“We’ve Been Saying For Months, The Fed Needs To Get On With It, Start To Cut” - Ryan Derrick, CMT
Ryan Detrick, CMT, Chief Market Strategist at Carson Group joined Benzinga's Premarket Prep show today to discuss the current state of the markets.
Category
🗞
NewsTranscript
00:00Ryan Diedrich, chief market strategist at the Carson Group, a long time guest of the show.
00:06Ryan, as you always do, put things in perspective. Yeah, I'll try to do that today. Boy,
00:14you got me on an interesting day. Thanks for having me back, everybody. This is going to be
00:18fun. I've been traveling all over the place, but I've got some slides and I'll share them here in
00:22a second. I'll just say this. I've come on to you guys all year. We've said we think we're in a
00:26market. We said we think inflation is last year's problem. Honestly, I'm kind of being a self
00:31promoter accidentally, but my podcast here, Facts Versus Feelings, we've been saying for months,
00:35the Fed can just get on with it, start to cut. I'll tell you, I'm not bearish, but the concerns
00:41are growing. Clearly, when you look at what's happened just this week with some of the economic
00:44data, I think the Fed's firmly behind the eight ball and they probably should have started cutting
00:49before. Now, here we are, but let's just put some context around things. I'll go to presentation
00:54mode if I can figure it out. Ryan, we have a very inquisitive chat. What we're going to do is
01:00you're going to do this and then we'll see if Aaron and I have any questions. Then, Chet,
01:07if you want to pick this guy's brain, there's no one better on Wall Street. Let's do it this way.
01:13Great. I think I put 10 together real fast here. I'll just rip through these,
01:16give some context. I'm going to get into everything going on in the news right now,
01:20but just big picture, we had an incumbent president decide not to run. I found five
01:24times in history, 1908, 1920, 28, 52, and 68. Those things happen. These are all those years
01:30there. Your average year gained 16% when an incumbent decides not to run. Only once were
01:38we lower. Just something to think about. Small sample size, I get it, but I like to put things
01:42in history. There's a chart. Lots of people have made these. I made one. Lots of bad stuff's
01:47happened before. Lots of bad stuff's going to continue to happen. Stocks do continue to do
01:51well. Now, honestly, next couple months, I'm probably a little more neutral here,
01:54but big picture, we do think we're still in a bull market. I want to be very clear there,
01:58but again, those risks with the Fed and what's going on with inflation, which we've been saying
02:02a while is last year's problem. Well, it looks like the Fed's behind the eight ball when you
02:05see this data coming in, but I've shared this with you guys every time I've come on.
02:09The last 10 times we had a president up for reelection, I get it. Everything's a little
02:13different since last time I saw you, but the market's higher 10 of the last 10 times up 12%
02:17average. It's on the right there. It's normal to see some strength in an election year when you
02:21have a president up for reelection, which adds to the uncertainty given everything that's just
02:25happened. Now, more real time, I thought this was hilarious. I'm sure Dennis, you'd like this one
02:30too. S&P peaked according to Bank of America. Then you've got Bank of America's technician in
02:37the bottom left talking about advanced decline lines of market making a new high. They're covered
02:42either way. You got to like that, but I will say this. I put this one on the bottom left.
02:50Advanced decline lines, various advanced decline lines have made new all-time highs just last week.
02:56We just think it's very rare to have a market just peak. The only time we had a market peak
03:00when advanced decline line makes a new all-time high was right before COVID, like February of
03:042020 or somewhere right around then. There is a lot of rotation. There is a lot of participation.
03:11I know things are getting sloppy and messy right now, but big picture,
03:14I think I'd still follow with the idea that with various advanced decline lines, breadth
03:18leads price. This pullback, we've been on record saying, listen, we've only had one 5% pullback
03:24all year. After today, it's sure looking like probably number two. You tend to have... Actually,
03:29maybe I've got that chart. Where is it? I'll skip ahead. I know I've got it here somewhere. Maybe,
03:33maybe not. Maybe I don't have it. Well, most years- I saw a 2% one. Was that-
03:39It's all right. The bottom line is you tend to see 7, 3% pullbacks a year. You see 4, 5, 5%
03:47pullbacks a year. You see on average a 10% correction a year. Things are really important
03:51to remember. We're looking at our second 5% pullback, but just also remember here along
03:56the lines of that Bank of America thing right here where they said peak for the year. It's rare to
04:00peak in July. Only three times in history has markets peaked in July. It was the all-time high
04:06last week or the recent all-time high. We'd say probably not. I think that's some things to think
04:13about. A good first half to the year. I've come on, other guests have said this. When you're up
04:16double digits the second half of the year, higher 83% of the time, median another 10%. Just some
04:23rolling momentum there, but this is a good one because a week ago- Well, let's see, nine days
04:28ago. Nine days ago, we had a 2% drop on the S&P 500. First one in a long, long time, almost 18
04:34months. Your average year, everyone, sees about six 2% drops a year. We'll see what happened
04:40yesterday. We thought we might have another one. Who knows what happens today, but just think about
04:44this. The last 14 times a year, a whole year, with five or less 2% drops, which I still think this
04:52year that's probably going to be the case. We're getting a little indigestion right now, but we only
04:55had one all year. Last 14 times, market's been higher every single time, up 14% on average. Even
05:04your very best years, everyone, sees some scary moments, some problems, some headlines that worry
05:11you. I wouldn't be shocked at all if we had, between us, I've been saying this, but a 6% to 8%
05:15pullback sometime before the election. We're not all that far away from that, where we are now.
05:21Could we see a 10% correction? Sure. Last year, saw a 10% correction, from the end of July until
05:28the end of October, and then that strong end of year rally. I still think that it's not too late.
05:34The economy might be slowing a little bit. Are there some cracks? Yeah, there are some cracks,
05:38but overall, I still think it comes down to Fed policy. Again, I'd hate to see them do 50 basis
05:46point cut in September. It's like, where have you been? You could have been cutting the whole time,
05:49but maybe that's where we're going to be, so we'll worry about that when we get there.
05:52Last time I called on you, I think it was two months ago, talked about there could be a summer
05:55rally. It's normal to see a summer rally in election years. Just be aware, August is normally
05:59strong in election year. I get it. This is a very, very rough start. The first two weeks of August
06:03years aren't that great. Later August tends to do better, so I wouldn't give up on August just
06:07quite yet. Interesting to see with this volatility we've just seen, what some of the sentiment polls
06:13and different things do. I'm sure there's going to be good spikes in fear, so maybe we can have that
06:17six to eight percenter, and then that's where things can bottom. I think that's really what
06:21could happen. Rate cuts, a couple more, a couple more. When you're cutting due to a recession,
06:26things don't do as well. We're still in the camp. We're not headed into a recession,
06:29fully aware things are slowing, but it's more of a normalization cut. You see here,
06:33I've got it in front of me here. Normalization cuts higher every time a year later, up 13%
06:38average. Not only a handful of them, mid-90s and different times, but still, that's something to
06:44be aware of. People hear rate cuts, they think the end of the world because we've had cuts during
06:47a 100-year pandemic and the GFC and the tech bubble burst, but you can have periods like 2019.
06:55Things are pretty good in 2019. Economy chugging along. There are some rate cuts. Hey, market did
06:58fine. Also, I found 20 times the Fed cut with the market within 2% of an all-time high. Who knows
07:05where the market's going to be when they cut next time, but yes, the Fed can cut with stocks at all
07:09time highs. One year later, stocks higher 20 times. Just remember that one. Small caps. I
07:14came all year saying we like small caps because we thought inflation is going to come back and
07:18the Fed's going to cut more than being priced in. I've been at Carson Group for two years.
07:21We haven't touched long-term treasuries. The first ballpark 18 months I was there,
07:26I think I was on with you guys last time, two months ago, saying for the first time,
07:29we've touched treasuries. We've added some treasuries to the money we run because we
07:33expected to see inflation get better. Two months ago, people were talking about rate hikes. Remember
07:36that? How crazy that sounds. We went against that. We faded that, adding a little bit of duration.
07:41Again, we're still bullish, still overweight equities, but we added some duration. We've
07:44got 3% gold in some of the models we run. We've got some different alternatives and things in
07:49there because again, this economic cycle is aging. This bull market's aging. I'm not going
07:52to be just such a wild bull. I wasn't a wild bull, but such an over-the-top bull like I was this time
07:5718 months ago because I thought things really looked good then. It's kind of getting a little,
08:00some of the risks are starting to show up a little bit. Again, we still like this whole
08:05rotation thing. I had a commodity for a while saying that and it felt terrible for the longest
08:08time. Small caps, yes, they got lit up yesterday. Get it. I don't know what they're doing this
08:12morning, but nonetheless, we've seen these glass of strength of 10% for the month on the Russell
08:17two. You see it there on the top historically, that's rare, very rare, but you tend to see
08:22outperformance of 15, 16% a year later. Then we had a five, we had a 10% jump in only five days.
08:27We had four days in a row, 1% bounce off that CPI a few weeks ago. Those historically are buying
08:32thrusts that suggests again, there's probably more upsides. Still small caps are really cheap
08:37relative to large caps. Our biggest overweight at all, all year has been mid caps called the Jane,
08:42Jane Brady group. You know, no one's talking about mid caps. Everybody's arguing about large
08:45and small mid caps, just closing at all time high on a monthly basis. Just a couple of days ago.
08:50Okay. I mean, so there is a, some momentum there in our opinion, a couple more. I showed this last
08:55time, but I think it's a neat one. This bull market right now is about 21 months old from
08:59October of 2022. Who knows? Maybe it just ended. I don't think it did though. Um, and that would
09:05be one of the shortest bull markets ever tying the last one we just had, which also went 21 months.
09:10You can see the average bull market lasts about five years. So just be aware these things can
09:14last longer than you think. I guess it's interesting. The average up year is 19%.
09:18So when the SMP finishes higher on the year, 19% on average, when it finishes lower,
09:22Oh, what is there 14% down? So big swings are much more normal with markets. So yes,
09:28we were ballpark up 20% just feels like not that long ago. Now I know we're giving some back,
09:32but the odds again of seeing a bigger move is likely. Also, we haven't seen a 20% back-to-back
09:38move since the late nineties, right? We have a 20% last year. I still think there's a good chance.
09:42You know, if, if the fed, uh, kind of, you know, does, does what it should be doing,
09:46following inflation data, which has been improving drastically and starts to cut,
09:49we still could see a good size, a fourth quarter rally. I think it makes a lot of sense and maybe
09:53get a back-to-back 20% gains for the first time in a very long time. Uh, the consumer is in good
09:58shape. I'll just keep it there. I know there are some cracks coming, but again, people really are
10:02wealthy. Uh, they're wealthier than they've ever been. Especially if you look at debt to equity,
10:06we have all the debt that's out there called denominator blindness. This is just showing
10:10how much people are worth in terms of disposable income relative to all the debt that they have.
10:15And I know it surprises people, but consumers are in good shape. Not saying everyone's in good
10:19shape. Not saying if, um, you know, we have a potential policy mistake because now the economy
10:24is slowing and the fed should have started to cut. I mean, our two big worries, if we talked a week
10:27ago, I would have said, Hey, maybe a policy mistake, but housing data is not that great.
10:32And business investment isn't that great. Why? Or small business investments aren't that great
10:35because interest rates are higher than they need to be. The fed needed to start cutting.
10:38Um, we wish they would have cut Wednesday, but it is what it is. I'll move on. Um, last one,
10:43I believe, uh, the two, two years since the inverted yield curve, congratulations to the
10:46inverted yield curve. We've heard for two years, how bad it's going to be. The end is near. Um,
10:50yeah, you can argue and I, I get it in 22, the economy clearly slowed down. We have parts of
10:55the economy that went into recession. So maybe the yield curve predicted that. I don't know,
10:58but I just know the stock's done really well. And if we go another month, you can see it there.
11:03Usually you have a 14 months on average after the two 10 inverts and then a recession starts,
11:08but we still, we still don't have a recession in our, in our view. So that's just something to,
11:12um, actually know what I think this is actually the one 10. So this is the one 10 yield curve
11:17I'm looking at here. Um, but nonetheless, we, we've obviously gotten longer in the tooth since
11:22the, um, the, um, inversion took place and we haven't seen a recession yet.
11:28I guess this is my last one. You took a thousand bucks and invested it only in the Republicans.
11:32You'd have $52,000 in size and hour that same thousand. Oh, I'm sorry. That's under Democrats
11:37fit the 61, 62,000 only under Republicans, 27,000 that same $1,000 invested at the whole time. $1.7
11:44million. I like to point that out to people because listen, the election's coming.
11:49Emotions are high. There's going to be some market volatility. I remember
11:53every June, the worst day, all of June for the SB 500 41 basis points, 41 basis point drop was
12:00the worst day the entire month that everyone was complaining how boring it was. I don't know,
12:04maybe, maybe being boring. Wasn't so bad when you, uh, yeah, compared to what we're dealing
12:08with now. So I'll stop sharing. I can bring that back up if I need to. Um, but I just realized,
12:13I'm sorry, I mentioned Dennis's name. I didn't even realize Dennis sitting here. Sorry. So
12:16anyway, he is on a very, very expensive fishing. And I didn't know that. I don't know. I did. I
12:22had my only one screen up. So I didn't quite realize anyway, but, um, so there's my quick,
12:26uh, run through the markets. Bottom line is probably the most neutral. You've seen me in
12:31a long time. Cause I am, we are worried that the feds way behind the eight ball here and they
12:35should have cut and the inflation data I've been calling you guys for three, four months. And
12:39it's good. Inflation is last year's problem. Let's start worrying about a slowing economy.
12:43Now here we are. So there you go. That's my roundup. So Ryan, when we're looking at these
12:47stats, when it comes to like how the market performs after rate cuts and stuff like that,
12:52does it matter to you where these cuts are coming from? Because at this point, it's not as if, okay,
12:58you know, the economy's humming and inflation's down to 2% we can cut rates. It's looking more
13:04and more like, okay, the fed is cutting rates because it needs to. And it's willing to,
13:08despite the fact that inflation isn't yet quite at 2%.
13:12Yeah, no, exactly. And that's, that's, I guess that's the worry. Cause if they were to cut,
13:16you know, six weeks ago when we honestly thought that they could have, and I get it,
13:21they want to be very careful. It's an election year that egg in their face. Cause they were so
13:25wrong about transitory, transitory, transitory. And now we're worried they're wrong on the other
13:30side where inflation, again, if you just look at, I mean, everybody talks about this stuff,
13:33inflation X shelter, you know, it's been sub 2% annualized last six months. If you look at
13:38real time rents, cause we know rents are very, very delayed yet. And our friends at wisdom tree
13:42share this stuff. If you plug that in real time rents, I mean, CPI is running at 2% and it has
13:47been for a while. Cause shelter is just such a lagging indicator. So to answer your question,
13:52as I get there, yeah, I mean, I had on the other chart, like panic cuts, like, like well cutting
13:57during a pandemic. I mean, that's a panic cut, right? I worry if things fall out of control,
14:02could we have more of a panic cut in terms of a 50 basis point cut in September? I mean,
14:07those odds could be increasing and how, what our future is doing. Okay. So now it's down five.
14:15Another, another, another, another, another ugly looking day. I mean, that's that's,
14:18that's where we are. But again, I guess it's just so important to remember this is only the second
14:225% correction all year. Okay. Mild correction. I mean, assuming we finished there where we are.
14:26And again, most years see almost five of those four or five of those a year. So it's not easy
14:32when it's happening, but I mean, for traders out there, probably some people are happy,
14:35but what, what's your guys take? What are you, what are you guys here and on the whole tech
14:38bubble? Tech bubble's the wrong word. You know what I'm trying to say? Tech rotation. And I
14:43don't know, some interesting, we're more neutral tech. We have it all year. We expected some tech
14:47weakness, but here it is. I mean, I'll just go first. I mean, the AI trade just got super way
14:55ahead of itself, you know, and you know, things go to, you know, just unreasonable levels. Right.
15:02And they got to those levels and now the earnings are coming in and they're kind of
15:07confirming that like all this AI, I mean, Nvidia selling chips to create all these things. Well,
15:13there has to be a follow through. There has to be, you know, some kind of, you know,
15:18people making money from it. And so far from the earnings reports hasn't indicated it. The thing
15:25to me is like really in the whole scheme of, I mean, a quarter point here, a half point here,
15:33or whatever, a series of cuts, how long does that really take to flow through the economy
15:40and change things? And is that going to be the panacea that's always like, oh, we always rely
15:46on that. Is there, I mean, is there ever a possibility that things are just going to be
15:51what they be? And that, you know, you could take the Fed has all this power and everything,
15:55but it comes down to it. It comes down to cycles. It comes down to earnings. It comes down to
16:00geopolitics. I mean, it's what else has to happen? No, you're right there. And again,
16:06I think that's where, you know, if they would have started cutting degrees, the wheels a little
16:10bit earlier, we wouldn't have this conversation. We did see earlier this year when yields were
16:17lower, I remember when we were hearing seven cuts to start off the year, we did see big jumps
16:21in housing. I mean, housing doesn't make up a lot of GDP, but it's kind of that supersized part.
16:25So there, that could be one positive to the, I mean, what the 10 year broke, do I assume it was
16:30a 10 year dropping again this morning? I haven't looked broke 4% obviously yesterday for the first
16:34time in a long time and two years doing the same thing. So we could see a big pop in housing. We
16:38couldn't see a pop in small business investment, things like that, but I'm with you. But I think,
16:42again, I think that's where it comes down to these cycles do last a while. And that's the
16:45big question that I, I mean, everyone's wondering, are we just slip sliding into a recession or are
16:49we just hitting a little bit of a rough patch? You know, a little bit of a slowdown. We would
16:53still side with this as more of a slowdown. You know, credit markets, I know credit spreads are
16:58starting to show some warning signs, right? So my two favorite things, advanced decline lines,
17:02and what are the credit spreads telling us, right? Advanced decline lines making new all-time highs
17:05last week, credit spreads were okay. Now this week, we're finally starting to see some pressure
17:09there as junk bonds are really starting to underperform long-term treasuries and things
17:13like that. So that's absolutely got my attention. By no means are we seeing major flashing warning
17:17signs, but they're starting to creep up a little bit. So, you know, we started to see more worry
17:22in the credit markets and there could be, there could be more issues. But I think again, you know,
17:26I mean, when I was saying two months ago that we released our mid-year outlook, we said, you know,
17:30tech neutral, people thought we were crazy. But, you know, yesterday, for instance, I believe there
17:34are four groups that are a positive 1% on the day. Last week S&P was down, but 437 stocks were higher.
17:40And I don't know where we are quite this week, but again, we know what was going on last week.
17:44Now this week, it's maybe a little bit more broad-based selling, but overall, you know,
17:48I think it's, this is why you don't chase a shiny object. You look for some of the underloved,
17:52underappreciated, under-owned areas, and there are some, and we think those will be the areas
17:56of financial, our biggest weights, financial industrials, right? I mean, they're still doing
18:00pretty good last I checked, you know, little, little, little, little trouble,
18:05last two days, everything's been in trouble last two days. So we'll see. Yeah.
18:08Got it. Well, Ryan Dietrich from the Carson Group, again, thank you for hopping on Benzinga's
18:12pre-market prep with us today. Always a pleasure to get you on, always a pleasure
18:17to get some of those stats that you bring us. We will chat soon and enjoy the rest of your day.
18:21Appreciate it, guys. Thank you.