Navigating the Aftermath: Insights from the Fed Meeting, Tech Earnings, and the Surging Job Market

Gain unparalleled insights into the financial tremors that have jolted Wall Street and what they mean for your portfolio. Our latest episode features financial guru Brad, as we dissect the myriad forces shaping the markets—from the aftershocks of tech titans' earnings and the Federal Reserve's latest moves to the bond market's subtle dance that dictates the rhythm of asset and commodity prices. With the ever-canny advice from Barron's and a deep dive into the intricate world of Medicare, we serve up a tapestry of knowledge that could be the edge you need in navigating the complexities of your financial future.

Prepare to explore the high-flying maneuvers of Goldman Sachs, Boeing's ongoing saga, and the unexpected resilience of Estée Lauder's stock. We'll also unravel the implications of a robust jobs report and the Atlanta Fed's projections on the US economy's strength. Plus, discover how AI is transforming tech earnings, with Microsoft leading the charge. As we conclude, Brad imparts his wisdom on the bond market's latest volatility and the hidden gems within municipal bonds, ensuring you're armed with the critical insights to help steer your investments through current market uncertainties.

** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.

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Transcript

Alan Eppers: 0:00

And now introducing Mr Keith Lanton.

Keith Lanton: 0:04

Alright, welcome. Today is Monday, february 5th, first Monday of the second month of the year, and we get started today after last week where we saw earnings from five of the magnificent 7 technology stocks. Also, I had a Fed meeting, a Fed conference or a discussion after the meeting with Jerome Powell, and then on Friday we got a very strong employment report. So this week we're dealing in the aftermath of all the events of last week and we're going to talk about those events and what that looks like going forward. Brad will be helping us out and giving us some thoughts and insights into what's going on in the bond market, which again, is one of the crucial factors in terms of determining prices for equities and other asset classes, like commodities in real estate, and we'll talk about Barron's and their take on the events last week, as well as some individual companies that they discussed specifically. And Barron's also had a good article on those who are on Medicare and what their best options may be for them personally when you're looking at Medicare advantage versus taking out Medicare gap Something a lot of people don't think about until they reach age 65. But first I'm going to start with some comments from a book that I'm reading, entitled Clear Thinking by Shane Parish Turning Ordinary Moments into Extraordinary Results. And the author, shane Parish, talks about one of the things that we may sometimes not focus on or may do subliminally, which is critically important, I think, to our success. And certainly the author thinks that, and that is positioning. And what he says is, while we are out there chasing victory, the best of us know that they must avoid losing before they can win. It turns out that this is a surprisingly effective strategy. Of course, if you lose before you have the opportunity to win, well, obviously you're not going to win and you're out of the game. And the number of participants and whatever it is you are seeking to be successful at has been winnowed and therefore not taking risks that could get you to the extent that you get you knocked out, critically important to achieving whatever it is you're seeking to do.

Keith Lanton: 2:45

And each moment, he says, puts you in a better or worse position to handle the future. It's the positioning that eventually makes life easier or harder. And that positioning, he says, is determined and happens in ordinary moments when you're not necessarily thinking that this is a do or die moment. It's those little decisions that add up to those bigger decisions and a good position allows you to think clearly rather than be forced by circumstances into a decision. One reason the best in the world may consistently good-bit decisions is they rarely find themselves forced into a decision by circumstances. You don't need to be smarter than others to outperform them if you can outposition them. Anyone looks like a genius when they're in a good position, and even the smartest person looks like an idiot when they are in a bad one. He says time is the friend of someone who is properly positioned and the enemy of someone who is poorly positioned. It doesn't matter what position you find yourself in right now. What matters is whether you improve your position today. So every ordinary moment is an opportunity to make the future easier or harder. It depends on whether you are thinking clearly.

Keith Lanton: 3:55

So, with hopefully us thinking a little bit more clearly than a few minutes ago, we will dive into what's taking place over the last week or so and discuss the financial market. So Last night, in a prerecorded 60 minutes session, jerome Powell made a rare televised interview which was recorded on Thursday and this morning. The selloff in Treasuries is extending after that interview on 60 minutes aired last night and Powell said that the voting members are unlikely to reach the required level of confidence about the inflation passed by their March meeting. With those comments, he echoed the message he delivered at a press conference on Wednesday, and investors are reading it as an intensifying pushback against expectations for interest rates to fall in 2024. The Treasury declines we're seeing today are not just exclusive to the United States. We are seeing declines in the debt in Austria, germany and the United Kingdom, specifically in the UK.

Keith Lanton: 5:10

Speaking of cutting rates too soon, the team at the OECD, organization of Economic Development, is going along with a similar narrative. Alongside today's publication of its interim economic forecast, the OECD said it is too soon to be sure that the inflationary episode that began in 2021 will end in 2025, warning that central banks mustn't drop their guard. Still, the OECD did bring forward its expectations for the first US interest rate cut to the second quarter of this year earlier than its November forecast for a move in the second half of the year, and the group was also slightly more optimistic about the global economy than previously and revised its 2024 growth in the US to 2.1% from 1.5%. The other big economy, of course, is China, and Reuters is reporting after a CNN report which President Trump was quoted as saying that he, if elected president and he said this on a Fox News Sunday morning futures interview that he might impose tariffs on Chinese goods of more than 60% if elected, and that messaging putting some additional pressure on Chinese markets, as they are currently dealing with a troubled property market and a sputtering economy as nations like the United States seek to do more on-shoring, meaning purchasing less goods and importing less from China.

Keith Lanton: 6:44

All right, we'll take a look at the futures. We're getting to the weakest levels of the morning right now. Now futures are down about 110 points, about 3.1%. S&p futures down 13,. Nasdaq futures dropping 23 points, a lot of this having to do with that interview over the weekend with Chairman Powell.

Keith Lanton: 7:06

Also, geopolitical worries are part of the narrative this morning after the White House issued a statement noting that the US military response to last week's killing of three American soldiers will continue, including additional strikes against Houthi-controlled areas of Yemen. That's a good question after the latest strikes, according to the Washington. Also, we had a national security advisor, jake Sullivan, saying to Politico that the administration is not ruling out the possibility of strikes in Iran. And other geopolitical news CNN reporting is that the House will vote this week on a $17.6 billion Israeli bill to aid Israel with no offsets, but the White House is opposed to the bill without Ukraine and border funding. Speaking of that bill, the Senate will vote on Wednesday on border security and the Ukraine funding bill. It's not clear if it has the necessary 60 votes to pass the Senate and the bill faces even lower chances of passing the House, where Speaker Johnson has been quoted as saying that it is dead on arrival.

Keith Lanton: 8:15

California is getting some serious rainstorms and suffering some mudslides, also power outages and, sticking with the California theme, restaurant chains are seeing their costs increase as of January 1st, minimum wage for workers at fast food restaurants in California increasing to $20 per hour and that's not necessarily helping inflation, as these restaurants say. They're going to pass those costs on in the form of higher prices. Speaking of fast food restaurants, mcdonald's this morning came out with earnings of stocks down about 1% or a little over 3 points. They did beat by 12 cents reported revenues in line and said that comparable same-store sales were up 3.4%. The revenue numbers did misestimates as middle east conflict that weighed on some quarterly shares. Mcdonald's is promising its best burger and now the chain will see if diners will buy the new best burger. Other companies in the news and video. Goldman Sachs reiterated their buy and raised their price target to $800 from $625. Stock is around $60 last week, so I guess they had to come out one way or the other with the direction.

Keith Lanton: 9:38

On that price target. If they have a buy in the stock higher than the buy, you either got to cut it or raise your price target. They rose their price target Boeing down this morning, some new problems being discovered with 737 Max fuselages and the SD water symbol, el up about 20 points or 15%. The stock has been beaten down over the past 12 months but this morning seeing some recovery. They beat earnings by 34 cents. They beat on revenues. They guided third quarter revenues in line. They said 2024 revenues will be above consensus. They are expanding their profit recovery plan for 2025 and 2026, and announcing a restructuring program where they are going to cut 3 to 5% of their workforce and estimated 3,000 workers.

Keith Lanton: 10:29

Barons over the weekend saying that getting a little worried here as markets climb higher. Perhaps it's the proverbial wall of worry and saying the stock market heads for a new high. The foundation is starting to Crack. Stock markets recent gain stand on three pillars and two of them, they say, are Perhaps getting more precarious and therefore the rally is becoming more fragile. But on the surface last week we saw the S&P climb a little over 1, 0.4% to finish it 4958, the S&P 500 encroaching on that psychologically important 5,000 number. That is an all-time high. On Friday we saw up to the S&P 500 and the Dow also climbed to a All-time high, up 1.4%, and the Nasdaq last week was up 1.1%. That the indexes remain strong Barons seem surprising, giving the flood of news the markets had to deal with during the week.

Keith Lanton: 11:31

The one Federal chairman, jerome Powell, informed investors they shouldn't expect the rate cut in March. They got a more hawkish statement that was Expected not what many had hoped to hear and it did cause the S&P to drop 1.6% On Wednesday. Fed's caution was understandable in the light of Friday payroll report, which came in red hot. Us economy added 353,000 jobs in January, well above the estimates of 176,500, and this is leading to concerns that the economy remains too hot for the Fed's liking. What's more, the Atlanta Fed now GDP tracker put US economic growth at 4.2% before that release. So no signs of a recession there, but also not exactly the kind of data that would prompt the Fed to start the cutting interest rates.

Keith Lanton: 12:20

It's possible the strong economic growth can offset the Fed in terms of moving the equity market needle. What it can't do is make up a big tech. What has been, which has been driving the market higher throughout this year, although the latest earnings reports were mixed. We got alphabet and Microsoft reporting a little bit of a mixed report, apple a little bit of a disappointing report and Amazon and Metta with reports that were taken as better than expected. So he really relies here on these big stocks, as has been the case for some time. If the tech stocks Can't resume their winning ways, well then the markets will struggle and possibly even fall, and we will see if, if these stocks do falter at all, if the rest of the market is capable of picking up the baton and carrying as higher Without these guys doing all the heavy lifting.

Keith Lanton: 13:20

Talking about the jobs report, baron saying that it report was a blowout and we saw that the average hourly earnings jumping six tenths of one percent. That is somewhat concerning when you're worried about the inflation and we're seeing the average we age up four and a half percent from a year ago. Also, in this jobs report we got revisions for the two preceding months of payrolls and that those revisions added an additional 126,000 jobs then was previously reported. Also, the survey of household showed that the unemployment rate held at 3.7 percent. That means we've sat at less than four percent in terms of the unemployment rate, going all the way back to 2021, december of 21, all of which confirms that, notwithstanding the popular perception that the economy is weak, that the data Says the opposite.

Keith Lanton: 14:17

Now there was some talk that these numbers were perhaps thrown off by a seasonal adjustments. Seasonal adjustments occurring January because you have a lot of hiring that takes place in December and in and November leading into the Christmas shopping season, and then these Workers, these temporary workers, and these jobs get shed and it leads through revisions in the in the fall. And then it leads to revisions in January and they try and Take that noise out and factor out those, those, those ramp-ups and ramp downs, and therefore you get a revision To the employment data, which could cause some hiccups. But what's interesting about the revision this year is that, before seasonal adjustments, payrolls did plunge by 2.6 million in January. That's actually a scary number to hear then, on the surface, that you really lost 2.6 million jobs, but you really added those jobs in the previous few months and therefore they weren't counted before. So we're doing some math here to try and keep things smoothed out. So this revision does happen every January and this revision of 2.6 million, which was the January revision, was actually the smallest since 2012. So if we had gotten last year's revision instead of this year's revision, we would have shown an increase in jobs not of 353,000, but of 496,000. So the talk that the revision may have been the driving force for this very strong number seems like a not suitable candidate to pin that on, and that's a conclusion. Therefore could very logically be that the economy is just strong, the jobs market is strong, and we'll see if this continues and what effect this has on interest rates in the Federal Reserve and Jerome Powell and his thought process going forward, talking about tech and big tech, barron talked about the earnings last week and they had some takeaways from the five of the seven Magnificent Seven reporting.

Keith Lanton: 16:24

One is that AI artificial intelligence, is gaining traction. Microsoft posted a beat and raise quarter, besting Wall Street estimates in every category. We saw strong data from not just Microsoft, but from Microsoft, google and Amazon, all indicating that the cloud, where a lot of this AI data gathering takes place, is and remains strong. Another takeaway is that artificial intelligence and we're investing in it is expensive. One thing Meta, microsoft, alphabet and Amazon have in common is they all expect to up their spending this year on AI related servers, chips, networking gear and other digital brick-a-brack. Perhaps this is why Goldman Sachs today up their estimates on the AI chip leader at the moment.

Keith Lanton: 17:12

In video this morning we talked about the fact that AI is driving up that cloud demand. Also, we got a note on dividends from Meta and a surprise move. Meta said it would start paying a quarterly dividend of 50 cents a share, giving the stock a dividend yield of just under one half of 1%. We also got big stock buyback at Apple, who bought back 20.5 billion worth of stock in the quarter and still saw its net cash position rise by 14 billion from 65 billion to 51 billion. They spent 20.5 billion buying back stock and they still had an extra 14 billion in pocket change left after the buybacks.

Keith Lanton: 17:58

Speaking of Apple, one takeaway is of the magnificent seven that reported earnings, apple is the one that appears to be the coldest, so to speak. Apple did post better than expected quarter by showing improving margin and slight beat on iPhone sales, but Wall Street was unimpressed. Investors went into the quarter worried about Apple's ability to grow and exited more worried than ever. China's revenue fell 13% due in part to lost smartphone market share, while overall revenue was up just 2%. Sticking with this technology theme, barron's interview Jonathan Curtis, who is the Chief Investment Officer of the Franklin Equity Group and the Lead Portfolio Manager of the Franklin Technology Fund. That fund was up 54% last year thanks to substantial bets on most of the magnificent seven.

Keith Lanton: 18:52

Interestingly, of the magnificent seven, the only one he did not own was the best performer, which is Nvidia, but nevertheless was still able to demonstrate a return of 54%. It wasn't Nvidia, it was Metta, which was the second best performer. Curtis sees more gains ahead for both the stock market and the tech sector, driven by his aggressively bullish view on artificial intelligence. What he did say is that, despite his overweight in the magnificent seven going into 2023 and throughout 2023, he is now underweighting the magnificent seven and overweighting other technology stocks. He says they are putting their money on a broadening out thesis and tilting more into enterprise stocks and less towards consumer stocks. What's he thinking about in 2024? He said he likes Snowflake symbol SNOW, and he also is speaking positively on GitLab, which is a stock that provides the tools for coders. He said they have a huge opportunity to raise prices and drive greater productivity at GitLab. G-i-t-l-a-b In the chip space one of the laggards last week, although it has made a significant move up 91% last year. Intel symbol INTC. The CEO, pat Gelsinger, just bought shares in the open market. He bought the dip after Intel sold off. Following their earnings, he paid $130,100 on January 29th, which was 1,000 shares at an average price of $43.36. He bought the shares to a family trust that owned about 28,000 shares. He also owned 62,000 shares in a personal account and 457,000 shares through other trusts.

Keith Lanton: 20:57

I mentioned going to talk a little bit about health care and retirement. This is a critically important question, regardless of your age, because hopefully one day you'll find yourself utilizing Medicare. That means that you've reached age 65, or you're reached 65 and you're no longer participating in a private insurance plan. A new report finds a couple with Medicare will need an estimated $189,000 to $350,000 for health care in retirement. This estimate includes premiums for Medicare as part B and D and including the part B deductible and out-of-pocket spending for outpatient prescription drugs. According to the research, a couple enrolled in traditional Medicare plus a Medicare supplement plan will need $351,000 to have a 90% chance of covering their medical expenses in retirement. If you're enrolled in Medicare advantage, which is run by private insurers, then you would need about $189,000.

Keith Lanton: 22:06

Most people don't focus on Medicare until they're on the verge or the cusp of enrolling, so they don't appreciate its costs in advance. It pays to be prepared and even if you're not thinking about yourself, perhaps you're many years away. You might be thinking about loved ones like your parents, and what's the best thing to do for them in terms of what to enroll in. Then you need to think to yourself. I just mentioned there's two differences here. The initial focus or the initial thought might be well, medicare insurance on top of traditional Medicare will cost $351,000, while a Medicare Advantage plan will cost $109,000. This seems like a no-brainer. Medicare Advantage will certainly make more sense, and that is not necessarily true. It may be true, but you need to understand the differences between the two plans. Medicare Advantage enrolls just over half of Medicare enrollees, or more than 30 million Americans. Medicare Advantage, in addition to the 0% premiums charged by many plans, has some attractions, including extras such as gym membership and limited coverage for services that traditional Medicare doesn't cover, such as dental and vision plans. But when you are in a Medicare Advantage plan, you are required to stay within a network, sort of like in the old days with a HMO based on your provider of your Medicare Advantage plan. They will include you in an umbrella of potential places that you can get your medical care and if you were to venture outside of your plan's network to see a doctor who doesn't take your Medicare insurance, you may be responsible for the full cost outside of emergencies. So under Medicare Advantage, where you have the ability to see doctors who do take Medicare as their primary insurance and then you have what's called a Medigap Insurance Plan, you have a lot more flexibility in terms of who you can see and when you can see them and the ability to get the coverage that you may or see the doctors that you may want to see. That you might be restricted in a Medicare Advantage Plan. With the Medigap Plan, you will have a lot more costs associated with your plan because you will have things like co-pays and deductibles, and that's why that plan can see a lot higher costs.

Keith Lanton: 24:41

So there's really this trade-off here taking place between Medicare Advantage, where you're investing or enrolling in a network, or a Medicare plan with a Medigap Insurance on top of it. So what you choose and how you choose it really is a personal decision, and a lot also has to depend on what you think your medical needs will be going forward. If you think you're not going to need lots of medical services, well, the cheaper alternative, the Medicare Advantage, may be appropriate for you. On the flip side, if you want maximum flexibility or you think you're going to be using doctors very frequently, you might be better off in a Medicare plan with Medigap Insurance there for you. So with that as our summary, we will turn things over to Brad to take us back to financial markets and give us his thoughts and insights. Good morning, brad.

Brad Harris: 25:38

Good morning everyone. Once again. The bond market did not this point. It is the newest casino on Wall Street and traders are certainly racking up gigantic profits and losses in minutes. We have said now since the beginning of the year that the bond market had gotten way ahead of the Fed on predicting the amount of cuts the Fed will make this year. I've been listening to Powell who, as of late, has really not been minting words as a schoolhouse rock reference. Three is a magic number On Friday's sizzling employment report and the bond fell off on Friday, continuing into this morning. The bond market is much more in line with three cuts, with the tenure back about 4.1%.

Brad Harris: 26:21

There are other factors going into bond pricing, not the least of which is international chaos and war on more funds than we should be comfortable, which means that there could at any point be a flight-backed quality for reasons other than the Fed. In the municipal longer 4% bonds have been selling well. For a few days they were not available, so for those who want 4% at par, the opportunity is there again. However, my sweet spot for retail investors is still the 5 to 15 year range Discount bonds, taking into account the de minimis tax that you have to pay on these discount bonds. The after-tax yield on these bonds is still much better than where higher coupon bonds are being priced in this range in the primary market. I also always like the fact that this range is usually less volatile than the 20 to 25 year range. I hope everyone has a great week and enjoy one of the most fun days of the year the Super Bowl this Sunday. With that back to you, thank you.

Keith Lanton: 27:20

That's everything I've got.

Alan Eppers: 27:23

Thank you for listening to Mr Keith Lantom. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our website at wwwheraldlanterncom.

Sophie Cohen: 27:42

Opinions expressed herein are subject to change and not necessarily the opinion of the firm. Past performance is no guarantee of future results. The information presented herein is for informational purposes only and is not intended to provide personal investment advice. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money. The material does not constitute research, investment advice or trade recommendations.