The Independent Advisors Podcast Episode 341: Misguided Markets

0:00Welcome to the Independent Advisors Podcast, where we dive into the world of stocks, tradable markets, and financial planning, with Jess at Wealth Management's Chief Investment Officer, Mark McEvally, and CEO, Matt Jessup. You'll hear tips, tricks, and strategies to address your financial well-being, and most importantly, convey it in a way that everyone can understand. Hear your host, Mark, and Matt. Welcome to episode 341 of the Independent Advisors Podcast on today's show. We're covering a few timely and important topics, including seasonality, geopolitical volatility, valuation comparisons, investor positioning, and creating an ethical will, whether you are tuning in for market insights, planning tips, or just staying informed. There's something here for you. So, good morning, Matt. Morning, Mark. Outdoing me just to touch with a suit and tie today. Yeah, people got to look me up on YouTube. This is a rare occurrence for Matt Jessup. Yeah, well, briefly tell everyone why you're dressed to the ninth. A big day here in Dayton. It's the YWCA of Dayton's Women of Influence event.

1:03It's their key mark event. My wife, Rachel, is the head of the board of the organization. They're key mark fundraising. They're able to honor tremendous women with awards over their lifetime. It is going to be a fabulous event, and it's being held at the newly renovated Dayton Convention Center. Awesome. Awesome. Yeah, it's a great cause. I was there. We were just talking before we started recording. Was there a couple of years ago with you guys, and it was a great event. So, great event. I think they're expecting close to 800 people. Well, awesome. Yeah, awesome. Well, as always, we will review the month-to-date and year-to-date performance of the major market indices that investors track. This data is from Y charts, and as of the market close, on March 11th. Okay. S&P 500 index is down one and a half percent so far for the month and down 1 percent on the year. Dow Jones industrial average down 3.2 percent for the month and down 1.3 percent for the year. The NASDAQ composite index up 0.2 percent for the month and down 2.3 percent

2:04for the year. The Russell 2000 small cap index down 3.3 percent for the month and up 2.7 percent for the year. And the Vanguard all-world X United States index fund getting crushed this month down 5.8 percent for the month, but still up 4.8 percent for the year. Three-month treasury rate at 3.71 percent, the two-year rate at 3.64 percent, and the 10-year rate at 4.21 percent. Before we get into this week's show listeners, if you've been enjoying the independent advisors podcast I'd encourage you to head to our website, jesupwealthmanagement.com. I offer a 15-minute initial call where you can discuss your financial goals and see if JWM is a good fit for your needs. Scheduling is easy. Once you land at the jesupwealthmanagement.com website, just click schedule initial call and select a time that works best for you. There's a quick survey to fill out

3:07that will help guide the conversation and ensure your time is used efficiently. If you're ready to learn more, visit jesupwealthmanagement.com and book your call today. So moving on to big headlines and current events from this past week, I think the biggest thing, you know, obviously then the, you know, continuation of the Iran conflict that Aaron and I discussed on the last week's show. February jobs report came out last Friday and the markets didn't particularly love it, Matt. US non-farm payrolls came in at 92,000 jobs lost when there was a consensus for adding five, excuse me, 59,000 jobs, which is a pretty big difference in the unemployment rate crept up marginally to 4.4% from 4.3% and average hourly earnings growth came in at 3.8% year over year and 0.4% ahead of last month. So me interpreting that data, you know, we had a ton of job losses

4:11with higher wage growth, which isn't a great sign necessarily for inflation. You know, before I get your take on this, Matt, there was a post from a guy I followed for a while, his name's Colin Roche, he puts out a lot of good content posted on acts back on March 6 last week and said hard to see how falling labor markets and surging gas prices don't force a swift end to this war. This is all just a terrible thing for the economy. Am I wrong? Question mark. So what are your thoughts here? I think there's a lot of, excuse in this data right now that is really not giving us a clear picture on where the employment situation stands. I'll give you a good example. If you dig into the numbers, there were some strikes on the west coast and the healthcare sector that I think accounted for north of 60 to 65,000 jobs that were reflected in these numbers.

5:11So do I think that the labor market is robust? No, I don't think it's robust. But I think on the flip side, I think we are sitting on an equilibrium of unemployed versus job openings. And this is a little bit of a Goldilocks scenario if you're an employer, right? Because I think you can find good talent right now. And I think once we start to see a little bit of this geopolitical uncertainty be removed, let's assume that's the case over the next quarter or two, you could see a T up for the second half of the year. That's the optimist in me looking at that. In addition, I think the data is going to continue to be skewed because of the current government shutdown. So I just think that that is definitely an area that is going to be challenged to get a clear picture. Yeah, yeah. Okay. Last thing I had, and you actually brought this to my attention a couple of weeks ago when we were traveling for work, just wanted to share a brief blog post that was on

6:16business insider that detailed what happened when a meta director let an AI tool take over her email. Oh, before you say this, I want all of our listeners and viewers to really think through the disruption fears that are being discussed. You have technology executives getting in front of TVs right now, insane to people that it's going to disrupt all this stuff in the next 12 months, all these white collar jobs, listen to what marks about to tell you. Yeah, yeah, it's an interesting one. So there's a AI tool out there called OpenClaw. And it lets you know, AI operate your computer the way a human would essentially. And this is getting the usage of this software and the disruption that people are claiming will happen in a very short period of time. Continue right because most AI tools at least now just you know generate text or they analyze data

7:16that you give that you input that you input right. But OpenClaw goes a step further and it can actually perform tasks on your computer without you doing anything right. So you can give it a prompt or a command to you know, schedule appointments and go through your email clean up my email right. It will make assumptions on its own right. So Metta's alignment director summer you hooked up OpenClaw to her inbox and then it just tried to delete all of her emails like just went on a delete spree right. So even the people hired to keep AI aligned can't always control it and keep it in line. And she claims that the bot went out of control. According to photos that she posted on on X it ended up planning to delete her emails and it wouldn't stop after she directed it not to. OpenClaw bot said that it would trash everything in the inbox older than

8:22February 15th. And this lady tried to stop it multiple times. First she message it and said don't do that. And then the bot just kept planning to delete the inbox. She said stop OpenClaw. I could not stop it from my phone. You wrote in her post. I had to run to my Mac mini like I was diffusing a bomb. So it's just an example that there's still a lot of security concerns and issues to work out with AI before it becomes I guess fully autonomous. Let's call it mainstream mainstream. You know one of the things in our industry that and this was back when you know this was a decade plus ago because I remember this when I interned at at Schwab down in Phoenix, Arizona. Continue. You know their big thing was their robo investing thing platform. And everyone was like this is going to take the job of financial advisors. Financial advisors are going to be useless continue. Yada yada yada. And you can say this about any industry which AI now right.

9:23And I'm not saying it won't get there but it's we're not there yet. I don't think we're even close. And that's that's my main point is eventually will these things be more mainstream. Yes. But the time period that people are speculating on I think are very unrealistic. Yeah. Especially it's one thing to think about it in theory. It's another to think about it in practice. Take the financial services industry. Do you think any custodian that actually holds client money is going to experiment with this stuff? Come on. Yeah. No. Yeah. So it's you know the overblown fears of AI taking everyone's job. I don't think it's any different than technologies in the past. Whether that's the internet or you know cars replacing horse and buggies or you know automated machines replacing line workers for manufacturing jobs. It always seems super scary

10:28whenever that next technological evolution is in front of you. But everyone seems to like hype this one up a lot more because they're like well it's gonna you know it's gonna do everybody's job and I just don't think that that's ever going to be the case. Will it make productivity a lot better? Yes. So Jeremy Grantham a GMO sorry buddy you're probably going to see more productivity games over the next decade. Right. But when I think it comes to the speed of which this occurs I feel that the market in general my opinion is misguided on this topic. Yeah. I would agree. Moving on to tweets articles research from this week. First thing I had was a post on acts from Ryan Detrick on March 6th. So John will throw this up in the YouTube video. It'll also be in our show notes. So it's a chart of the four-year presidential cycle which we've talked about at Nazim at this point on the show. And it shows Trump's second term here. And it's tracked pretty well with the

11:33seasonality of how a midterm year typically plays out. So excuse me the first year and a half of how the presidential cycle plays out. So usually a president's first year in office tends to be pretty good up high single digits for the year. Then the midterm year comes and that year tends to be a little weaker. Still tends to be positive but during the middle of the year you get some significant weakness. It tends to be right before the midterm election. And then the pre-election year you know your three year three is the strongest year out of the entire four-year cycle. And then the election year your four is also pretty good but not as strong as year three. So the reason I bring this up is you know the title on this chart is midterm years can be a pause. And when I looked at this chart I thought to myself yes there's some unsettling geopolitical things going on in the world right now but the market action up until this point really hasn't

12:40been that abnormal for a midterm year. Great point Mark. If you were to take the headlines away and look at the price action you're like oh this is what you know Mark and Matt have been talking about like that the market is just a little weak during this time of the year. And another piece to that I'm actually going to skip down to my last piece is this was a post on X from equity clock on January 26th. So looking back towards the beginning of the year they put a graphic out there of just the seasonality of the average year for the S&P 500 over the past 20 years. And it shouldn't come as any surprise that what's usually the weakest point in the year it's like middle of February to middle of March right. Guess what we're in right now baby middle of February to middle of March and it just kind of lines up with you know the midterm weakness as well. So I just don't I just don't think we should be surprised by what we're seeing so far at least from a market standpoint. Last thing I'll point out before turning it over to you

13:46you know towards the end of the year we talk about some specific metrics we look for at the beginning of a new year to give us an idea of how stocks are going to do in the new calendar year. So this was a post on X from Isabelle Matt on February 2nd with data from Carson Investment Research. General will put this up on the YouTube video. She says history favors the bulls when the S&P 500 rises more than 1% in the first five days of January which it did. And January as a whole closes in the green which it did this year. The market has finished the year higher 92% of the time with a median 19.1% gain since 1950. So there's only been since 1950 one negative full year return and that was in 2018 when the first five days of January were positive in the full month of January was positive. Now that's not to say that we couldn't have a big correction

14:52between now and the end of the year. I think the average midterm year corrects about 17% from the market peak to the market low. Correct sir. But we can still finish in the green for the year. So both of those things can be true. So I think it's just important to to know that hey, you know midterm years typically some volatility and some weakness at some point in the in the year. Usually it's Q2 or Q3 the majority of it. Yes sir. But then as we get into Q4 things start to look a lot better and it wouldn't surprise us if we finished in the green for the year for stocks. I think that's very well said. I'll take it one step further. On the stat year mentioning about the average year two of the presidential election cycle that data set goes back to 1950. And if you look at it is 17 and a half percent of the downside is the average entry year correction. The average entry year rally since 1950 in year two of the presidential election cycle 31% out. That just goes to show it yeah and listen that's what I've been telling

15:56some of our clients is like listen I would expect some volatility over the next couple of months. But guess what when we get to late summer early fall there might be some really nice buying opportunities. Absolutely. And you know I think what's happened especially over the past decade mark is media has pushed this to where people perceive their time horizons being like oh I wonder what the market's going to do this this week or this month where a majority of our clients what happens this week and next month doesn't matter right right and we are making investment decisions on where investments that we are selecting for client accounts where they're going to be 12 months plus right. We wanted to take a minute and tell you about a service we personally use and trust life lock by Norton with everything we do online these days protecting your identity and personal information is more important than ever that's why we've partnered with life lock a leader in the identity theft protection industry their mission is to empower people to live

16:59their digital lives safely offering tools to help protect you and your family from threats like identity theft cybercrime and fraud they combine advanced technology with 24 seven support to keep your information safer in today's connected world we use it ourselves and we think it's a valuable tool for anyone looking to add an extra layer of protection if you're interested in checking it out you can use our special link to get a discounted rate as a heads up we do receive a percentage of compensation if you sign up using our link but we partnered with life lock because we believe in what they offer to learn more and get the deal just head to jessapwealthmanagement.com slash life lock all right here's my first piece this is a kind reminder about geopolitical about utility this is going to be a chart that Jenna will put up that is illustrating the price of oil this past weekend okay so for our viewers and listeners mark that aren't as plugged in as you

18:01and I to the markets with the geopolitical I'm going to call it noise or headlines we've seen some pretty extreme volatility in one of those poster trials right now is oil so I'll set the headlines aside and I'm just going to talk about the price action so on Sunday the price of oil was sitting around a hundred dollars a barrel on Sunday and going to bed on Sunday evening and it's rallying it's about one ten it peaked in the middle of the night at a hundred and twenty dollars a barrel and then the subsequent day on Monday it was back below 90 these moves are large and extremely rare and it's a kind reminder to listeners and viewers you do not want to sit here and try to time this market on a short term basis it is very challenging that's my word of wisdom

19:05now am I sure am I going to see maybe a couple more times of this type of price action in 24 hour period and things like oil in my career yeah probably a couple more very rare yeah all right my next thing I'll throw out there is going to be a discussion on comparisons of valuations okay so listeners and viewers what tends to happen when the market becomes uncertain and you have a sell off people tend to buy the safe havens and the traditional safe havens are things like utilities consumer staples health care they would tend to be what's called the poster children for the safe haven trade well there's a post by David Marlin and the date on this mark was February 23rd and he had a post and it says and I'll quote the four word pe pe is price to earnings how much of a valuation you're paying for a company the forward pe on the tech sector is now at par or equal to consumer staples in other words the market is now valuing tech as the

20:10same multiple as boring slow growth staple companies this has only happened three times in the past seven years the initial hit of coveted beginning of 2020 the 2022 bear market in liberation day last early spring Jenna will put up this chart for our YouTube viewers this will be in our show notes and what you're going to see is in the orange anytime those consumer staples rally they get more expensive on a valuation basis when people sell off the more growthier areas of the market in this example technology they get cheaper on a valuation basis my word a wisdom here is these things that don't tend to be at a point of dislocation for an extended period of time and here's the challenge with it when it feels uncomfortable to buy names in retrospect that's typically the good time to buy them yeah your thoughts and comments on this yeah I was I was Jenna might have caught that I was kind of

21:12smirking or smiling when you were saying that because Aaron had us or Aaron or I I think had a similar topic last week but it was specifically talking about I think the mag seven minus Tesla compared to consumer staples but this is talking about the entire tech industry which is the entire sector of tech which is very interesting um yeah we we talked about a little bit last week you know the these uh this doesn't make sense long term with the amount of growth uh dispersion between the two sectors so eventually I would imagine this is going to resolve itself um and and you know at some point in the future we're going to be looking back on this moment and saying wow that was a really good opportunity to add to tech let's just say I have my 10 year old here okay let's just say Micah was sitting right here next to me and I said Micah we're gonna consider buying two different sectors of the market this first sector is nice and safe and it pays you about a 3% dividend yield and it grows its earnings by about 5% a year that's other one over here let's just say it doesn't

22:18pay any dividend but it's growing its earnings mid double digit if I had that conversation with them he'd look at me and say why is anyone with a long-term time horizon buying consumer staples down right yeah yeah that's a great point great and now boy all right here we go this is my last piece and this is where I think I'm gonna have a hot take for some of our listeners and viewers okay so I've been in the industry uh several decades and I see these points of uh positioning or pessimism in the market so there was a post by Steve Burns marked the time stamp on this er is March 4th so Steve posted a picture and it says investors now hold the most put option protection in this data set going back to 2010 and it shows the current S&P 500 customer delta positioning this is where I have to go explain this first to our listeners and viewers so first of all put options are financial contracts that give the buyer the right but not the obligation

23:22to sell an underlying asset such as a stock or an index like the S&P 500 at a predetermined price before a specific expiration date these are commonly used by investors to hedge against potential declines in asset prices or to speculate on downward movements profiting if the assets value falls below that predetermined strike price the extreme level of put option ownership right now shown on this chart general put it up for our YouTube viewers it reflects unprecedented bearish sentiment and heavy hedging amongst investors here's the key in my experience this type of data often signals excessive fear in the market historically such extremes have acted as contrarian indicators frequently preceding market reversals or rallies as the overcrowding in these protective positions and wind could this bearish price action continue to last longer than people think of

24:25course but if you're a long-term investor this type of data is welcomed in my opinion it's my version of seeing quote light at the end of the tunnel those are my prepared remarks my off the cuff remarks will be a little bit more of a hot take really at the end of the day there's not a lot of people out there I think that are thinking the market could rally in light of some of the geopolitical noise and I'm just going to throw it out there in my this is my personal opinion with how the markets relatively holding up in light of the newsfeed and how the positioning is so bearish right now in my experience you will tend to have some sort of a pretty strong short covering or relief rally could that take another two four six weeks it could but I think if you're a longer term investor and we're going to have earnings coming out again in the middle of April which is not that far away I would be careful if I were trying to speculate on further downside yes you might

25:31hit a home run you might get the timing right this is definitely a market environment where you want to have a longer term time horizon on quality stocks that you've done research on that's my two cents mark your thoughts yeah I think you made a great point and I couldn't have set up better myself you know we talked about the entry year average drawdown for stocks let's just say you sell you know in the middle of that drawdown right so you're protecting a little bit to the downside in a short term but then like you said the median or average entry year rally is 33% 31.5 so what are your chances that you're going to catch the absolute bottom to to recover more statistically low right so it's just the last thing that I wanted to mention there so just think about that I think it's important yeah last thing I have um quickly just the financial planning topic of the week this was a blog post from Mara McKierney Rowley titled three types of

26:33wills you should know about before you die so mora is a death doula who helps advise on end of life planning and she talks about the different types of wills and I'm not going to spend much time on the first two the financial or durable or excuse me financial will or last will or the living will or your advanced health care directed we talked about those several times before on the show yep so people can go back and past episodes and check that out the one that I want to talk about just briefly Matt is something she calls an ethical will and I haven't really gotten into this until I read this article so well yours she says that the document is not about money but it might be the most valuable will of all because it's the part of you that lives on something that your friends and family can return to after you're gone the contents of an ethical will are only limited by your imagination and can come in many forms a letter a book a video a song the aim is to reflect

27:35on your life experiences and pass on values lessons learned the hard way stories favorite memories beliefs wisdom and hopes or message to loved ones here's an example of some prompts within an ethical will my biggest regret is that that that the recipe for a life well lived includes after I die I hope you remember X here's what I wish someone had told me sooner and this is my philosophy on love or money or whatever topic you want to to discuss so I just thought that this was kind of out there and a little different things we typically talk about you know I was at a conference recently and there was a a guy giving a presentation and I thought it was kind of funny you know because it talks about sending a message to your loved ones he said and he's a attack guy he said that he scheduled a tweet for the year 2080 or 2090 going to come from his account

28:36when he's obviously no longer on this earth to freak his kids out which I thought was kind of funny you're to say something to his kids you know from heaven so I thought that this was this was good because at least in my experiences you know when I've had loved ones pass away sometimes unexpectedly unexpectedly you go through your head of I never got to tell this person XYZ so I think this would be a good way to you know get some of those things out there that you might not have had the chance to do so I love that you picked this yeah so I thought it was an interesting one um again never really considered this before I read this article so general have the link to the the full article um from Mara in our in our show notes if you want to go check that out and all of our show notes are on our social media sites they are they are popular ones you can think of anything else before we leave it there for the week no I think I I I vented uh about kind of where the market's at and all the the the doom sayers um

29:42I I think I've been very clear on that okay well thanks everyone for listening to episode 341 of the independent advisors podcast catch us next week for episode 342 we'll see you next week everyone thank you for listening to the independent advisors podcast if you're interested in hearing more hit the subscribe button so you can be notified every time a new episode gets released feel free to share with friends family and follow us on facebook twitter linkedin and x market map will continue to share beneficial information on these social media sites also check out the podcast tab on their website that's www.jesupwealthmanagement.com there you'll find links to every episode of the independent advisors have questions or topics you want to discuss on the show send an email with the words questions and topics in the subject line to inquiries at jesupwealthmanagement.com we'll talk about it right here on the podcast certain sections of this commentary may contain forward-looking statements based on reasonable expectations estimates projections and assumptions

30:45forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict all indices are unmanaged and are not available for direct investment by the public past performance is not indicative of future results this podcast is provided for general informational purposes only and does not constitute either tax legal or financial advice although we do go to great lengths to make sure our information is accurate and useful we recommend you consult a tax preparer professional tax advisor financial advisor or lawyer regarding your specific circumstances investing involves risk including the loss of principle no strategy can guarantee any objective or goal will be achieved