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Why the Stock Market Will Keep Rallying in 2024 | TCAF 131

The Compound2024-02-24
Stocks#Stock Market#How To Invest#Investing#Money#Trading#Financial Advice#Investment Advisor#Josh Brown#Michael Batnick#ritholtz wealth management#finance#downtown josh brown#financial markets#wall street#the compound#financial services#investment management#investment strategy#business news#financial education#equities#personal finance#compound#podcast#inflation#Ryan Detrick#Carson Wealth#stock charts#nvda#nvidia stock#bill ackman#lex fridman
34K views|5 months ago
💫 Short Summary

In the recent Compounders Podcast episode, Michael Saylor discusses his son's participation in a stock market competition and the significant role of NVIDIA. The episode also covers NVIDIA's financial performance, the changing landscape of the tech industry, and the guest's personal journey in the financial world. Michael emphasizes the need to provide comprehensive services for the evolving data center market, drawing parallels to Apple's approach with the iPhone. The stock market outlook is also discussed, with insights into market behavior and the power of positive data affecting investors' perspectives.In the middle of the video, Barry Ritholtz and his guest discuss the stock market, emphasizing the challenge of predicting market downturns and the belief that the current market cycle has more room to grow. They also talk about the significance of earnings growth and how the market's fundamentals support the idea of an "activity bubble." Additionally, they touch on the outlook for the stock market and the economy, mentioning the potential for a surge in productivity and the role of fiscal policy in the market's growth.The video discusses the current state of the market, indicating that the recent rally is broad-based, with various sectors participating and showing strength. The speakers also talk about the concept of 'breadth thrust' and its significance in determining market trends. Additionally, they analyze the impact of the first Fed rate cut on the market and the outlook for small caps. The overall tone is optimistic, suggesting that the market is in a healthy and bullish phase.In the analyzed video segment, the speaker discusses the current state of consumer debt, highlighting that when compared to disposable income, consumers may be in a better financial position than previously thought. The video also includes a conversation about an upcoming event, a live stream with various prominent guests, and the host's podcast 'Facts vs. Feelings'.

✨ Highlights
📊 Transcript
✦
Michael Saylor's son is participating in a stock market competition, and his biggest position is NVIDIA.
00:00
Michael's son joined the stock market club at school and is embarrassed to tell people that Michael is his father.
Some kids in the club want Michael to speak, but his son doesn't want him to because he thinks it will be embarrassing.
Michael's son's biggest position in the stock market competition is NVIDIA, and Michael feels like the number one dad for teaching him about it.
✦
NVIDIA's CEO, Jensen Huang, made two significant points in his remarks. First, the old infrastructure is obsolete, and second, NVIDIA is shifting towards a services story, focusing on selling enterprise services to the whole installed base.
03:35
The world has reached a tipping point in a new era of computing, where the old infrastructure is obsolete, and there is a need to start over with new technology.
NVIDIA is transitioning towards a services story, similar to how Apple focuses on the services business with its iPhone installed base.
The key focus is not just on selling GPUs, but on providing software and services for the entire installed base of NVIDIA equipment in data centers worldwide.
✦
The guest's birthday is coming up, and he talks about his past experience and how he met the host.
06:27
The guest met the host at a Linden paloa event or a stocktoberfest event in 2014 or 2015.
He got interested in the stock market in 1999 while at Xavier University.
The guest lost and made a lot of money in the stock market and realized he wanted to work in that field.
He worked for an options newsletter for about 10 years in Cincinnati before starting to do media stuff.
✦
The guest is known for his quantitative and technical skills in the market and is also a good person, which is why the host roots for him.
10:22
The guest has a good track record in the market and is known for being illustrative when explaining his views.
He started his career in the market in 1999 and has since learned a lot from social media.
The guest focuses on real data and behavior of market participants, which has kept him on the right side of the market.
✦
The guest's style of combining market history, technicals, seasonality, and sentiment was a result of learning from social media and various presenters, as well as having a good understanding of Excel.
14:28
He noticed that sharing historical data and statistics on social media was popular and helped him learn and grow his following.
The guest also learned from other great presenters in the industry, such as Sam Stovall, and incorporated storytelling and humor into his analysis.
His ability to analyze data and stack potential positive factors has helped him make accurate market calls in the past.
✦
The guest believes that some people in the market have a negative outlook due to their own personal dissatisfaction and that market behavior is like crabs in a barrel, where one crab trying to climb out is pulled back down by the others.
18:10
The guest thinks that some people in the market are unhappy with their own lives and it bothers them to see others making money or having success.
He believes that market behavior is similar to crabs in a barrel, where one crab trying to climb out is pulled back down by the others, and this phenomenon is not fully understood.
The guest attributes the negative behavior in the market to a small group of people who overindex on Twitter and feel the need to shout down anything positive.
✦
Howard Marks and Barry Ritholtz discuss the difficulty of predicting market downturns and the tendency to default to a more constructive outlook.
24:32
Marks and Ritholtz agree that even if someone sees a market downturn coming, they may not be able to speak about it in negative terms.
The conversation refers to the 7-year itch, where markets usually go up for seven years before a bear market, and then continue to rise for another 11 years.
The speaker hopes for several more years of a strong market and a stronger economy, indicating a positive outlook for the future.
✦
The stock market has had two bear markets in 2020 and 2022, with significant drawdowns in various indices.
26:05
The first bear market in 2020 was not long and could be considered insignificant, while the second one in 2022 was more substantial.
The NASDAQ experienced a 35% drawdown, the S&P had a 25% drawdown, and the small cap index was also affected.
The speaker emphasizes that the market has not been a one-way track, with significant corrections and pullbacks, despite overall stellar returns.
✦
The speaker discusses the concept of an "activity bubble" in the stock market, where the high valuations are supported by the great fundamentals of certain tech stocks.
27:27
The speaker believes that the stock market is in an "activity bubble" where everyone has an opinion on the tech stocks, and their valuations are supported by great fundamentals.
Earnings growth has been a significant factor in the tech stocks' valuations, with the speaker mentioning Nvidia's negative multiple expansion.
The focus on tech stock valuations is due to their exceptional fundamental growth, but the speaker also acknowledges that other stocks and sectors are performing well.
✦
The S&P 500 equal weight NASDAQ 100 index is at an all-time high, indicating that it's not just the seven stocks driving the gains.
32:10
The equal weight index's gains show that a broader range of stocks are participating in the market's growth, not just the seven prominent stocks.
The NASDAQ 100 was up 56% the previous year, but the equal weight index was only up 20%, suggesting that the seven stocks have outperformed the rest.
The speaker believes that the economy will continue to surprise to the upside, supporting the bull market thesis.
✦
The discussion includes a playful analysis of why certain teams winning championships are bullish for the stock market, and the observation that stocks tend to have a good year after a down year.
35:14
The last 10 times the election year has been higher in a first-term presidency.
The economy still looks strong, with 8 million jobs created in the last two years.
Productivity is on the cusp of a major jump, with a 3.9% annualized increase in the last three quarters.
The speaker also mentions the potential for higher wages and inflation to stay under control due to the AI boom and infrastructure.
✦
The speaker discusses a bullish market setup based on past data and the current economic outlook, citing the strength in the previous year's market and positive outcomes for investors.
40:10
In October 2022, the market had a significant rally after a rare occurrence that marked a major low, leading the speaker to believe in the current bullish market setup.
The speaker also mentions the positive outcomes for investors in the last 10 times a similar market pattern occurred.
The productivity and inflation data also support a bullish outlook, with the potential for economic growth without a significant worry over inflation.
✦
The market is indicating that cyclical things have been leading, with industrials making all-time highs.
48:24
XLF, IYT, and XLI made new all-time highs, suggesting that the market is in a strong bullish trend.
The market is signaling that the strength lies in cyclicals, such as industrials, and not in utilities or staples.
✦
The concept that the market only advances when money comes out of tech stocks and is redistributed to other sectors is a sign of a broad-based rally.
50:17
Last week, when tech was weak, other groups like small caps and midcaps performed well, indicating a broad-based rally.
Breadth thrust, which is the simultaneous increase in the majority of stocks in the market, is a bullish signal, as seen in the past year.
✦
The first Fed rate cut is not always a sign of an impending recession, and the current economic cycle is driven by income.
51:35
The video discusses the idea that the first Fed rate cut does not necessarily signal a recession, as the S&P 500 returns after the first cut have varied over the last 10 cycles.
The speaker mentions that the current economic cycle is income-driven, which is different from previous cycles that were more credit-driven.
✦
The S&P 500 returns after the first Fed rate cut have varied over the last 10 cycles, and it is not always a sign of an impending recession.
54:47
The speaker also points out that the S&P 500 returns after the first cut have been different in the past 10 cycles, indicating that it is not always a predictor of a recession.
The yield curve inverted on April Fool's Day in 2021, but the type of cut observed was more of a normalizing cycle and not a panic cut.
✦
The speaker believes that the S&P 500 is in great shape, with high margins and earnings, and that the makeup of Congress may matter more than who wins the election.
57:26
The S&P 500 has performed well in the last 13 years, despite having a split Congress.
The speaker views the S&P 500 as being in great shape, with high margins and earnings.
The makeup of Congress may matter more than who wins the election, according to the speaker.
✦
The speaker discusses the current state of the economy, citing the high levels of consumer confidence and the stock market's bullish trend.
01:00:52
The speaker mentions that people are feeling better about the economy, as evidenced by the breakout in consumer confidence.
The S&P 500 has been performing well, having gained more than 20% in the past 15 weeks.
The speaker believes that the stock market is not particularly concerned with the upcoming election, as the focus is on the economy and consumer confidence.
✦
The S&P 500 has experienced a historic rally, and the second half of February and into March may see some consolidation, which is considered normal.
01:04:06
The S&P 500 has gone up 14 out of the last 15 weeks and gained more than 20% in the past 15 weeks, which is unprecedented in the history of the stock market.
The speaker suggests that a little pause or consolidation in the market would be normal at this point.
The data from the past 20 years, including a positive January and a 20% gain in the previous year, also indicates that some chop and churn in the market is expected.
✦
The speaker believes that the makeup of Congress matters more than the outcome of the election, as a split Congress has historically led to market gains.
01:07:24
Over the last 13 years, a split Congress has resulted in market gains, suggesting that the makeup of Congress is more important than which party is in power.
Infrastructure and onshoring policies have been positive outcomes of the current divided Congress.
The stock market does not seem to consider the upcoming election a significant factor, as it tends to focus more on the uncertainty surrounding the outcomes.
✦
Despite the significant amount of debt, when compared to disposable income, consumers are in a better financial position than in the late 90s.
01:11:22
Liabilities as a percent of disposable income were 98% in 1999, but are now at a similar level, suggesting that consumers have more income to handle the debt.
There is a record level of wealth and assets, and when subtracting the liabilities and normalizing based on disposable income, consumers are arguably in a better financial position.
Credit card debt relative to disposable income is at 5.5%, below the pre-financial crisis average of 8%, indicating a more manageable level of debt for consumers.
✦
The speaker suggests that the current mortgage situation is not a significant concern, with low default rates and a decrease in bankruptcies compared to pre-pandemic levels.
01:13:32
Mortgages, classified as liabilities, are not a major issue as the default rates are low, and bankruptcies have decreased.
Although there are spikes in delinquencies in some parts of the economy, it is considered a normalization from the pre-pandemic levels.
The only credible bear case at the moment is that the economy is doing too well, and there is a lack of significant negative indicators.
✦
The speaker shares the lineup for the upcoming live stream, including Dan Ives, Libby Cantrell, Kathy Wood, and Neil Duta, and discusses the approach of other podcast hosts and their guests.
01:16:10
The upcoming live stream event features Dan Ives, Libby Cantrell, Kathy Wood, and Neil Duta, with each guest scheduled to appear for one hour.
The speaker mentions another podcast host, Lex Freedman, who has interviewed high-profile guests such as Mark Zuckerberg and Jeff Bezos, and discusses the host's disarming and charming interview style.
The podcast host also talks about a woman who looks like a 14-year-old girl but is actually married and has interviewed Drake, displaying the diverse range of guests on different podcasts.
✦
The section discusses the Blackberry dramatization and the founder's approach to his investment rules, the podcast host's admiration for Bill Ackman, and the guest's storytelling and acting abilities.
01:20:01
The Blackberry dramatization of the story of research and motion is considered by the speaker to be incredible and shocking in its quality.
The founder of Blackberry, portrayed in the dramatization, had a humble approach after facing various challenges, including calling for a block of granite and a chisel to inscribe his investment rules.
The podcast host listens to the whole Bill Ackman Lex Freedman podcast, describing Ackman's storytelling and acting abilities as Academy Award level and genuine.
The podcast host admires Ackman's ability to make people feel his emotions during the tough moments he went through.
✦
The speaker recommends watching the show 'True Detective' at night, in the dark, without a phone, to fully immerse oneself in the atmosphere, and discusses the interview style of a 14-year-old girl who got to interview Drake.
01:23:13
The first season of 'True Detective' successfully transported viewers into the world of the show, and the speaker suggests that the same approach should be taken when watching the new season.
Alaska is described as a fed-up place at this time of year, perpetually dark, which adds to the atmosphere of watching 'True Detective'.
The point of the new season of 'True Detective' was to explain the supernatural elements as real-world phenomena, which the speaker believes was done well.
The 14-year-old girl with a deadpan interview style was able to interview Drake and other hip-hop stars, showcasing her ability to disarm people with her approach.
✦
The speakers discuss the podcast 'Facts vs. Feelings' and the guest's expertise in macroeconomics, market technicals, and investment strategies.
01:26:22
The 'Facts vs. Feelings' podcast is released every week, focusing on macroeconomics and market technicals.
The guest, Ryan Dietrich, is an expert in macroeconomics, market technicals, and investment strategies, and has a great personality.
The podcast host and the guest have a complementary approach, with the host focusing on macroeconomics and the guest on market technicals.
💫 FAQs about This YouTube Video

1. What is the background of the guest who appeared on the show?

The guest, a quantitative and technically oriented person, started his career in the stock market in 1999 and has since learned a lot from social media and various presenters. He had a keen interest in numbers, made and lost money in the market, and realized that he wanted to pursue a career in finance.

2. How did the guest learn to combine different ways of viewing the market?

The guest learned from the response to his tweets that including statistics and numbers from market history made his posts more popular. He also drew inspiration from great presenters and speakers, such as Sam Stovall, and developed his style of combining various perspectives to analyze the market.

3. What is the significant insight into the market behavior shared by the guest?

The guest believes that market behavior is like crabs in a barrel, where one crab trying to climb out is pulled back down by the others. He thinks that some people in the market are unhappy with their own lives and don't like to see others succeed, leading them to behave negatively and try to bring others down.

4. What is the outlook for the stock market and the economy discussed in the video?

The speakers in the video discuss the outlook for the stock market and the economy, suggesting that the stock market has the potential for several more years of a good, strong market with a stronger economy. They reference past market cycles and believe that the current cycle has more room to grow. The focus on fundamentals and earnings growth supports a more positive view, with the suggestion that the economy is likely to continue to surprise to the upside.

5. How have the fundamentals supported the market, particularly in the case of NVIDIA?

The video highlights that the market's growth has been supported by strong fundamentals, with a specific example of NVIDIA's earnings growth powering most of what has been seen. The analysis suggests that if anything, there has been negative multiple expansion for NVIDIA, as its earnings have been far outpacing its share price. This indicates that the stock's valuation has become cheaper relative to its earnings, showing the underlying strength of the company's fundamentals.

6. What is the concept of an "activity bubble" mentioned in the video, and how does it relate to the current stock market?

In the video, the concept of an "activity bubble" is discussed in relation to the current stock market, particularly the tech sector. The speakers suggest that the high valuations in the market are supported by the great fundamentals of certain tech stocks, leading to a situation where "everyone has an opinion on these seven stocks" and they are "trying to overweight them." The term "activity bubble" is used to describe the enthusiasm and engagement with these stocks, driven by their strong fundamental growth.

7. What is the message of the market according to the speaker?

The market is telling us that the cyclical things have been leading, with the speaker expressing a preference for cyclicals and the strength seen in that area. The market's ability to rally in various sectors, such as banks and industrials, suggests a broad-based and healthy market. The speaker also mentions the concept of \"breadth thrust,\" where the majority of stocks in the market go up at the same time, indicating a bullish signal.

8. How does the speaker view the recent market rally, and what does it suggest about the current market environment?

The speaker views the recent market rally as a broad-based one, with the strength not solely reliant on tech stocks. This suggests a healthy and diverse market environment where different sectors are able to rally and take the lead at different times. The speaker also references the concept of \"breadth thrust,\" signifying a bullish market condition where the majority of stocks are on the rise.

9. What is the significance of the first Fed rate cut, and how does the speaker interpret its impact on the market?

The first Fed rate cut is not necessarily a sign of an impending recession, as the speaker highlights the varied S&P 500 returns after the first cut over the last 10 cycles. This suggests that the market's reaction to the first rate cut is not always the same and depends on the specific economic conditions at the time. The speaker also emphasizes that the current market environment is more driven by income than by previous credit-driven cycles.

10. How does the speaker characterize the current market environment, and what factors contribute to their positive outlook on the market?

The speaker characterizes the current market environment as positive, citing the strong performance of the S&P 500 and the significant rally in small caps. The breadth of the market rally, with various sectors like banks, industrials, and healthcare seeing an influx of investment, further contributes to the speaker's positive outlook. Additionally, the speaker mentions the concept of \"breadth thrust,\" which indicates a bullish market condition where the majority of stocks are on the rise.

11. What does the speaker's analysis of the market indicators and historical data suggest about the current market outlook?

The speaker's analysis of market indicators and historical data suggests a positive and bullish outlook for the current market. The presence of various market indicators, such as the breadth thrust and the S&P 500's performance after the first Fed rate cut, indicates a healthy and resilient market. Furthermore, the speaker's reference to historical data and market trends supports the view that the market is in a favorable position.
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