Stock Market Corrections, Bear Markets, Recessions and Lost Decade | Market MakeHer Podcast Ep. 81

00:33:33
https://www.youtube.com/watch?v=Z6BAYvKt4Uk

Resumo

TLDRIn this episode of Market Maker, hosts Jessica and Jesse explore stock market corrections, recessions, and the possibility of another lost decade. They clarify the definitions of stock market corrections (10% decline), bear markets (20% decline), and recessions (economic slowdowns), emphasizing that corrections are a normal part of investing. The discussion includes insights on consumer and investor sentiment, the importance of understanding both soft and hard data, and a market update. The hosts encourage listeners to remain patient and informed, highlighting that smart investing strategies can help navigate market fluctuations.

Conclusões

  • 🟢 Stock market corrections are normal and healthy for the market.
  • 🔴 A bear market is defined as a 20% decline from recent highs.
  • 📉 Recessions are economic slowdowns, not just market declines.
  • 💡 Understanding soft vs. hard data is crucial for investors.
  • 📊 Consumer sentiment can impact spending and economic performance.
  • 🛡️ Dollar cost averaging helps mitigate market volatility.
  • 📈 Staying diversified is key to long-term investing success.
  • ⏳ Patience is essential; history shows that markets recover over time.
  • 🔍 Regularly reassess your investment strategy and risk tolerance.
  • 💬 Engage with market data to make informed investment decisions.

Linha do tempo

  • 00:00:00 - 00:05:00

    The hosts introduce themselves and discuss the theme of the episode, which revolves around stock market corrections, recessions, and the potential for another lost decade. They emphasize the importance of understanding market dynamics and investor sentiment.

  • 00:05:00 - 00:10:00

    The hosts explain the concepts of stock market corrections, bear markets, and recessions, highlighting that corrections are normal and can be healthy for the market. They discuss the difference between soft data (consumer sentiment) and hard data (actual economic performance).

  • 00:10:00 - 00:15:00

    They clarify the definitions of corrections, bear markets, and pullbacks, noting that corrections are declines of 10% or more, while bear markets are declines of 20% or more. They also mention the NASDAQ's recent correction and the impact of retail participation on market volatility.

  • 00:15:00 - 00:20:00

    The discussion shifts to the historical context of market corrections, revealing that since World War II, the S&P 500 has experienced 48 corrections, with only 12 leading to bear markets. The hosts emphasize that corrections are a natural part of market cycles and can prevent bubbles.

  • 00:20:00 - 00:25:00

    The hosts differentiate between corrections and recessions, explaining that corrections are short-term market declines, while recessions involve broader economic slowdowns. They discuss the importance of understanding investor sentiment and its impact on market behavior.

  • 00:25:00 - 00:33:33

    The episode concludes with a market update, discussing consumer sentiment, inflation, and household debt. The hosts encourage listeners to stay informed, diversify their investments, and remain patient during market fluctuations. They emphasize the importance of making informed decisions rather than panicking during downturns.

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Vídeo de perguntas e respostas

  • What is a stock market correction?

    A stock market correction is when the market declines by 10% or more from its recent peak.

  • What is the difference between a bear market and a bull market?

    A bear market is when the stock market declines by 20% or more, while a bull market is when it increases by 20%.

  • What is a recession?

    A recession is an economic slowdown that is typically identified in hindsight by the NBER, based on various economic indicators.

  • Can we have another lost decade?

    While it's possible, smart investing strategies can help navigate market fluctuations.

  • What is soft data?

    Soft data refers to indicators like consumer confidence and sentiment that reflect feelings and expectations, rather than hard economic outcomes.

  • What is hard data?

    Hard data includes actual economic outcomes, such as GDP growth and employment rates.

  • How often do stock market corrections occur?

    Since World War II, the S&P 500 has experienced 48 corrections.

  • What is dollar cost averaging?

    Dollar cost averaging is a long-term investment strategy where you invest a fixed amount regularly, regardless of market conditions.

  • What should investors do during market corrections?

    Investors should stay informed, avoid panic selling, and consider their long-term investment strategies.

  • What is the significance of consumer sentiment?

    Consumer sentiment can influence spending behavior, which in turn affects economic performance.

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  • 00:00:00
    i love I'm dying This hilarious visual
  • 00:00:04
    Jesse is wearing a a cape that's green
  • 00:00:08
    for St Patrick's Day For all of those
  • 00:00:10
    that are listening first of all it is
  • 00:00:12
    crushed green velvet Oh thank you very
  • 00:00:16
    much Why just wear green when you can
  • 00:00:17
    wear a full green velvet cape and look
  • 00:00:19
    like you stepped out of a mystical stock
  • 00:00:21
    market spell book i call it my chasing
  • 00:00:24
    the pot of gold investing witchwear or
  • 00:00:26
    something like that I like it Sure Okay
  • 00:00:29
    enjoy the Mystic Enya vibes today
  • 00:00:31
    Where's the Pure Mood CD set when you
  • 00:00:33
    need it you know what I'm saying
  • 00:00:36
    i could have grabbed mine for my Lord
  • 00:00:38
    Voldemort costume and could have matched
  • 00:00:39
    to wear a cape Always wear a cape That's
  • 00:00:41
    what I say Interesting Yes I love it
  • 00:00:43
    Well it is it is terrifying times Get it
  • 00:00:46
    like Yeah that's punny Yes it is Well
  • 00:00:51
    today we're going to talk about stock
  • 00:00:53
    market corrections recessions and answer
  • 00:00:56
    a listener's question on could we have
  • 00:00:58
    another lost decade and also give you a
  • 00:01:01
    quick little stock market update just to
  • 00:01:03
    understand the vibes Cue the
  • 00:01:07
    music You're listening to Market Maker
  • 00:01:11
    the self-directed investing education
  • 00:01:12
    podcast that talks about how the stock
  • 00:01:15
    market works from her perspective I'm
  • 00:01:18
    Jessica Insk I am one of your hosts I
  • 00:01:21
    act as a teacher Been working in the
  • 00:01:22
    stock market for 15 years I am Jesse
  • 00:01:25
    Denui and I have no experience I have a
  • 00:01:27
    little bit of experience now because
  • 00:01:28
    we've been doing this podcast for almost
  • 00:01:30
    two years And uh I've learned a lot So
  • 00:01:33
    I'm here as your guide to uh help us all
  • 00:01:37
    in our investing learning journey and to
  • 00:01:39
    keep Jess out of financial jargon land
  • 00:01:41
    so that we can actually understand
  • 00:01:42
    what's going on and learn all things
  • 00:01:45
    investing
  • 00:01:47
    Today we're tackling a question we've
  • 00:01:49
    heard a lot What's the difference
  • 00:01:51
    between a stock market correction a bare
  • 00:01:55
    market and a recession and the big one
  • 00:01:58
    which is interesting to have a lot is
  • 00:02:00
    could we be heading for another lost
  • 00:02:02
    decade and we'll break it all down
  • 00:02:05
    Actually have a lot to talk about with
  • 00:02:07
    soft data versus hard data That's where
  • 00:02:10
    my mind is right now Wait what's soft
  • 00:02:12
    data versus hard data i didn't know
  • 00:02:15
    there was a soft and a hard data There
  • 00:02:17
    is So soft data it doesn't have
  • 00:02:21
    substance yet I guess because it's
  • 00:02:22
    squishy
  • 00:02:24
    but it's literally it's literally like a
  • 00:02:27
    vibe So we have consumer
  • 00:02:30
    confidence which is just how consumers
  • 00:02:33
    are feeling You know how we have
  • 00:02:34
    forward-looking guidance in the markets
  • 00:02:36
    from an earnings perspective that's
  • 00:02:38
    optional but it hasn't happened yet Or
  • 00:02:41
    we have inflation expectations GDP
  • 00:02:43
    expectations Soft data means this is how
  • 00:02:47
    we're feeling right now And then hard
  • 00:02:48
    data is this is what actually happened
  • 00:02:51
    Ah like soft skills
  • 00:02:55
    versus hard skills What do we call like
  • 00:02:57
    when you're in an interview and they're
  • 00:02:58
    like what are your soft skills or
  • 00:03:00
    whatever oh I'm a really good
  • 00:03:02
    communicator and blah blah blah Like you
  • 00:03:05
    know what I'm talking about Yeah What's
  • 00:03:06
    your vibe versus what can you actually
  • 00:03:08
    produce yeah Exactly Okay Well that
  • 00:03:11
    makes sense Saw your PowerPoint
  • 00:03:14
    uh reel today on Instagram but I do know
  • 00:03:17
    that there is another FOMC meeting this
  • 00:03:19
    week So probably wait till next week to
  • 00:03:22
    discuss all that Huh Absolutely When
  • 00:03:24
    this episode is published we would have
  • 00:03:26
    had that said Fed meeting So at least
  • 00:03:28
    we'll know what you should be looking
  • 00:03:30
    for Yes Unless you want to make a
  • 00:03:32
    prediction
  • 00:03:33
    Uh I think he'll pause That's what the
  • 00:03:35
    market says So we'll see if I'm right
  • 00:03:37
    I'm calling him chillfed Yeah I saw that
  • 00:03:41
    He's chillfed He's She's not hawkish
  • 00:03:43
    He's not dovish What would be in between
  • 00:03:44
    a hawk and a dove i guess it had to be a
  • 00:03:46
    type of bird He's a
  • 00:03:48
    raven What is a stock market correction
  • 00:03:52
    a stock market correction is when the
  • 00:03:53
    market declines by 10% or more from its
  • 00:03:56
    recent pink It is a normal part of
  • 00:03:59
    investing It can feel very scary if you
  • 00:04:02
    don't know what to expect I think it's
  • 00:04:04
    important to talk about it because a lot
  • 00:04:06
    of people or the newer generation
  • 00:04:08
    started investing during co which was
  • 00:04:11
    actually on the onset of a recession
  • 00:04:13
    which means you've had a really good
  • 00:04:14
    market and now are probably experiencing
  • 00:04:16
    volatility for the first time but please
  • 00:04:18
    do know that corrections are quite
  • 00:04:20
    normal That's a good point There are a
  • 00:04:23
    lot of people like new investors on the
  • 00:04:25
    scene and I didn't think about it in
  • 00:04:27
    that term Corrections kind of just like
  • 00:04:28
    a little speed bump It slows the market
  • 00:04:30
    down but it doesn't mean we're heading
  • 00:04:31
    into a disaster necessarily Right
  • 00:04:34
    Exactly It's It's actually very healthy
  • 00:04:37
    We want that from a market cycle It
  • 00:04:39
    helps preventing bubbles from getting
  • 00:04:42
    too big We call it a valuation reset
  • 00:04:45
    That price to earnings ratio If earnings
  • 00:04:48
    aren't being revised higher but price is
  • 00:04:51
    also going higher it makes things get
  • 00:04:54
    elevated as an expensive And so if you
  • 00:04:57
    reduce price in that equation that it
  • 00:04:59
    corrects price that's why it's called a
  • 00:05:01
    correction It's correcting that PE ratio
  • 00:05:04
    that forward one It's in the name always
  • 00:05:07
    is Okay I remember you teaching us the
  • 00:05:10
    difference between a bare market and
  • 00:05:12
    bull market a while back And so we said
  • 00:05:14
    a bare market is when the stock market
  • 00:05:15
    comes down from its last high point by
  • 00:05:17
    20% And a bull market is the opposite
  • 00:05:20
    where the market goes up by 20% Right
  • 00:05:23
    That's exactly correct Yes Nailed it
  • 00:05:25
    Amazing So then a correction is just 10%
  • 00:05:30
    That's right Yep And then a pullback's
  • 00:05:31
    like 5% That's right We did talk about
  • 00:05:33
    that NASDAQ hit a correction first which
  • 00:05:36
    makes sense because it's tech heavy And
  • 00:05:39
    personally anecdotally because of the
  • 00:05:42
    influx of retail participation I think
  • 00:05:44
    they're quicker because of technology It
  • 00:05:47
    triggers margin calls If it triggers
  • 00:05:48
    margin calls there's more selling You
  • 00:05:50
    can sell really quickly like panic
  • 00:05:53
    selling insets and then there's
  • 00:05:55
    rebalancing and shifting around So it's
  • 00:05:57
    super normal but it's also quicker than
  • 00:05:59
    it used to be Hold on Okay I remember
  • 00:06:02
    last year you mentioning that the NASDAQ
  • 00:06:04
    was rebalancing So what's the difference
  • 00:06:06
    between rebalancing and a
  • 00:06:09
    correction that could have been one or
  • 00:06:11
    two things There is a rebalancing where
  • 00:06:15
    the constituents go in and out because
  • 00:06:17
    remember it's an elite club which does
  • 00:06:20
    trigger some selling pressure but it's
  • 00:06:22
    also portfolio managers They might be a
  • 00:06:24
    little topheavy and too much in tech So
  • 00:06:26
    if something goes too high too fast like
  • 00:06:28
    Nvidia for example or all of technology
  • 00:06:30
    they might rebalance as in sell off that
  • 00:06:32
    highest position to bring some more
  • 00:06:34
    diversification into the portfolio and
  • 00:06:36
    that also could trigger selling pressure
  • 00:06:38
    But if the NASDAQ was rebalancing that's
  • 00:06:41
    an indicy You're talking about a
  • 00:06:43
    portfolio and an indicy though So it can
  • 00:06:44
    also happen from a portfolio perspective
  • 00:06:47
    for what like hedge fund managers or
  • 00:06:48
    something or Yeah mutual funds like that
  • 00:06:51
    kind of thing Mutual funds that try to
  • 00:06:52
    keep a 60/40 asset allocation You sell
  • 00:06:54
    when high and then you buy back when low
  • 00:06:57
    to like bring that balance back to
  • 00:06:59
    always be 60/40 We did a full episode on
  • 00:07:02
    that a while ago on portfolio management
  • 00:07:05
    Yes Okay So then how many corrections
  • 00:07:08
    have we had in the last like I don't
  • 00:07:09
    know 25 years Let's go back even further
  • 00:07:12
    Since World War II so the end of that
  • 00:07:15
    was I believe 1945 The S&P 500 has
  • 00:07:19
    experienced 48 corrections So 48 10%
  • 00:07:23
    draw downs However they're not always
  • 00:07:26
    bad Only 12 of those 48 which is 75% of
  • 00:07:30
    the time actually turned into bare
  • 00:07:32
    markets
  • 00:07:34
    So it's not necessarily this downward
  • 00:07:36
    spiral that one may think it may be So
  • 00:07:39
    like just because there's a correction
  • 00:07:41
    doesn't mean it's going to turn into a
  • 00:07:42
    bare market either right i don't know if
  • 00:07:46
    this is a unpopular opinion or something
  • 00:07:48
    but don't you kind of need a correction
  • 00:07:50
    things just don't always go up and up
  • 00:07:51
    and up We talked about this I think in
  • 00:07:53
    the business cycle episode recently
  • 00:07:55
    where you know the market's not going to
  • 00:07:57
    just continually go up and up and up
  • 00:07:59
    forever There's ups and downs Yeah this
  • 00:08:02
    is normal And those statistics prove it
  • 00:08:04
    Past performance is not indicative of
  • 00:08:05
    future results If you know you know and
  • 00:08:07
    you had a little chuckle So 48 of them
  • 00:08:11
    12 So 25% of the time it turns into a
  • 00:08:14
    recession That brings me to my next
  • 00:08:16
    question What is the difference then
  • 00:08:18
    between a correction and a recession a
  • 00:08:20
    correction is a measurement of the stock
  • 00:08:23
    market going down 10% And remember the
  • 00:08:25
    stock market is not the economy A
  • 00:08:27
    recession is called in hindsight by the
  • 00:08:29
    NBER Normally we're out of it Even when
  • 00:08:33
    they call it a recession they look at it
  • 00:08:35
    in 3D depth diffusion duration how deep
  • 00:08:39
    is it how wide spread is it and how long
  • 00:08:41
    is it lasting Sometimes people tend to
  • 00:08:44
    use those interchangeably but they're
  • 00:08:47
    not the same thing Sometimes they happen
  • 00:08:49
    close to each other But when we're in a
  • 00:08:52
    recession to go back on our analogy
  • 00:08:55
    using the menstrual cycle the market I
  • 00:08:58
    guess is PMSing with its correction It's
  • 00:09:00
    very emotional
  • 00:09:02
    Me too market Me too Moving into its
  • 00:09:06
    ludal phase I suppose it's part of life
  • 00:09:10
    I guess it is But right now it's just
  • 00:09:11
    the feelings that are happening with the
  • 00:09:13
    soft data that's pointing to it not
  • 00:09:15
    necessarily hard data Oh Mhm I guess a
  • 00:09:19
    correction is just a short-term drop in
  • 00:09:21
    the stock market but a recession has
  • 00:09:24
    more to do with slow like slowdowns in
  • 00:09:26
    the economy declining jobs consumer
  • 00:09:28
    spending corporate earnings like it's
  • 00:09:30
    it's more economic is what you're saying
  • 00:09:32
    Absolutely And that market drop it could
  • 00:09:35
    have a a slowdown in the economy as well
  • 00:09:37
    or there could be a strong economy It
  • 00:09:39
    just means the stock market and the
  • 00:09:40
    stock market is a forward-looking
  • 00:09:42
    indicator of the economy It is not the
  • 00:09:44
    economy So just because the stock market
  • 00:09:45
    is going down doesn't necessarily mean
  • 00:09:47
    we're in a recession Exactly Sometimes
  • 00:09:50
    corrections happen even when the economy
  • 00:09:52
    is doing fine It's all it's all about
  • 00:09:54
    investor sentiment uncertainty We talked
  • 00:09:58
    about consumer sentiment So there's also
  • 00:10:00
    investor sentiment like how are we able
  • 00:10:02
    to see those things is there data yeah
  • 00:10:04
    So consumer sentiment is actually a
  • 00:10:06
    survey that's done and we can go through
  • 00:10:09
    some of that data I think that's
  • 00:10:10
    important because that's part of what
  • 00:10:12
    started this downward spiral And then
  • 00:10:14
    there's investor sentiment And investor
  • 00:10:16
    sentiment is really market participants
  • 00:10:19
    And that's just a big word for people
  • 00:10:21
    who are buying and selling on the stock
  • 00:10:23
    market You are participating in the
  • 00:10:24
    market Market participants Oh like if
  • 00:10:27
    there's a big sell-off happening that
  • 00:10:28
    kind of gives you an idea of investor
  • 00:10:30
    sentiment or something Exactly Because
  • 00:10:33
    they're buying and selling stocks and
  • 00:10:34
    downward pressure Then you can pull that
  • 00:10:36
    on the sector level Like you we could
  • 00:10:39
    say that investors are becoming very
  • 00:10:41
    riskadverse because they're going into
  • 00:10:43
    treasuries and if they're buying
  • 00:10:46
    treasuries then that means yields are
  • 00:10:49
    going down So going into a safe haven
  • 00:10:52
    and then they're also going into gold
  • 00:10:53
    and utilities Um we'll look at the data
  • 00:10:56
    on that in a second Let's answer a
  • 00:10:59
    listener's question about is it possible
  • 00:11:02
    to have another lost decade so I have
  • 00:11:05
    never even heard the term lost decade I
  • 00:11:07
    don't know how I missed it I had to
  • 00:11:08
    Google it because I never heard it
  • 00:11:10
    before Do you think it's possible that
  • 00:11:12
    we have another lost decade and do you
  • 00:11:13
    want to explain what that was yeah I
  • 00:11:15
    guess it was really a a bubble to
  • 00:11:18
    another bubble boom and bust So the last
  • 00:11:22
    decade is the period from 2000 to 2010
  • 00:11:26
    So 2000 we had the dot bubble burst
  • 00:11:31
    around that time frame and then 2010 of
  • 00:11:34
    course the great financial crisis The
  • 00:11:36
    stock market almost had zero returns but
  • 00:11:39
    it wasn't just one thing It was a
  • 00:11:41
    combination of the dotcom bubble even
  • 00:11:44
    911 in there and the 2008 financial
  • 00:11:47
    crisis There was a bunch of things that
  • 00:11:49
    contributed to the last decade Yes And
  • 00:11:52
    the S&P 500 was actually flat and
  • 00:11:55
    adjusted for inflation because that's
  • 00:11:57
    why we invest is to outpace inflation It
  • 00:11:59
    actually lost value Oh And those
  • 00:12:02
    economic crisis and bursting bubbles led
  • 00:12:05
    to slow
  • 00:12:06
    growth and investors who actually stayed
  • 00:12:09
    diversified not just in the S&P 500 did
  • 00:12:13
    better Yeah I was going to ask that Um
  • 00:12:16
    you know we talked about staying in the
  • 00:12:18
    market like you're on a roller coaster I
  • 00:12:20
    guess like the only time that it might
  • 00:12:23
    really impact you is if you do want to
  • 00:12:26
    retire right now and if you're still in
  • 00:12:29
    what like more stocks or something
  • 00:12:30
    That's kind of why typically throughout
  • 00:12:33
    your investing life like you might be
  • 00:12:36
    more risky upfront invested in more
  • 00:12:39
    stocks and the S&P 500 but then like as
  • 00:12:41
    you get closer to retirement age you
  • 00:12:43
    transfer more into the fixed income
  • 00:12:44
    securities or the treasuries and other
  • 00:12:47
    types of like less risky Absolutely Cuz
  • 00:12:51
    I know a lot of people you know keep
  • 00:12:53
    saying "Oh my portfolio took a huge hit
  • 00:12:55
    and people want to sell things." Then we
  • 00:12:58
    say that time in the market is better
  • 00:13:00
    than timing the market But is there a
  • 00:13:02
    situation where it's like oh you were
  • 00:13:04
    planning on retiring and now if there is
  • 00:13:05
    another lost decade you're kind of
  • 00:13:06
    screwed if you were not
  • 00:13:09
    allocated appropriately I guess maybe we
  • 00:13:12
    should extend that time in the market is
  • 00:13:15
    more important than timing the
  • 00:13:17
    market and asset allocation is also
  • 00:13:21
    essential But yeah it is you You hit the
  • 00:13:24
    nail on the head That's what financial
  • 00:13:25
    adviserss do That's why you look at your
  • 00:13:27
    personal risk tolerance and
  • 00:13:29
    understand how you can handle that and
  • 00:13:31
    where you are in your retirement journey
  • 00:13:33
    because you want to be growth oriented
  • 00:13:34
    when you're trying to grow your nest egg
  • 00:13:36
    and you can handle the volatility
  • 00:13:37
    because you have all this time until you
  • 00:13:39
    retire and then when you've grown your
  • 00:13:40
    nest egg you want to protect it which
  • 00:13:43
    means you're need to get lower on the
  • 00:13:44
    risk scale right and I'm bringing it up
  • 00:13:46
    because this is a self-directed investor
  • 00:13:49
    education podcast So if you are planning
  • 00:13:51
    on always being a self-directed investor
  • 00:13:53
    and kind of doing everything yourself
  • 00:13:55
    you want to take these things into
  • 00:13:56
    consideration Like when you are going to
  • 00:13:58
    retire do the quarterly check-ins which
  • 00:13:59
    we're almost due for one We are
  • 00:14:03
    but that's what the point of the
  • 00:14:04
    quarterly check-ins is Um you know stay
  • 00:14:07
    on top of your financial goals and then
  • 00:14:08
    maybe also yearly check-ins to kind of
  • 00:14:09
    just reassess your risk and like how
  • 00:14:13
    much closer you think you are to
  • 00:14:14
    retirement and maybe assess some
  • 00:14:17
    economic and other data Oh yeah there
  • 00:14:20
    there's actually tools for that asset
  • 00:14:22
    allocation little quizzes you can take
  • 00:14:23
    on your brokerage firm's website We need
  • 00:14:25
    to have another tools episode very soon
  • 00:14:27
    Yeah we're gonna do another brokerage
  • 00:14:29
    firm episode A couple people commented
  • 00:14:30
    on that They remember what we say in
  • 00:14:32
    these podcasts We have to make sure we
  • 00:14:35
    do what we say we're going to do We're
  • 00:14:36
    going to do it There just a lot
  • 00:14:37
    happening in the market and we're like
  • 00:14:38
    this is more important It's true We did
  • 00:14:41
    it for you Yes that's right Be patient
  • 00:14:44
    We'll get there Yes Uh do you think we
  • 00:14:47
    should be worried about another lost
  • 00:14:48
    decade uh I mean anything could happen
  • 00:14:52
    There's always risks Yeah But the key is
  • 00:14:55
    understanding and preparing
  • 00:14:59
    and that's what we do at this on this
  • 00:15:01
    podcast And also I think it's important
  • 00:15:03
    to note that increased regulation comes
  • 00:15:05
    into play to prevent these massive
  • 00:15:07
    drawdowns as well There's just so many
  • 00:15:10
    market mechanics happening on the back
  • 00:15:12
    end Yeah We talked about um dollar cost
  • 00:15:14
    averaging on our more recent investing
  • 00:15:17
    101 or investing basics episode but also
  • 00:15:20
    um one of your followers on Instagram I
  • 00:15:22
    think their name is the better vin
  • 00:15:24
    diesel said um time in the market is DCA
  • 00:15:28
    or dollar cost averaging And I loved
  • 00:15:30
    that comment because we always hear that
  • 00:15:32
    line time in the market is better than
  • 00:15:33
    timing the market But it took me a while
  • 00:15:35
    to really get what dollar cost averaging
  • 00:15:38
    actually meant And yeah it's basically a
  • 00:15:40
    long-term investing strategy that keeps
  • 00:15:41
    you investing in the market consistently
  • 00:15:43
    over a long period of time no matter
  • 00:15:46
    what is happening in the market or the
  • 00:15:47
    economy But for me personally I like to
  • 00:15:49
    add a little extra if I can when we're
  • 00:15:51
    in a correction or a bare market That is
  • 00:15:53
    not advice of course but you can add
  • 00:15:55
    that into your dollar cost averaging or
  • 00:15:58
    on top of it I suppose little cherry on
  • 00:16:00
    top Of course if you know you're going
  • 00:16:02
    to do a hundred bucks a month and you do
  • 00:16:04
    it at the end of the month but there was
  • 00:16:06
    a big sell-off it's okay to bring that
  • 00:16:08
    forward if you want May go down further
  • 00:16:11
    We don't know right but food for thought
  • 00:16:14
    not advice This isformational and
  • 00:16:15
    educational purposes only All right
  • 00:16:17
    let's do a little market update then
  • 00:16:19
    What's actually happening in the market
  • 00:16:22
    as of I guess this week March 17th
  • 00:16:24
    people are feeling a little on edge I
  • 00:16:26
    think Yeah So let's talk about soft data
  • 00:16:30
    and hard data Soft data is considered
  • 00:16:32
    leading indicators When we talked about
  • 00:16:35
    last week's episode when we did a review
  • 00:16:37
    on the recession it does start with
  • 00:16:40
    sentiment And sometimes sentiment can be
  • 00:16:42
    a self-fulfilling prophecy but basically
  • 00:16:46
    consumers are uneasy Like the collective
  • 00:16:50
    mindset is cautious They're also fearful
  • 00:16:55
    But the hard data is is more favorable
  • 00:16:59
    Like the worst of inflation is past us
  • 00:17:02
    and that reduced a major risk And
  • 00:17:05
    remember recessions and mass layoffs go
  • 00:17:08
    hand in hand Basically the consumer
  • 00:17:11
    doesn't have income or a strong balance
  • 00:17:13
    sheet That's a good question real quick
  • 00:17:15
    Go for it So I know inflation is down
  • 00:17:19
    Where is it at like 2.8%
  • 00:17:22
    Yes Okay cuz it was what 7% a little
  • 00:17:26
    Yeah So inflation has come down but with
  • 00:17:30
    tariffs added does tariffs create
  • 00:17:33
    inflation or does that not count because
  • 00:17:36
    it's a tariff it would go into the
  • 00:17:39
    inflation data but we don't know
  • 00:17:42
    consumer behavior and we also don't know
  • 00:17:44
    what's going to happen And so I think
  • 00:17:45
    it's really really interesting So many
  • 00:17:48
    economic studies say that tariffs will
  • 00:17:51
    increase inflation Mhm Because it has in
  • 00:17:54
    the past but these are bartering
  • 00:17:57
    mechanisms where they're on one day
  • 00:18:00
    they're off the next day Like it's just
  • 00:18:01
    so much back and forth And I think part
  • 00:18:03
    of it just a game theory where it's just
  • 00:18:05
    creating so much confusion You don't
  • 00:18:07
    know what someone's going to do and then
  • 00:18:08
    they just give in That's my thought
  • 00:18:10
    process behind it But like some of these
  • 00:18:14
    larger ones Walmart for example I think
  • 00:18:16
    it's it's worse on the small business
  • 00:18:18
    because Walmart is a huge huge company
  • 00:18:20
    and they have a lot of contracts with
  • 00:18:22
    China And if there is a 25% and this is
  • 00:18:26
    what they said a 25% tariff they're
  • 00:18:29
    trying to get China to absorb some of
  • 00:18:31
    that cost because they can't pass
  • 00:18:32
    through 25% increases to their
  • 00:18:35
    consumer And since they're so big they
  • 00:18:38
    can do that type of negotiation Not
  • 00:18:40
    everybody can Yeah But there is talks of
  • 00:18:44
    trying to bring that together And just
  • 00:18:48
    one more thought on that more broadly
  • 00:18:51
    The US is built like we're a services
  • 00:18:54
    industry I guess or country as in most
  • 00:18:57
    of our GDP 70% of our GDP is consumption
  • 00:19:01
    We measure consumption with PCE which is
  • 00:19:03
    an inflation data And so there is income
  • 00:19:06
    that's in there as well We look at
  • 00:19:08
    percentage of savings Actually we're
  • 00:19:09
    going to go some of that data now but
  • 00:19:11
    it's primarily services And the way that
  • 00:19:16
    our country works is we will find where
  • 00:19:20
    the cheapest supply is buy it there and
  • 00:19:24
    then sell it where the highest demand is
  • 00:19:27
    You mean like drop shipping companies
  • 00:19:29
    and things like that like we're not
  • 00:19:31
    producing the products as much here We
  • 00:19:34
    are outsourcing them from other
  • 00:19:35
    countries and then selling them at a
  • 00:19:37
    higher markup over here to our people
  • 00:19:40
    Yeah Like Dollar Tree and Dollar General
  • 00:19:42
    a lot of that is imported Walmart a lot
  • 00:19:46
    of that is imported Amazon everything
  • 00:19:48
    like a lot of things that you're Yeah
  • 00:19:49
    Walmart for sure Exactly So that's our
  • 00:19:52
    supply chain And so I mean the big risk
  • 00:19:54
    is is we're a gorilla and they may go
  • 00:19:56
    after our supply chains and that but
  • 00:19:58
    that goes into this is still not data
  • 00:20:01
    yet Is that soft data yeah because we
  • 00:20:04
    don't know what's happened Well so what
  • 00:20:06
    another soft data thing maybe this is
  • 00:20:08
    just my algorithm because this is the
  • 00:20:09
    kind of content I look at but I know a
  • 00:20:12
    lot of people have been banning like
  • 00:20:15
    Amazon Walmart Target like when Target
  • 00:20:17
    pulled out a DEI a lot of people banned
  • 00:20:19
    it Um and it seems to be hurting their
  • 00:20:22
    profits I don't know if we can tell that
  • 00:20:23
    soon if it's like because people are
  • 00:20:25
    doing these bans where they're not like
  • 00:20:28
    buying anything from those big
  • 00:20:30
    corporations on certain dates or like
  • 00:20:33
    for certain time periods and like Tesla
  • 00:20:35
    even we're seeing a lot of these
  • 00:20:37
    companies losing a lot of money You
  • 00:20:39
    think that's also part of consumer
  • 00:20:42
    sentiment sure It's it's how consumers
  • 00:20:45
    are feeling and I mean some of that
  • 00:20:48
    translated into hard data though There
  • 00:20:50
    was in Tesla there was lower sales in
  • 00:20:53
    Target There was lower foot traffic Yeah
  • 00:20:56
    So that's hard data Yeah Yeah That's
  • 00:20:58
    soft data that translated into hard data
  • 00:21:01
    Let's go through some of the data now
  • 00:21:03
    though So cuz it's so important for
  • 00:21:05
    right now Consumer sentiment So the
  • 00:21:07
    University of Michigan their February
  • 00:21:09
    index it showed a sharp drop in consumer
  • 00:21:12
    sentiment 10% lower than January 16%
  • 00:21:15
    lower than a year earlier So that just
  • 00:21:19
    means consumers are just unsure Like
  • 00:21:21
    higher inflation expectations
  • 00:21:23
    uncertainty creates volatility That
  • 00:21:26
    means consumers are scared And what's
  • 00:21:28
    important about that is if consumers are
  • 00:21:30
    scared they may not spend And if they
  • 00:21:33
    don't spend then that's when that
  • 00:21:35
    psychological aspect may come in because
  • 00:21:38
    then we're that's what we're going to
  • 00:21:39
    track That's what you were saying about
  • 00:21:41
    savings Like there's more in savings
  • 00:21:44
    right now There is So then this is where
  • 00:21:47
    okay are you are you spending well
  • 00:21:50
    retail sales came out Monday today they
  • 00:21:54
    dipped modestly they're down less than
  • 00:21:58
    1% from December of last year So this is
  • 00:22:02
    the January data but they're 4% higher
  • 00:22:05
    from a year earlier So they're it's
  • 00:22:08
    coming down but it's still a little bit
  • 00:22:11
    higher So that's a little bit of hard
  • 00:22:14
    data Hold on It's coming down from last
  • 00:22:16
    year but it's up from the previous year
  • 00:22:19
    Like no it's coming down from from the
  • 00:22:21
    previous month but it's higher Oh from
  • 00:22:23
    the previous year but year over year
  • 00:22:25
    Okay I see Mhm Yes So then my next
  • 00:22:29
    question is if retail sales are still
  • 00:22:32
    increasing is it because of debt what's
  • 00:22:34
    that look like so let's look at total
  • 00:22:37
    household debt By the end of 2024 total
  • 00:22:41
    household debt in the US reach a record
  • 00:22:43
    high of 18 trillion I mean that's that's
  • 00:22:46
    everything to like household like credit
  • 00:22:50
    card auto loan mortgage all of it All
  • 00:22:53
    the things Yes So that is a
  • 00:22:57
    3.6 increase over the amount of debt
  • 00:23:00
    held one year prior but it's de
  • 00:23:04
    accelerating In 2023 it was 3.6% 2022 it
  • 00:23:08
    was
  • 00:23:09
    8.5% and 2021 is 7.1% So hard data even
  • 00:23:14
    though yeah it's record high household
  • 00:23:17
    debt it's actually a de de accelerating
  • 00:23:20
    trend Interesting You've got to take
  • 00:23:23
    always have to take a step back and most
  • 00:23:25
    of that debt is credit card debt So then
  • 00:23:28
    okay let's look at PCE which is an
  • 00:23:30
    inflation gauge but there's actually a
  • 00:23:32
    lot more data that goes in there
  • 00:23:33
    inclusive of income and savings and
  • 00:23:38
    personal savings as a percentage of
  • 00:23:40
    disposable income So that's how we would
  • 00:23:42
    look at it Increased from 3.5% to
  • 00:23:46
    4.6% That tells me there's capacity to
  • 00:23:51
    spend more They just didn't There's
  • 00:23:53
    caution But let me if I can Yes that was
  • 00:23:58
    another thought Um I think like Hysa
  • 00:24:02
    high yield savings accounts have had a
  • 00:24:04
    moment in the last couple years and a
  • 00:24:06
    lot of Finn influencers have you know
  • 00:24:08
    been getting affiliate links for boost
  • 00:24:10
    like posting them and boosting them A
  • 00:24:11
    lot of people didn't know what a HYSA
  • 00:24:13
    was years ago and now everyone's like
  • 00:24:15
    being told like you need a HYSA and I
  • 00:24:17
    wonder if like that's part of the
  • 00:24:19
    savings data Like more people have HYSAs
  • 00:24:22
    than ever probably I don't know I'm
  • 00:24:24
    speculating but that's a trend that I've
  • 00:24:26
    seen for sure I'm sure you have too Yeah
  • 00:24:29
    No you're right But what's interesting
  • 00:24:30
    is this is just from one month 3.5% to
  • 00:24:34
    6% in one month is a big jump That's
  • 00:24:37
    true Big jump
  • 00:24:39
    So that's caution though We increase
  • 00:24:41
    savings There's capacity to spend more
  • 00:24:43
    They just didn't And but there is a
  • 00:24:45
    selloff too right like if people are
  • 00:24:47
    selling off stocks and things you would
  • 00:24:49
    presume that they're putting that money
  • 00:24:50
    in their savings right that's true
  • 00:24:53
    That's true but remember it's lagging
  • 00:24:54
    data The wheels are just turning That's
  • 00:24:57
    all trying to put pieces together It
  • 00:24:59
    Well it's important And then PCE
  • 00:25:01
    represents 68% of GDP So that spending
  • 00:25:06
    on services is important and that's why
  • 00:25:08
    we're tracking it because we could and
  • 00:25:09
    that also is probably why we got those
  • 00:25:12
    Atlanta Fed numbers saying there's going
  • 00:25:14
    to be a slowdown in GDP because there is
  • 00:25:16
    less spending Like should we just real
  • 00:25:17
    quick uh PCE stands for personal
  • 00:25:20
    consumption expenditures
  • 00:25:23
    Correct And that's uh like just
  • 00:25:25
    basically what people are spending on
  • 00:25:26
    goods and services Yes And it's the
  • 00:25:29
    Fed's preferred gauge of inflation And
  • 00:25:31
    then the last piece of data household
  • 00:25:33
    debt service you can pull this on the
  • 00:25:36
    FRED website Household debt service
  • 00:25:38
    payments as a percentage of disposable
  • 00:25:42
    income That is above 11%
  • 00:25:46
    What does that
  • 00:25:47
    mean if you have your your disposable
  • 00:25:51
    income
  • 00:25:53
    this we just looked at personal savings
  • 00:25:55
    as a percentage of your disposable
  • 00:25:57
    income Now if we looked at debt service
  • 00:25:59
    payments so what is does it cost for you
  • 00:26:01
    to carry debt it's above 11%
  • 00:26:05
    Yeah So that's increasing if you were to
  • 00:26:07
    look at the trend But if but if you were
  • 00:26:10
    to zoom out as in if you were looking
  • 00:26:11
    from 2022 to 2024 that's getting higher
  • 00:26:15
    But that makes sense because the Fed was
  • 00:26:16
    raising rates So shouldn't that come
  • 00:26:19
    down since they lowered rates well it
  • 00:26:22
    should This is a percentage of
  • 00:26:24
    disposable incomes But it's still at 11%
  • 00:26:27
    If you were to zoom out that is still
  • 00:26:29
    below prepandemic levels and well below
  • 00:26:32
    the great financial crisis levels That
  • 00:26:34
    was like 15% Okay that's good Yeah
  • 00:26:36
    households they carry more debt in
  • 00:26:38
    dollar terms but lower unemployment and
  • 00:26:43
    higher incomes because incomes are
  • 00:26:45
    higher have kept debt payments
  • 00:26:48
    manageable That's what we mean by like
  • 00:26:51
    healthy balance sheets But then what
  • 00:26:54
    about the uh didn't we get the jobs
  • 00:26:57
    report data a few weeks ago we did
  • 00:27:01
    Unemployment creeped up ever so slightly
  • 00:27:03
    but still historically incredibly low
  • 00:27:06
    Okay that is the thing I think we have
  • 00:27:08
    to remember to take in
  • 00:27:10
    consideration always is when we're
  • 00:27:13
    freaking out over what's happening right
  • 00:27:15
    now like in this moment it's always a
  • 00:27:17
    good idea to zoom out and look at like
  • 00:27:20
    the historical data and kind of just see
  • 00:27:21
    the trend and like are things really as
  • 00:27:24
    bad as we think they are because
  • 00:27:25
    everyone's everything's chaotic and
  • 00:27:27
    we're all kind of like feeding off of
  • 00:27:28
    each other's energy or like you know
  • 00:27:31
    like kind of put things into perspective
  • 00:27:32
    from where we were at a few years ago
  • 00:27:35
    And maybe they're just worse in other
  • 00:27:37
    ways than they were before But like
  • 00:27:40
    again do those quarterly financial goals
  • 00:27:43
    and budgeting and all the things you're
  • 00:27:44
    supposed to be doing as a good consumer
  • 00:27:47
    and investor And there there is a little
  • 00:27:49
    bit more data believe it or not Oh wow
  • 00:27:52
    More data I know I I wrote a
  • 00:27:57
    1,00 17 word It's very specific And if
  • 00:28:01
    you're on our newsletter you're going to
  • 00:28:02
    get a little bit of that this week We
  • 00:28:05
    know we're behind but it's coming
  • 00:28:08
    Exactly But part of that is earnings So
  • 00:28:11
    earnings revisions also came in
  • 00:28:15
    and as in they were set really really
  • 00:28:18
    low And part of being in a recession
  • 00:28:20
    earnings are going to fall too but we
  • 00:28:22
    have earnings resilience Like demand has
  • 00:28:25
    not collapsed So like there were
  • 00:28:28
    earnings revisions Yes The estimate was
  • 00:28:31
    a earnings growth rate of 11.6%
  • 00:28:34
    Now since they brought in all of these
  • 00:28:37
    revisions it's at 7.1%
  • 00:28:41
    When you say 11.6% is that for the S&P
  • 00:28:43
    500 yes that's right Yes So if that's
  • 00:28:47
    the growth rate for the quarter then
  • 00:28:49
    that's seven consecutive quarters of
  • 00:28:51
    euro year-over-year earnings growth
  • 00:28:54
    That's not bad That to me is not
  • 00:28:56
    indicative of a recession because
  • 00:28:58
    earnings are still growing You're saying
  • 00:29:01
    they're growing from what the projected
  • 00:29:03
    rate was right just from from the
  • 00:29:06
    projected rate it was projected
  • 00:29:08
    downwards and that causes the market to
  • 00:29:12
    react and trigger us more of a sell-off
  • 00:29:13
    So it's all these combination of things
  • 00:29:15
    the soft data that's soft data Okay but
  • 00:29:18
    if if we take that figure still of soft
  • 00:29:21
    data of a growth of
  • 00:29:24
    7.1% that's still seven consecutive
  • 00:29:27
    quarters of year-over-year growth We do
  • 00:29:29
    want to see if there's de acceleration
  • 00:29:31
    that would be bad but if you dive into
  • 00:29:33
    it there's de acceleration of the
  • 00:29:35
    magnificent 7 there's just normalizing
  • 00:29:37
    because of the astronomical AI it's
  • 00:29:40
    still super high and magnificent 7 still
  • 00:29:41
    exceeds the other 493 stocks as far as
  • 00:29:44
    earnings growth but the other 493 stocks
  • 00:29:47
    are now accelerating and that's good
  • 00:29:49
    magnificent 7 are like the top seven
  • 00:29:51
    companies of the S&P 500 basically but
  • 00:29:53
    there are 500 companies in the S&P 500
  • 00:29:55
    so like we want to look at what the
  • 00:29:57
    other 493 companies are doing and if
  • 00:29:59
    they're growing and expanding then
  • 00:30:01
    that's good You know we want to see the
  • 00:30:02
    broad market participation Right Exactly
  • 00:30:06
    I've given you a combination of some
  • 00:30:08
    soft and hard data and the hard data is
  • 00:30:12
    not pointing to recession And even if we
  • 00:30:15
    are in a recession we're not going to
  • 00:30:16
    know it until the NBER calls it which is
  • 00:30:18
    you know will be months from now So if
  • 00:30:22
    you're in recession you don't really
  • 00:30:23
    know you're in a recession You could
  • 00:30:25
    have already recovery Yeah
  • 00:30:28
    It's a hard time for a lot of people I
  • 00:30:31
    mean it kind of has been on and off for
  • 00:30:33
    years but like that's what we're here
  • 00:30:36
    for to teach you and help you learn
  • 00:30:38
    about all these things so you know how
  • 00:30:39
    to make wise decisions for yourself when
  • 00:30:42
    it comes to your money All right Well
  • 00:30:44
    there's your there's your update I'm
  • 00:30:45
    actually feeling um a little bit better
  • 00:30:48
    in general Yeah I feel like there's a
  • 00:30:50
    lot of fear-mongering that always goes
  • 00:30:52
    on and it's very important to zoom out
  • 00:30:54
    and look at data That's like you know
  • 00:30:57
    what data is for It is what data is for
  • 00:31:00
    And the data so far is showing consumers
  • 00:31:03
    are healthy Maybe it's the creator
  • 00:31:05
    economy Everyone is able to have a job
  • 00:31:07
    It might not be the job you want but
  • 00:31:10
    it's something that's there that can
  • 00:31:11
    still allow you to get your necessities
  • 00:31:13
    If you can still get your necessities
  • 00:31:15
    that's what puts you into a recession is
  • 00:31:17
    that's missing and then people aren't
  • 00:31:19
    spending and then before you know it
  • 00:31:21
    layoffs happen because companies protect
  • 00:31:23
    their profit margins That's what they
  • 00:31:24
    will do I mean if anything maybe it's
  • 00:31:26
    just saying that us Americans are more
  • 00:31:29
    resilient than
  • 00:31:30
    ever We're figuring out ways to you know
  • 00:31:34
    survive the craziness in the world the
  • 00:31:37
    absurdities Okay Anyway I digress Let's
  • 00:31:39
    sum it all up Okay Okay Corrections are
  • 00:31:43
    normal Recessions are about economic
  • 00:31:47
    slowdowns And while a lost decade is
  • 00:31:49
    possible smart investing strategies can
  • 00:31:52
    help you navigate any market And just
  • 00:31:54
    because the market dips it doesn't mean
  • 00:31:55
    you should panic sell you know not
  • 00:31:58
    advice But history has taught us
  • 00:32:01
    anything It's patience that pays off We
  • 00:32:03
    want to make calm calculated decisions
  • 00:32:06
    Exactly Stay informed stay diversified
  • 00:32:10
    and keep your emotions in check when
  • 00:32:12
    you're investing
  • 00:32:13
    Yes If you found this episode helpful we
  • 00:32:15
    have so many subscribers Thank you for
  • 00:32:17
    that Please be sure to subscribe Leave
  • 00:32:20
    us a review We love your reviews It
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  • 00:32:28
    in the middle of the night like "Look
  • 00:32:29
    what somebody said." It's true
  • 00:32:33
    and we love it And yeah uh we do look at
  • 00:32:37
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  • 00:32:39
    so you know we get to them as soon as we
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    And remember when you build knowledge
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    you break
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    barriers Remember investing involves
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    risk There is always potential to lose
  • 00:33:01
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Etiquetas
  • stock market
  • corrections
  • recessions
  • investing
  • consumer sentiment
  • market update
  • soft data
  • hard data
  • lost decade
  • dollar cost averaging