The FED Just RESET The Stock Market
Summary
TLDRIn this financial analysis, 'Papa Tom' addresses the market's reaction to recent inflation data, noting a significant rotation with small-cap stocks outperforming tech giants for the first time in years. He explains the shift as a response to Federal Reserve hints at rate cuts, which could benefit real estate and small caps previously hurt by high rates. Tom reassures viewers that a single day's market movement isn't indicative of a trend, advising a long-term, diversified investment strategy rather than timing the market.
Takeaways
- 😴 Papa Tom just woke up and is discussing the current state of inflation and market reactions.
- 📉 The IWM (Russell 2000) has outperformed the NASDAQ for the first time in a long time, indicating a shift in market trends.
- 💼 Big tech stocks like Nvidia, Microsoft, and Meta have been safe havens for investors during high interest rates, but this may be changing.
- 📈 Small cap stocks, represented by the Russell 2000, have been underperforming due to their sensitivity to interest rate hikes.
- 📊 Recent CPI data showed cooler than expected inflation and a month-to-month decrease, hinting at potential rate cuts by the Federal Reserve.
- 💡 The market is responding to the possibility of three rate cuts in 2024, which has led to a rotation into previously undervalued sectors like real estate and small caps.
- 🤑 A significant amount of money is expected to flow from money market accounts into equities as interest rates decrease, benefiting small caps.
- 🚫 Papa Tom advises against trying to time the market and recommends a dollar-cost averaging (DCA) approach for investors.
- 🤔 The recent market movements are not necessarily indicative of a new trend but rather a reaction to recent economic data and Federal Reserve hints.
- 📉 Tesla's stock price drop is attributed to a delay in their robot taxi event, presenting a buying opportunity for those interested in the stock.
- 🛑 Corrections in the S&P 500 are normal and healthy, and the recent small dip is not a cause for alarm but rather a part of the market's natural cycle.
Q & A
What was the main topic discussed in the video script?
-The main topic discussed in the video script is the recent market shift where the IWM (Russell 2000) outperformed the NASDAQ, the implications of this shift, and the potential impact on investors and traders.
What does 'IWM' stand for and what does it represent in the context of the script?
-IWM stands for iShares Russell 2000 ETF, which represents the small-cap stocks in the Russell 2000 index. In the script, it signifies the small-cap stocks that have recently started to outperform the NASDAQ.
Why have the large-cap tech stocks like those in the NASDAQ been performing well until recently?
-Large-cap tech stocks have been performing well because they were seen as a safe haven for investors during high interest rate environments. Investors flocked to these companies as they were less sensitive to interest rate hikes.
What is the significance of the recent CPI data mentioned in the script?
-The recent CPI data is significant because it showed cooler-than-expected inflation and a month-to-month decrease for the first time since 2020. This has led to expectations of the Federal Reserve dropping interest rates, impacting the market dynamics.
What is the 'three cut year' mentioned in the script, and why is it important?
-The 'three cut year' refers to the expectation of three interest rate cuts by the Federal Reserve in 2024, in September, November, and December. It is important because it signals a shift from restrictive to accommodating monetary policy, potentially leading to increased investment in certain market sectors.
Why did small-cap stocks like those in the Russell 2000 suffer in the past high-interest-rate environment?
-Small-cap stocks suffered because they are extremely sensitive to interest rate hikes. They often have less cash reserves and need to borrow money, making high interest rates a significant burden.
What does the speaker suggest about the current state of the tech stocks after the recent market rotation?
-The speaker suggests that tech stocks do not have anything to worry about and that the current market rotation is not a sign of a crash but rather a temporary cash movement into previously ignored stocks.
What is the speaker's stance on trying to time the market based on the recent changes?
-The speaker advises against trying to time the market, stating that it's impossible to predict with certainty. Instead, they recommend a dollar-cost averaging (DCA) approach for investing in stocks.
What is the significance of the unemployment rate in the context of the Federal Reserve's potential rate cuts?
-The unemployment rate is significant because it can influence the Federal Reserve's decision on interest rates. A high unemployment rate might make rate cuts more likely to stimulate the economy, but it also raises concerns about potential economic instability.
How does the speaker view the recent correction in the S&P 500?
-The speaker views the recent correction in the S&P 500 as healthy and necessary for the market. They explain that corrections are typical and can be beneficial for the sustainability of a bull market.
What specific event related to Tesla is mentioned in the script, and how did it affect the stock price?
-The script mentions that Tesla pushed back the robot taxi event from August to October. This news led to a significant drop in Tesla's stock price, which the speaker views as a potential buying opportunity for those who have been waiting for a dip.
Outlines
📉 Market Shift: Small Caps Outperform Big Tech
Papa Tom discusses the unusual market event where the small-cap index, represented by the iWM, outperformed the NASDAQ for the first time in a long while. He explains the significance of this shift, which indicates a rotation away from big tech stocks that have been seen as safe havens during high interest rates. The video addresses the implications of this change for investors and traders, emphasizing the need for a strategic approach rather than panic. Papa Tom provides a comprehensive analysis of the market dynamics, including the impact of the Federal Reserve's potential policy changes on various sectors like real estate and small caps.
🤔 Analyzing Market Reactions and Portfolio Strategies
In this paragraph, Papa Tom addresses the market's reaction to the CPI data and its implications for tech stocks. He reassures viewers that the recent movements are not indicative of a tech stock crash or a new market trend, but rather a temporary cash flow from big tech to previously neglected sectors. Tom highlights the importance of a diversified portfolio and advises against trying to time the market. He also discusses the potential influx of funds from money market accounts into equities as interest rates are expected to drop, which could benefit small caps without negatively impacting tech stocks.
🚀 Tesla's Correction and Market Rotation Dynamics
Papa Tom comments on Tesla's stock price dip following the announcement of a delay in their robot taxi event. He views this as an opportunity for those looking to invest in Tesla and advises a dollar-cost averaging strategy. Tom also touches on the broader market rotation that occurred due to better-than-expected CPI data, which had already been priced into the market. He emphasizes the importance of not overreacting to single-day market movements and maintaining a long-term perspective, especially considering the upcoming inflation data that could influence market trends.
Mindmap
Keywords
💡Inflation
💡iWM (Russell 2000)
💡NASDAQ
💡Interest Rates
💡Federal Reserve
💡CPI (Consumer Price Index)
💡Tech Stocks
💡Portfolio
💡Dollar-Cost Averaging (DCA)
💡S&P 500
💡Tesla
Highlights
Papa Tom discusses the impact of inflation on the market and the significance of the recent market movements.
The IWM (Russell 2000) outperformed the NASDAQ for the first time in a long period, indicating a shift in market dynamics.
Big tech stocks like NVIDIA, Microsoft, and Meta were considered safe havens during high interest rates, attracting significant investment.
Small caps, such as those in the Russell 2000, were negatively affected by high interest rates due to their sensitivity and lack of cash reserves.
A rotation in the market occurred with the first signs of the Federal Reserve potentially lowering rates, as hinted by Jerome Powell.
CPI data showed cooler than expected inflation and a month-to-month decrease for the first time since 2020, affecting market expectations.
Market anticipation of three rate cuts in 2024 has increased significantly, with these cuts now priced in at over 90% likelihood.
The potential shift in monetary policy from restrictive to accommodating has led to a flow of money back into previously beaten-down sectors like real estate and small caps.
Papa Tom emphasizes that the market rotation is not necessarily the beginning of a new trend but rather a reaction to recent economic data and Fed hints.
A broadening of the bull market, with small caps gaining attention, is seen as healthy and sustainable for the continuation of the market uptrend.
Money is expected to flow from money market accounts into equities as interest rates decrease, benefiting small caps and not necessarily hurting tech stocks.
Papa Tom advises against trying to time the market and suggests a DCA (Dollar-Cost Averaging) strategy for long-term investors.
The recent correction in the S&P 500 is considered healthy and necessary for the market's overall health in a bull market.
Tesla's stock dip due to the postponement of the robot taxi event is seen as a potential buying opportunity by Papa Tom.
Papa Tom addresses concerns about the unemployment rate and its potential impact on rate cuts and the stock market, suggesting that rate cuts can be positive if the economy is not too far gone.
The transcript concludes with a reminder to stay calm and not overreact to single-day market movements, emphasizing the importance of a long-term perspective.
Transcripts
so I just woke up about 10 minutes ago
and talking about inflation 10 minutes
after you wake up it's not fun but I got
to do this Papa Tom is here to relax
everybody everybody's running around
like headless chickens I got 10,000 DMS
everybody's wondering what the hell
happened yesterday what's going to keep
happening so I'm here Papa Tom is here
relax we don't have time to make the
full produced video with the camera is
in the gear but you're here for the
information so the quality of production
who cares now look yesterday was a c C
date I have some notes Here iwm For the
First Time In eons have outperformed the
NASDAQ iwm which basically means the
Russell 2000s the small caps has beat
the NASDAQ and by the way I know I said
the Russell 2000s in plural I just woke
up so iwm beats the NASDAQ for the first
time in God knows how long all big Tech
drops like a
stone and the big question on
everybody's mind is why why is this
happening what this means for the rest
of the year and how to act as an
investor as a Trader in this market and
I got you covered in this video A to Z
do not worry about a thing so so far we
have the mag 7 completely dominating
over the past year 18 months and the
reason that that happened is because the
Mac 7 the nvidias of the world the
Microsoft of the world the metas of the
world World well they were some sort of
a safe haven for a lot of investors
because when interest rates were above
5% which is a very aggressive
environment you want to flee to the
companies that you know are the least
sensitive to interest rate hikes which
is the meta the Google the Microsoft the
big companies that are not that
sensitive so a lot of money piled in
into money market accounts but also a
lot of money piled in into the big tick
as kind of A Safe Harbor away from the
nasty interest rates
now at the same time and this is
something we talked about on the channel
multiple times these small caps the
Russell 2000 has literally done nothing
if you go back before yesterday A year
of no performance nothing flat it was
actually even red a little bit now that
happened for the same reason that the
big tick ran up interest rates are too
high the small caps are extremely
sensitive the to interest rate hikes
because they don't have as much cash
reserves they need to borrow money so
they're Ultra sensitive to high interest
rates and at a 5% interest environment
they suffered and they suffered hard
yesterday was a huge rotation where this
was pretty much the first step of the
rules of this game changing a little bit
now just before yesterday we had the
first indication and a lot of people
perhaps play this correctly I don't know
I don't trade so I don't play this game
but
the day before the CPI came out
yesterday Jerome Powell was on TV
literally giving you the hints and he
said look we will drop rates even if we
don't hit 2% CPI even if inflation does
not drop to 2% the economy is starting
to get bad we have to drop rates now he
said that 24 hours later CPI data comes
out it's cooler than expected and on top
of it it actually went down on a
month-to-month basis for the first first
time since 2020 so inflation was
actually negative month to month for the
first time in four years four and a half
years now that brought back on the table
the three cut year that everybody was
talking about about 6 months ago but now
it's actually real now we know we're
getting three Cuts in 2024 September
November December now if you go to the
FED watch CME watch tool whatever it's
called you can see right now that these
three rate cuts are priced in at 90% and
above likelihood September November
December now the result of this
happening the result of the Federal
Reserve pivoting away from restrictive
monetary policy to an accommodating
monetary policy has caused a lot of
money to flow back into the damaged
goods of yester year which is the real
estate stocks which is the small caps
real estate has really suffered because
of high interest rates obviously I've
explained this multiple times High
mortgages means that people can't buy
sellers don't don't want to sell it to
reduce price so real estate suffered
small cap suffered and yesterday when we
had confirmation that the FED will start
pivoting that immediately got priced in
and people started jumping on these
beaten down real estate small caps just
like Tom Lee said would happen multiple
times on CNBC for the past 6 months now
it's only one day so I don't want
anybody here getting crazy ideas that
this is the beginning of an avalanche oh
my God this is melt up I don't know
what's going to happen nobody does
nobody does nobody understands nobody
knows it's just one freaking day relax
this isn't the beginning of the new melt
up it's also not the beginning of a
crash of tech stocks it's just one day
it's too early to tell what's going on
now I don't think Tech talks have
anything to worry about there's no issue
with tech talks I'm going to relax you a
little bit it's just cash literally
moving away from the big de
where the money was parted right now
into the stocks that were absolutely
ignored until now so this cash moving
means people sell S&P 500 people sell
NASDAQ and they buy the iwm iwm sorry I
just woke up it's normal in fact it's
actually very good for the tech stocks
and this is the point where a lot of
people are going to miss what just
happened it being a good thing now the
one thing that people need to understand
is that a very narrow
High bull market which we had I'm de now
in which seven stocks lead the way and
the rest are basically it's either fast
or Fe feem femine femine femine femine
sorry femine fast or femine just woke up
it just woke up and it's not my first
language so basically you either are
extremely rich if you're in the max 7 or
you get nothing if you're outside the
Mac 7 that kind of narrow bull market is
not healthy it's not sustainable so a
broadening of the bull market is very
healthy if we want the bull market to
continue so the development that we saw
yesterday in which the small caps got
some love for the first time in two
years it's healthy and it's also good if
you want to see a sustainable bull
market across the board now there's
still a lot of money that hasn't flown
back into the iwm into the wrestle 2000
and it's not necessarily all going to
come from tech stocks and the S&P 500
and the NASDAQ some will but the
majority of money that's going to start
coming right now back into the small
caps is the money market accounts that
$6 trillion do that Tomley told you
about $6 trillion currently sitting at
5% interest as that interest drops to 4%
3% because the rate cuts are coming
what's going to happen is the stock
market the equities are going to look a
lot more attractive especially if you
missed out on the past 18 months R so a
lot of the small caps are also going to
get a lot of love from money market
accounts there going to be $ 1.5 to $2
trillion is going to flow from money
from money market accounts into equities
and that's not going to hurt tech stocks
at all and I don't think anybody here
can expect how this is going to play out
so I don't
condone trying to time this Market it's
impossible if you want to DCA into your
favorite stocks do it but trying to time
this and go all in on iwm and Russell
2000 right now maybe it works maybe it
doesn't nobody knows that's not the
right way to do it now 40% of my
portfolio is is in S&P 500 40% is in
paler 20% is in Tesla that hasn't
changed in years my portfolio has done
very well because I literally left it
alone for the past few years I haven't
touched it and it's been very beneficial
to me now I'm going to explain here one
time and one time only this small
correction we just got yesterday is
healthy for the S&P
500 it may continue it's not over yet
Perhaps it continues a little bit more I
don't know it may stop who knows the
idea here is that you need to understand
that number one we have more inflation
data coming up which will derail the
whole thing so if we have bad inflation
data over a sudden then this might
change completely and rotate back on top
of it don't forget that the S&P 500
needs Corrections the S&P 500 corrects
five times sorry 5% three times a year
so every year the S&P 500 literally
corrects
5% unless this correction happen on time
they happen very violently it's the
rubber band effect so because we went up
so violently up for the past 30 days 6
months we needed a correction now that's
not really a correction what happened
yesterday it pulled back by 1% but if we
get a 5% correction on the S&P 500 it
may feel very painful and
violent but it's healthy for the S&P 500
in the bull market in the bull year the
S&P needs to pull back every once in a
while to
correct now nothing really happened
yesterday people are freaking out and
I'll talk about Tesla in a second it's a
very specific case Nvidia pull back oh
my God I checked nvidia's price it's
literally the price it was four days ago
so the Nvidia pull back brought it back
four
days so what are we really talking about
here nothing broke relax now what
happened with Tesla is the very specific
case Tesla pushed back the robot tax and
they reportedly I don't know if it's
been confirmed yet or not just woke up
they pushed back the robot taxi event
from August to October oh my god oh no
it's down
9% look you guys waited for a correction
you asked for a correction my whole
Discord is filled with people saying oh
my God I wish Tesla dips I wish Tesla
dips here you go you got it on silver
platter nothing has changed
fundamentally now by the way this
Recreation might continue it might drop
another 9% who knows so I don't say go
all in right now I just say DCA dollar
cost average unless you're a Trader you
have to understand you have to make a
decision every time understanding what
kind of role you're operating under you
either way your cap of a Trader or the
cap of the investor as an investor hey
DCA as a Trader might be an opportunity
here now a lot of crybabies talk to me
about oh my God oh my God Tesla I wish
it would dip but it ran away it's never
going to dip again the same people right
now are looking at this 9% drop saying
oh my God I'm too scared to buy this
right now don't listen to these idiots
do the smart thing if you like the stock
if you like the fundamentals DCA and see
this for what it is which is an
opportunity now the other two reasons
that the market have rotated yesterday
are that basically a lot of what we saw
yesterday with the CPI data being so
good has already been priced in over the
past 30 days in the market so nothing
really changed because people predicted
this expected this and the other thing
is because we have 4.1% unemployment and
you know a lot of people are scared that
this is not going to lead to a rate cut
that creates an explosion in the stock
market and they referred to 81 2001 and
2008 as the years where the FED cut
rates but the economy crashed anyways
now these rate Cuts in 81 2001 and 2008
didn't create the crash it was the docon
bubble and the subprime real estate
crisis the mortgage back Securities the
rate Cuts were a means to try to prevent
the crash didn't work the rate Cuts
don't crash the economy I can give you
six different examples from the 80s
until now that the r Cuts pushed the
market up so if the economy is normal if
unemployment rate is out of control if
we have good microeconomic data these
three rate Cuts will do good for the
economy if it's not too far gone yet and
it's not and I do think that the FED
dropping rates in 2024 will do it on
their terms which means we should have a
very positive reaction from the economy
and from the stock market and that's all
I got to say about this relax get some
coffee this Skai hasn't fallen Papa Tom
is here to save you I'll see you the
next one
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