Wall Street Roundup: market shifts to defense

Brian Stewart welcome back to another round of Wall Street Roundup. Welcome back to the

show after a week off. Yeah, I appreciate it. Thank you. Talk to us. What do you think

in about these days? Yeah, so the past week has really been a macro week, the market.

It's just not a lot of corporate specific data coming out, earning seasons over. We're just

not getting a lot of news flow. So really the market is moving on the big issues and

the biggest issue obviously this week has been the conflict in Iran. There were some signs

early on the Trump administration come out and said that they were close to an end. The

negotiations were going on and then Iran pushed back on that. So you kind of had the he said

process going on throughout the week. The markets is in the middle of based on that just sort of

a defensive shift. So not surprisingly, you saw oil majors do very well this week. Exxon mobile

was up 9%. Chevron was up 7%. Both of them are up about 40% year-to-date extending highs.

Actually with Exxon mobile leading the news or being kind of top of mind this week, I was getting

a little nostalgic because when I was a kid Exxon mobile was the biggest company in the world by

market cap. So I was thinking how interesting it is, how much the economy has changed over 40 years

or so where now it's sort of an also a rant on the list of biggest companies in the world. So it's

kind of interesting to have those kind of stocks in the news. Again, another example of that is

Telecom stocks did very well this week. I mean, in a down week, AT&T was up 3%. T-Mobile was

up about 3%. Verizon was up about 2%. These are companies that are considered defensive stocks.

They're cash flow stocks, they're dividend stocks. Each of those companies has 2% to 6% dividend

yield. So meanwhile, on the other side of the spectrum, you see the AI stocks really suffering

in the past weeks. You see, Micron is down 15%, Metta's down 12,

Oracle down 8, Google down 7. So you're seeing money kind of being pulled out of what has been

the drivers of the last several years, the AI stocks. You see that money being reinvested in

these kind of old economy kind of options. We had Victor Durganov on investing experts.

The episode was released yesterday. We talked on Wednesday. He was talking about Shlumberje,

which is the second episode in a row that somebody has touted so heavily. George Noble being the first.

And to your point, one of his reasons was its focus on AI and the future. As this kind of past

no name, it's building for the future. And also benefiting from this, the more things change,

the more they stay the same type of trend that's happening now with everything that's going on

geopolitically in the conflict and in the markets and in energy and these oil majors. Yeah. So

interesting, interesting to note, what else are you thinking about this week? What else are you

focused on? Yeah, the other kind of news newsy sector that popped up was circle was down 20%.

This was on reports that the Clarity Act, that's the legislation kind of making its way through

Congress that would provide a little bit more regulation structure around crypto that that

included severe limits on the amount of yields that stablecoins could have. So circle dropped sharply

on those reports. It also pulled down like Coinbase was down 19% in the past five days. It didn't

drop as dramatically in the single day, but has moved lower pretty substantially through the week.

That's sort of on the back burner like that those headlines are I think being buried by

obvious people are concerned about Iran. People are also concerned about DHS and the effect

that TSA is having on air travel, things like that. And so there are other kind of

sector related news items that are kind of bubbling up like that.

Earnings wise, do you have anything to look ahead to? Earnings are pretty dead again next week.

Nike I think is the biggest highlight. We'll get some information from them about the

the state of consumer. So even if you're not a Nike investor, I think there's some value in

and checking out some of the the commentary around that. Meanwhile, I think the economic news.

I mean, obviously more Iran headlines, I think are going to be the dominant force next week as well.

But if we're looking at the information, the data is about to come out. I think the jobs data

on Friday provides a major catalyst. The last jobs report was very worrisome. The payrolls

were down 92,000 unemployment rate took up to 4.4%. It's being described as a low higher, low-fire

environment. There's a lot of sort of ins and outs in the jobs data that's been coming out. So

for instance, a drop of 92,000 payrolls is kind of recessionary territory. However, 4.4%

unemployment rate isn't particularly worrisome. However, extra however, you have the labor

participation rate is trending lower. It's about 62%. Now that's the number of people in the overall

economy who have been looking for jobs or concerned about having a job. So we saw this in the great

recession and the financial crisis is after we started recovering from that, a lot of people just

didn't go back to work. So you have situations where certain structural employment situations

will drive people, say, in an early retirement or send people back to school or people will decide

to be a one-income household or something along those lines. So you're seeing some signs of that.

I think that might be early signs of the AI structural revolution that we've talked about

a little bit. If companies are going to need fewer people to do jobs, you might see a situation

where retirement comes early for some people, especially in an environment where an older worker

might not have the same innovative jobs that you might need to operate with AI. The kinds of

experience that they have might be more outdated than somebody who's just coming out of school.

So you might see things like that. So it'll be very interesting to see what the new jobs report

says. Also, keep an eye on revisions. Usually, recently, the pattern has been for downward revisions.

So in the previous report, losing 92,000 jobs, seeing whether or not that's actually worse than

it was previously reported, whether those are going to be a bounce back, whether we're going to see

more job growth or whether we're going to see further deterioration there. I think that'll

be interesting. And then the effect on expectations for the Fed is another thing that I kind of have

circled. So with the hot inflation data that's been coming out and with the anticipation

of higher fuel prices, fueling more inflation, you had a major shift in the expectation for the

market. So now the market is pricing in the possibility of higher interest rates. Previously,

lower interest rates had been the norm. So at the next meeting, the one that's taking place in April,

you have a 96% chance of no change, which is pretty much on target with where it was coming out

of the last Fed meeting. But now there's a 4% chance of a rate hike when previously the fractional

probability was for a rate cut. The hope as we sort of started the year was that the Fed would be

able to lower rates as we go. And there's been a real shift lately. So going back to even just

beginning of March, you had an 8% chance at the end of the year that rates would be the same as they

are right now. 0% chance of higher rates and a 10% chance that rates would be at least a full

percentage point lower. So that would be for or more quarter point cuts between now and the end

of the year. And that's completely reversed. So now we're looking at a 61% chance of no change by

the end of the year and a 39% chance of higher rates. So in the past, you know, three weeks or so,

we've we've completely reversed the expectation for what's going to happen next in terms of interest rates.

I would also point to that conversation with Victor. He gives a few minutes about the Fed and I

find it very interesting. If you may not find it compelling, it's certainly interesting. I think

it's compelling too, but you know, that's what makes horse races. As we close out this conversation,

as we close out March, any final notes about the market as we head into the weekend, as we're

talking right now, the markets are down. Treasure yields are up, hitting multi-month highs.

Anything to note there, say? Well, one pitch I would make in terms of the Fed being compelling,

interesting, but not compelling. Like if I was if I was recommending the Fed as a TV show,

I would also point out that there's the personality part with Powell and Trump and the incoming

Fed chief who still needs Senate approval. And so you had Powell say that he'll stick with the Fed,

because he'll be governor even after he's removed as even after he's replaced as chairman.

He's going to stick with the Fed until these investigations have reached a conclusion.

He's also said that he'll remain interim chairman. There's willing to remain interim chairman

as is the policy if we're still waiting for the new Fed chief. So there's a personality

part of it that also makes it very interesting. Trump's obviously been pushing very hard for

lower rates. And so now you have a situation where the market is predicting higher rates.

It'll be interesting to see with Fed's hand picked or Trump's hand picked Fed chief will do

once he's in there. In terms of the overall market and what to expect, I really think we're going

to be headlined driven. The decline that we've had recently, you have the S&P 500 getting to

levels. It hasn't seen since September, you have the NASTAC officially in correction,

territory dropping 10% or more from its highs. That overhang could disappear pretty quickly if the

Iran conflict comes to a, you know, what the markets perceive as a positive conclusion,

especially a quick conclusion that allows oil prices to come down pretty sharply. But if it

begins to become clear that that's going to be a long term that oil prices are going to be

higher for the foreseeable future with the other inflationary pressures with the necessity of the

Fed to raise interest rates in the face of those inflationary pressures, even with a weakening

or at least concerning labor market, there's a lot of headwinds being made. So I think that

the market's going to do its best to see the future in an environment where the future is very

hard to see. Thank you for that. And it's interesting, funny that you called it a personality driven.

I mean, you know, on point, too, in terms of the Fed, but the conversation was mostly predicated

on me asking Victor what he would do if he were nominated instead of Warsh. So to your point

that it's, you know, it's a very subjective affair these days. What do you say? I'm curious. I

agree with you. The first point that he was making is the connection between gold prices and interest

rates and how the way that the conversation has turned with interest rates makes it more compelling

for the long term case for gold and gold miners to that point. That was one of his main points.

Yeah. Yeah. I do think trading gold has been interesting lately because it hasn't been quite

what one would expect in a situation where you've a spike in concern about geopolitical

situation. You know, I mean, it's usually kind of a gold hoarding events and you've had not

quite that reaction in the market. So yeah, I think that sounds really interesting.

Thank you, Brian. Any final words to close out or have we said them already?

I think that's it. Have a good one. Talk to you soon. Yeah. These episodes will be up with

transcriptions at seekingoffa.com slash WSP and join the highest level discussion of any stock

or ETF in our community of serious investors like you. Find us at seekingoffa.com slash subscriptions.