Major US Indices (^GSPC, ^DJI, ^IXIC) have seen a rally with tech leading the charge in the past several months. One of the top stocks leading is Nvidia (NVDA) with Wall Street abuzz with any and all plays related to AI. Does this sector have more room to grow? How does all of this relate to the economy at large? With the Presidential election on the way, will the stock market be impacted? will the broader market and consumers be impacted?
Yahoo Finance Reporter Jared Blikre is joined by Freedom Capital Markets Chief Global Strategist Jay Woods for the latest edition of Stocks in Translation to discuss volatility in the market, the rally seen in the S&P 500, the part Nvidia plays in that rise, divergence in the market, and more.
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This post was written by Nicholas Jacobino
Video Transcript
Welcome to Stocks and translation, our essential conversation cutting through the market, mayhem, the noisy numbers and hyperbole to give you the information you need for your portfolio.
Today, I am joined by Jay Woods.
He is the Freedom Capital Markets Chief Global Strategist on loan from the Well, it used to be the New York Stock Exchange.
You want to say a quick hello here, I just came from the New York Stock Exchange.
It's great to be with you guys and great to be on the podcast.
Thanks for having me.
You bet.
And we're all, we also have Sydney Fried as always our intrepid producer here who's going to keep it real.
Um So today's theme, today's theme every day needs a theme.
We have mixed signals today which is not unusual in the markets, but we're seeing some non intuitive developments recently that we're going to break down for the viewers.
Our word of the day divergence.
And how can we actually measure some of these mixed signals?
Is music stopping and this episode is brought to you by the number of 35% and that's how much of the S and P five hundreds gained this year is due to NVIDIA and NVIDIA alone.
So, uh, well, let's get started here.
The story of the week, I'm talking mixed signals, Jay, we've got the Dow has been lagging the NASDAQ in a big way for the last 5 to 7 sessions.
We've got yields rising but not intuitively.
We have tech outperforming.
So usually when we have tech outperforming, you see yields going down.
But you know, what are you making of this situation?
Well, I'd like to see tech yield but something interesting happened last week when NVIDIA reported its earnings, uh we had in the S and P 500 a bearish engulfing candle.
I know you're gonna question what's a bearish.
We'll talk about that.
But uh what happened was the video was up, the stock market gapped higher and it could not carry the weight of the stock market on its shoulder.
So Atlas shrugged in this example.
And what happened was 90% of the stocks were down that day.
Since that day, we've had two days where the S and P 500 has been up one point, not 1% 1 point and Navidi was 40 points both times.
So NVIDIA has been holding the S and P 500 up and you mentioned divergence, your word of the day, we're seeing the NASDAQ go up because tech is leading semiconductors continue to do well.
And I'd like to see tech lead but the health care stocks starting to crack a little bit rotation.
Are we rotating only into semiconductors?
Now, we've had five different leaders this year.
Five months, groups, five different leaders each month.
So this time now technology takes the lead.
It's a nice rotation but something feels a little different this time.
And I think we're gonna pause.
So watch that Thursday, bearish engulfing candle.
We're in that range.
If we pierce below, we probably are gonna be testing that 50 day moving average 2.5% lower or we have a normal 5% correction.
It will be our second this year.
The one was the last one was recent, three a year.
So it wouldn't shock me to see a little bit of a pull back now.
And let's talk about some of these prior leaders and just the nature of markets.
Uh We have the opportunity here to kind of take a big picture of you.
When we talk about rotation in the markets, we're just talking about other sectors, kind of stepping up to the plate here.
Now, in the meantime, the indices, they might be treading water, they might be going higher, sometimes they go lower.
Uh But meanwhile you have under the surface here, you got some winners and you got some losers.
Talk about the winners, the other winners we've seen this year.
Yeah.
Well, the winners, there's very interesting talk about divergence.
I say bifurcation right now within certain sectors, you have certain stocks staples.
Perfect example.
You have Walmart doing well.
Target, not doing well.
Um, you have mcdonald's Starbucks.
Uh, oh, not doing well, but Starbucks isn't doing well.
But guess what is Dutch bros, coffee.
People are still buying coffee.
The consumer changing their spending habit, but the overall trend in the market continues to climb higher.
So, equities are where people are going now, seen it more into tech over the last week.
But other sectors have led utilities which was a laggard started to lead.
Yes, there was a little A I play but they were oversold.
They're coming back.
Uh We seen financials, one of my favorite sectors continue to act well in a higher for longer narrative.
So the rotation and energy led to begin the year.
Uh So we've seen different sectors take that mantle.
But when we see tech lead, that's usually a good sign.
We just need to see more tech join the NVIDIA party, the semiconductor party.
I mean, you're basically saying this, I don't get how any other sector these days wouldn't lead besides tech utilities.
I mean, it's a I play, but if I talk to you about American water, you're gonna fall asleep.
All right.
It's not gonna get clicks on Yahoo.
Finance the, the, the stocks that bring eyeballs are the ones that are mostly owned, the biggest market caps.
So when they move, they make headlines.
But as someone that follows all sectors and the market itself looks for the trends under the surface.
You wanna see what else is happening because you wanna see a broadening for too long.
We talked about the magnificent seven and it's the only seven star about it.
Oh, great.
Uh We go back to sleep.
Oh, well, American water will put you to sleep.
But yes, uh we wanted to see a broadening out.
We're getting it.
Uh but right now we're taking a little bit of a pause and I say this all the time.
I probably said it to you, Jared sideways is a direction and we're going sideways at all time.
Highs, NASDAQ 17,000 all time high yesterday.
Pulling back a little bit as we take this show S and P 500 within a percent or two of an all time high.
These, these are good things and if we pause here, it's not a bad thing.
Correction in time versus correction and price.
I wanna ask you about small caps.
You used to be a direct market maker down at the New York Stock Exchange where you were also a floor governor and uh just talk to us about maybe the market that you would make for some of these small cops.
And then maybe you mentioned, where do you think they fit into the modern modern market portfolio here?
Do you like them even?
I used to have hair too.
So for reminding me, but yes, I did spend 28 years as a market maker.
So I followed individual stocks.
Um II I think what, what is going on underneath the surface is fine.
Uh We are just having a normal rotation in a secular bull market.
So when you see pockets of strength in sectors or individual stocks within those sectors, uh as an investor, you wanna go where the puck is and you wanna go to the leadership.
People are like, well, you're buying stocks at all time highs, but all time highs usually beget all time highs, momentum continues to go in the direction of momentum.
This case up earnings growth, three straight quarters of earnings growth, something good is happening.
But there are a lot of negative headlines.
Uh and there's a lot of bifurcation divergence back to your word in the way people look at the market.
I saw a survey that said 50% of the people it surveyed.
I don't know who this survey was from.
Uh said that the market was down this year.
Well, you know, they're reading and seeing one side of the story without looking at the, you know, indexes themselves.
That's fascinating.
Let's let's break that down and kind of dig into that for a second because um we're talking about mixed signals and the big one here, I think a lot of people who are especially are new to trading as a lot of people are since the pandemic is the real economy, what you're experiencing your normal everyday life.
And then what happens in the stock market?
And I think what you just said that a significant amount of people percentage wise think that we are in a bear market right now.
Meanwhile, we're minting new highs.
Where do you think that perception comes from?
And then how do you resolve it if possible?
Uh I, I think it comes from political rhetoric to be honest with you.
Uh It's an election year and it happens to be an election year and we have two candidates that, that make headlines.
Uh Let's let's be honest about that.
Uh 2016 was a controversial election year.
And what happened when it's finally the dust settled market rally 2020 very controversial election year.
Guess what happened when the dust settled November 4th.
I believe it was the low going into it.
And then we rallied through January 6th.
We made a new high in the S and P 502 days after January 6th.
So these headlines that we're gonna hear the economy is not the stock market, the stock market is not the economy.
You have to look at these individual companies, how they're performing, how the consumer is treating them.
The consumer continues to be resilient, the companies continue to see earnings growth.
Uh And that is what's driving the stock market.
And what I'm waiting to see is even more growth in the stock market is the IP O market is starting to percolate it hasn't heated up, but there's one sector that it will heat up in the next 6 to 18 months.
Those are A I stocks.
Um, remember.com, anything with a.com after it, pets.com, everyone uses that as the example.
But there were dozens, hundreds actually that went public because they had a.com in their name.
This mania will come because I still believe this A I hype is in the early innings and we're just starting to see it get a little, you know, heated with the video because that's all people want to talk about.
I'm thinking this through as I'm saying, it so bear with me but like this A I mania, right?
It's already here.
You're saying there's gonna be more of it soon.
But when we talk about like Wall Street versus Main Street and how people feel about the economy, like I, I don't know your average person, maybe they're not paying that much attention to the stock market or A I mania just because they're paying more prices at the grocery store and that's what they care about, right?
So how do you more reconcile?
Like, forget about the politics for a second.
Like what are we really talking about when we talk about the economy versus uh versus main street?
Which is what the average person cares about?
Yeah.
And unfortunately it is a have and have not uh situation where the upper class has been doing really well and where is most of their, you know, wealth been generated, it's been generated in the stock market and we've seen great returns.
So in this case, the wealthier get even wealthier, they're doing well where, you know, the average guy on main street is worried about what they're paying at mcdonald's and we're seeing that literally in mcdonald's and then what they're paying at the pump, gas prices are a huge election issue every year.
It's the biggest tax on the American consumer because that's what they see change more than anything that fluctuates just as much as the stock market at times.
So when they have to do their everyday chores, their groceries, which have not come down in, you know, any, they never come down.
But uh they're seeing shrink.
You know, my, my box of girl scouts, the girl scouts started this shrink, by the way, we thin mints.
I am an expert.
It dangerous to blame the girl scouts.
I will start that war and I will die on that hill.
The girl scouts were the first people to reduce the amount of thin mints because I could eat a sleeve in about 60 seconds.
Then I could do it in 45 seconds.
Sounds like you're speaking from personal experience.
I may.
Uh Yes.
Uh, it's, it's something i it's one of my skills in life.
But uh, no, but to get back to the consumer.
Yes.
Uh There are parts of main street that don't understand what's going on and what they hear, they hear the mania things they hear when gamestop and Roy Kitty re you know, tweets for the first time in three years and they think they can make a quick buck and it's the long term investors that tend to do well over the long term.
Uh but when people are trying to make that quick buck and look at the market in a different light, it's great to have new investors.
But when new investors come to the market, people like us, people in my industry need to tell them one, the, the downside risks that are involved and, and two guide them say welcome.
Now, let's diversify a little bit.
It's not, stocks are going to the moon and I think we've seen it and I look at a stock like Robin Hood that's, you know, up 70% year to date.
Uh The stock is starting to see consistent user base and it's growing.
It's going after an older base of people like my, my age, which as you know, we won't diverge uh divulge, divulge, but uh you know, they're transferring their 401k, they're looking for more long term growth.
So II I think education shows like this uh help people that don't understand some of the things that people like myself have been engrossed in for 32 years and just talk like it's our everyday common language.
It's easy to do.
Uh We gotta pause here, take a quick break.
We were just talking about some of the head scratching moves in the market and we didn't quite get to our word of the day divergence, although you did touch on it and I just want to kind of break that down.
According to investopedia divergence is when the price of an asset is moving in the opposite direction of a technical indicator, it could be an oscillator or is moving contrary to data.
So divergence warns that the current price trend up or down may be weakening.
And in some cases, it may lead to the price changing direction.
And I think divergence for me is a useful indicator, not only in technical analysis but in thinking about the market.
Um if you have a couple of things going in the same direction, it could be classical Dow theory, you got the Dow industrials and the dow transports going in the same direction and then one of them diverges, well, maybe that's a signal.
Yeah.
And, and you talk about Dow theory to keep it simple.
Uh It's the industrials, those that make and then the transports, those that take the the the companies that chip and usually you want to see those go hand in hand and this goes back to the turn of the 19th century, 2019 hundreds.
I don't know what century that was the turn of.
Uh but that is, you know, a as simple as it gets.
And when you see divergences, what we're seeing in some of the consumer staples.
All right, something is changing and when you see relative strength, how well one stock is doing relative to its peers and all of a sudden it's doing a little worse, doing a little better.
It tells you that something is changing.
The tide is not lifting all boats and we have to be a little one more selective and two maybe defensive at times.
Uh I don't see a major divergence.
The ones to pause, maybe you're just pause.
Well, here's the big story.
It's the 10 year yield.
The yield in the 10 year last year, 2023 spiked up to 5%.
And when it moved, it moved quickly.
And what happened every time it took a leg hire the market, the equity market came in and now the yield is above 4.5% not necessarily heading to 5%.
I don't think we're gonna get there, but what goes up?
The market is digesting.
It is same with the higher for longer narrative with rates.
We aren't a higher historically average level, maybe below average level, 50 years.
But over the last few years, it's pretty high.
It is high, but this is the new normal.
And I think the market is telling us, let's get used to it.
It's been eight months since we've had a big move in rates and the market is trading much higher than when it paused.
If we cut, then maybe you're gonna see more participation.
You talk about the Russell 2000, those small caps that are more rate sensitive, they'll probably join the party.
If not lead the party on another leg hire.
Going back just a little bit.
You mentioned the 10 year people have their eye on treasury yields because we're thinking about what the feds gonna do with rates.
You mentioned the 10 year specifically.
What is it about the 10 year that is so important?
Why do, why is that kind of a benchmark?
Yeah, well, as rates go up, it makes it harder for smaller companies to borrow and they have to borrow at higher rates.
So their debt will increase uh for the older investors, they may take money out of equities because a 5% yield is safer.
The hey, I can get 5%.
I don't need the risk of the headlines that are going on during an election cycle.
So the yields will move the equities.
But when you get used to where the yields are, uh some of these mega cap companies are able to shake that off, they're ok.
The small cap companies struggle and they struggle to keep up and when you see volatility in yields, it really throws off their bottom line.
So the stability has been more of a story because we're not seeing volatility as much.
But the direction still is a problem right now.
Yeah, that's why I love to look at the move index, it's kind of like the vic for the bond market.
And as you just said, uh Jay, when, when you see increased bond market volatility, it just kind of spills over into everything else and, and disrupts the uh the portfolio want to move on now to our number of the day, it's 35 as in 35%.
And guess what NVIDIA is sitting on market cap gains of $1.6 trillion this year.
Meanwhile, the S and P 500 is up a cool 4.5 trillion.
So 35% of that is just NVIDIA of those gains in the S and P 500.
If you broaden this to the mag seven, the number is 60%.
So Jay, my question to you is, is it still just these seven stocks?
It's down from 70% by the way, just so, you know, yes, it is.
Um It is there the story but you can break down each of the seven stocks.
It's not Tesla anymore.
Apple has been flat for three years.
Uh Microsoft looks great.
Amazon is a stock that has yet to break out to all time.
Highs watch 190.
Uh I think that's a stock that could really lead the next leg of the mag seven.
But yes, over time, we always have had a leadership group, whether it was Exxon Mobile or AT&T back as recently as 10 years ago.
Yes.
Uh, these were stocks that everyone complained about.
It's too impactful on the market right now.
It's in the video and when you throw out 35% yeah, it's head scratching.
You're like, oh, if this thing comes in we're in trouble.
But right now there's a reason it's doing so well because the growth is there, the, it's trading at multiples that are not euphoric.
Historically speaking, when I talk about that, I talk about going back to the.com when Cisco Intel Microsoft were like 90 times earnings.
Yeah, that was euphoric.
Where, where is uh NVIDIA last?
I looked it was under 40 if I'm not mistaken because the earnings continue to grow.
Uh So right now, yes, it is alarming and it's a narrative that uh you know, a bear would definitely cling onto but how those bears been cleaning, they're falling like crazy.
They're raising their year end targets.
They've missed this boat.
Uh The boat continues to go higher.
Jay, you mentioned like there's always a leadership group in stocks going back to my like, why are we all bullish on tech?
Is, is it always going to be tech forever?
Now, these stocks that are leading, is there ever another category where the stocks are gonna, that I'm gonna lead against?
Exactly.
Yeah, I mean, there's something that some kids building in his basement right now that's gonna eventually take over the world and lead us.
I don't know what that is, if I did, I wouldn't be sitting here with you.
I'd be on a beach, I'd be on a beach in Hawaii.
Probably.
Uh, but no, yeah, the technology is where the growth continues to be as a nation.
We go back to, you know, when I started on Wall Street, the nineties and the internet was the big thing and the internet created its own economy.
It's everything we do is on the internet.
This is on the internet now A I is creating its own economy where it goes in what directions a lot of people talk about the negative.
It's gonna kill us.
We're gonna self destruct.
But there's a lot of good that's gonna come out of it and they're gonna be a lot of jobs created because there are college students, high school students, grade school students that are gonna learn this.
I'm not gonna learn it.
I'm too old.
I'm done.
My brain is full but these kids are gonna program the next technology and change how we buy things, how we shop, how things are brought to us, how we're entertained, uh how we're educated.
I think that could be the story longest model.
It also could be detrimental for a college student who didn't do their paper late at night.
And yes, I'm maybe talking to one of my child Children as we speak.
But yeah, I think that A I revolution we're still in the early infancy of it because we don't know exactly how expansive it can be then after a I your guess is as good as mine.
All right.
Well, we do have a few minutes left here and we have barely mentioned crypto a situation that we will now remedy Jay, why not?
Um sticking with the theme of the day mixed signals.
OK. Let's talk about the spot Ether ETF S that have uh they were left for dead at the SEC.
Suddenly they're on the fast track for approval.
It's reminiscent of the spot Bitcoin ETF S that were rejected until there was a court battle gray scale asset management when a key court battle that forced a reversal at the SEC.
Now it could be months before we finally get the spot Ether ETF S when you can actually trade them, but it looks like it's uh going to happen.
And based on what we know now who's wearing the sec about face on the spot ETF S better.
Is it Bitcoin or Ether?
There's no wrong answer.
There is no wrong answer.
Well, right now it's Bitcoin because they've been approved and it's been trading and it's a great way for an average investor who didn't really get involved in crypto to get involved and you know it a little safer, you know, you, you, you know the custody there.
Uh I am not a crypto expert when I look at crypto, I just look at the technicals because like you, I've studied these things and I don't understand, I can't hold it.
I can't touch it on the chart.
I understand the chart and the chart looks fantastic.
Above 70,000.
This is, this is fantastic ether.
What a run my God.
When it broke above, I think it was 3000, maybe 3200.
It kept going and guess what?
People have a strong demand.
It is a currency.
It's an asset class, it's here to stay.
It's not going anywhere, it's being accepted by, you know, those in power.
Some people look at that like, oh no, this could be the end of it.
But no, it allows the average investor to put it wisely into the retirement fund.
Uh just to hold it in their own investment accounts and they don't have to worry about custody and all these things.
So to me, when Ether gets approved and it trades an ETF form just like Bitcoin, I think that's a great thing and it's a great thing for the individual investor.
So it belongs a little bit belongs in your portfolio.
Um I have $200 worth of that.
Uh That's a little bit, it depends.
Portfolio is not that big.
No, yes.
I, I also have a thing learned by doing.
So whenever I'm not sure of something, an investment, I'll buy it and once I own it, I look at it differently, I know if it's going up or down and then I follow there was news in it now.
We don't get good news in, in big.
There's no earnings like I am so trained to be an equity trader that the Bitcoin movement, the ether movement while I've had a small part just to be in it really minimal uh exposure in my portfolio.
And I stick to what I know, which are equities.
Got you.
All right, Jay, we're coming to the, coming to the end.
We got a couple of minutes left and I am very curious about your time on the floor of the New York Stock Exchange, you got, you got some stories for us.
Uh There are some stories we cannot talk about on air, but uh the Stock exchange is a place like no other.
I got to go down there during the nineties is when I started and um it was a different, you know, it was kill or be killed.
My training was getting lunch.
Uh That is not really what we do with our interns or our young staff.
Now we, we put out linkedin Post welcoming them and we praise them and, and, and fine, we should.
Uh but uh uh I'll just edit myself and not say anything else to clarify.
No intern gets lunch anymore.
They will pick it up.
But uh you know, we usually buy it for them.
Uh But no, my training was different because it was a hand to hand world and my best training believe it or not was before I even got to the floor and I didn't know this.
Uh, I was a cox and on a crew team back in high school national champion, 1988.
Uh, yeah.
Yeah, I mean, but I, the two other coxes on the team, one won gold in Athens in 2004 and another one went into advertising and you'll see his commercials for Budweiser during the Super Bowl.
You're just what I do have a national championship from high school under my belt.
But that training, believe it or not, it actually helped me for the floor because I'm not the biggest guy in the room.
I may be the loudest guy in the room and that's where the cox and the crew helped and I was able to get the respect of my peers people bigger than me.
Let me lead, let me listen.
All right, you're a buyer or a seller.
Let's stick it together.
Uh That family that camaraderie on the floor was the best life lesson.
Those people I got to bond with and work with are some of the greatest people I've come across in my life and they helped shape me as I continue to grow in my career.
So the floor is a very special place.
It's not what it once was.
Um Yeah, I have a lot of great stories, but we could be here for three hours if I was to start and try to cherry pick one that's better than the other.
But there isn't a day I go into that building where I know I'm not lucky to still be going into that building and we're gonna leave it right there as we are out of time on stocks and translation.
Keep your dial tuned at Yahoo Finance.
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