John Norris (00:30):
Well, hello again everybody. This is John Norris at Trading Perspectives. As always, we have a good friend, Sam Clement. Sam, say hello.
Sam Clement (00:36):
Hello, John. How are you doing?
John Norris (00:36):
I’m doing fantastically at the beginning of the week and here we are recording on August the seventh. That’s a Wednesday. On Monday I was feeling pretty down and out, the previous Friday I was feeling pretty down and out, and the previous Thursday I was feeling pretty down and out and that’s because the U.S. stock market and really all global stock markets had just taken it on the chin. Now, back in a little bit of red ink here in the afternoon trading on the seventh, but things seem to have calmed down a little bit from the panic selling that we saw earlier.
Sam Clement (01:06):
It’s amazing. I mean there was obviously reasons and I think our industry naturally wants to come up with a reason for every single small, large, medium move in the market. There has to be a reason for it. Sometimes that’s not the case, but we feel the need for that. But there wasn’t anything that substantial for the moves. I had more people that aren’t involved with the market, don’t know what the S&P 500 even is asking me questions on Monday than I have since March of 2020, which, the news was not justifiable for that.
John Norris (01:41):
No, there certainly seemed to be a pretty big just, freak out, is really the only word I can think of. The selling was almost panic selling and the off given reason for it is just due to the weak employment situation report from the previous Friday. And you and I’ve talked about how it wasn’t a good report, Sam, but it wasn’t the absolute worst thing I’ve ever seen. I’ve seen some really dreadful employment situation reports and it was…it was weak. I didn’t love it. It wasn’t suggesting an economy hitting on all cylinders, but it also wasn’t enough to go take the stock market up a thousand points to shoot it down. It wasn’t a death nail, it was a weakest report and people were using that. And truth, you and I have talked about that I’ll say to anyone that wants to listen: we had such a strong July, in fact, we’ve had such a freakishly strong 2024 up through the end of July, remembering that the historical rate of return on large cap stocks is what, nine, 10% per year?
(02:37):
Depending on where you want to look and how far back you want to go. Through the end of July, the S&P 500, which is the most often given proxy for the U.S. stock market, at least by investment professionals is it was up over 15% from around 15.4% through the end of July off of an economy that grew 1.4% during the first quarter and grew 2.8 during the second quarter. Earnings have been decent. Not falling apart. And under ordinary circumstances I would’ve said a six to 7% rate of return through the month of July with the type of data that we’ve seen. People have been pretty happy with that and then all of a sudden it’s 15 plus 4%, you got a weakest sort of jobs number and all hell breaks loose. And that just made me think that maybe to use the maestro, “the Mastro,” Ellen Greenspan’s terminology, maybe there is a little irrational exuberance in the stock market during the month of July that all of a sudden there’s a rude awakening there at the beginning of August.
Sam Clement (03:46):
There may be, and markets tend to go up over time. I mean they’re up on average six out of seven years and you’re more likely to be up 20% in a year than you are to be down in a year. I mean markets are meant to go up. The economy grows. Companies are typically pretty good at growing their earnings over time.
John Norris (04:05):
That’s what they’re paid to do.
Sam Clement (04:06):
And so outside of these recessions and, one out of seven years on average, the markets are going to go up, but it seems like of late people have been waiting for this one thing, and there’s not one thing, but this one thing that’s going to say, okay, we’re going into a recession now. Now’s the time to sell. And it feels like that jobs report again, you said it, was not as bad as people seem to react to it, but they were almost anticipating this: “Now we can sell,” now we can expect the recession to come the data. We’re not in a recession. It may be coming, but we’re not in it right now.
John Norris (04:44):
Listen, it was the week before last week when the Bureau of Economic Analysis estimated that the U.S. economy grew 2.8% during the second quarter. A breakdown of the data was pretty decent. I’m not going to say it was the best report I’ve ever seen, but you kind of strip out some of the funny money in some of the vagaries that are typically in there. I’d say 2.4 to 2.6% I think…
Sam Clement (05:07):
Better than we did for a decade.
John Norris (05:08):
Without a doubt. I mean it was a better-than-anticipated report. However, those are the official numbers. I’ve got no reason to think that they’re nefariously not telling the truth. I suspect the economy will probably be revised down a little bit with the first iteration, but it’s not going to be negative territory. We’re not going to go from 2.8 down to negative three. Might go from 2.8 down to 2.5 and that’s okay. And that’s probably about right based on everything. There’s still a ton of money being thrown about and the economic activity, all in all is still okay. It’s weaker than it was, but the market freakout, Sam, I won’t tell you this. I’ve drawn on and on about this. What I really do think is September is historically the month where seasonality takes in though I think if I’m not mistaken, September is historically the worst month for the S&P 500. Institutional investors start rebalancing their portfolios for the year end, all that type of thing.
(06:09):
I think we might’ve gotten a step up maybe a month and a lot of that seasonality, which typically happens through the month of September. And I think a lot of people with the big money, a lot of these big firms and people just went, it doesn’t get much better than it has for the first seven months of the year at 15.4% on the S&P 500. I’m just going to go ahead and do my year end trades right now. That sounds crazy, but I suspect by the time the dust settles and the smoke clears, we will find that a lot of that did happen.
Sam Clement (06:39):
Yeah, I mean you’re right about how well this year started off. I mean,
John Norris (06:45):
If I’m right about that, you’re implying that I’m wrong about something. Come on, let’s air it, man.
Sam Clement (06:48):
No, but not a lot really changed in the trend of the economy.
John Norris (06:55):
Nothing has changed. The numbers all look basically the same. I mean the ISM numbers for manufacturing, week-ish, but not horrible. The ISM report on business for service was actually better-than-anticipated on Friday afternoon, but you didn’t hear anything about that. And all this stuff suggests a modestly tepid economy.
Sam Clement (07:17):
Even the jobs number had a significant amount of jobs lost due to weather-related events. So you revise that out next month and that was probably about two tenths worth. Put you back on the screws 4.1 you think 4.1 would’ve freaked the market out. Why do you think that so many people…
John Norris (07:35):
People were looking for a chance to sell.
Sam Clement (07:37):
But so many people have been calling for a recession. I mean, it seems like the market has gotten back to thinking if you have a good year one year, you have to have this bad year or bad economy the next year. I get things have, since covid, gotten way more volatile in the economy, even not just the market… but markets, that’s abnormal. If we had a bad bear market in 2022, arguably, especially for balanced portfolios, worse than 2008.
John Norris (08:08):
It was bad for bonds and it was bad for stocks. It was horrible.
Sam Clement (08:13):
And so it’s like you just check that box off. You typically have some good years and some runway after that. Why is, I say everybody, but it really does feel like everybody is waiting for other shoe to drop.
John Norris (08:27):
And that shoe must be a cement shoe the way people were thinking about it. And I would have to go back and you and I have talked about this beforehand, but when was the last time you saw a historically normal recession? You probably never have, at least not in your business career. You have to be my age or older really to see that sort of a normal sort of, and I’m 35 years old?
Sam Clement (08:54):
Yeah, almost 36 (laughing).
John Norris (08:58):
But yeah, I mean you have to go back really to 1994, 1997 sort of type deals in order to find a recessionary period that was of normalized. You know, in 2000 and 2002. We had the Dotcom bubble and then that blew apart. But the economic recession in 2001 and 2002 really wasn’t that big a deal, but we had this massive sort of realigning of the stock market that hurt. Then you had to wait until 2008 and 2009, the financial crisis when really the world’s financial system fell apart.
Sam Clement (09:32):
That was not even just not even a recession in the sense that the economy is just slowing down.
John Norris (09:37):
That wasn’t a tiring out. That was like a financial system crisis. The worst one, for the entire global economy, since the Great Depression,
Sam Clement (09:44):
I’d argue slightly exogenous. I mean it is intertwined, but it was that caused the rest of it.
John Norris (09:51):
Yes, not the other way around.
(09:53):
And so that was a weird one. I mean, kind of strange. Then we had the 2020 pandemic-related recession. When was the last time someone in your generation or even really millennials, I mean, just have seen where, okay, this is what happens. This is a typical, you know, sort of Fed-easing and tightening cycle. This happens, borrowing and lending slows down economic activity and then you start cutting rates and it goes back up. It’s been forever in ago. I mean the recent phrase of the moment is “it’s been a minute” since that’s happened. I don’t know when people started saying “it’s been a minute,” but they’re saying it all the time now, but it’s been a while since this has happened. So people don’t really know quite how to react to weakish economic news. All of a sudden we’ve been waiting for it so long, any sign that it’s going to happen, it’s going to be easily over-analyed.
Sam Clement (10:49):
Well, and I think the other portion, it’s really hard to talk about the economy or the market and not tie them to each other. And the market, since 2018, has had a bear market every other year.
John Norris (11:03):
Yes,
Sam Clement (11:03):
2018 on the verge of it, about every three years. 2018, 2020, 2022. It seems like people are getting, I get that, that’s highly abnormal to have that many bear markets.
John Norris (11:21):
And it’s been crazy.
Sam Clement (11:23):
Every other year.
John Norris (11:24):
The fourth quarter of 2018 was about at the least amount of fun.
Sam Clement (11:27):
Yeah, it was horrible. 22 was awful. I mean 20, was… I mean, if you had a short coma, you kind of avoided the whole thing for a month.
John Norris (11:38):
We actually did a pretty good job with that, but I would tell you that I just don’t think people know really how to react to it. And so is the world really falling apart? And when I take a look at the economic data here, I would say no. That didn’t stop people from asking me numerous times at a banquet where I attended on Tuesday night about an emergency 50 basis point cut by the Fed. I said, I hope not.
Sam Clement (12:02):
Ridiculous.
John Norris (12:04):
So we can debate whether or not the overnight lending target needs to be a 5.5% right now until I’m blue in the face, until the cows come home, whatever. But does the Fed need to alter policy because the market’s freaking out? Absolutely not.
And I’m not sure we would want them to do that anyhow. I mean, just freak out because the stock market’s down for a couple days. That leads to some very bad precedents. I was getting all these questions as I’m trying to make an Irish exit. It’s crazy mean. Just absolutely crazy. Hey, before you go, and so do we really want to see the Fed doing that type of thing? I would say not. And so if we get that phantom move, that 50 basis point move… I’ve been doing this over three decades, and whenever there’s been sort of a interim or inner meeting change in monetary policy, it’s almost always been a rate cut and it’s always been due to a, oops!, we didn’t see that one coming. And that’s to say that if we get a piece of data between now and September 17th and 18th when the next Fed meeting is, we could see an interim move. I’m not going to say that we won’t, but just based on a few bad days in the market, I don’t think we will.
Sam Clement (13:09):
And it’s funny, the place people were pointing their fingers to Monday and Sunday, and this is probably pretty valid, was that Japanese, the carry trade, the hiking rates and the strengthening of the end. And so people were begging for rate cuts, which, by my understanding of exchange rates would’ve just made it worse. So we’ve gotten this fixation that you have to have lower rates for the market to go up. And I get that it helps, but that is not historically always the case. You don’t have to have rates going down for stocks to go up.
John Norris (13:44):
Well, I think what you need to have is positive real rates and even that’s been thrown out with the dishwater over the last decade or so. But I’ll tell you that low rates in and of themselves, that is good for the economy and overall economic activity and stock market performance. The Japanese would’ve been killing it over the last 30 years, and the complete opposite has happened. Low rates alone aren’t going to generate economic activity. Matter of fact, I would say low rates alone reduces risk in the overall society or just reduces the potential for an absolute rate of return, which will reduce risk taking.
So I don’t think that’s a good idea. A short-term reduction in interest rates will be a B12 shot, spurring shorter term economic activity and longer term rates as long as people can still get ahead with their purchasing power and with their investments, what difference does it make? It’s just that adjustment in trying to get used to the absolute higher levels of interest rates have shocked people because let’s face it, the Fed has kept the cost of money in the U.S. economy artificially low since 2008 and 2009.
Sam Clement (15:04):
You’re right.
John Norris (15:05):
Well come on, man. You got to say something more than that. I just went on like a half hour long diatribe. I’m surprised you didn’t fall asleep during that.
Sam Clement (15:15):
I didn’t fall asleep.
John Norris (15:17):
So you mentioned that a number of people come up to you and mentioned something about the market and people that don’t ordinarily talk about the market, why all of a sudden now, why are they caring?
Sam Clement (15:31):
Why people that never care is shocking. The other shocking part was what happened with the VIX? The volatility index reached levels this Monday comparable to the lows of 2020 in 2008, and we closed the day off 2%, 4% over the last three days of trading. And the VIX hits what? 60 something. I came in and someone here asked me, what’s going on? I go, we don’t need a reason for everything, but this is inexcusable, a slight miss on a jobs number and strengthening of the yen. There’s that chart, that real great long-term chart that shows…
John Norris (16:20):
I mean, how do you even explain that to someone? I mean, how do you explain that it to someone that doesn’t do this for a living? You have to understand the Japanese yen’s appreciate it a little bit. So why did I just lose all this money? Didn’t I mention that the Japanese yen appreciated a little bit. Oh, and the U.S. economy only created 97,000 jobs last month.
Sam Clement (16:39):
And look, the market may go lower, but if that’s the reason you’re going to sell out of the market, that’s the equivalent of jumping out of a plane because you have some turbulence.
John Norris (16:52):
There have been times (laughs). But then again, if you do that, then you’re just jumping right into the turbulence, aren’t you?
Sam Clement (16:58):
I would assume so. There’s probably some worse outside.
John Norris (17:04):
Than the tin tube that’s heavier than air. Listen, I get it. You and I’ve talked about it. I mean lift, thrust and drag.
Sam Clement (17:11):
Look, there’s always a reason for the market to sell. And you look back and a lot of them sound really, really reasonable at the time, and we’ve all seen that great chart. I think it’s a 70-year chart or something with all these dots of the reasons to sell.
John Norris (17:27):
Well, listen, you and I both know this, people in our industry will make things unnecessarily complicated. And they’ll do so in order to make their clients and prospects feel as though they value of their words is worth greater than it actually is. The market sell off for the last several days? Every reaction, ridiculousness, from what we know, it’s ridiculous. There might be some smart money out there that’s playing around with. It’s absolutely ridiculous. Probably largely due to a bunch of profit taking from some of the major players and everyone else has got to play that hand. Not going to say that it doesn’t stink, but I’d sit there and take a look at it and go: What has fundamentally changed in the economy in the last six weeks? Nothing.
Sam Clement (18:13):
And that’s where I think the trouble comes from is people want to appear sympathetic to people’s concerns, but part of the job of managing money is to be less emotional with it. So it’s this balancing act.
John Norris (18:28):
Listen, if you’re going to hire a financial advisor who’s as emotionally attached to your money as you are, you’re a fool.
Sam Clement (18:35):
Do it yourself (laughs).
John Norris:
Don’t do that.
Sam Clement:
It’s this balancing act of wanting to feel sympathetic to their fears and also trying to at the same time be less emotional with their money. It’s like Jack Bogle said instead of “Don’t just stand there. Do something.” He said, “don’t just do something. Stand there.”
John Norris (18:58):
Well, I mean sometimes you need to do a little bit of both truthfully, in this industry now, but going back to, I mean, why are people freaking out and all that stuff and what can you do? And when people have frayed nerves, people that do what we do for a living have one of two options. You can either buffalo people with your brilliance or you can just speak to them directly. And people tend to appreciate it. I have found when people speak directly as opposed to someone trying to buffalo you. I can’t stand that.
Sam Clement (19:25):
People are typically good at seeing through that.
John Norris (19:28):
They typically are. And it also goes completely against our core value here at this company, which is the Golden Rule. So the best thing we can do is people that work in this industry is just tell people the way it is. I mean, the official position. Hey, it’s overreaction. The market was incredibly hot through the first seven months of this year. A pullback was largely anticipated or should have been, the first several days of it at least. It was just wildly hyperbolic. The economy is not broke. It is a little bit weaker, but at the end of the day, you’ll be ahead of where you are in three years whether you like it or not. And this too shall pass. Investing is a marathon. It’s not a sprint.
Sam Clement (20:10):
Well said.
John Norris (20:10):
You like that one? Do you?
Sam Clement (20:11):
I like that one.
John Norris (20:12):
So I don’t know, what else do you have on this one?
Sam Clement (20:14):
Look, I mean, you said it. We had seven months of, for the most part, historically low volatility,
John Norris (20:22):
Historically low volatility on top of last year when there… If I remember, I don’t really remember any volatility last year.
Sam Clement (20:29):
Yeah, especially in the back half of the year with March and the banking crises and all that, early in the year.
John Norris (20:33):
That’s right, that’s right. But from June, all the last 12 months, I mean, has been just put your money in!
Sam Clement (20:38):
Yeah, you put your money in and probably did pretty well.
John Norris (20:42):
Yeah.
Sam Clement (20:43):
So look, the VIX that I mentioned going to 2020 and 2008 levels is obviously absurd, but a return of volatility is normal.
John Norris (20:57):
Well, a return of volatility is kind of like a return of inflation. People don’t like it when they see it. However, if you don’t occasionally get it, that’s a bad thing. Like inflation, no one likes 9.1%. I’m not talking about that on the CPI. No one likes that. It stinks. However, 2%, well that gets people spending money.
Sam Clement (21:17):
Not having it at all is not healthy.
John Norris (21:18):
It’s just like you have deflation. You’re not going to spend money because you’re going to sit around and wait for the price of that item to go down lower.
Sam Clement (21:28):
And if there’s no inflation at all, why not just stick it under your mattress and do nothing with it.
John Norris (21:32):
Without a doubt. And so no inflation or deflation is not really a good thing. A little bit of inflation will spur economic activity. So you need to have that. Same thing with the VIX. If there’s no volatility, how are you going to make any money? Or how are you going to beat the market? Or how are you going to get an absolute rate of return? And that’s all it is really a kind of a measure of risk. If there is no risk, there is no return. Or there’s going to be a puny rate of return, you’re going to get no risk? Hey?
Sam Clement (21:59):
Slightly over the risk free and call it a day!
John Norris (22:00):
Call it a day! Three, 4% over time, and it’s really the time value of money, three to 4%, you’re welcome to it. But in order to get 10%, 12%, the 15.4% as we got year to date in the S&P 500 through the end of July, in order to get there, you’re going to have to take some risk. Last several days hasn’t been a lot of fun, but unfortunately that just kind of goes with the territory. And over the last 12 months, it’s been very easy to forget it because it’s been so easy to make money.
Sam Clement (22:28):
It’s been very easy. Very easy. That’s not always the case. Even in good years.
John Norris (22:33):
Even in good years. Alright, well with that guys, we always love to hear from you all. So if you have any comments or questions, please by all means, let us know. You can always drop us a line at or you can leave us a review on the podcast out of your choice. Of course, if you’re interested in reading more, hearing more of what we have to say or how we think, you can always go to oakworth.com, O-A-K-W-O-R-T H.com. Take a look underneath the thought leadership tab and find links to all kinds of exciting information, including links to previous podcasts of Trading Perspectives, as well as links to our newsletter/ blog. And I really like this upcoming Friday one – it’s called Common Cents, and then finally links to our quarterly economic analysis and slash magazine called Macro and Market, which is out there. You can find individual parts out there or also the full thing out there underneath Thought Leadership. So pick and choose. By all means, pull it up, send it to friends, share it if you would like. We always love more eyeballs as opposed to fewer that. Sam, you got anything else to say on this exciting topic? That’s all I’ve got. Y’all take care.