The FED Just RESET The Stock Market

Summary

In 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

00:00

📉 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.

05:00

🤔 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.

10:01

🚀 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.

Keywords

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. In the video, the speaker discusses the impact of inflation on the economy and how it affects investment decisions. The recent CPI data, which indicates a cooler than expected inflation rate, is a key point in the video as it influences the Federal Reserve's monetary policy decisions.

💡iWM (Russell 2000)

The iWM is an ETF that tracks the Russell 2000 index, which consists of small-cap U.S. stocks. In the script, the speaker notes that the iWM has outperformed the NASDAQ for the first time in a long period, indicating a shift in market dynamics. This is significant as it suggests a rotation of investment from large-cap tech stocks to smaller companies, which are more sensitive to interest rate changes.

💡NASDAQ

The NASDAQ is a major U.S. stock exchange known for listing technology and biotechnology companies. In the video, the speaker mentions that the NASDAQ has underperformed compared to the iWM, reflecting a broader market trend where investors are moving away from large tech stocks to small-cap stocks due to expectations of lower interest rates.

💡Interest Rates

Interest rates are the cost of borrowing money and are a key factor in the economy that influences investment decisions. The speaker discusses how high interest rates have negatively impacted small-cap stocks and real estate, and how the expectation of the Federal Reserve lowering rates has led to a shift in the market, benefiting small-cap stocks.

💡Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States, responsible for monetary policy. In the video, the speaker talks about the Fed's potential to pivot from restrictive to accommodating monetary policy, which is expected to result in rate cuts that could boost the economy and certain sectors of the stock market.

💡CPI (Consumer Price Index)

The Consumer Price Index measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In the script, the speaker highlights the importance of the CPI data release, which showed a cooler than expected inflation rate, influencing the market's reaction and the Fed's policy direction.

💡Tech Stocks

Tech stocks refer to the shares of companies in the technology sector. The speaker reassures viewers that despite the rotation in the market, tech stocks are not in trouble and that the movement of cash is a normal part of market dynamics. The script mentions that even though tech stocks like Nvidia experienced a pullback, it was not a significant change in the overall market context.

💡Portfolio

A portfolio refers to a collection of financial assets such as stocks, bonds, cash equivalents, and other investments held by an investor. The speaker shares his own portfolio allocation, emphasizing a diversified approach with 40% in S&P 500, 40% in the iWM, and 20% in Tesla, suggesting a strategy that has served him well over the years.

💡Dollar-Cost Averaging (DCA)

Dollar-cost averaging is an investment strategy where an investor consistently buys a fixed dollar amount of a particular investment regardless of its price. The speaker recommends DCA as a prudent approach to investing, especially in the context of market volatility, as it reduces the risk of making poor investment decisions based on short-term market fluctuations.

💡S&P 500

The S&P 500 is a stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States. It is often used as a benchmark for the overall U.S. stock market. In the video, the speaker discusses the S&P 500's need for corrections and how these are healthy for the market, providing an opportunity for investors to buy in.

💡Tesla

Tesla is an American electric vehicle and clean energy company. The speaker mentions Tesla in the context of a specific market reaction to the company's decision to push back the robot taxi event, which led to a significant stock price drop. This is presented as an opportunity for investors who believe in the company's fundamentals to buy in using DCA.

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