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John Norris (00:30):
Well, hello again, everybody. This is John Norris at Trading Perspectives. As always, we have our good friend, Sam Clement. Sam, say hello.
Sam Clement (00:36):
John, how are you doing?
John Norris (00:37):
Sam, I’m doing okay. Believe it or not, even after the last week or so that we’ve had in the markets with all the turmoil, I’m doing okay. And I’m doing okay because it’s a beautiful day here today in central Alabama, and I’m getting ready to travel to see my boo up in Chicago as she treads the stage—or whatever they call it—up at The Second City. So, I’m doing great.
Sam Clement (00:58):
That is a nice silver lining with a lot of blood in the streets.
John Norris (01:01):
For the markets, a nice silver lining. But when I sit around and take a look at everything, I’m glad I’ve got that silver lining. A lot of people don’t have that silver lining. And Sam, I know you’ve gotten the same questions I’ve gotten this past week from coworkers, prospects, and clients—just what in the hell is going on in the markets? What’s going on in the economy, and when is this going to end?
Sam Clement (01:23):
Well, what’s been interesting about this is, one, how quickly the market pulled back. I mean, it’s one of the quicker ones for a 10% pullback. But beyond that, there’s this kind of political component to it—people on both sides of the aisle who maybe don’t typically care about the markets are now focused on them. So, you have the people who are always freaked out about market pullbacks, but then you have this next group of people who typically aren’t, and it feels like those people are getting more concerned. So, it seems like there’s a bigger focus on this than there might be on the average 10% pullback, which happens every year or every other year.
John Norris (02:05):
Yeah. And pullbacks can and do happen. However, I would say—and this is me talking, not necessarily the views of Oakworth Capital Bank—I think what makes this one a little bit different is that people were already starting to feel the economy slow down a little bit. Not necessarily falling apart, but the economy was surprisingly strong last year, at least in aggregate. The top quartile, maybe if not the top quartile, then the top quintile—the top 10% of people have done very well over the last several years, according to all the official data, even if a lot of people feel as though the economy is passing them by.
But even with that, you can feel a little bit of slowness. You can feel that the consumer is taking a little bit of a breath. The labor markets probably aren’t quite as strong as what the government has been telling us. People can sense that stuff. And you have that sort of backdrop, and then you throw into the mix a kind of shotgun approach to economic and foreign policy that the administration is taking. I haven’t spoken to anyone personally who hasn’t said something along the lines of, Yeah, I’m kind of glad they’re doing it, but I might not love the way they’re doing it.
Sam Clement (03:17):
Yeah, some people are like, A scalpel would be nice versus…
John Norris (03:20):
A scalpel would be nice. And maybe the same thing with tariffs. People are going, Yeah, I kind of want the Canadians to trade completely freely with us, but at some point, you just have to let everyone know what your thought process is.
In tomorrow’s Common Cents, I’ll be making an analogy about this shotgun approach—kind of like, Hey, you’re going moose hunting. Do you want to take a .410 shotgun with No. 9 birdshot, or a .30-06 with 180-grain bullets? Sam, I know you’re not much of a hunter, but you’d want to take the latter. And the same thing maybe with tariffs—people are going, Yeah, I want the Canadians to trade completely freely with us, but at some point, you just have to let everyone know what your thought process is.
Sam Clement (04:25):
What’s interesting, and you’re right, we’ve seen some cracks in some economic data, but the earnings expectations haven’t come down. I mean…
John Norris (04:34):
Not dramatically.
Sam Clement (04:35):
For a lot of areas, not at all. But we’re seeing kind of indiscriminate selling. And I’ve said this week that markets can handle uncertainty—there’s always some level of uncertainty. What they don’t like is a big increase in that level of uncertainty. And I think you’re getting the sense from people: I don’t know how this is going to happen, this shotgun approach you mentioned, this uncertainty to a certain point—especially maybe given the strong years that we’ve had for the past couple of years—even though people may not have felt that things were that good. So you had people already on edge, and they don’t really know what’s about to come. And if you’re on the left side of the aisle, you probably feel even more skittish about it. And so you have this uncertainty, and I think it can lead into the CEO confidence and what they’re going to do.
John Norris (05:24):
So what you’re saying is it’s almost a self-fulfilling prophecy in some ways.
Sam Clement (05:28):
I think it is before the election. I know, especially around here, given the average political leanings of an Alabama citizen, people here were saying, Wait till after the election, and confidence will come back to the real estate markets, and rates will come back down, and all this good stuff.
John Norris (05:46):
Well, that was wishful thinking.
Sam Clement (05:47):
It was very wishful thinking.
John Norris (05:50):
I told people it was wishful thinking.
Sam Clement (05:51):
I did too. I told people who were waiting to lock in a mortgage rate till after the election that that’s not really the way it works.
John Norris (06:19):
No, it’s not the way it works. But so you have this wobbling maybe of confidence in people who were waiting for this future confidence. And overall, I think that’s the biggest part of it. We’ve seen multiples compress—people were willing to pay 22+ times earnings for the next 12 months for the S&P, and that’s pretty pricey.
Sam Clement (06:41):
It’s a high bar. It doesn’t mean it can’t happen, but it means there’s more room for error. More things can shake it when something is priced closer to perfection than it normally is.
John Norris (06:41):
I’m going to tell you, I explained valuations very poorly to someone, but I think it got the message across to them. Anyone involved in finance will probably shout me down on this, but they were having some confusion about high valuation. It’s like this: Imagine going to the grocery store, and the bacon you normally buy is $7.99 a pound. $7.99 a pound is historically what you’ve bought it for. Sometimes it’s on BOGO, and you get it for less, but that’s about what, in your mind, you think is fair value for that bacon—$7.99 a pound.
And all of a sudden, the grocery store is trying to sell it for $12.99 a pound. Well, you’re probably not going to buy that. That’s just priced too high. It’s just not going to do. $7.99 a pound versus $12.99—that valuation is too high. Well, right now, that bacon is priced at about $10.99 a pound. You might buy it if you have to, but it’s not where it needs to be for you. And like I said, it’s not the world’s best analogy, but in my way of thinking, it helps get the point across to someone who’s not in finance to explain valuations. That’s where we are. And you’re right—it’s the uncertainty. $10.99 a pound is kind of where we are. I think I’m just going to hold off until it gets back down to where I…
Sam Clement (07:59):
…want it to be. It’s a confidence-measuring thing. For the same dollar, how much more or less are you willing to pay for it? And I think a part of valuations—and I don’t think that’s the whole point of our goal to cover here—but a part of it is less about where it is right now and more about the direction you see it going.
John Norris (08:18):
To the old Wayne Gretzky skate-to-where-the-puck’s-going-to-be idea.
Sam Clement (08:22):
And so, you see, a stock could be trading at 50 times earnings, but if it’s growing…
John Norris (08:28):
If it’s growing at 50%, then so…
Sam Clement (08:29):
What? Yeah. And if you think that’s going to boom, you don’t care that it’s at 50 times.
John Norris (08:36):
If it’s going to grow…
Sam Clement (08:36):
…100%, the direction—it’s about the direction from where it’s at right now and the price you’re willing to pay for where it is going to go. So, it’s twofold: the value of that dollar now and the value of where that is headed. And so again, that just goes back to the fact that there is more possible. It didn’t take much to get people off—to shake their confidence a little.
John Norris (09:00):
Well, I’ll tell you, I’m going to take a step backward here. I just made an allusion to an ice hockey player by the name of Wayne Gretzky. Sam, you know Wayne Gretzky, right?
Sam Clement (09:11):
I know who Wayne Gretzky is.
John Norris (09:12):
Okay. It was a little bit before your time.
Sam Clement (09:14):
It was.
John Norris (09:15):
So, there you go. I don’t know—sometimes I have to check. Sometimes, I would tell you, though, when I take a look at what’s really going on in the economy, what’s going on in the markets, and really look at what we’ve seen from 2020 all the way through the end of last year—understanding that 2022 was a horrible year for the markets—but all told, people are much better off than they were in 2019 when it comes to overall household wealth.
And so, when you see what’s happening in the world right now, see the uncertainty, as you said, and wonder where the growth is going to come from—it always starts with large, smart institutional money. They just take a little bit of money off the table, just a little bit. They bring their asset allocations back from overweight in stocks to a neutral weight, and that puts some red ink in the markets. And then it’s kind of like FOMO, but going the other way around—just like, the market just starts selling and selling and selling off.
John Norris (10:15):
And that’s kind of what I think is going to happen here. In five years’ time, I’m not worried about the U.S. stock market. Over the next five weeks, I might be, as people are just freaking out about what’s going to happen in the short term as opposed to focusing on the long term. And in the short term, as I tell everyone, I’m not exactly sure what the fuel is going to be to take the market up significantly from this point. We’re a month away from the next earnings season. The Federal Reserve likely isn’t going to do anything next week at its FOMC meeting—and probably not at the next one after that either. I think we’re into June before the futures market is pricing a rate cut. And then we’re probably not going to see a sudden surge in overall economic activity from here.
It doesn’t mean that the economy is going to collapse. It doesn’t mean that corporate profitability is going to collapse. It doesn’t mean that the Federal Reserve is going to raise rates. We’re just at a period of time where there’s not a lot of fuel coming into the market saying, Hey, go ahead and get your money in—this is the right time.
Sam Clement (11:16):
Yeah. I still think the biggest focus right now—and I agree—we’ve talked about these cracks in economic data. We’ve talked about the low-end consumer.
John Norris (11:25):
Some of the data just doesn’t make any sense.
Sam Clement (11:27):
And that’s even if it’s all true. I think what’s going on right now is less about changes in economic data, less about earnings—which I think are going to be okay—and more about, I really just think, uncertainty and what’s going to happen over the next couple of months. You’re seeing volatility over the short term. Short-term expectations are higher than long-term expectations, which is not normal. Normally, you pay more for something further out because there are more unknowns the further out you go. But right now, this market is pricing in this short-term uncertainty, and it doesn’t know what’s happening.
And I just think that is having a profound psychological effect, especially when it comes from the person who gets focused on and talked about more than anybody else in the world—Donald Trump. And so I think that is the biggest driver because everybody knows who he is, everybody knows what he’s doing. Howard Lutnick, the Commerce Secretary, is on the news talking five times a day. Scott Bessent is out there. Everyone’s out there with messages that are competing for attention. And it’s just this back-and-forth—tariffs are on, tariffs are off—and it’s this unknown. And it’s really showing up in pricing in the short term. And so, to me, the fuel is just almost removing that uncertainty. It’s not necessarily about the economy suddenly picking back up.
John Norris (12:51):
I think I’d have a better chance of killing a moose with a .410 using No. 9 shot…
Sam Clement (12:55):
…than…
John Norris (12:56):
…getting Trump to quit doing what he’s doing right now.
Sam Clement (12:58):
Yeah. And so that’s a good point, though. Say if you think some level of this is going to happen for four years, if people feel that, they’re probably doing something about it.
John Norris (13:15):
Well, I don’t think anyone thinks that this is going to last for four years.
Sam Clement (13:19):
No, not necessarily the tariffs.
John Norris (13:21):
But with tariffs and all that uncertainty. But I would tell you that because we’ve had such a good run over the last two years, people are saying, Okay, I can sit out the next couple of months. Now, if someone were to sit and be happy about it and then try to buy the dip or something like that…
And you have to understand, a lot of money has flowed into the United States from foreign countries. And so when foreign countries get sideways with the United States due to personality conflicts, we’ll likely see that foreigners have taken money out of the U.S. economy in February and March.
Sam Clement (13:57):
I think we saw that out of Canada.
John Norris (13:58):
Recently. Yeah, we saw that out of Canada. That’s money leaving the U.S. bond market, maybe not quite as much, but leaving the U.S. stock market and leaving deposits. And so, the dollar weakens in that regard. And that’s what I think you’re probably seeing a lot of—probably a lot of foreign investors selling their securities, mutual funds, and institutional investors reallocating and rebalancing back. And now, you’re having a little retail freak-out.
And we’re just now in a period where we’re trying to figure out what’s a good buying opportunity. Is it now, or is it another 10%, 15%, 20% back? And as I’ve—I’m not sure if I sent you the same text I sent Dave McGrath—it’s kind of like today, I was looking at it and taking a look at a few names that we’ve recently traded out of, just sitting there watching, watching how easily these things are breaking through their 200-day moving averages with very little support anywhere close. That kind of gets me a little concerned.
Sam Clement (15:00):
Yeah, I talked with a coworker about this and about a few specific names that had some really bad reactions to the earnings reports. And I feel like what you’ve seen a lot of—and this is very anecdotal—is that after those, okay, we caught this new level of support, and they start chipping their way back up.
John Norris (15:18):
That doesn’t seem to be happening.
Sam Clement (15:20):
At least in these names I’m thinking of. And I’m not going to mention them.
John Norris (15:35):
Please don’t.
Sam Clement (15:37):
It’s just continuing. I mean, this is weeks after. I’m talking 40%, 50% plus cuts overnight and just continuing down, down, down.
John Norris (15:47):
I’m just going to take this baby…
Sam Clement (15:48):
…down. I looked at the earnings reports. I was like, Yeah, that didn’t hit guidance. That wasn’t great. But these companies are still doing what they’re doing. And it’s not like…
John Norris (15:57):
…the business model hasn’t changed.
Sam Clement (15:58):
No, it’s not like they’re getting an unqualified audit or something like that. So it’s stuff like that that has changed that. It’s those kinds of feelings that you’re getting. And again, if you’re paying more for stuff, you expect more out of it.
John Norris (16:04):
If the bacon is $10.99 a pound…
Sam Clement (16:06):
…it better be as good.
John Norris (16:07):
It better be worth $10.99 a pound. It better be good. Otherwise, you’re going to go back and buy the $7.99 bacon, I think.
Sam Clement (16:14):
Is that one way of putting it?
John Norris (16:15):
It is.
Sam Clement (16:16):
Is it as bad an analogy as I think it is?
John Norris (16:19):
No, I think it’s perfect for the first half of describing PE multiples.
Sam Clement (16:25):
Okay. What about the second half?
Sam Clement (16:26):
Of it being about the direction where it’s heading? I got you. I think that’s a big part when you’re talking about what you’re buying for an earnings multiple. But again, I think this focus has been unique. And I would say it’s one of the more focused and talked-about 10% pullbacks that I can remember, considering that nothing we’ve discussed in the economic data has drastically changed in the last two weeks.
John Norris (16:57):
Not drastically.
Sam Clement (16:58):
I mean, we’ve seen some trends, but it’s not like, Hey, oh my gosh, this was fine, and now it’s not.
John Norris (17:02):
It’s like, Oh my God, we just jumped off the…
Sam Clement (17:05):
Yeah, we didn’t see anything in the economic data that justifies a 10% pullback.
John Norris (17:09):
No.
Sam Clement (17:10):
We were already kind of seeing this.
John Norris (17:11):
Retail data hasn’t been great, but it doesn’t justify this level of freakout.
Sam Clement (17:16):
So again, this multiple compression and earnings estimates have kind of ticked up just slightly. And it’s sentiment. Vibes has been the word that’s been used over the last couple of years.
John Norris (17:29):
Animal spirits.
Sam Clement (17:30):
Animal spirits. They called it a vibe session in ‘22, when people felt bad about things even though the economic data was fine. And so that’s kind of where we are.
John Norris (17:42):
So that’s where we are with the stock market. But one more thing before we go—we’re getting a little long here—what do you think about this rally in gold, my man? Do you think it’s just the other side of that proverbial coin? No pun intended—but pun intended—gold is up because confidence is way down.
Sam Clement (18:00):
Everywhere else. I think that’s a part of it. And there’s been a bigger focus on gold. Over the long run, it’s going to be inversely related to real interest rates. That’s where inflation comes into focus with gold. But what’s interesting to me is the massive amount of gold that’s being imported back to the United States. I mean, it showed up in the trade data and the Atlanta Fed GDP numbers, and they had to go back and revise it because such a significant portion of it was coming just from gold being shipped—literally on commercial airlines in the hull—back to the United States. And that was in the trade data.
John Norris (18:43):
Hopefully not one of those airliners where the doors fall off.
Sam Clement (18:48):
Well, maybe it was just so heavy with gold that… But no, I don’t have the answer to why that is.
John Norris (18:56):
I mean, listen, I guess that makes all the sense in the world. U.S. investors are buying the bejeebers out of GLD and GOLD and some of the other precious metals, exchange-traded funds, and mutual funds. We’ve got to get the gold from somewhere—we’ve got to get it from South Africa, we’ve got to get it from…
Sam Clement (19:12):
Somewhere. I’m even talking about gold that is technically ours, but held in vaults in Europe. I mean, even that’s part of what was showing up. It’s not a transaction of gold. It’s literally moving something that is already owned by us. It’s like changing custodians.
John Norris (19:26):
That’s in the trade data?
Sam Clement (19:27):
It was showing up in the trade data. The Atlanta Fed issued a revision and had to back it out.
John Norris (19:36):
There you go.
Sam Clement (19:38):
I…
John Norris (19:38):
…don’t…
Sam Clement (19:38):
…know. I don’t know with gold.
John Norris (19:40):
Look, I’m going to tell you, this is what I think about gold. For a long period of time, while gold has been the original store of value—the original investment—there really wasn’t enough availability, enough supply, for John Q. Public to have a significant holding. They couldn’t really invest in it. It was always the providence of central banks and the uber-rich—people like Scrooge McDuck, swimming in his gold coins, all that stuff.
And it wasn’t until the end of 2004 when a lot of these gold exchange-traded funds and mutual funds really started coming out. That’s really when you developed, in my estimation, a truly large, liquid secondary market for precious metals.
Sam Clement (20:25):
It used to be the…
John Norris (20:27):
…coin shops and futures market.
Sam Clement (20:28):
Well, even before that, it was an investment for the ultra-wealthy.
John Norris (20:32):
Yes. Yeah, it was hard to play.
Sam Clement (20:34):
Yeah.
John Norris (20:35):
Now, you can play.
Sam Clement (20:35):
Much more easily. It was a big chunk. It was a big asset class for the wealthy.
John Norris (20:39):
Yes. But you had to have someplace to store it—one of those types of things. I would say that now, for the average retail customer, it’s far easier to invest in gold. And as a result, you’re seeing more people add that to their portfolios. In times of uncertainty, more people are buying GLD, GOLD, and some of the other funds out there. And as a result, you’re seeing this stuff go up.
As people buy exchange-traded funds, those places have to go out and buy gold. The GLDs have to go out and buy it and put it in a warehouse—wherever they store it.
Sam Clement (21:15):
Under the JP Morgan building in New York.
John Norris (21:17):
Oh, there you go. Now I know. And so you have all that. So I think we’re seeing what happens when the average American starts to feel uncertain about the world around them. They now have better access to gold than they previously had—better access to commodities and precious metals. Over the last couple of years, as we’ve seen the direction of the country shift, we’ve seen gold take off.
Sam Clement (22:06):
Yep.
John Norris (22:06):
Alright. Well guys, thank you all so much for listening. We always love to hear from you.
Also, 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. As always, if you’re interested in reading more, hearing more of what we got to say or how we think, you can always go to hor.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 trading perspectives, podcasts, links to our newsletter slash blog common sense, it comes out every Friday, as well as links to our quarterly analysis macro market, all the individual components thereof. That’s all out there underneath the thought leadership tab, as well as other pieces from our investment advisory services group. I guess it’s appropriately called the Advisory Services Group, headed up by Mac Frasier. He’s got some good stuff out there too. Alright, Sam, anything else to talk about this uncertain time? That’s all I’ve got. That’s all I’ve got today too. Y’all take care.