, it hasn't been enough to prompt the Fed to raise interest rates significantly, which has supported continued economic and stock market growth.

What are the implications of a slight increase in inflation for the stock market?

A slight increase in inflation raises concerns that the Federal Reserve may raise interest rates, which could halt the bull market by making borrowing more expensive. However, historically, temporary inflation increases have not derailed the overall downward trend in inflation, suggesting that the market may continue to grow despite minor inflation upticks.

What is the current investment strategy being employed by the firm?

The firm is employing a diversified investment strategy, with positions in U.S. utility stocks, international markets (Turkey, Malaysia, China), cryptocurrency, and uranium stocks. This diversification helps mitigate risks from potential market volatility while taking advantage of emerging opportunities in different sectors.