What a mess folks. Another day with massive bludgeons in most major sectors and you look at the major indices at least while I was shooting this video. You add the Dow down over two percent, the S P down almost three percent, and the Nasdaq down almost four percent. Our Uvxy Fear index broke out again over our red directional and popped up around 16 plus at highs New breakout on the weekly trend.

The S P 500 is quickly heading towards making a new year to date low the Nasdaq already has. and of course Arc has really taken a new low. When they go low, Kathy Wood goes lower unfortunately. Alphabet reporting not great numbers in the after hours today.

Nothing insane, but missing expectations on earnings per share. This is a market where you have to beat expectations in order to keep your valuation. Microsoft, though not doing bad at all, they reported rising revenue and profits in the first quarter, and the rest of the big dogs are really reporting on Thursday, and that's what you're going to want to watch out for. Apple and Amazon Specifically, those are often looked at as safe havens and people really look at those as almost like a savings account.

A high interest savings account. And if those mess and there's some speculation that Apple will because of iphone sales, people are going to be in a new round of thinking: oh, no, place is safe and that's where you start getting into that area where bottoms start falling out again. and whenever there is fear in the market, it's very, very important to remember. You need to put your big girl or your big boy pants on.

Go outside and scream. It's time to panic. We've never had fear in the markets before. You should be acting on your emotions In this condition.

You should be clicking every fear-based article or video that you could find. If you haven't screamed at least three times in the last half an hour, you're not qualified to call yourself a trader or an investor. When you see red, it's incredibly important to panic. I'm kidding.

But whenever there is fear, it's very, very important to go through and take a logical look at what's causing the fear. If it's deserved, analyze all the data, look at all the different perspectives, and then fine-tune your own perspective. One of the things that I do when markets become very, very fearful or very, very euphoric is I go and I look at the average analyst's opinion and then I throw that out because analysts are all garbage, You know. I plot down the ones from the best banks and then I put them on a spreadsheet and I break down the main points and try to identify trends and then analyze and ask myself, Okay, well, do I agree with this or do I not.

And if I do, it helps form my own trajectory and my own opinion. moving forward. And in this video, we will be violently breaking down the latest opinions from the biggest banks. and we'll also be ending the video with some practical data sets that I think will point you in the right direction if you're worried about today's market.

By the end of this video, I promise that you're going to have a much more well-rounded view of the stock market and the situation that we're in with the broader economy. I also want to thank Zip creator you for sponsoring us today. Coupon code never give Up expires at the end of this month, which ends on Saturday and after that, prices will be going up on the course as well. So if you are looking to join us for that one-time fee, make sure to check it out right now.

Okay, I want to start with Morgan Stanley. The Stanley's and Morgan offer a decently dim projection. They think the S P 500 is headed for a bear market and offers few places to hide. They said that the defensive stocks are the latest big out performers as investors have sought safety from volatility but quote even though stocks have become expensive, making them a less appealing refuge.

Obviously, you've seen article after article that says okay, we'll buy these defensive stocks no matter what the cost, because they're safe haven assets. But they're saying well, shoot people rushed into defensive stocks, but now those are trading at insane valuations And fascinating enough. They said the market has so picked over at this point that it's not clear where the next rotation lies, And when that happens, it usually means the overall index is about to fall sharply, with almost all stocks falling in unison. They then make a fascinating analysis on the poorer performance in materials and energy the last couple of weeks.

Overall, they think that means that growth will be the primary concern for stocks rather than inflation. the Federal Reserve and interest rates. Why is that? Well, Because as economies start contracting, what happens, well use for materials and energy plummet. And they're saying that markets are already starting to speculate on that happening, which is good for inflation expectations coming down.

but it's not good for anything else really. They also believe, like I just mentioned, that inflation and inflation expectations have peaked, but say, ominously, be careful what you wish for Obviously, everybody wants lower inflation numbers, but they're saying, hey, wait, no, that's going to come with lower nominal Gdp growth along with sales and earnings per share growth as well. They're saying, hey, inflation expectations are peaking, but that's only because people are now more than ever expecting a economic slowdown, a bludgeoning to demand. A lot of people are starting to feel that the real threat is more demand sided than it is supply sided, which is a huge shift from what we were hearing about six months ago.

Obviously, supply chains have been a very, very, very big issue, but we've seen demand really, really stay stubbornly high. Which means people are still spending a ton of money as long as they're doing that. And as long as supply can't keep up, it's going to be very, very difficult to fix the inflationary problem. So in that sense, a recession could bludgeon demand enough, where all of a sudden, the supply chains can catch up and you start seeing regular pricing regular in the sense that you hit closer to the Fed's two percent target.

Okay, moving on. Deutsche Bank, Yaya Deutsche. They see five to six percent Fed Target rates, and today said that they see a deep Us recession next year. In fact, what's ominous about them is they were the first major bank to forecast a U.s recession in the first place.

They started by saying it was just going to be mild. I believe that was at the beginning of March. Now, not that much longer later, they're saying, hey, we're going to have a major recession. I'm not arguing this is actually something that helped tank the broader market today because this came out and all of a sudden, people panic sold reasons for a recession.

Well, they cite like Morgan Stanley sites that inflation may be peaking, but it will take a long time before it gets back down to that Fed Target at two percent. In the meantime, central banks will raise interest rates so aggressively that it will hurt the economy. They basically think that the Fed is way farther behind the curve than they should be, and farther since any point since the 1980s high inflationary period. They did give this warning, which is pretty damn chilling.

They say history shows that the Fed has never been able to correct even smaller overshoots of inflation and employment without pushing the economy into a quote significant recession, which suggests what? well it suggests. They believe that the Fed is now behind the curve. Shocking. But in order to get back ahead of it, it's going to have to induce a recession, which is a pretty damn bleak prediction.

But you're starting to see the tide turn a little bit more in that direction, right? with a lot of different banks and different analysts, not just Deutsche, but they do see some light at the end of the tunnel. They see the economy rebounded by mid-2024 as the Fed reverses course in its inflation fight. Often times, one of the biggest mistakes that investors make in any market condition is assuming that that market condition is going to be permanent. Traders don't have as big of a problem with this because they're more able to pivot, whereas with investing, you're kind of just told to do the same thing over and over again.

But keep in mind whether you're investing or trading. Hey, every single market condition comes and goes. You're going to have periods where they're very, very euphoric and very very dysphoric and they're going to be both deserved and undeserved. You have to be able to plan out what you're going to be doing in those market conditions, regardless of which one you get, thinking this will never end.

It's just as stupid as thinking that a euphoria cycle will never end. Now Finally going over to the Saks over at Goldman, they say that a recession is not inevitable, but it is going to be very challenging to bring down high inflation and wage growth. One of the most unfortunate threats right now is that wage price spiral right as prices go up and cost of living goes up. What happens with workers? Well, they demand more payment and with all these workers deciding to quit and go find different jobs, they're also demanding higher wages.

And obviously, you want people to make more money. But the problem is that when you pay people more, you oftentimes have to go and make up for that extra payment by raising your own prices of your goods and services. And when that happens, of course, you get that wage price spiral. Now, Unfortunately, or fortunately, depending on what side you're looking at this from, wages haven't really been spiraling as much as we saw earlier this year.

In fact, they've been stagnating a decent amount. But Goldman makes the case that hey, it's going to be very, very difficult to actually bring down not just future inflation, but one of the underlying causes which is future wage growth. They also project that we need to see growth slow to a somewhat below potential pace, but not necessarily a recession. However, they do project U.s Recession odds At 35 in two years, they're basically saying, hey, we just need to operate the Us economy at below its full potential.

As long as we go from overheating to slightly under heating, then we're fine and we're going to get out of this. But they're also admitting that hey, that might not be enough and we still have a 35 chance of a recession which isn't a majority chance, but it's getting up there and two years is a decent time span. So what are some of the bullish arguments now that suggest that we aren't going to head into a recession? Well, I looked in my basket and I found pretty much nothing. So that ends today's video.

Have a good day folks, and I'll see you next time. Just kidding. So the way that I look at this current economy is like it's a wall with the Fed as a battery and ram right in front of it. Question we should be asking: isn't will the battering ram damage the wall? Of course it will folks.

The question is how hard is the ram going to hit To which the answer is very hard. And the more important one that we should be asking is how well will the wall be able to stand when hit with this big battering ram in order to honestly analyze that, you just have to look at the real data that's coming from the economy right now. Right now, the wall is standing fairly strong, but it's mostly because it hasn't really been meaningfully hit yet. You add a little baby tap with that latest interest rate hike, but the real smacks are down the road.

You go over to S P 500 earnings per share as of quarter ended December 31st, 2021. We're well above pre-covered highs 204 as compared to 156 two years prior. You look at forward earnings and U.s leading economic indicators. they are dropping substantially.

But in the case of forward earnings as of the 21st, we are still far above where we were for most of the last decade. So pretty strong by those metrics you look over at profit margins after tax, corporate profits as a percentage of nominal Gdp was very, very strong. Ending Q4, We don't have the data yet for Q1, but you have to imagine a lot of margin for error there. Now, what about American consumers? Well, people like to look at employment And we are almost back to where we were pre-pandemic and actually far better than we were from 1980 to 1990, which was the last out-of-control inflationary period that people often cite.

So from an employment standpoint, we're doing a lot better than we did during that last inflationary period. But it's also worth mentioning that during expanding economies, you what will you hire more and then when times get slimmer, you start cutting back on your workforce. So it's a little bit misleading to judge whether or not we're going to go into recession based on just the current employment numbers. Probably better to start by looking at what consumers are doing and if they're starting to cut back on different sectors, because once they start coming back, those sectors start cutting back on their workers and employment data starts going down.

And while employment numbers are strong, consumer confidence is dropping and it's been dropping since mid-2021 Why is it dropping? Well, the biggest reason is because of inflation. People are spending more and more of their paychecks on the necessities and they're worried that it's going to get substantially worse. Now that said, I think that from a valuation standpoint, you have the biggest bright side. If you look at the S P 500 large cap, you're still fairly frothy on a long term time charge.

But if you look at the mid, capture forward P E ratios, we're getting close to some of the lowest troughs that we've seen in the last 20 years. Small caps are way lower, heading close to those 2020 and 2008 lows. In fact, in both, you're actually practically at those dot-com bubble bust lows, which is pretty crazy to think about Now, that doesn't mean they can't go lower with more runaway inflation and higher policies, but it does mean that they are historically undervalued and probably in the long run will look like insane deals in hindsight. Now, if I was going to somewhat contradict that statement and show something of the opposing evidence, I would argue that one freaky data set is this: the actual inflation on the Cpi versus the expected.

I mean, inflation is literally off the charts, but markets have under factored it in dramatically. If markets are wrong and inflation doesn't peak, we could be in a rude awakening still on valuations. I'm in the ballpark where I believe that demand is going to be bludgeoned in the upcoming months and especially quarters, which is going to help bring down inflation. And then you're going to have the opposite problem which is not enough demand, but in totality, if inflation continues picking up, that's going to be a dramatic, dramatic problem.

obviously. So in totality, I would say my take is that the wall is pretty strong right now, but you're starting to see a little bit of crumbling on the edges, earnings are coming in under expectations, and people are starting to worry more and more about the future. And as of right now, we have to wait and see how the wall is going to hold up when the Fed starts ramming it for the first time. And my operating hypothesis right now, which could very well be wrong, is very, very similar to what my operating hypothesis was in January.

I think that you're going to see, especially towards the last couple of quarters of this year, and probably into next year companies reporting lower and lower guidance, perhaps even missing that guidance and weakening in many sectors of the economy. But I do think that's going to fix our inflationary problem and bring things back down to healthy areas like that two percent target, at which point the damage done to the wall can be rebuilt. Anyways, folks that caps off today's video let us know what you think down below. And if you're looking to learn how to trade, make sure you remember that our coupon code never give up will be expiring at the end of this month, which ends on Saturday.

So if you're all looking to join us before we raise prices and you want that discount code for the lifetime access, make sure to go ahead and check it out today. Have a good one folks, and I'll see you in the next video.