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Yahoo Finance Head of News Miles Udland joined the live show to share his top three market takeaways from the day.
Despite the uncertainty surrounding the Federal Reserve’s interest rate cuts, Udland advised investors to “trust the process.” Udland points to the continued rise in technology and market capital gains as sources of optimism.
With leading stocks such as Apple (AAPL) and Tesla (TSLA) lagging the rest of the Magnificent Seven and experiencing significant declines, Udland believes there are potential alternatives to these stocks. Eli Lilly (LLY) and Costco (COST) are cited as possible candidates. He emphasized that Costco continues to benefit from the premiumization of consumer habits.
Udland also emphasized the importance of the dotplot that the Federal Reserve will release next Wednesday, calling it “the most important dotplot ever.” The current market reaction is based on expectations for three rate cuts by the Fed, he explained. However, this pivotal dot he plots will validate or deny these predictions and shape future market dynamics.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor’s note: This article was written by angel smith
video transcript
Julie Hyman: Miles, what’s your biggest takeaway?
Miles Udland: You guys were just talking about the first one. You can see this in the print we received this morning at CPI, and then the response we’ve gotten in the market to continue the sports-adjacent theme of this program. Some of your viewers may remember, so trust the process.
And investors now basically continue to believe, for themselves and for their customers, that the general story for 2024 is that the Fed is going to cut rates and that ultimately it’s going to be okay. think. And much of what worked in ’23 will also work in his ’24. Well, it continues to unfold.
And I think you can see what’s really happening in this field, that technology is responsible for all the jobs today. And with the rise in market capitalization that we’ve seen throughout this year, it’s clear that sector-based biases are becoming even more important to index-level movements.
Julie Hyman: Okay, I’m curious about your second point about the real Magnificent Seven.
Jared Breichle: Let’s go. This is the fun part.
Miles Udland: Now, Jared and I were talking about this a while ago. And he crunched the numbers. Therefore, there are slight differences within the actual Mag Seven.
But over the last few weeks, I think we’ve all kind of circled the idea that Apple and Tesla are kind of out. Like they’ve been falling behind. That means Tesla is underperforming this year.
They’re lagging behind the members of the Magnificent Seven who are doing a lot of the work, which is actually NVIDIA, Microsoft, and Meta at this point. Therefore, I would like to propose two new entrants to the Magnificent Seven. Eli Lilly is now the 8th largest company in S&P, I think it’s something like this.
Bank of America’s issue price last week was $1,000 per share. Basically, if the market cap is $1 trillion, that’s about $950 billion.
And the second one is Costco. Now, I think Costco is currently No. 22 in the S&P 500 based on market capitalization. But the response to that revenue loss that we saw at Costco last week was a modest revenue loss.
I think the stock price fell 7-8% in one day. And that day was the day that all trade in 2024 went cold. And Costco is central to the idea of ”don’t worry, just buy it for 50 times his profit.”
it’s okay. Everyone loves Costco. And it became like a huge stock, I don’t want to say a meme stock, now. But there is a meme that says you should buy this mega cap theme.
I think Costco continues to benefit from premiumization driven by consumer habits. And this is a safe place where you can leave your money and tell someone that Costco is making you too fat. And everyone who is your investor can think, “That’s great.” I love Costco.
Jared Breichle: I love how the Magnificent Seven is filled with consumer staples.
Miles Udland: It doesn’t work like a staple food. Look at our inventory.
Julie Hyman: It feels wrong to me that Costco is with other companies.
Miles Udland: So I was looking at this. I think it is also necessary to discuss where the alphabet fits in the “Magnificent Seven.” I know the Magnificent Three is right there.
Jared Breichle: It remains flat for the year. So where does it go? Yeah. I don’t know. I say this.
While you’re crunching the numbers, take a look at the difference between the old Mag Seven and Costco’s new Mag Seven and Lily and you’ll see the difference. Returning to the chart, going back to the beginning of 2020, the Mag Seven original is up 155%.
Switching between Costco and Eli Lilly is a 171% increase. 171. But magnitude 4 is 187%. That means you don’t need Costco or Eli Lilly. I need more concentration.
I need a mug. And perhaps that’s it. And that’s where you go. Just in case you were wondering, here’s how to take this to an illogical extreme conclusion.
Miles Udland: that’s right.
Julie Hyman: The last point to mention here is the last point on the screen. This was the most important dot plot ever. Is it since the last dot plot or are you like, you’re not, wait, Miles Woodland, aren’t you kidding?
Miles Udland: I think next Wednesday’s dotplot is the most important dotplot the Fed has ever released. The reason is that when policy was announced in December and it was announced that there would be three rate cuts in 2024, the market said, “Okay, we’ll buy it.” I think it will be 6.
And it has subsided in the last few months. The market is now at 3, which is comparable to the Fed. During that time, the S&P was up 7% or 8%. But we’re just talking about all the moves of many stocks in the Magnificent Seven.
All those memes are still alive and well. Software is now coming together. Chinese tech stocks. Like everything on the market is great.
Provided the market still believes the Fed will cut rates three times. If it’s announced next week and we say we’re going to cut rates once, then you get to the June dot plot and we’re talking about whether we’re going to raise rates or not cut rates this year. I think that there.
And I think a lot of what the market has accepted in recent weeks is that this is not essentially removing reward, it’s delaying gratification. And if the Fed signals a big change in its approach to rate cuts in 2024, you might think, “Okay, maybe there’s a problem here.”
Julie Hyman: Just one quick note about it that I find interesting. Jay Powell had a great disdain for dot plots at some point in the past. However, it turns out that the dot plot actually gave a more accurate reading, so I feel like that was probably the wrong decision.
Miles Udland: And if you look at his testimony last week, he did the same thing. He tries to downplay it. And I think the reason he’s trying to downplay it is because he knows it’s only growing in importance.
If you look at 2023, the Fed dot plot is the same as saying the Fed is going to be more aggressive, it’s not thinking of cutting rates. And while he wants to distance himself from it, it’s been a pretty good guide over the last few years.
So what they say next week, the market will probably guess correctly. That will be your guide to what happens in this year’s balance.
Jared Breichle: I like your way of thinking. Something fun happened a while ago. But it’s something to think about quite deeply…
Miles Udland: I know it’s like I’m always joking. That’s not my intention. But actually, I’m thinking of a few things…
Jared Breichle: That’s how it reached the top of the news.
Miles Udland: Whatever it is. I mean, are you serious about that title? I don’t know.
Julie Hyman: yes.
Jared Breichle: Okay, thanks, Miles.
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