Ep 50: SMU: NVDA Earnings, Market Participation & Fed Expectations

Jess: Is it just me, or is the stock market more volatile lately? I know Nvidia reported had over a 100% increase in revenue and B earnings yet again, but is down.

Jessie: And the Fed met in Jackson Hole, which sent the market soaring, but then the market freaked out with the unemployment numbers, but it turns out it wasn't that bad and rallied again.

Jess: Like, what is happening? It's a circus out there.

Jessie: Juggling a lot.

Jess: Definitely.

Jessie: Definitely need a market update.

Jess: I don't think we've done one in a while.

Jessie: I think it's time.

Jess: Let's do it.

Jessie: Cue the music.

Jess: You're listening to Market MakeHer, the self-directed investing education podcast that breaks down what's happening in the stock market and how it impacts your portfolio from her perspective.

Jessie: If you're new here, welcome.

Jess: If not, welcome back.

Jessie: And if you didn't know already, this podcast is teacher learner style.

Jess: And I'm Jess Inskipp, what we call the resident finance expert.

Jessie: I've worked in finance for 15 years now, gave up my financial licenses to battle all the misinformation that you're seeing on social media, and then started this podcast with Jessie because she convinced me to.

Jess: Her magical powers.

Jessie: Craft.

Jess: And I'm Jessie Denouy.

Jessie: I'm learning alongside you.

Jess: Digesting all of this financial literacy and stopping Jess when she says something that does not make sense to the lay person.

Jessie: Yes.

Jess: Well, if you spend too much time in the finance world, you begin to speak a foreign language.

Jessie: And I see it's happening to you, Jessie.

Jess: It really is.

Jessie: I know what the yield curve is, who the Fed is, this whole AI narrative thing.

Jess: I don't know what's happening, but honestly, I'm here for it.

Jessie: You're learning.

Jess: That's right.

Jessie: I'm learning.

Jess: Yes.

Jessie: All right.

Jess: Well, let's talk about Nvidia.

Jessie: So we'll discuss what's happening in the market today.

Jess: I see that Nvidia beat earnings by a lot again, but the stock is still down 6.5% today.

Jessie: So what happened there? So there is a lot to happen with Nvidia.

Jess: And I think it's so important we talk about it because I have had a monumental moment within my career.

Jessie: You know, I work with Jim Cramer, and I was on the segment Mad Money this week.

Jess: And that segment, he reads my stuff, my work, and spits out my resume.

Jessie: Super nice.

Jess: But I sneak in little jokes every once in a while.

Jessie: And this time, I said, Nvidia is taking a page from Taylor Swift's book and saying, who's afraid of little old me? You should be.

Jess: And he said it.

Jessie: He said it.

Jess: He said it.

Jessie: He really said it.

Jess: I love it.

Jessie: I love that, man.

Jess: It's just so good because it's such a win for all us Swifties out there, you know? Well, and he's listening to the fact that you said how there's just so many sports analogies.

Jessie: Yeah.

Jess: Like, you know, because when men talk about the stock market, you know, they kind of relate it to things like that.

Jessie: And it's nice to have other analogies and other things to relate the stock market to.

Jess: Really is.

Jessie: It was so great.

Jess: I loved it.

Jessie: And the chief CEO was on that night as well.

Jess: So it was like the perfect.

Jessie: It was amazing.

Jess: Anyways, yes.

Jessie: But wait.

Jess: What really is important about that is NVIDIA, I really think is the Taylor Swift of the stock market.

Jessie: And it really says what's happening with the earnings.

Jess: So they surpassed earnings again.

Jessie: And it was crazy.

Jess: But there's super high expectations.

Jessie: It's the hot thing right now.

Jess: There's really high expectations on Taylor Swift right now.

Jessie: Everyone, including myself, has been clowning.

Jess: We call it going through the data, trying to see when she drops reputation TV.

Jessie: She didn't.

Jess: We all thought she was going to in London.

Jessie: Now we think it's the VMAs.

Jess: But with NVIDIA, there's so much pressure that when it doesn't meet those super high expectations that everyone thought it would, then it's it it can be bad for the market.

Jessie: And it's a similarity of what happened.

Jess: Yeah, like you kind of let down a little bit.

Jessie: They're like, oh, exactly, because there's layers of expectation.

Jess: So even if they exceed analyst expectations, it's did they meet market expectations? And they didn't meet market expectations.

Jessie: So now there's like two sets of expectations.

Jess: Or it's always been that way.

Jessie: Yeah, it's always been that way.

Jess: It's just normally they are in line.

Jessie: Yeah, which is interesting.

Jess: So that makes you think there's a little more under the surface.

Jessie: I think there's some important stuff to go through with NVIDIA, especially because it represents about what was 8% of the S&P 500, a little less now because of the movement.

Jess: But it's a big piece, big piece, right? It has a lot of volatility because it relies on a small group of customers.

Jessie: We call that those hyperscalers, which is Microsoft, Google, Apple.

Jess: Anybody who needs to have an AI build out of some sort is relying on NVIDIA.

Jessie: They report their earnings first.

Jess: They acknowledge that they were overspending in their AI build out.

Jessie: So that is an early indication of, OK, if they think they're overspending, are they going to decrease that spending? And if they're going to decrease that spending, who is that going to impact? Would it impact NVIDIA? Because that's their customers.

Jess: That's a piece of it that goes into the forward-looking guidance.

Jessie: And they don't have to give us forward-looking guidance.

Jess: But if they tell us there's going to be a slowdown, then that could certainly be an issue.

Jessie: So that's kind of like the early indications.

Jess: But it's also why it's a really volatile security.

Jessie: And it will move based on the other hyperscalers, which, again, Google, Apple, Microsoft, all those.

Jess: Even though they're all in the AI battle, they all still kind of work together.

Jessie: It's very, very interesting.

Jess: That is interesting.

Jessie: Yep.

Jess: And then the big one is, I guess, the anticipation.

Jessie: There was production issues with the Blackwell chip.

Jess: That's the new chip.

Jessie: That's supposed to be super fast and efficient.

Jess: But they had a big supply-side issue.

Jessie: There were some issues with it.

Jess: There's still demand.

Jessie: It's a supply issue.

Jess: And that could be a problem.

Jessie: There's the supplier.

Jess: Like, what's the supply? So NVIDIA is the supplier of the Blackwell chips.

Jessie: There was some type of issue.

Jess: And so then they couldn't get it out fast enough.

Jessie: And then that could be an issue.

Jess: But it's not a demand problem.

Jessie: People still want it.

Jess: Right.

Jessie: Yes.

Jess: There's astronomical expectations.

Jessie: It fell short.

Jess: But what I thought was interesting and what I really think it is, just as me personally, is the margin.

Jessie: It slipped.

Jess: So last quarter, it was 78.4% was their gross margin.

Jessie: That's amazing.

Jess: That's really high.

Jessie: So high.

Jess: It's head and shoulders above everyone else.

Jessie: Yeah.

Jess: But it dropped 3%.

Jessie: OK.

Jess: Oh, it didn't drop to 3%.

Jessie: It dropped by 3% to 75.1%.

Jess: Yeah.

Jessie: Still amazing to have a 75%.

Jess: Do we know why? Did they increase their staff? I don't have any indication as to why.

Jessie: They said that's going to stay around the 70s.

Jess: And perhaps that's the forward-looking guidance for people like, OK, well, your profit margins aren't expanding.

Jessie: Even if you have higher revenue, if your expenses go up, there's the balance.

Jess: And that's what I think the market reacted to is the change in the gross margin.

Jessie: Because that's what I would react to too.

Jess: It's like, hey, that's a red flag.

Jessie: Is this momentum slowing down? I see.

Jess: You know what I mean? Yeah.

Jessie: They expect it to be in the mid-70s range, they said.

Jess: But analysts are expecting, or were, the full-year margin to be around 76%.

Jessie: So that was the miss from analyst expectations.

Jess: And that's what I think the root of it is.

Jessie: I see.

Jess: OK.

Jessie: Because they did other things really well.

Jess: They said that, hey, Blackwell is still high demand.

Jessie: We still have more coming in.

Jess: It has three times to four times more compute over Hopper, which Hopper is the one for gaming.

Jessie: Blackwell is for AI.

Jess: And they've got a lot of cloud and enterprise customers.

Jessie: NVIDIA is still the best turnkey model, if that's the route that you're going through.

Jess: And they announced a buyback of $50 billion worth of shares.

Jessie: I don't think we've talked about buybacks yet.

Jess: But that's always good for stocks.

Jessie: So this is after, because they just split their stock, what? Yes.

Jess: February, March? Some time ago.

Jessie: Yeah.

Jess: I don't know the exact date.

Jessie: The price of the stock soared in January, really, really high.

Jess: And because of that, they did the stock split.

Jessie: And so now it's cheaper to buy a share.

Jess: So now they're going to do a buyback for what? To what end? $50 billion.

Jessie: So they're going to buy $50 billion back worth of stock.

Jess: And that, we could have a whole episode on this.

Jessie: But the high level, it's considered good and bad.

Jess: It's considered good in the sense is, OK, I want to buy back my stock.

Jessie: I feel like it's personally cheap in valuation.

Jess: I'm going to take back ownership of my company.

Jessie: Where it could be seen as bad is perhaps, are you manipulating the price of the stock? Because you're creating demand.

Jess: But people do that.

Jessie: That's why that goes into fiscal policy.

Jess: It's like, OK, maybe we should stop all these buybacks.

Jessie: And you should reinvest it back into, you know what I mean? That is something that helps shareholders.

Jess: I've seen that lately.

Jessie: There should be rules and caps on what is allowed.

Jess: Something like that, right? Yeah, because it's all supply and demand.

Jessie: If there is more demand, just purely from a pricing perspective on the stock market, the price goes up.

Jess: This is a lot of demand.

Jessie: So that wouldn't be considered market manipulation? No, because they're telling us about it.

Jess: We know before they do it.

Jessie: OK.

Jess: But people can, the market will still react when they make announcements like that? Yep, and that's where it's like, OK, well, does it matter? Because then it's just like news comes out.

Jessie: Oh my god, we have this crazy new chip that does AI.

Jess: Everybody wants it.

Jessie: Like when it early started happening, well, then the market immediately reacts.

Jess: Same thing happens.

Jessie: OK, we're going to do a $50 billion buyback for our shares.

Jess: The market immediately reacts.

Jessie: It always prices in information as it comes in.

Jess: OK.

Jessie: But it missed on the profit margins.

Jess: That's what I think it was.

Jessie: Still, it's the Taylor Swift of the stock market.

Jess: Just because it missed that, it can do it with a broken heart.

Jessie: Don't you worry.

Jess: NVIDIA is going to come back because the AI narrative is real.

Jessie: There's lots of reports where it's still going.

Jess: And we're in the early stages of that investment cycle.

Jessie: And a lot of people, we see your comments.

Jess: A lot of people have been asking for Jess's opinion on NVIDIA stock.

Jessie: So.

Jess: Here it is.

Jessie: Not advice, but that's, you heard it.

Jess: You heard her opinion.

Jessie: Yes.

Jess: Taylor Swift, would you still bet on Taylor Swift? Yeah.

Jessie: All day, every day.

Jess: OK.

Jessie: So to recap, NVIDIA has super high expectations.

Jess: On the past earnings calls, they beat by a lot.

Jessie: And this time, it simply wasn't enough, even though they beat it.

Jess: However, they still see demand for the Blackwell chips and have crazy high profit margins.

Jessie: And even though it beat analyst expectations, it didn't exceed market expectations.

Jess: So this is like a new layer unlocked of expectations that we can pay attention to.

Jessie: That's right.

Jess: Yeah.

Jessie: OK.

Jess: Well, what about the other stocks this earnings season? How are their report cards, as we like to call them? Yes.

Jessie: The broadening.

Jess: The broadening.

Jessie: Sounds like a scary movie.

Jess: The broadening.

Jessie: And do you want to define earnings season? Earnings season happens every quarter or, you know, every season.

Jess: And it's basically showing us how the companies are performing.

Jessie: So, you know, if we look at the S&P 500, the top 500 U.S.

Jess: companies, we kind of get to see their report cards.

Jessie: And if they are meeting or beating expectations, like we just talked about with NVIDIA.

Jess: Beautiful.

Jessie: I love it.

Jess: Yes.

Jessie: So this is where I think it gets really interesting.

Jess: We are seeing broadening happening.

Jessie: So going back to the Magnificent Seven, or I said hyperscalers.

Jess: We haven't talked about Magnificent Seven.

Jessie: That's just the names for the big companies.

Jess: Hyperscalers are also part of the Magnificent Seven.

Jessie: Nonetheless.

Jess: Is it the same thing? No, the hyperscalers are four, whereas the Magnificent Seven are seven.

Jessie: Oh, OK.

Jess: Yes.

Jessie: So the Magnificent Seven right now, are they like top seven companies that are in the S&P 500 that are kind of like carrying it a little bit? Or it doesn't have to necessarily be carrying it.

Jess: It's just like the top seven bigger players.

Jessie: Well, it was actually coined by an analyst at Bank of America back in 2023.

Jess: Because it was the seven securities that were just like dominating it.

Jessie: So the Magnificent Seven that were contributing to growth of the stock market, which is Google, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla.

Jess: OK, so that's the Mag Seven.

Jessie: That's right.

Jess: Yes.

Jessie: And then who are the hyperscalers? They are Alphabet, Amazon, Apple, Meta, Microsoft.

Jess: OK, so that's like the top four.

Jessie: Basically, all of them are top five.

Jess: Sorry, but yes.

Jessie: But what's so important now, we have been seeing earnings growth on the S&P 500, but that earnings growth was led by the Magnificent Seven, less Tesla.

Jess: Earnings growth is now happening with the other 493 stocks for the first time, which is that that's really good.

Jessie: Because now we have a deacceleration of those Magnificent Seven.

Jess: Maybe we should call it Magnificent Six.

Jessie: It was Magnificent Seven.

Jess: Then it moved to Magnificent Six.

Jessie: That really went because Tesla went down.

Jess: But now Tesla is also going back up again.

Jessie: It's leading consumer discretionary.

Jess: So the other 493 are showing earnings growth.

Jessie: So they were still beating expectations, but they weren't growing.

Jess: The bar was like low, if that makes sense.

Jessie: And that's when we talked about the episode that we had with JC, what is market breadth? Like we were talking about that, right? Yes.

Jess: Yes.

Jessie: That's right.

Jess: So market breadth means like broadening.

Jessie: Those are synonymous.

Jess: But if there is like room to breeze, because you're reliant on these seven specific securities, like that group project we use with Nvidia all the time, they're the line leader.

Jessie: They're keeping it up.

Jess: It's doing all the work in the project.

Jessie: Yeah.

Jess: It's kind of skating by.

Jessie: And we needed everyone to participate.

Jess: And now everyone is participating.

Jessie: And that's good.

Jess: That's signs of a healthy market.

Jessie: Everyone in the whole S&P 500 or the Mag 7? The Mag 7 is still leading the way.

Jess: Yeah.

Jessie: But the other 493 are there.

Jess: And you can see that.

Jessie: I do a lot of charting.

Jess: We haven't talked about that yet.

Jessie: And if anybody wants technical analysis, put it in the comments.

Jess: I'll be happy to.

Jessie: I do.

Jess: Yay.

Jessie: But you can also see that with the S&P 500 equal weight.

Jess: That's the way that I would measure it.

Jessie: Which, how we talked about that? I think we have briefly before.

Jess: But how do you see that? So the S&P 500, as you know, is market cap weighted.

Jessie: So the bigger the company, the bigger piece of the pie.

Jess: It's like 30% technology.

Jessie: The equal weight assigns literally an equal weight to each security.

Jess: Oh.

Jessie: So it's in the name.

Jess: So instead of it being whichever companies are making the most money, you're all the same value.

Jessie: Exactly.

Jess: OK.

Jessie: And so when you look at equal weight for these 500 companies, what does that show you? So the equal weight is now starting to make higher highs.

Jess: Whereas the S&P 500 market cap weight was already been doing that for a while.

Jessie: OK.

Jess: Let's talk about that in charting.

Jessie: I know what you're talking about since I've been following you for a while now on TV.

Jess: But when you talk about the higher highs and lower lows, you're talking about literally looking at a line chart.

Jessie: When the line goes high and then dips low and then goes high again, you want that high to be a little higher than the last high, right? Yeah, that's exactly right.

Jess: That's beautiful.

Jessie: Oh, that's so good.

Jess: I love that.

Jessie: Yay.

Jess: You're an A plus and a gold star and extra credit.

Jessie: You set the curve.

Jess: Sorry, Klaus.

Jessie: Love it.

Jess: I thought he was like the teacher's pet.

Jessie: But yeah, all it means is if the S&P 500 is getting higher in price, because in technical analysis, everything's fundamentally driven in the way I do.

Jess: It's long term, so nobody come at me.

Jessie: But the equal weight, you want to see the same thing.

Jess: Otherwise, it's just math.

Jessie: It means, OK, something's driving this.

Jess: It's market cap weighted.

Jessie: Obviously, it's the bigger companies.

Jess: If all of the companies aren't participating, you can just literally see it by looking at a different indice.

Jessie: OK, but when you look at this equal weight charting, is that an indice you're saying? Yeah, it's an indice.

Jess: The S&P equal weight is.

Jessie: So that performs different than the regular S&P 500? Of course, yeah.

Jess: Because the math is different.

Jessie: So you've got equal weight versus market cap weight.

Jess: And you'll hear that on finance media.

Jessie: I will say the market cap weight or the equal weight all the time.

Jess: I didn't realize that.

Jessie: Now I'm going to have to look at it.

Jess: So there's different indices to the equal weight S&P 500 as well.

Jessie: Like you know how the S&P 500, if you're buying shares of it, it's like VOO, SPY.

Jess: Is it the same for? Yeah, there is a, I don't know off the top of my head, but yes, there is an ETF for it.

Jessie: But the indice symbol is SPXEW.

Jess: OK.

Jessie: OK.

Jess: Where the market caps SPX.

Jessie: No one's really creative in finance.

Jess: It's just you got to know where the words came from.

Jessie: Yeah.

Jess: Everyone's so creative.

Jessie: But yeah, that's basically it's broadening, which is good.

Jess: Like and that is why I think you see the market doing OK, despite a sell off in NVIDIA.

Jessie: However, there were a couple of headlines that I just think is interesting.

Jess: DG, Dollar General, they reported today.

Jessie: That stock was down 20% because it weren't, yeah, of constrained consumers.

Jess: If Dollar General says constrained consumers and that's being picky, then that's something you should you should pay attention to.

Jessie: Lululemon did the same.

Jess: But then there's other companies that said everything is healthy.

Jessie: So it's really a mixed picture.

Jess: And it shows you that the selective consumer, and it might be at specific areas, because remember, these are companies that could be concentrated in other places.

Jessie: Walmart did really, really well.

Jess: They said they have a consumer that's going more towards value.

Jessie: But I guess that leads into what the Fed said in that action as well.

Jess: Does that mean it's time to get into Jackson Hole? We should.

Jessie: Well, let me give a quick recap.

Jess: OK, so we're talking about the broadening of the market, the market breadth, with the B-R-E-A-D-T-H.

Jessie: But it's breathing.

Jess: So the S&P 500, the top 500 U.S.

Jessie: companies by market cap, is showing earnings growth.

Jess: The MAG-7 is still showing the majority of the earnings growth, but it's slowing.

Jessie: So now the other 493 stocks are showing earnings growth for the first time.

Jess: And this is good, because this is called broadening.

Jessie: And the market broadening, it means it's breathing.

Jess: And it's like everyone, the whole class is participating in the group project, not just the ones that always raise their hand and are the suck-ups.

Jessie: Exactly.

Jess: Earnings growth is good.

Jessie: You don't see that during recessions.

Jess: Just real quick, because some people might want to know what that means for them.

Jessie: Does this mean it's time to do any adjustments in our portfolios or look at small cap or anything like that yet? I still think small caps are more risky.

Jess: I'm not on the board with small caps yet.

Jessie: There has to be a rebalancing first before there is this rotation, rebalance before rotation.

Jess: But that certainly could be coming.

Jessie: It's just a little more volatile.

Jess: And I would wait.

Jessie: But it's a good testament to when you have something that's overtaking our portfolio, like NVIDIA, that's the part of portfolio management.

Jess: You sell it when it's high.

Jessie: That way you can rebalance back into other sectors.

Jess: And now that they're all participating, you would have seen that.

Jessie: And now the S&P 500 is naturally going to do that.

Jess: It's not going to sell off, but it's naturally moving weights around with market cap.

Jessie: So it's almost that way.

Jess: That's why the S&P 500 is fine.

Jessie: If you only invest in the S&P 500, don't worry about it.

Jess: I also saw that Warren Buffett sold off a lot of his Bank of America shares? He did.

Jessie: He sold off Bank of America and he also sold off some Apple.

Jess: But I think he was also over-concentrated and he's gearing up to have a lot of cash.

Jessie: And I think he's plugging in that cash into what we've been telling everybody to do, which is lock in some duration.

Jess: In treasuries and bonds and CD lottery and things like that? Yeah.

Jessie: I mean, no offense to him, but he's up there in age.

Jess: It's probably time for him to start being a little less aggressive, more conservative in his money habits, I guess.

Jessie: Right.

Jess: His strategy there.

Jessie: Okay.

Jess: Just wondering, because people see that and kind of wonder, oh, what does that mean? What should I be doing? But it's a great personal thing that he's got going on.

Jessie: Okay, the Fed.

Jess: What about Papa Powell? I saw he was at Jackson Hole.

Jessie: So what is Jackson Hole? What message did Papa Powell bestow upon us this time? Yes.

Jess: Blessed us with the message.

Jessie: I think it's a joke because at his last press conference, he said, finance media, you like to bless me with your commentary.

Jess: And I just thought it was so funny.

Jessie: It was hard.

Jess: I'm just kidding.

Jessie: Yes.

Jess: But hey.

Jessie: Insult in the South.

Jess: You know, you know.

Jessie: You do.

Jess: Girls that know, know.

Jessie: Jackson Hole.

Jess: So it's held by Kansas City Fed.

Jessie: And I think the history of it's so funny, like way, way back in the day.

Jess: It's just because some dude liked fishing and he'd go there.

Jessie: And now that's where it's held every year is Kansas City or Wyoming.

Jess: Is that right? Jackson Hole, Wyoming is where it is.

Jessie: But the host is the Kansas City Fed.

Jess: Oh, okay.

Jessie: Yeah.

Jess: There's Feds in like different areas.

Jessie: We could talk about that one day.

Jess: Not today.

Jessie: But it's an annual event that's there.

Jess: Their title of this one was Reassessing the Effectiveness and Transmission of Monetary Policy.

Jessie: I know.

Jess: It's super, super fun.

Jessie: I bet it was a good time.

Jess: I mean.

Jessie: So the Fed's in charge of monetary policy, right? And they come back and they have like papers that come together.

Jess: There's a bunch of media there.

Jessie: There's a bunch of professors, a bunch of super smart people.

Jess: I bet it's so interesting.

Jessie: And amazing to listen to.

Jess: But they literally talk about, okay, what happened with inflation? What was it supply side? Was it a result of the pandemic? They go through all of the economic data and reassess it in the past.

Jessie: And they look at the current economic picture.

Jess: And then they look at monetary policy and where it needs to be.

Jessie: But then there's also lots of studies that come in.

Jess: And what I really love is, you know, naturally like a Swiftie, because I really think Swifties would be good at the stock market, is I listened to the whole speech.

Jessie: This is the first time they let cameras in.

Jess: Normally they do not.

Jessie: I guess people are usually able to listen to the speech like that.

Jess: Yeah.

Jessie: Well, and it's prefabricated.

Jess: So he has a lot of time and he is very meticulous and thoughtful with his words for this one specifically because there is no Q&A.

Jessie: Oh, okay.

Jess: No Q&A.

Jessie: And this time he made it abundantly clear that we are about to cut rates.

Jess: Yeah.

Jessie: I mean.

Jess: Abundantly clear.

Jessie: What other? Like he doesn't have a choice.

Jess: He needs to do it.

Jessie: But there's a speculation or is it confirmed that it's going to be like 50 basis points? So 0.50 instead of 0.25.

Jess: It's normally like by like, you know, 0.25 at a time.

Jessie: But people think he's going to do.

Jess: Stay with us.

Jessie: We'll be right back.

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

Jessie: And me, Andrew Maynard.

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

Jessie: 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.

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

Jessie: Subscribe to Modem Futura wherever you get your podcasts.

Jess: We'll see you there.

Jessie: See you then.

Jess: Yeah, well, we didn't know.

Jessie: That's the thing.

Jess: We had no idea if it's going to be 50 basis points.

Jessie: We don't know if it's going to be 25 basis points, but he did put it on the table.

Jess: And he made a lot of interesting comments.

Jessie: But he said, it's time to reduce rates.

Jess: But what I took away in my, I guess, the layup that he made is he said, I don't want to see any more pain within the labor market.

Jessie: Said, we've shifted our focus to from the inflation data.

Jess: He has confidence.

Jessie: Remember, we're looking for confidence that inflation is on its way to 2%.

Jess: But he doesn't want to see any more pain within the employment picture.

Jessie: He's focusing on the other side of his mandate, which is maximum employment.

Jess: The other side is price stability.

Jessie: And that right there says, we're ready to cut rates.

Jess: And he said, the time has come to cut rates, which is, that's very.

Jessie: We're going to do it.

Jess: We just don't know for sure by how much.

Jessie: OK, so we said, it's usually 25 basis points, which is just 0.25 of a percent, right? Yeah, a quarter of a percent.

Jess: So that's not that much.

Jessie: No, it's not.

Jess: Why are people making a big deal about it being like if it's like half of a percent, 0.50 basis points? Well, because it really adjusts a lot.

Jessie: Because there's a bunch of calculations that goes into the future value of money.

Jess: And then it automatically affects the yield curve.

Jessie: Because remember, the stock market is forward looking.

Jess: Right.

Jessie: Something I have drilled in your head since episode one, I hope.

Jess: So when we think he's going to cut rates, then the market will react inclusive of the yield curve.

Jessie: And so it starts the de-inverting process.

Jess: Oh, has it started then? Yeah, it does.

Jessie: It immediately reacts.

Jess: So that's why we say you have to prepare.

Jessie: You can't time.

Jess: And he may do 50 basis points.

Jessie: He's done that.

Jess: He rose it 75 basis points on the way up.

Jessie: So who says he can't do that on the way down? True.

Jess: And depends on the data.

Jessie: So when would that be happening in September? Yes.

Jess: So September.

Jessie: But before September, we've got an employment report.

Jess: We got GDP today, which was like amazing.

Jessie: Exceeded expectations.

Jess: So there's still growth in the economy, which is his cushion.

Jessie: So maybe it will be 25 basis points.

Jess: But then we have another unemployment report on the first week of September.

Jessie: And then the following week, I believe, is the meeting.

Jess: And we have PCE on Friday, tomorrow, when this episode will be released.

Jessie: So they're going to take all that into account before they decide on the cut.

Jess: Yeah.

Jessie: But I think he definitely has to cut.

Jess: If he doesn't, then the market will definitely sell off and freak out.

Jessie: Because we want him to cut because he beat the battle on inflation.

Jess: He made that narrative right there.

Jessie: He's like, I am confident about inflation.

Jess: I don't see a deteriorating labor market.

Jessie: And you have to remember, recessions come with layoffs, mass layoffs.

Jess: And that's the next line item of protecting profit margins.

Jessie: And if that happens, then we'll freak out.

Jess: Yeah.

Jessie: Let's recap that and then talk about recession.

Jess: I like it.

Jessie: Yes.

Jess: OK.

Jessie: So Jackson Hole is an annual event literally in Jackson Hole, Wyoming, where economists, the Fed, and even media this time came together to discuss economic policies.

Jess: This year, the theme was reassessing the effectiveness and transmission of monetary policy, which basically was a discussion on what caused inflation, the pandemic, monetary policies role, and the Fed is being agile and adjust policy approaches.

Jessie: So Powell indirectly told us that he is going to shift his focus to the unemployment side and that the time has come to cut rates, which is why we rallied, why the market rallied.

Jess: Right? Yeah, exactly.

Jessie: And I think the one thing I didn't say or make crystal clear is he said there's still so much to learn about the pandemic.

Jess: It was historic.

Jessie: And it was very interesting how that recession happened.

Jess: He said it was deep, but it was quick.

Jessie: And so they're going to take this time to study.

Jess: And I love that.

Jessie: I should love that.

Jess: Yeah.

Jessie: I mean, yeah, they should be doing that.

Jess: One would hope.

Jessie: For sure.

Jess: Like study.

Jessie: Yeah.

Jess: Been going on.

Jessie: What led us to here? Okay.

Jess: So let's talk about recession.

Jessie: Okay.

Jess: A recession is always called in hindsight by the NBER.

Jessie: We have done an episode on recession and talked about the NBER.

Jess: And you can actually go to that website.

Jessie: We'll link it.

Jess: But they look at it in 3D.

Jessie: So the 3D, 3Ds are depth, diffusion, and duration.

Jess: So let's go through all of the data points.

Jessie: The NBER looks at next week and come up with our own assessment.

Jess: Like what would be interesting to see that the picture looks like now? Yeah.

Jessie: I think it's definitely should do that next week.

Jess: Okay.

Jessie: We need an update on that.

Jess: I would love to do that.

Jessie: That would be a great episode.

Jess: I think it's time to kind of revisit our business cycle, menstrual cycle analogy, kind of like get into it a little more.

Jessie: Because we kind of just like broached the surface of it last time.

Jess: Yeah.

Jessie: And the analogy, I think we get a little bit more in depth and really like make it make sense.

Jess: Yeah, absolutely.

Jessie: Because we've had a lot more data since we've done that.

Jess: GDP, like I said today, was really strong.

Jessie: It came in at 3%, which is where that cushion was coming from.

Jess: There's growth.

Jessie: We need to look at the labor market.

Jess: We need to look at GDI.

Jessie: We need to look at all of those data points.

Jess: But like we said a couple of episodes ago, and that TikToker that had the best, best, best analogy, you can't say you've had a bad week if you've had a bad day on Monday.

Jessie: You have to wait until like Friday.

Jess: You need more data.

Jessie: That's why a recession is always called in hindsight.

Jess: You have to understand, like you said, 3D, the depth, diffusion, and duration.

Jessie: COVID was widespread, but very quick.

Jess: It wasn't very, very long, but it still counted as a recession because of how widespread and deep it was.

Jessie: It felt long.

Jess: It did.

Jessie: And there were supply chain issues that came up.

Jess: We couldn't access things.

Jessie: And remember, everything runs on supply and demand.

Jess: There was a shift from goods to services because everyone got into skincare.

Jessie: So there's a lot of demand for it.

Jess: They're all sitting at home.

Jessie: Yeah, a lot to do.

Jess: I think it's such a good reminder to just how the economy, I mean, we are the economy, but the stock market is literally around you.

Jessie: It's literally, literally around you.

Jess: Yeah.

Jessie: Just got to know.

Jess: It's like when you see the Matrix.

Jessie: That's how I envision it looks like from behind your eyes when you're looking at everything.

Jess: You see the whole world with zeros and ones, and getting all the data from everywhere and processing it.

Jessie: And you're like, OK, I got it.

Jess: I wish it was that way.

Jessie: It's more like singing a Taylor Swift song every five seconds.

Jess: I mean, same thing.

Jessie: Yeah, that's true.

Jess: I think we could relate it all to a Taylor Swift song.

Jessie: Anyways.

Jess: All right.

Jessie: Well, this was fun.

Jess: Next week, recession.

Jessie: We'll get more into the recession.

Jess: And I mean, I feel like I received the safety briefing or that fun little intro video you get for the ride you're about to step on at Universal Studios or Islands of Adventure.

Jessie: Please stow away your loose items in the lockers provided.

Jess: Keep your hands and feet inside at all times.

Jessie: You must be this tall to ride.

Jess: Oh, I love this.

Jessie: The roller coaster analogy.

Jess: We have the best analogies on this podcast.

Jessie: This just expanded it, though.

Jess: Because when it gets really intense, in a really intense roller coaster, it goes upside down.

Jessie: You got to put your loose items in the locker.

Jess: When it gets intense in the stock market, you got to lock up your cash.

Jessie: Get in that yield while you can.

Jess: Get that duration.

Jessie: You know, don't..