3000 Feet Over Poughkeepsie: Searching for Icebergs in a Bull Market

The week ended on a high note but stocks were up against some headwinds as the Fed changed their playbook. This week's Money Runner podcast covers a lot of ground including insider selling and why Wall Street predictions almost never pan out. - David Nelson

"Join David Nelson, Chief Strategist of Belpointe and host of The Money Runner Podcast as he takes you 3,000 feet above Poughkeepsie—literally and figuratively—to explore market trends, predictions, and the unpredictable nature of investing. From black swans to insider selling, learn how to adapt your financial strategy and stay ahead in an ever-changing market landscape. 🚀💼 #Investing #Markets #Finance"

Disclosure: "At the time of this article I currently hold shares in some of the companies mentioned as part of investment portfolios in funds I manage for Belpointe. Additionally, I may discuss other securities that are under consideration for future investment; however, discussing these securities is not a recommendation to buy, sell, or hold. My mention of these securities reflects my personal opinion and analysis at this moment and may change without notice. Please remember that all investments involve risks, including the possible loss of principal."

Transcript

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We're about 3000 feet south of Poughkeepsie here between White Plains and Poughkeepsie. Every year. Wall Street goes through its ritual of laying out a roadmap for the upcoming year. It's a price target for markets, individual stocks, where rates will be even which sectors are going to perform. There's nothing wrong with having a plan and a roadmap. The sad truth is that dynamics of the market and the economy have a mind of their own. They are often forced to scrap both plans early in the New Year because of an event we could not see or forecast. Okay, fabrics have to echo. We'll look at how that traffic marketing Duchess Tower Cirrus 792 Papa Gulf. Said it on this very podcast. We don't know what we don't know. Remember, a black swan is an event only visible. In hindsight, it defies prediction, Cirrus 2 papa gulf wind calm runway 24 clear to land. clear to land two four 792 papa gulf. The lessons learned here is that the only market constant is change our job and responsibility to our investors is to stand ready to adapt to that change. The nothing wrong with having a game plan what the unacceptable. is following that same roadmap when the data clearly suggests there's an iceberg. dead ahead. Welcome to the Money Runner. I'm David Nelson. Before we get into the meat of today's show, I wanted to do this quick cut in. It is Friday morning. Futures have been down all night. That's continued certainly this morning. A lot of your favorite stocks are down in the pre-market. A lot of things weighing on the tape. Certainly the Fed is playing a role here, a continuation of what we learned earlier this week. Insider selling something that started earlier in the month, maybe even you at home, you know, nervous about the market, maybe you're taking some chips off the table. And let's not forget, at least as of right now, we still have a government shutdown that that's looming. So a lot on our plate. We're going to cover a lot of ground today. Remember how we closed today's? Probably the most important. And maybe that's why it's a good idea sometimes to take a step back and take that 3000 foot view, because this is where you can make a lot of mistakes. Be careful out there. All right. Let's go back to the show. Markets have a habit of catching us off guard. December is generally a month where the market drifts higher on little or no. News it’s kind of a feel good time a year and most are focused on the holidays. While December has been anything but calm, with big price moves and style shifts from one day to the next, we'll get into the Fed later. But December's Fed decision day clearly caught the street off guard. Markets have been weak all month, but as soon as the press release was out, investors headed for the exits. During the call, it became clear that the dot plots were changing and whatever level of accommodation markets had hoped for was likely to be something less. we may have seen the last rate cut for a while. January's off the table Fed Fund futures now imply one, maybe two cuts for next year. The reaction speaks for itself. Wednesday sell off was the worst since July this year with the S&P 500 off close to 3%. While much of that selling was Fed induced, I think it was really just a trigger to flush out a trade that's been building all month. Most investors are sitting on some pretty sizable gains coming into Wednesday. The Russell 1000 had 135 stocks, up over 50% year to date. 11 up over 100% two up better than 500%. And one even better than 700%. Insiders have been selling all month and hedge funds have followed their lead. For corporate executives, when that one stock likely represents a significant portion of your net worth. The tax bill is the last thing on your mind. You're going to lock it in. Take a look at Applovin. This stock has defied gravity and even now, after falling 25% from the highs is up better than 700% this year. Selling begets selling. The insider selling was large. Even when you take out the 11 million shares sold by KKR, all in from early November and now more than 4 billion in shares sold. Sales like that don't go unnoticed by the hedge fund community. They sold as well. Even I sold. I saw the first day sell off earlier in the month with no bounce back. I pulled the trigger that day on a big portion of my position. Let's be honest here. We tend to get bulled up in December. Like I said, it's that feel good time of year and you want to think positive. Well, it's prediction time. And every strategist is putting out their price targets for next year. So how valuable is this information? Well, let's turn back the clock to this time last year and see how Wall Street did. Well, for 2024 most strategists, left a lot on the table. The good news is that many weren't stuck in the mud or stubborn and adjusted those targets along the way. How about a bear market like 2022? Same thing, but the reverse. The Fed set out on a vicious hiking cycle that wiped away any chance for most stocks. The lesson learned is that markets are a living, breathing animal and adjust to an endless stream of inputs each and every day. We can make some broad assumptions, but trust me, you will be forced to rewrite your game plan several times before the year is out for 2025. We have one target higher than 7000. I'm out there too. I put out my price. Target is 6850 in the S&P 500 by this time next year. But I know full well that conditions may change and I might be forced to rewrite that script. Every bull market has an Achilles heel, and this one's no different. Keep your eye on the risk free rate. It's clear we're not going to get all the cuts markets had priced in just a few months ago. That's okay. Markets can deal with that. Tougher is the long end of the curve. Keep your eye on ten year yields. So much of our credit price is off the ten year. Whether it's credit cards, your mortgage, etc.. Remember, most valuation models start and end with the risk free rate. When rates rise, it's an extra hurdle for stocks and the fundamentals have to be that much better. We will be having a very different conversation about stocks. If ten year rates cross above 5%, let's end this podcast with some good news. The good news is that nothing has really changed on the earnings front. Estimates are still pushing higher. We can have a debate about how much we're paying for stocks, but what is it up for? Debate is, at least for now. Fundamentals are improving. We are heading into the third year of what we hope will be a continuation of this bull market. So everyone has their eye on the exit if the music stops. Corrections happened for a lot of reasons and you have to be cognizant of the fact that price will lead fundamentals, whether it's individual stocks or the market as a whole. Stocks will know something's wrong before analysts will. But not every correction turns into a bear market. Look at the drawdown chart of the S&P 500 for this year. We haven't even had one full blown correction all year, and that's unusual. In fact, the one time we got close, if you sold there, you left a lot of money on the table. One final thought, a quick word about the start of the year. Don't be surprised to see some additional selling in some of your favorite names, especially if they perform well this year. A lot of individual investors are sitting on some sizable gains and would like to take some chips off the table. That's natural. The key is that many are waiting for January so they can push off the cap gains hit an extra year. Well, that's it for this week. If you like this podcast, you want to learn more about the money runner, David Nelson. Go to my substack site dcnelson123@substack.com. I'm David Nelson and this is the Money Runner.