Fed Chair Signals Rate Cuts Ahead, Markets Zoom Higher | Lance Roberts

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Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your host, Adam Taggart, welcoming you back here at the end of the week. For another weekly market recap with my very good friend, the inexorable portfolio manager, Lance Roberts. Lance, how you doing? I'm doing good for Friday. So it's been an interesting week. Kind of today's very interesting. It's one of the largest, actually it's the largest August Options Day. I'm going to spit that out in a second here. It's the largest August, say that three times fast, Options Expiration Day in history. It's like $3 trillion today. So you've got all that going on. Then plus, of course, you had the Jackson Hole Symposium speech by Jerome Powell this morning that sent the markets just tearing off back to all-time highs. So it's pretty crazy after a whole just headline, after headline, after headline, that the AI bubbles over, and it's all coming down, and there's all week long was these really negative headlines, and then one speech and the markets back to all-time highs, tech leading the way. So everything everybody was concerned about, now in the rear-view mirror. All right. Well, look, that's where I want to start. I did pick the word inexorable, which just to remind folks means like a fait accompli, like it's almost un-preventable, it's something that's going to happen.
There are some forces that appear to be inexorable that are in play, Lance, and I'm talking about the slowing of the economy, I'm talking about where inflation is likely to head. I'm even talking to a certain extent about the stretched valuations we have, and at some point that there might need to be some sort of correction to bring them back into better alignment. But that being said, inexorable doesn't seem to apply on a day like today. It really doesn't. Speaking of this weekend's bull bear report is all about valuations and what they mean short-term and long-term. If you haven't subscribed on X, you can just go to my atlantrobertsonsubstack, I'll post that out on Saturday. But I'm going to go through what valuations mean short-term, because they're expensive. Price of sales at 3.2 times, price of sales for the S&P, highest level on record, multiple price to book, market cap to GDP, all at record levels. But doesn't mean anything in the short-term. It's all about sentiment and valuations are only a reflection of sentiment in the short-term. Long-term, they matter very much. It's all about returns long-term. But in the short-term, valuations are telling you exactly what's happening in the markets right now. Okay. So we will get there. And I also do want to give you a chance to walk through your recent piece that you have already released on your site about the risk to earnings that recent data is showing us. And of course, as we talk about a lot, but you say all the time, it's all about earnings at the end of the day. And a lot of today's earnings just seem fairly mathematically unrealistic, but again, sentiment is in the driver's seat right now. So let's start with Jackson Hole. I guess, so I, in preparing for this morning, I actually didn't get a chance to watch live, so I don't know exactly what Powell said. I just know that the markets loved it, so it must have been relatively dovish that, hey, I think we probably are going to cut. What I will say, and let you react to this in your answer, is, I mean, Lance, wasn't the market already pricing in several rate cuts this year? So, like, what about what Powell said made people even more optimistic than they were before the speech? No, that, look, you know, this is the one thing that we've really all got to get away from, is that, you know, markets are pricing in all this stuff. So, the markets were rallying to all-time highs on the expectation the Fed was going to cut rates. We sold off a bit this week going into that just in case, and then basically Powell delivered exactly what the markets were previously expecting. So, now markets are back to where they were previously. But, you know, look, in the short term, again, you have two things going on today. There was a lot of concern earlier this week, you know, tech was selling off. But let me remind you, you know, here on the show last week or the week before, I can't remember, Adam, it was either last Friday or the Friday before, I went through Simpliviser and I showed you how health care was very oversold and technology was very overbought. And we said, hey, this leads to rotations in the markets. Well, over the last week in particular, but actually starting the week before, that rotation occurred. Health care has been performing great. There's been a health care has gone from very oversold back to more kind of neutral but starting to move into overbought levels. Technology worked itself from being very overbought to very oversold. So we saw that exact reversal occurring in the markets. And of course, everybody was like, oh my gosh, you know, the AI bubbles over all these headlines and, you know, look at Palantir, you know, just this report came out, Palantir is down 10 percent. Palantir moves 10 percent in a day all the time. I mean, it tells you nothing about the stock. It's just a very volatile stock. But again, you know, that wasn't surprising. And a lot of that action was all these options traders getting ahead of expiration today, selling off positions, replacing positions, getting their options in place for this Friday's expiration. So a lot of that action that occurred this week was just technicals. Technology was very overbought, very extended, it needed a correction. That's all that's happened. And now we're starting to reverse that trade today on expectations. The Fed's going to cut rates. Lower interest rates, better for corporate earnings. Lower interest rates, better for high beta stocks like technology stocks in particular. So those stocks are performing well today on the expectation the Fed's now going to resume their rate cutting cycle.