Ep 47: The Recipe for a Market Sell-Off: Carry Trade, SAHM Rule, Recession Fear

Jess: Well, the stock market has been having quite the week since our last episode on the Fed's decision to not do a rate cut and the resulting effects of the not-so-great unemployment numbers that came out last Friday.

Jessie: Is the stock market crashing? Why was there a sell-off and what does that even mean? And is this a good time for us self-directed investors to invest more? Is the stock market on sale? We also need to talk about the carry trade, but yes, it was a recipe for a market event, a market correction, and market corrections are completely normal.

Jess: It's a great time to assess your portfolio, but let's talk about it.

Jessie: You're listening to Market MakeHer, the investing education podcast on a mission to make you an informed, self-directed investor by breaking down complex topics and making it all make sense.

Jess: Yes, we demystify the stock market, the Fed, and other money-related lessons teacher-learner style and make it all more relatable, but from her perspective.

Jessie: That's us.

Jess: We're her.

Jessie: And we may use a lot of feminine analogies, but all are welcome here, whether you're a femme, them, him, her, or you don't subscribe to any of the genders.

Jess: We're your hosts.

Jessie: I'm Jess Inskip, offering my 15 years of financial experience to explain to you how everything works.

Jess: And I even gave up my financial licenses in order to do it.

Jessie: And we're so grateful.

Jess: And I'm Jessie Dinouye, here to ask all the questions you may have been thinking and stopping Jess when she uses way too much jargon, which happens every episode.

Jessie: And if you're new here, welcome, you're about to learn a lot of pertinent information on what's going on with the stock market right now, August, 2024, and why that even matters to you and your investing strategy.

Jess: That's right.

Jessie: And just remember that personal finance is personal.

Jess: This is not that.

Jessie: This is not advice, but general information, education, informational only.

Jess: But it's going to give you confidence to make informed financial decisions that are best for you.

Jessie: Oh, we also need to mention our special guest that's joined us today.

Jess: Oh, yes.

Jessie: Darling lady, Darla.

Jess: Welcome to the podcast.

Jessie: There is a thunderstorm.

Jess: So my dog is on the lap, if you are watching on Spotify.

Jessie: She is the accounts retrievable manager here at Market MakeHer Podcast.

Jess: That's right.

Jessie: The branch manager.

Jess: She's had a paw search.

Jessie: Oh, I love that.

Jess: Okay.

Jessie: So we all know that the stock market recently tanked and there was a huge sell off.

Jess: Was this a pullback or a correction? Are we in a bear market? What is the difference? And what does it really mean? I love this.

Jessie: So there is a difference between all three.

Jess: There is a pullback, which are normal.

Jessie: I'll give you some stats as well.

Jess: There's a correction and a bear market.

Jessie: A pullback is when there is a drawdown.

Jess: So a sell off, a decline from its highest point of 5 to 9%.

Jessie: That's a pullback.

Jess: You could say tech is having a pullback because it had a decline of 5 to 9% or the whole market did.

Jessie: It could be certain sectors.

Jess: It could be a stock.

Jessie: It just means a decline of 5 to 9%.

Jess: And then the rest is just the numbers.

Jessie: A correction is 10 to 19% had to correct itself, reset, revaluate.

Jess: Why is it called a correction? Well, it's always part of the name.

Jessie: A correction, we haven't had an episode on this and we definitely should, but it's all about correcting valuations, those PE ratios.

Jess: So the price goes down.

Jessie: That's a correction where the price relative to earnings makes more sense.

Jess: I didn't realize that PE ratios could change.

Jessie: Because it's price divided by earnings.

Jess: So if the price changes, the valuation changes.

Jessie: Okay.

Jess: Yeah.

Jessie: Yeah.

Jess: We need to do an episode on that too.

Jessie: For sure.

Jess: And then a bear market is one everyone's familiar with is a decline of 20% or greater.

Jessie: Pullback and correction have to do with people selling off securities in their portfolio.

Jess: People are selling off, so the stock market declines as a result? Yeah.

Jessie: So remember the stock market is a function of supply and demand.

Jess: And this is a great way to start this entire conversation.

Jessie: And supply just means there is a lot of sellers.

Jess: There's a lot of shares available all of the sudden.

Jessie: Demand means there is a lot of buyers.

Jess: If there is a lot of supply, a lot of sellers, it pushes the price down.

Jessie: If there is a lot of demand, it pushes the price up.

Jess: And so that could lead into technical things like the carry trade, which I know we'll talk about in a moment.

Jessie: But it also leads into the fundamental aspects as well.

Jess: Literally everything is supply and demand.

Jessie: And if you can wrap your head around supply and demand or think of it in terms of supply and demand, everything makes sense.

Jess: Going back to when we explained how the stock market works, comparing it to a secondhand resale app like a Poshmark or a Depop or whatever, a dress you may have bought 10 years ago suddenly makes a comeback and they don't make that dress anymore, but everyone wants it now.

Jessie: So you own that dress and you can sell it for more than you purchased it for because now there's a demand driving up the value of that dress.

Jess: Exactly.

Jessie: That used to be sold at a lesser value.

Jess: So it's the same with the stock market.

Jessie: Because everyone is selling all these stocks off or securities off, now there's more of them to buy.

Jess: So it has to drive the price down because there's too much inventory basically.

Jessie: That's exactly it.

Jess: Literally.

Jessie: There's literally too much inventory.

Jess: That's like if the same analogy, if that dress, all of a sudden everybody had that dress and then they put it for sale, well you're probably going to have to drop the price of it because now there's a really competitive landscape for it.

Jessie: Yeah.

Jess: Because there is too much inventory and the prices are driven down, that drives down the overall performance of the stock market.

Jessie: So are we looking at the S&P 500 and seeing that it went down 20%? It hasn't yet for the year.

Jess: The NASDAQ 100 went into correction territory and got really close to bear market territory because it was more rough of a sell off.

Jessie: But it was actually a lot of technicalities that went into it that we have to discuss and what happened.

Jess: That's mainly technology stocks, right? And you think people will be holding on to those.

Jessie: Well it's so interesting, I can't wait to go into the mechanics of the carry trade.

Jess: But before we do that, I think there's some important stats for everyone to know.

Jessie: The market is a roller coaster.

Jess: That's why we say it's a roller coaster.

Jessie: You're in it for the ups and downs.

Jess: You might have started investing for the first time because the most recent turbulence that we had like this was in 2020 and that was in a quarter.

Jessie: It was Q1 of 2020, so the first quarter, January, February, March, and there's a 34% decline that put us into a bear market.

Jess: And that was- It made it easier for people like me who hadn't really started investing more than having a 401k to see like, oh, the prices of all these stocks that I used to think were too expensive for me to buy have come down now.

Jessie: And so I was more confident in putting some of my money into the stock market.

Jess: That's like how I kind of started playing around with it.

Jessie: Which I love.

Jess: And so if that's your entry port, that's awesome.

Jessie: But then if you experience it again and then you see losses, that can be terrifying.

Jess: Go back to that moment though, because you can't be an emotional investor.

Jessie: We are strategic.

Jess: We understand you can't time the market, but you can prepare.

Jessie: And hopefully everyone was prepared.

Jess: It's a roller coaster.

Jessie: Yeah.

Jess: Maybe in 2020 was my entry point into having a non-retirement portfolio.

Jessie: But because of this podcast, I know not to sell off because a lot of people are asking that question.

Jess: Should I be selling everything off before it goes down even more? You're in this for a long term, so don't sell everything off because as we know, historically, if you look at the S&P 500, it always comes back up.

Jessie: It's not going to just continually go up, up, up, up, up.

Jess: It's going to have ups and downs, but it does continually rise.

Jessie: It's just bumpy along the way.

Jess: And that's fine.

Jessie: Absolutely.

Jess: Since the 1980s, the greater than 5% drawdowns in the S&P 500, there's been one in every year except for two years, which is 1995 and 2017.

Jessie: Oh, interesting.

Jess: This is normal.

Jessie: And if there is a 5% to 10% downturn within the stock market, the average recovery is three months.

Jess: One whole quarter.

Jessie: It's not bad.

Jess: No.

Jessie: The average time from a 10% to 20%, eight months.

Jess: Personally, again, this is not advice, but personally for me, I saw some stock prices.

Jessie: We don't just invest in stocks, diversify your portfolio.

Jess: But there were some stocks that I was specifically wanting to add to my portfolio and they took a little dip and I was like, cool, this is the time I'm going to buy those ones.

Jessie: There's some things that you've been wanting to add to your portfolio and the price is a little bit lower.

Jess: Could be a good time to get it if you've done your homework and you know that it's a good investment.

Jessie: If you've done your homework is the key, key point right there.

Jess: And that's why we have to talk about portfolio allocation.

Jessie: We've been talking about passive investing.

Jess: So if you're just in the S&P 500, you have to remember, like we say, it's an elite club.

Jessie: You go in and out of it.

Jess: That's why the S&P 500 always goes up.

Jessie: It is not the same 500 stocks that it was back in the 1970s.

Jess: Companies that aren't performing well aren't going to be in there.

Jessie: That's right.

Jess: There was a big market sell off.

Jessie: So let's explain what the ingredients were to make that happen.

Jess: The first one is what? The carry trade? That's right.

Jessie: Okay.

Jess: So this one is fun.

Jessie: We'll probably spend the most time on the carry trade because we haven't talked about it at all.

Jess: And we've talked about other key ingredients to the other ingredients that make up the recipe.

Jessie: That is the market sell off before.

Jess: That was a mouthful.

Jessie: Yeah.

Jess: But the carry trade, it starts with the Japanese yen.

Jessie: The Japanese economy had negative interest rates for a while.

Jess: As in like you'd have to pay a bank to hold your funds.

Jessie: Oh, okay.

Jess: Yeah.

Jessie: You weren't getting any money on your money, keeping it in a bank in Japan? No.

Jess: It was less than zero.

Jessie: It was negative interest rates because- I didn't realize that could go negative.

Jess: Yeah, it can.

Jessie: And they did it in Japan.

Jess: When you raise interest rates, you are also raising the value of your currency.

Jessie: The dollar got stronger when we raised interest rates.

Jess: There's this domino effect that happens, but it's also like relative to everything else because we're in a global economy.

Jessie: So the yen had negative interest rates, therefore was a weak yen.

Jess: So what traders would do, and these are mostly institutions, is they would short the yen.

Jessie: They're borrowing it.

Jess: So I'm going to you, Jesse, and I'm going to say, Jesse, you've got a lot of yen.

Jessie: You used to live in Japan.

Jess: I'm going to borrow that from you.

Jessie: Say I borrowed a million yen from you.

Jess: So it's like a huge number, a million dollars worth of yen.

Jessie: And you said, okay, you can borrow that from me, but I have a requirement, Jess, where I just need 10% of that value the whole time.

Jess: Make sure I give you $100,000 because it was worth 1 million yen.

Jessie: And then I took that 1 million yen, and I was like, okay, well, I'm going to go ahead and buy a bunch of tech stocks right now and a bunch of Nvidia because I think it's doing really, really great.

Jess: I borrowed your yen.

Jessie: I converted it to US dollars or put it in US treasuries, and then there's like leverage with that.

Jess: But I borrowed your yen.

Jessie: I am now converting that to dollars, and I bought a bunch of tech stocks.

Jess: If the yen goes down or is devaluing, I don't owe you anything more than $100,000.

Jessie: But all of the sudden, if the Bank of Japan is seeing inflation happening, they've decided that they're going to raise their interest rates for the first time.

Jess: Well, your yen got stronger, and that means since I borrowed it from you that I'm going to owe you more money because I'm supposed to give you 10% at all time, and now I have a loss in it because I borrowed it.

Jessie: You went up.

Jess: Yeah.

Jessie: Yeah.

Jess: You're like, hey, Jess, that's not worth $1 million anymore.

Jessie: That's worth $1,100,000 now.

Jess: You owe me some money because I said you need 10% of that value, and you borrowed it from me.

Jessie: Yeah.

Jess: And so me, I'm like, oh, man, I bought a bunch of tech stocks with that.

Jessie: I've got rules and regulations, and you're like, there is a rule.

Jess: This happened.

Jessie: I need you to do it now.

Jess: Then what I do is I'm like, okay, I got to find cash.

Jessie: I got to find cash.

Jess: I got to sell these tech stocks.

Jessie: That's all I have because that's what I used to buy it, and so then I sell all these tech stocks so I can give you your money because I had a requirement and a margin call.

Jess: I see.

Jessie: And so it's called a carry trade because you're carrying between the currencies.

Jess: Literally the difference is the carry.

Jessie: That is exactly what happened with the market, though.

Jess: So take that million dollars and multiply it by so much because these are institutions that did this.

Jessie: Okay.

Jess: Yeah.

Jessie: So let's ask, who's doing the carry trades? Who's trying to short the yen? We don't know exactly.

Jess: You can go on the FTCC website and actually pull the data and see the number of traders.

Jessie: Is this what the foreign Forex investing or whatever is or no? It's a component of it.

Jess: It's absolutely a component of it.

Jessie: This is exactly what happened with the market.

Jess: So going back to the market as a function of supply and demand, that was a bunch of supply with no fundamental reasoning.

Jessie: It was, oh no, I'm short something, I'm a hedge fund, I have to meet this margin call and I need to raise some cash now, and the only way I can do that is by selling all these tech stocks that I purchased.

Jess: And then it sends the whole market down really quickly because it was multiplied by a lot.

Jessie: So that's why it's important to understand these things.

Jess: When the market's down before freaking out, you need to know why.

Jessie: Yeah.

Jess: So this is one piece of it.

Jessie: But what was really interesting is the Bank of Japan even came out because it's affecting their market and they're like, we're not going to raise interest rates anymore because it's influences the market, which is crazy to say that.

Jess: But also on the episode where we talked about treasuries first, when we discovered that Japan actually holds most of the US's debt, does that factor into it? If you're a foreign investor, think about it.

Jessie: You have no interest on your cash.

Jess: They don't have the 5% high yield savings account.

Jessie: So they're like, you know what? Let me go ahead and short this, convert it to US dollars, buy some US treasuries, boom.

Jess: Now I get the difference of the high interest yielding asset.

Jessie: That's the carry right there.

Jess: That makes sense why Japan would be the largest owner of the US's debt because they don't get interest on their own money in their own banks.

Jessie: Yep.

Jess: So they have to put it into our treasury to get any money off of their money.

Jessie: Right.

Jess: And that was slowly coming down though.

Jessie: Yeah.

Jess: It's interesting.

Jessie: If this happens, just understand what it is.

Jess: And it's a gift.

Jessie: If the market is going down because someone has to cover their margin call, that doesn't mean that there's fundamentally driven.

Jess: What's unfortunate, and I really think there should be some rules put into place, and I'm sure the SEC will do some type of study because they did this with GameStop to check market mechanics.

Jessie: Yeah.

Jess: So that's something that would happen with GameStop, just inverse it.

Jessie: And you've got to remember there's levers that I haven't seen triggered in a while.

Jess: But if the market was to go down 20% in one day, trading would halt for that day.

Jessie: I did not realize that that was a thing.

Jess: The trading will halt.

Jessie: You won't be able to do anything about it.

Jess: So keep that in mind.

Jessie: There are circuit breakers.

Jess: Level one, so this is for the S&P 500, if there's a 7% drop, then the stock market will be paused for 15 minutes.

Jessie: Oh.

Jess: Does that mean you can go on to your brokerage firm or account, like you might try to buy something and see that the buttons are not working? No, it just won't go through.

Jessie: And then just like when GameStop was halted, like stuff is halted.

Jess: Level two is 13% drop, then the market will be halted for another 15 minutes.

Jessie: And if there's a 20% drop, it's halted for the day.

Jess: And then does it turn back on the next day? Yes.

Jessie: But there are lots of circuit breakers.

Jess: There weren't these in other downturns, so that's what people need to understand.

Jessie: And then there's rules where shorting has to stop after a certain reason.

Jess: Like there are all these little circuit breakers that prevent market manipulation.

Jessie: They're good.

Jess: On the back end.

Jessie: I guess that's good.

Jess: Yeah.

Jessie: Yeah.

Jess: All the useless information in my brain.

Jessie: No, but it's good to know because- My active traders.

Jess: If something's not working, there might be a reason.

Jessie: Should we move on to the next ingredient? The SOM rule.

Jess: This is SOM.

Jessie: S-A-H-M.

Jess: That's right.

Jessie: SOM.

Jess: Is that an acronym? No.

Jessie: It was named after the economist, Claudia SOM.

Jess: Oh, cool.

Jessie: Okay.

Jess: Yes.

Jessie: It was created in 2019, so it's actually really new.

Jess: It's supposed to be a real-time recession indicator.

Jessie: It was back-tested all the way to 1953, and it never failed to indicate a recession.

Jess: So people pay a lot of attention to this, and this actually led to the third ingredient, which is fear and recession indicators.

Jessie: It's designed to identify a recession based on changes in unemployment.

Jess: There is one thing that is always prevalent within a recession, and that's mass layoffs.

Jessie: So if there's a sudden increase in unemployment, that means there is a sudden increase in layoffs, and if there are mass layoffs, then we're going to enter into a recession.

Jess: So that's the thought process behind it, and then we can talk about the calculation as well.

Jessie: But does that make sense? One more time? No worries.

Jess: A recession always has mass layoffs because people don't have their jobs.

Jessie: People can't pay their bills.

Jess: That's a recession.

Jessie: It's a slowdown turning point of economic growth, the opposite of economic growth.

Jess: So it's why it's called a contraction.

Jessie: It's literally painful.

Jess: Yes.

Jessie: Hence why it makes sense to relate it to the menstrual cycle even more.

Jess: So the SOM rule, named after Claudia SOM, quickly identifies the start of a recession based on changes in the unemployment rate.

Jessie: And the unemployment data that came out last Friday was worse than the Fed or whoever was thinking it was going to be, right? I wouldn't say it was a sudden change or a crazy change, like a sudden movement in unemployment.

Jess: It went from 4.1% to 4.3%.

Jessie: But this calculation of the SOM rule triggers a recession signal when there's a three-month average of unemployment raising by 0.50%.

Jess: That's right.

Jessie: The three-month average.

Jess: So we had 4%, 4.1%, and 4.3%.

Jessie: So that puts our three-month average at around 4.13%.

Jess: That's what it is.

Jessie: And then it takes the past 12 months average, which is 3.6%.

Jess: That is a change of 0.53 percentage points.

Jessie: And anything over 0.5, so that was above the 0.5 percentage threshold, the SOM rule was signaled.

Jess: OK.

Jessie: The SOM rule has been triggered because it's at 0.53.

Jess: That's right.

Jessie: Think of it as a flag.

Jess: So this is what's fun.

Jessie: Since it was made in 2019 by Claudia Somm, Claudia Somm herself came out and said, you know what? Actually, I don't think that we're in recession territory, and there are other things we need to pay attention to.

Jess: So she herself said that, and she's the creator of it.

Jessie: And so why would we still even use the SOM rule, then? Is she going to change the trigger? Well, that's what's so interesting about this.

Jess: There is a lot of factors that went into that unemployment rate, why it suddenly spiked.

Jessie: There were a lot of people from Hurricane Beryl in Texas that couldn't work, that contributed to a sudden increase.

Jess: So you got to get into, this is what it looks like on the surface, but let's peel back the onion.

Jessie: What is it actually coming from? What's the actual driver? OK.

Jess: Some of it seems temporary, so I'm going to agree with her on that aspect.

Jessie: But this leads to the third recipe that reached havoc, which is fear.

Jess: Because unfortunately, before this, like on our previous episode, which I'm sorry, listeners, I sounded so frustrated on that episode, and I was.

Jessie: I was frustrated, too.

Jess: I'm like, what do you mean the Fed didn't cut rates? Yeah.

Jessie: I remember texting you, like, what? Why are they cutting the rates? I don't understand.

Jess: I love that was happening.

Jessie: But he explicitly said the words, though, where he says, I feel like the balance of risk between the dual mandate, which is unemployment and price stability, which is just really inflation, that's balanced.

Jess: He said he doesn't have to cut rates.

Jessie: When we reach 2%, we're at 2.6% on PCE.

Jess: He just wanted consistent data to be confident in that data.

Jessie: And he's going to focus on the other side of his dual mandate, which is employment.

Jess: And he said, if there is a sudden increase in unemployment, we have the tools ready to fix things.

Jessie: Because if we make it broken, we got to use our tools.

Jess: We've got a lot of tools now, which his tools are lowering interest rates, speaking to us, and quantitative easing.

Jessie: Stay with us.

Jess: We'll be right back.

Jessie: Ready to plug into the future? Join myself, Sean Leahy.

Jess: And me, Andrew Maynard.

Jessie: On Modem Futura, where we explore the technologies shaping our futures.

Jess: We bring the experts, the insights, and a whole lot of curiosity to every episode of Modem Futura, as we boldly go where no one else has gone.

Jessie: So join us as we navigate the intersection of innovation and humanity, uncovering the stories that will define our collective futures.

Jess: Subscribe to Modem Futura, wherever you get your podcasts.

Jessie: We'll see you there.

Jess: See you then.

Jessie: Okay, so everything from the meeting was announced Wednesday of last week, and then unemployment came out Friday of last week.

Jess: That's probably why he didn't cut the rates, because he needed to get that other piece of data.

Jessie: I think we said that before.

Jess: Yeah.

Jessie: You know, he was confident in doing that.

Jess: So do you think that the next meeting will be the right cut, potentially, after this unemployment data? That's what the market's signaling.

Jessie: So we could look at the probabilities to understand that.

Jess: It looks like there's a 73% probability of a double rate cut, which means two 25 basis points.

Jessie: So 50 basis points, or half a percent.

Jess: I don't think it warrants an emergency cut.

Jessie: They haven't broken anything.

Jess: We haven't been pushed into a recession.

Jessie: It's definitely tricky.

Jess: I think it's time to, but the Fed also has credibility.

Jessie: If they come in and do an emergency cut, that could really spook the markets, because they'd be like, oh my gosh, we are about to go into a recession.

Jess: I need to use a tool.

Jessie: That would be bad.

Jess: And then we may not believe everything they say.

Jessie: Remember, their tool is also word of mouth.

Jess: We have Jackson Hole coming up.

Jessie: So there's something that happens every year.

Jess: This is August 22nd.

Jessie: It's literally in Jackson Hole, Wyoming.

Jess: And they all get together, all of the Fed chairs, a bunch of economists, media will be there.

Jessie: And they're going to talk about all of this.

Jess: So he has an opportunity, a wonderful opportunity, to use one of his tools to give us some peace of mind.

Jessie: Oh, OK.

Jess: Isn't it the NBER that caused the recession? That's right.

Jessie: When did that come into play? That's right.

Jess: And that's why I think people panicked way too much.

Jessie: And we have that wonderful episode on it where we related it to a menstrual cycle, one of my favorite analogies ever.

Jess: But the NBER caused a recession.

Jessie: And they look at it in 3D, depth, diffusion, and duration.

Jess: That's right.

Jessie: How deep is the issue? How widespread is it? And how long has it been or will it be? And it's always called, in hindsight, always.

Jess: It could already be in it.

Jessie: And we're not going to know until they call it.

Jess: Right.

Jessie: It's an evaluation of the past.

Jess: Yeah.

Jessie: I heard the best analogy from keds underscore economist on TikTok.

Jess: So, so good of explaining how and why they would call it recession in hindsight.

Jessie: OK.

Jess: One, she's a great point.

Jessie: If every negative data point comes out and we're like, oh, recession, oh, recession, the sparks fear you're not grounding yourself and it's not looking at it in 3D.

Jess: And her analogy is amazing.

Jessie: Think that you had a bad week.

Jess: You're not going to have a bad day on Monday and say that you had a bad week.

Jessie: You have to go through the whole week before you realize you had a bad week.

Jess: Oh, yeah.

Jessie: And so that's why it's called in hindsight.

Jess: You've got to look at the duration.

Jessie: You've got to look at the diffusion.

Jess: That makes sense.

Jessie: You have to look at those factors.

Jess: She did such a great job.

Jessie: Yeah.

Jess: No, that's great.

Jessie: That's that's a great analogy.

Jess: Yeah.

Jessie: So we should definitely link that.

Jess: We also have episodes on are we in a recession and who defines a recession? Episode 15.

Jessie: And then episode 14, what's going on with inflation? That kind of breaks a lot of these things we've talked about down even further.

Jess: Yes, especially if you want to hear how we related the business cycle to the menstrual cycle.

Jessie: That is episode 15.

Jess: They define turning points.

Jessie: That's what a recession is.

Jess: It's a turning point in the U.S.

Jessie: economy, which is absolutely in hindsight.

Jess: But this is why it made such a recipe for disaster, because Fed Chair Powell said that he is looking for deterioration of the employment picture would give him reason or thought to assess the totality of the data, but start cutting rates.

Jessie: So there was more of a rise than anticipated, because remember, it's not like, oh, it went from 4.1 to 4.3.

Jess: It's not that bad.

Jessie: Just like earnings.

Jess: There's an expectation.

Jessie: Right.

Jess: And it came in higher than the expectation.

Jessie: And if there is a surprise, the market reacts.

Jess: And the market reacted.

Jessie: It did, because two days before, the person who makes the decision and trying to tell us if we're in a recession or not was like, this is what I'm looking for.

Jess: And everyone's like, ah.

Jessie: So there was freak out.

Jess: There's panic.

Jessie: And then it was increased on social media.

Jess: I went through TikTok.

Jessie: People were like, the economy is going to recession, and it's just for clickbaits and fear mongering.

Jess: And it just makes me so mad.

Jessie: Yeah.

Jess: And remember, yeah, do not be an emotional investor.

Jessie: Do not panic sell or anything.

Jess: That's why we're teaching you all this information so you can make informed decisions on what to do with your portfolio.

Jessie: And that's kind of the key takeaway here.

Jess: We're teaching you all of this so that when things do happen, you see these headlines like the market is down.

Jessie: Is the stock market crashing? Oh, no.

Jess: And people are trying to do this clickbait fear mongering.

Jessie: You have the resources to go actually look at the data and go look at what's going on and figure out what's really happening and is it really that bad.

Jess: And maybe it's time for you to add more to your portfolio because there's a dip in some prices or maybe you just want to hang steady and not do anything and just see what's kind of going to happen.

Jessie: So you have the data and resources and information now to make the right call for yourself.

Jess: That's right.

Jessie: Let's just listen to the hype, basically.

Jess: That's right.

Jessie: We understand we don't time the market.

Jess: We prepare.

Jessie: Right.

Jess: And we do need to talk about portfolio allocation because there is a reason why you would have a percentage of bonds or other things.

Jessie: But if you have something like the S&P 500, it may be different.

Jess: So I want to show you some tools and resources for portfolio construction.

Jessie: Just a little teaser of it, say you do have something heavy in technology, but you come up with a portfolio allocation where you say, you know what, I'm going to be 10% fixed income or 10% bonds and I'm going to be 90% something else.

Jess: And part of that's technology.

Jessie: Well, if your technology goes up, you're going to have too much percentage technology, too little percent bonds.

Jess: And since they work inversely within the market, you end up selling high and buying low.

Jessie: And that's what's where balancing is.

Jess: So you have to rebalance.

Jessie: This is why it's important because it also goes into market mechanics.

Jess: Portfolio managers are going to do this, meaning for hedge funds, mutual funds, all those things.

Jessie: So if they're going to adjust their strategy, they have to rebalance before this huge buy comes in.

Jess: That's why when you talk about market breadth, I said it may be time to consider those small caps, but not yet.

Jessie: We need some rebalancing first.

Jess: And part of that is selling and this sell off.

Jessie: It's just been exasperated by these jarring moves because of the carry trade, but also because of the retail participation.

Jess: Retail participation is at 53 percent.

Jessie: It used to be like 20 percent, which means there is more emotional traders in there.

Jess: So please stay educated.

Jessie: And we have that's what it's about.

Jess: Bonds and treasuries, because they haven't necessarily come down yet.

Jessie: But when those interest rates do inevitably get cut, your H.Y.S.A., high yield savings account rates, interest rates are also going to get cut.

Jess: It might be time to look at the two year T-notes and things that are still benefiting from the inverted yield curve before it de-inverts, right? That's right.

Jessie: So you want to lock it.

Jess: If you can lock up money for a couple of years or you can lock it in a CD or something like that, you might want to lock in some rates before they get cut.

Jessie: Just something to consider.

Jess: Not advice.

Jessie: Yes.

Jess: Not financial advice.

Jessie: Right.

Jess: Financial advice is personal.

Jessie: This isn't that.

Jess: Disclosure.

Jessie: Disclosure.

Jess: Now you know how to cook a market sell-off.

Jessie: Chef's kiss.

Jess: I love this.

Jessie: And you also know that, statistically speaking, dessert will be on the menu as the market historically has always recovered.

Jess: We weren't really far with this analogy today.

Jessie: Yes.

Jess: Remember, everyone's food palette is different.

Jessie: That is why investing is personal.

Jess: That's right.

Jessie: And if we left you hungry for more answers, feel free to drop a comment on Spotify.

Jess: We can reply now.

Jessie: I replied to them all last night if everyone got notifications.

Jess: Yes.

Jessie: Jess will most likely be the one replying.

Jess: Or I will if I know the answer.

Jessie: But if I don't know the answer, I'm going to let her reply.

Jess: So don't worry.

Jessie: That's totally fine.

Jess: And also on our other social media channels, we'll also reply there too.

Jessie: We see you, Beza.

Jess: Thank you for the comments.

Jessie: Yes.

Jess: We love you.

Jessie: And if you're craving more knowledge, make sure you check out our new super awesome ebook.

Jess: It's free and took us a long time to create.

Jessie: And by us, I mean Jess.

Jess: I did edit it.

Jessie: But the information, all the good information is in there that you'd want to know.

Jess: Quit giving me all the credit, Jess.

Jessie: You do.

Jess: Thanks.

Jessie: You are what you consume.

Jess: So consume knowledge.

Jessie: Yes.

Jess: I've really...

Jessie: You have knowledge.

Jess: So far.

Jessie: Oh, that's good.

Jess: If you enjoyed your service today, please feel free to leave us a rating, review, or recommend us by sharing this podcast with anyone who might be hungry for some stock market education.

Jessie: Oh, nice.

Jess: And please also follow us on Instagram so we can get our Instagram follower numbers up on TikTok if you're not there and all the other ones if you so choose.

Jessie: And remember, when you build knowledge, you break down barriers.

Jess: Remember, investing involves risk.

Jessie: There is always potential to lose money when investing in securities.

Jess: Market MakeHer provides educational content and resources for informational purposes only.

Jessie: We are not registered financial advisors and do not provide personalized investment advice.

Jess: Any information provided by Market MakeHer on our website or podcast is not intended to be a substitute for professional financial advice.

Jessie: Market MakeHer is not liable for any investment decisions made based on our content..