How a resilient economy, interest rates, and earnings impact markets: Stocks in Translation podcast

How a resilient economy, interest rates, and earnings impact markets: Stocks in Translation podcast

[Music]
welcome to stocks and translation Yahoo
finances vodcast cutting through the
Mayhem the noisy numbers and hyperbole
to give you the information you need to
make the right trade for your portfolio
today I’m joined by Ben emans he is a
senior portfolio manager at newedge
wealth along with our All-Star producer
Sydney Fred uh thank you both for
joining us here today and on the docket
we’re going to be talking about the
inflation Eclipse a story that Never
Dies never getss old and our word of the
day resilience in the market earning
season and even life and this episode by
the way is brought to you by the number
100 dollars that is dollars a barrel
could geopolitical risk end up goosing
black gold prices back up to Triple
digits we’re talking Brent WTI Ben let’s
go beyond the noise we want to talk some
markets and we’re coming off a spade of
strong economic data in the US we just
had ISM print above 50 that was a week
or two ago we had jobs a week or two
just really accelerating to the upside
300,000 payrolls which you called by the
way um but I you got to think are
investors getting this wrong because it
looks like things are getting stronger
this prevents this presents possibly a
problem for the FED it could be you know
it’s a strong economy so the The
Narrative now shifted to like why should
you cut rates in a strong economy you
cut rates typically when things go south
or things go bad so I think the FED can
stay on hold here but it has to watch
what it’s doing because even being on
hold you know there was one fat member
last week again voicing the the the word
hike you know it’s still on the table
and that I think is not the narrative in
the market so if you getting a strong
economy and it continues and you have to
bring in the hike idea again I will
really change sentiments yeah well let
me just bring up Jamie Diamond who just
released his annual sharehold letter for
JP Morgan he thinks uh rates are going
at 8% and the 10e 10 the 10e yield right
now is at something like
4.45% so not even quite at 4 and a half%
but it’s been up to five he thinks it’s
going to eight that is substantially
higher than anybody’s pricing in um what
do you think about that coming from the
most important Banker in the world I
definitely to take note of because you
know these numbers are let’s say
long-term averages for the 10 year you
know if you go back to the to the 1600s
until now the average is about 7 and a
half 8% in that range so that’s a long
time very long time but you would what
we call mean Reverb right so meaning
like you go back to the average um why
would this be possible you know we do
have a deficit problem and and we’re not
getting out of it amazingly with a
strong economy we’re not actually
narrowing it because just don’t have
enough tax revenues and we’re spending
far more than what we’ve ever done in
the past so this will at some point have
to be reckoned sou either change the
whole course of fiscal policy or let the
market sell itself out this is what d
damy diamond is really talking about
there will be at some point a new
equilibrium in interest rates where
people say I want more yield for this
deficit risk yeah it’s always when we’re
searching for that new equilibrium that
things tend to go Haywire but you look
like you had a question well I was going
to say is Jamie Diamond the only one
with that kind of call I don’t I don’t
know anybody else of his stature that
has an 8% handle on the tenure do you
not 8% but you had Bill Amman last year
6% maybe yeah he was making those case
and then he backed away from it when he
saw that that he thought it was high
enough right as you know Trader you know
you got to talk your book for a while
and when the market comes in line with
your book you shut up that’s the way it
works um but you know we’re talking
yields and stocks and all this kind of
stuff and I know you always have
questions for US based on uh your your
uh armchair work yeah I’m thinking so
why is it explain yields and stocks
essentially like why is it price up
yield down question so you have bonds
which are inversely correlated with
yields uh so you talk about bond prices
when people are buying bonds that means
the yield goes down your explanation
yeah it’s really called a Teter totter
you know love that not tater tot Teter
tot tot and it’s like the idea that that
yes there’s math really but you know if
you if you if your yield go goes up you
know you’re going to be having you know
more interest to earn in the future but
it is discounted over time that’s why
bond is a cash flow and that leads you
to a lower price in the future that’s
sort of the the the math behind it so
yes you should buy bonds when yields go
up and then you earn more interest and
then eventually if if the economy goes a
different direction gets weaker then
that high yield will be your return and
you make that back into the price yeah
and I think it’s important to understand
that there are different buyers of bonds
all around the world if we’re just
talking about US government bonds you
might have uh us individual retail
investors buying through treasury direct
they have investment dires directives of
their own you might have Japanese uh
people not so much anymore but
historically when we have INF interest
rate differentials such that the US is
paying a lot more money on bonds people
overseas will want to invest in the US
bonds so when yields here get to a
certain level even though that means
that the price of the bond is going down
when it when it hits that level um
automatically people say okay I should
be buying some of that so 3% 4% 5%
correct me if I’m wrong here uh but
that’s I think basically the way it
works all right now we want to get to
our word of the day this is resilience
and this is not just about the
persistently High GDP that we’ve seen uh
that could be characterized as resilient
the US economy uh not just about sticky
inflation and not just the minations of
j po and Cole at the FED uh we want to
talk about interest rates and Company
earnings because company earnings have
been very resilient recently we have
climbed out of an earnings recession
last year I believe and uh what do you
see we’re heading into big Bank earning
season what’s your outlook so right now
we’re still having sort of a
year-on-year negative growth rate
apparently in in earnings that’s if you
take everything if if you strip out the
max7 which is really high growth rate
right you you end up with this negative
rate but the four
then starts to improve in fact actually
is really interesting my my colleague
was showing me this graph that um it
starts to really broaden out at least
the analysts expect that the earnings
will improve from from a negative 3% to
plus 10% to plus 15 20 in the following
quarters I think that’s really your
expectation about that resilient economy
doesn’t get thrown of course it sounds
like we’re at the beginning of this
cycle so it’s not even like we’re in the
middle and wondering are we going to
inflect up or down there’s going to be
some poti poal momentum to the upside
then that’s what you would expect yeah
that’s that’s that’s what it looks like
and to an extent we’ve had a bit of a
preview of it in the market since the
October lows where we had a real
momentum building but we haven’t seen
the major rotation out out of these Mega
seven stocks just yet I mean some in the
bank or in energy but not major like so
that’s I think next when those earnings
come out in the future okay so uh I I
was looking at the sector action year-to
date energy now the number one sector
but we also have Industrials creeping up
that’s a cyclical play we also have
materials that’s a cyclical play
financials which is value and cyclicals
um what of these groups like we’re
waiting I mean we’ve seen a broadening
out but what are we waiting for like is
there an all clear signal where
everybody’s finally on the same team I
have an answer for that because I’ve
been in this business long enough but
you’re
answer yeah I think people are watching
the the data of sh the economy and
what’s interesting the group groups that
you mentioned every one of these data
points have been really strong when you
look at manufacturing data durable goods
data out of production data that’s all
linked into that those groups that have
rallied over time but I think what
people are waiting for still is like the
real green light as in green where we
are right now is obviously what the
Federal Reserve will do you know if this
is an economy that expands and Supply as
PO says that will bring ultimately
prices down the green light really for
that rally is that rut that the fat can
deliver as it has reached his inflation
goal I think that’s what people are
still waiting for yeah and when the FED
starts I think it’s important to
differentiate too the FED can cut rates
proactively as a kind of an insurance or
it can be reactive in other words
historically they’ve seen okay we got
the economy wrong things are
deteriorating quickly we need to cut by
50 basis points we need to cut you know
four rate Cuts today that’s much
different than these proactive rate cuts
that I think we’re talking about now
yeah as exactly the right word proactive
and the reason why it’s proactive is
because if you get inflation further
down towards where the fat Target is and
you will not be cutting rates you could
actually have the situation of you
complete opposite what we’ve been
through spiral deflationary Spiral
exactly you get to go to the downside
and then you end up in a really bad
situation where the fat has no choice
but the slash rate so being proactive is
in putting one two rate Cuts ahead of
that event happening should you should
keep you from that say that Abyss so to
speak in in prices and and that you know
that’s that’s why they want to achieve
that want to do that now will they
they’re currently kind of on a whole
holding pan we were talking about
because if the economy being that strong
that there’s no need for it but they’re
watching it obvious SE on both sides you
know if inflation starts to pick up
again they may have to hike but
conversely if you having a situation
where things turn the other direction
binary situation yes very binary so if
they cut in June you consider that a
proactive cut because the economy is
still doing well yeah and and in fact
now in the market people have
expectations that that probability is
less than 50% in June on the basis of
all the strong data so if they were to
go ahead in June Market will take it
like you’re throwing a little heat here
on the fire right you wrot I just want
to bring up you wrote something really
interesting and one of your newsletters
that I want to bring up and that’s you
know when we talk about central banks in
the FED we got to consider that there
are other central banks in the world and
that this is an entire ecosystem and uh
you were saying in one of your
newsletters how the ECB could actually
cut first and that could potentially if
I’m reading this right take pressure off
of the FED um how that’s something I
hadn’t considered before so how explain
that Dynamic for us right so if you look
at the since the pandemic that all the
central banks followed each other almost
syn in a synchronized way everybody had
to ratchet up the the policy rate much
higher than they have ever done
of last 20 years and much faster so
emerging markets were first to do that
and once they sort of did that they were
able to lower rates exactly for similar
reasons somewhat proactive because
inflation started to come off of
Emerging Markets but in the developed
markets Europe us Japan we haven’t
gotten to that point yet so now the ECB
seems to be much more in that position
to do so they have this meeting this
week by the way they will likely signal
strongly that they will go ahead and
lower rates in June and that does take
the pressure of the markets of
everybody’s expectations because once
one Central Bank like that goes ahead
with lowering rates there will be others
that will follow that has been
historically that way and that’s really
because these economies are so link to
each other that if the ECB is in the
position to low rates because the
economy is weak enough that the the
prices are moderating then the FED will
eventually follow too all right we got
to pause for a quick break here so for
our viewers on streaming platforms forms
we’re going to take a quick break and
for everybody else we’re going to carry
on with the show here Sid you look like
you had a question on the tip of your
tongue I I wasn’t a question I was going
to State for the record that I would
like the FED to cut in May for the drama
oh wow I I want I want everyone to be
shocked I want us to like not have the
full screen prepped or whatever when the
Dow is down 1500 points I can just show
you the screen and say it’s Sid’s fault
and say my money is draining from my
accounts all right all right but I I I
like the drama of a surprise we got you
cut we might get some drama yeah well it
really plays into the idea of salame and
go away go
recovery salame and go away all right
now it’s time to get technical on some
definitions here that we call jargon
Busters and today we’re going to take a
look at net interest margin and
according to Investopedia net interest
margin is a measure of the difference
between the interest rate paid and the
interest rate received and this is
adjusted for the total amount of
interest generating assets held by the
bank so basically Banks try to borrow at
low rates they try to lend at a higher
rate and they pocket the difference um
so what what this is kind of a cyclical
phenomenon so where are we in the
business cycle and what’s happening with
net interest margin now and going short
term into the future so it’s amazing
that the net interest margin has been
fairly stable even though the yield
curve is in now the term structure of
interest rates is in twoe
it’s been inverted for over 15 months
yeah longest inversion we’ve had since
the 1980s people have always connected
the inversion of the Yi curve with a
narrowing interest rate margin but I
think what banks have been able to do is
that they earn a lot of interest on
short dated assets Securities or or or
deposits um and as a result have been
able to sustain that margin while
there’s a lot of loan demand in the
economy because the economy is good and
that that spread is relatively stable
and and I think for the yield is
therefore not mattered at this point at
some point it will but banks have always
been able to capitalize on that too once
the UK becomes normally slope like
positive slope then Banks would probably
buy longer dated assets and earn that
yield and have you know the remain of
deposits pay out of a very low interest
and make money that way so I think
they’ve been pretty smart about how to
manage it but that it is a a uh a
cyclical phenomenon is clear you know
because it will change like so the
margin is could actually actually if
you’re getting a normal uker it probably
will widen the net interest margins all
right something to pay attention to as
we get these big Bank earnings starting
later this week and now yes yeah I was
just going to say uh I know Delta is
Wednesday and Delta’s big but Bank
earnings are always first first St why
why I mean back in the day it was Alcoa
which was an aluminum is an aluminum
Alcoa was number one just because they
were number one it has I look banks are
huge entities and they’re reporting on a
quarter which just ended basically 10
days ago for them not even 10 business
days so that’s incredibly short they
have the resources to do this I think
it’s just because they’re so big and you
know on their game your thoughts yeah I
think it’s really sort of more of a I
call like a red herring idea like is in
you know there’s a calar issue here
smaller companies get up to 90 days
something like
big guys go pretty quickly it’s also
board driven right me companies can make
a decision when to report you know
that’s that’s you know there has been
companies who I they also by the way
make a decision whether they would give
guidance on future earnings we’ve had
for some companies not giving guidance
for some time because of the pandemic
others have given guidance much sooner
so that matters I think too I’m not
otherwise sure why the are first but
everybody’s looking at the banks first
and that it maybe the way it is is like
as the banks goes the the rest of the
earning season goes I mean they are
definitely in in the big attention right
now because they have there’s a lot of
Market activity happening yeah for sure
so the their results are probably going
to be strong from reads on the consumer
to uh the m&a market uh IPOs everything
all right we got to move on here this
episode brought to you by the number 100
and that refers to dollars a barrel that
is the WTI price and this is a number
that has woven its way through the
financial fabric of the SpaceTime
Continuum recently ly as the debate
about $100 crude oil returns to the four
we’re talking about the impact of
geopolitics and oil like most
Commodities is mean reverting so it’s
range-bound and most of the price
activity that we’ve seen in WTI over the
last year has been from the mid-60s to
the low 90s so maybe $25 a barrel but
what happens if we see WTI and Brent
ticking higher 85 for WTI Brent 990
another $10 we’re talking about $100 oil
how does that change game I want to end
psychological as in you know this is an
important Milestone $1 barrels like I
know you can see the headlines in the
newspaper I’m picturing a barrel with
the Benjamin on top something like that
and you know and and and people will
will look at gas prices immediately
which by the way have also been on the
rise Nationwide it’s up about 6% over
the past month and so I think that is
for that reason um it’s not targeted by
OPEC in itself they don’t have put out a
specific number what is in interesting
from OPAC maybe not as known is that all
these countries calculate the oil price
where they break even on their on their
fiscal budget now that price the fiscal
Break Even price is actually about $95
on average currently across most OPEC
members so there’s something about $100
a barrel that that’s important to them
um you know ultimately it’s all the the
oil Market is much about Supply and
inventory and now as we know OPEC has
been contined to cut
production um not everybody’s complied
with that but they’ve been able to do it
so far and keep it together that’s why
the market has been pricing towards that
$100 a barrel as opposed to if they
didn’t like and they get all this
Discord with each other then it would
that that $100 a barrel would not be so
likely yeah and you’re right it is a lot
about the headlines because anytime I
see a $100 barrel of oil especially when
it’s been locked in a lower trading
range know it piques my attention as
well um I want to stick with commodities
here and talk about
gold and um something really interesting
another thing I learned from your
newsletter you’ve been tracking the term
structure of gold not only in the
Futures Market but spot gold versus
Futures gold and uh just real quick if
you have a gold contract in the Futures
let’s say you want to invest in gold
through the Futures Market you’re buying
maybe December uh 2024 delivery gold
that means gold that’s going to be dece
uh delivered at the end of this year
well that’s several months away and so
you’re paying
uh you have to store somebody else has
to store it in the interim and so
there’s going to be a price there if you
want to buy it you have to maybe borrow
money so there’s a risk-free interest
rate and so storage costs and interest
rates risk-free interest rates those
play mathematically into these
calculations of future prices so what
we’re seeing now is an aberration that’s
where the spot price it looks to be
climbing above the Futures prices and
just explain how that uh what that means
for us yeah it’s a very unque unique
situation in in the gold market it
happens a lot in oil because of that it
is ultim really about Supply and as we
know with gold it has a very limited
outstanding Supply and Mining activities
have have slowed down a lot and they
haven’t found much gold over the last
couple years and China has been one of
the central banks has been on the
physical gold market accumulating large
volumes of gold so that’s driven up the
spot gold price the actual price that
way you pay for physical gold you you
can actually go to to to like gold
exchanges or retailers and if you try to
buy gold it’s not that simple anymore
and that’s that’s it’s gets sold out
really quick so I think this back what
we call backwardation is that’s the term
for it in in the in the Futures Market
when this the the spot price gold is
higher than Futures that’s really I
think there’s just not enough gold
Supply available in the market and
therefore you’re getting a higher spot
price when you buy gold Futures what you
were saying earlier someone literally
has to store the gold for you somewhere
well what does it mean okay is it a
piece of paper so we’ve opened up a
giant can of worms if we can if we had
another 3 hours we could explain um
basically we don’t have we don’t have
three
hours okay no short explanation um is
there a short explanation the question
um always the question okay if you buy
when you’re buying gold features is it
gold that someone is storing for you or
you’re just buying something in the
universe that it’s a theoretical
calculation it’s basically a promise so
to speak on the promise promise I
want gold end promise it will be 2500 in
the future and it’s and it’s paper gold
and there’s all kinds of nice conspiracy
theories there so we’re just going to
leave that where it is and not touch
that um oh we have a fun segment before
we go so at here at stocks and
translation we do like to roll out the
red carpet but no new movie today no
movie stars we do have charts yes we do
have a movie along with a new spin on an
old Hollywood gossip segment who wore it
better and today we’re zeroing in on
bitcoin and gold that’s right the other
Bitcoin don’t write letters both the
yellow metal and digital gold gold
recently surged to Fresh record highs
but each took a vastly different Journey
Bitcoin it peaked in late 2021 promptly
shed over 34 of value over the next year
before furiously launching to record
highs last year and we’ve seen it
continue this year meanwhile gold peaked
in early in the early in the pandemic
and this was a year before Bitcoin
peaked it spent over three years trying
to punch through $2,100 per ounce Max
draw down was only 22% in Gold versus a
78% draw down in Bitcoin so the bottom
line is both Bitcoin and gold they
rocketed from technical Purgatory but
which one wore that better which one
wore the breakout better I think it was
Bitcoin you know because has been it was
a a currency was such in hibernation
that I call it right oh winter winter
sleeping you know sleep in hibernation
in the winter and it awoken suddenly and
it was all about that you know one I
guess exting yeah exciting it’s it’s
it’s a recognition the technology is
adopted more and more everywhere
blockchain technology in this case um
and and they talk about what they say
having oh that’s a big one look at the
previous having they’ve been
tremendously bullish and I think the
bottom line is I got I got to vote with
crypto too um I I got to go with crypto
because it’s exciting and gold all right
so we’re talking about a replacement
currency some people talk about that you
don’t want a lot of volatility so that’s
not a that’s not necessarily a feature
you probably want something with less
volatility like gold nevertheless uh we
do look like we have to go go here so we
got to say thank you for Ben Ben thank
you for joining us here today Sydney as
always and we will see you another day
that was finances stocks and translation
with our Master stats guy Jared blicker
he knows how to cut through the
headlines and noisy data points to give
you the inside scoop now you know why
the FED has a 2% inflation Target but
doesn’t stop there I’ve got some chatter
of my own opening bid is the essential
conversation for investors of all
Stripes before the opening bell on Wall
Street think hot analyst calls big
interviews fresh commentary and fire
takes on the stories leading the
business World join me on opening bid at
8:00 a.m. eastern standard time

Inflation is on the top of everyone’s minds as expenses continue to pile up and cause volatility throughout the market. Oil (BZ=F, CL=F) remains in flux as geopolitical tensions endure while the flow of goods through that region are also in trouble. While issues persist, parts of the market continue to thrive on the heels of a big week of earnings and economic data.
Yahoo Finance Markets Reporter Jared Blikre is joined by NewEdge Wealth senior portfolio manager Ben Emons for the latest episode of Stocks in Translation to discuss where to find resilience in the market, give incredible insight into potential moves from the Federal Reserve, the energy sector, and more.
#youtube #news #stockmarket
About Yahoo Finance:

Yahoo Finance provides free stock ticker data, up-to-date news, portfolio management resources, comprehensive market data, advanced tools, and more information to help you manage your financial life.

– Get the latest news and data at finance.yahoo.com

– Download the Yahoo Finance app on Apple (https://apple.co/3Rten0R) or Android (https://bit.ly/3t8UnXO)

– Follow Yahoo Finance on social:

X: http://twitter.com/YahooFinance
Instagram: https://www.instagram.com/yahoofinance/?hl=en
TikTok: https://www.tiktok.com/@yahoofinance?lang=en
Facebook: https://www.facebook.com/yahoofinance/
LinkedIn: https://www.linkedin.com/company/yahoo-finance