The Fed Just Raised Rates. Here's What Changes for Your Money.

[0:00] Dano: Happy Friday, September 18th, 2026. Let's go on the Markets with Fermata Advisors and our private wealth arm, Sonoma Wealth. My name is Dano Weir. I'm the marketing director. And this week, we got what we thought we might get. Federal Reserve raised its benchmark rate by a quarter point to three and three quarters to 4% on September 16th. First hike in over three years. So rates going up. How did the Treasury market react? Do treasuries even matter? Why American households are more overweight in another asset class more than ever before? And conventional wisdom would say that rate hike means rates up, market down. Why does Daren say September's all right so far? Let's find out on the Markets.

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[1:16] Dano: Managing principals and founders of the firm, Chris Seip, CFP, Daren Blonski, CFP. Guys, before we get into our slides here this week. Just some opening thoughts on rates going up. Chris, in some senses, this was expected.

[1:30] Chris: Yeah, it was expected, baked into the Markets. I think the prediction Markets and CME both had it at around 90% probability. And then, of course, you had a two-year Treasury rate signaling that that's what was happening. Widely expected although the market kind of strangely sold off and the rates kind of sold off on the day it happened almost like it was a surprise but that seems to be sort of normal with with Fed days now but yeah.

[2:05] Daren: Market got exactly what it expected Daren did Warsh even have a choice well i guess you could argue that from a couple different directions couldn't you I mean, it was a 12-0, right? Everyone wanted rates to go up. I think the market was already saying it was going up. Inflation's been way too persistent for way too long. I think the Fed's been kicking the can for a while. I think generally Americans, and I wrap us all in on that, and our politicians, and I've been saying this for many months, many days, many years at this point, you know. There is pain coming because of the way the dollar's being overly utilized. And the question is, are we going to do what it takes to bring things back in line and to manage our debt situation? Are we just going to run it out to the end?

[3:02] Daren: And my sense is we'll run it to the end. But at least there's an attempt to bring down inflation a little bit.

[3:13] Chris: So today, Warren Buffett announced he's stepping down as chairman of Berkshire Hathaway. And he's one of the many influences in the investment world that has inspired many folks. I think he's, I would say, probably the undisputed best investor of all time, right? The goat, as the kids would say. And I really liked this quote. From his shareholder letter. And bear with me, it's a little bit long, but I just think it's really refreshing to hear this type of message from somebody like this in today's day and age where we seem to have really lost this from society.

[3:59] Chris: But he says, one perhaps self-serving observation. I'm happy to say I feel better about the second half of my life than the first. My advice. Don't beat yourself up over your past mistakes. Learn at least a little from them and move on. It's never too late to improve. Get the right heroes and copy them. You can start with Tom Murphy. He was the best. Remember Alfred Noble, later of Nobel Prize fame, who reportedly read his own obituary that was mistakenly printed when his brother died and a newspaper got mixed up. He was horrified at what he read and realized he should change his behavior. Don't count on a newsroom. Mix up. Decide what you would like your obituary to say and live the life to deserve it.

[4:44] Chris: Greatness does not come out. About through accumulating great amounts of money, great amounts of publicity, or great power in government. When you help someone in any of thousands of ways, you help the world. Kindness is costless, but also priceless. Whether you are religious or not, it's hard to beat the golden rule as a guide to behavior. I write this as one who has been thoughtless countless times and made many mistakes. But also became very lucky in learning from some wonderful friends how to behave better. Still a long way from perfect, however. Keep in mind that the cleaning lady is as much a human being as the chairman. I just thought that was an amazing message from someone who spent his life making money and revolving around money and power and all those things. And that was his parting message. So all the best to you. Warren Buffett as he steps down from Berkshire Hathaway.

[5:47] Dano: Some great insight there. Chris, can you tell me why I need a diversified Bond portfolio?

[5:56] Chris: Client sent me this picture, text message, and I literally had to laugh. I thought that was great. It's the various actors who played James Bond and it says, remember to have a diversified Bond portfolio.

[6:09] Dano: Now this is AI because I actually saw this and first I thought, wow, what an amazing moment because you got Sean Connery, Roger Moore, you got Timothy Dalton, Pierce Brosnan and Daniel Craig all hanging out at some kind of party. I thought, when did this happen? And of course it happened. And it's AI. But gosh, sure wish that it had.

[6:27] Chris: Yeah. Yeah. Some Bond humor for you. There's been a lot because there's been so much talk about Bond. There's been a lot of memes about James Bond, which is funny. We had Warsh painted into a corner. I agree he didn't really have a choice because it was about credibility at this point, credibility of the independence of the Fed. I think if he would have come in and held rates steady or probably worse, taken them down, I don't know how the market would have reacted to that given where the inflation numbers have been coming in, where the Markets have been signaling for. For quite a while and where Warsh himself has said he has, has said he stood on this topic, from way back after the great financial crisis.

[7:20] Chris: Cause remember he apparently, I guess, stepped down from the Fed based on, the fact that he didn't think QE was the right, move. And so interesting. We, we live in interesting times. It was a spicy, week in, in Fed. Watching because everybody was wondering what he was going to do. And he did follow through with the quarter point hike, as expected.

[7:47] Dano: And I have to say, I'm in the camp that I do think Trump knew all along that this is what had to happen. And he's going to say what he's going to say, but he, and he's going to put in a guy and he's going to say, Oh, you know, I'm going to put in this guy and you'll see rates will come down. He's going to say that, but I think he knows, and I think he always knew that rates were going to go up. That's my opinion. Daren, I don't know if you have a take on that, but that's kind of how I feel.

[8:16] Daren: I don't think he's an idiot. No. All these guys say what they got to say to get in, right? So, you know, now we get to find out who the real Kevin is and what he's going to do and how he's going to behave. And my guess is that the collective Federal Reserve chair you board, you know, that becomes way more influential on him and his decisions than say, you know, what Trump wants him to do, right? Because that's part of the idea of the board is it's supposed to have some degree of independence. And it'll be interesting. But now we've seen one of his first moves and it makes sense to me, like inflation is too high. I don't think you can argue it's not.

[9:07] Daren: And oil is being particularly problematic for that, the inflation issue. I will say, though, one thing I failed at this week is I wanted to get us that meme where it's like Home Alone and Home Alone's mom, what is her name? Kevin's mom. And she goes, Kevin That was like my favorite meme from the week.

[9:33] Dano: The actress is Catherine O'Hara.

[9:36] Daren: Capital hair And she's like yelling Kevin Yes You know now everyone's got the Kevin how dare you raise rates well it was 12.

[9:48] Dano: 12 1202 on in terms of the voting so this was the first non-split decision in quite a while no dissenters yeah even powell i mean when powell was in there was more dissenters right and and i think and i only bring this up we don't go hard on politics obviously on this show because that's not our focus our focus is our clients and the realities of the market but it's very easy if you watch the news and read. Headlines to believe that one man is in charge of everything, especially if he makes an appointment and that his person is just going to be his puppet, which is not necessarily doing at least what Trump has said he wanted to have happen. So if you want to feel good about something, there's some autonomy happening here with the Fed.

[10:32] Daren: Well, and that's the other point, too, that I think is important when it and it seems to be playing that way out. And we'll look in a little bit on my section we'll look at what what the the house and the Senate split are looking like here with the election but the reality is is that it's never all unified in a democracy so.

[10:57] Chris: What we're looking at here with this chart is the two-year Treasury rate in dark blue and you can see that as of the the post of this was at 467. And then you see the target Fed funds rate at 4%. So the two-year yield is widely seen as the market's expectation of short-term rates. You can see that here over the long term. This post is by way of Meb Faber showing the two-year yield from the Fred database versus the Fed funds rate. And you can see that red Fed funds rate has basically just followed. That two-year rate, sometimes with a lag and sometimes ahead. But nonetheless, they tend to move in the same direction. And there occasionally becomes times where the Fed is considered to be too loose.

[11:54] Chris: The rates are too low in times when they're too tight. And right now, at least according to the two-year, they're too loose. There was even some saying that he should have gone at a 50 basis point hike because Now that's going to put him in a bad position with the October meeting that the market is going to be wanting him to continue to hike, at least based on where rates are today. But he's not going to want to hike right before the election. Now, I don't think it really matters because these hikes take a year to a year and a half before they actually filter through to the economy in terms of impact. But I guess maybe it's like more of a... You know, sentiment thing that if people see the hike, they're going to, you know, vote a certain way or whatever. But, but anyway, this is kind of pushing the, the, the remaining hikes into the December meeting. But nonetheless, you can see that that two year rate is showing that, that interest rates are, are, are, should be higher from the Fed at this point.

[12:58] Chris: Now it's going to have some kind of unexpected impacts though, because, as a lot of people have covered kind of most famously, Ed Yardeni has showed that, you know, one of the reasons why the stock market has been so resilient is the whole K-shaped economy in terms of, you know, you've got the top income earners account for more than 50% of the spending. And a lot of those income earners are the baby boomers and they are, you know, beneficiaries of higher rates in that their savings is producing a higher yield. And so as long as they continue to spend and consume, that can keep the economy going and the Markets going.

[13:45] Chris: And so these higher rates on the short end is going to move the income up for folks that are invested in those types of instruments. And so it may counterintuitively have a little bit of a backfiring effect. In that it's going to increase income to those that are already spending a lot, which can actually increase the inflation. So we'll see how that ends up playing out. But this from Jim Bianco, the corner that Warsh was painted into was the fact that the inflation has been running much above the Fed's target rate for quite a while. And I'll just read what Jim.

[14:32] Chris: Bianco says, he says, stop saying the Fed can't print oil. It's a lazy comment. Maybe without a supply shock muddying the water, the Fed would have seen more easily that deglobalization ended goods deflation. Which masked problematic services inflation and hiked sooner. If so, long-term yields might be lower today since Bond traders could have stopped panicking sooner because the Fed started panicking earlier. And so what he's saying there is one of the side effects of deglobalization. So, you know, us buying less stuff from lower cost producers like China, as an example, that's causing prices to go up. It's We're no longer getting the deflation that we had over the last decade, decade and a half from buying products from countries that are able to produce them at lower prices.

[15:24] Chris: That is changing. And so that's taking away some of that deflation that was in the system. And you can see here that due to that, due to the pandemic, the supply shocks, etc., we've just had such a long period of time. Compared to any time in recent history where that inflation has been elevated. And the Bond market's kind of looking at the Fed like, hey, are there any adults that are going to step in here and do something about this? Or is the inflation just going to continue to spiral out of control and therefore we're going to need a higher rate to compensate us for that risk?

[16:11] Chris: This comes as most U. S. Households don't have a lot of allocation to bonds compared to history or even relative to other asset classes because pretty much everybody's in stocks. This showing equities as a percentage of U. S. Household allocation, it far exceeds anything that we've really seen since Post-World War II history. We went through that. Period of time post the great financial crisis where interest rates on bonds were essentially zero. And I think it was Jason Trenner at Strategist that coined the phrase, Tina, there is no alternative. There is no alternative. Basically, people just went into stocks because why go into bonds? They were just not going to pay you anything.

[17:04] Chris: Now, fast forward to where we're at today with interest rates over 5% in some cases higher than that, depending on what you're investing in. Now there is an alternative. But yet people have kind of continued to look in the rear view mirror and continue to just keep allocating to stocks. We've been on this bull run. We've got the AI narrative. And so people are kind of all in on that allocation at this point. We'll see where that ends up going, but it's been at the expense of both bonds and cash. All the while, we're seeing some major shocks to the system.

[17:50] Chris: I was surprised to see this one. The headline here, Costco raises price for Kirkland Motor Oil and sets a purchase limit. I think we just saw today or yesterday that the Saudis are going to not be sending oil to Europe next month. It seems that we are starting to notice more effects of the energy shock, this showing the strategic petroleum reserve. We're at the lows that we haven't seen in 44 years, essentially kind of coming into this crisis. There were a lot of levers to pull in terms of keeping that price under, you know, keeping the... Beach ball under the water when it comes to the price. And now that's starting to pop because we're running out of the strategic petroleum reserves. China's stopped their import slowdown.

[18:49] Chris: And so you wonder what the ramifications are going to be here. Obviously, there's political ramifications, as we'll see when we look at the election betting Markets at this point but I also wonder what the second level effects are. Are people going to start substituting alternative energy sources? I saw some speculating that, hey, this is going to force Europe to just buy more solar and electric and whatnot from the Chinese because they're the low-cost producer there. I don't know if that's going to end up happening, but there are certain price levels of where people are going to have to start switching out of. You know, the petroleum products, it'll make more economic sense than it did, you know, at the beginning of the year when prices were half of what they're at today. So a major shock to the system is happening right now, which has led to bear sentiment in the Markets.

[19:52] Chris: We've got the bears jumping up to 53.3%, which is a 52-week high on the AAII reading. Now, from a contrarian standpoint, that should perk your ears up a little bit. Usually when people are very bearish, that... That tends to be a decent time to be looking at these asset classes. And on the flip side of that, when people are very bullish, they tend to be paying really high prices for things and the expected returns would be lower because of those prices. So we'll see if that plays out here. The CNN Fear and Greed Index agrees. It's at 30 fear, which is down slightly from 32 last week.

[20:38] Chris: And yesterday, I probably should have put in... Bitcoin's reading today rather than yesterday. Yesterday was at 50 neutral, which was down from a 69 greed last week. It'd be interesting to see what it's at today with the big pop in Bitcoin that we saw in the Markets. Another visual chart for you here from the Visual Capitalist showing the states that are most impacted by the counter tariffs that were put on by Canada. Those just went into effect September 8th. So we're barely 10 days into that. And you can see that a lot of the Midwest, Ohio, Pennsylvania, Illinois, are going to be the most impacted from those tariffs, meaning that the goods that Those states are selling into Canada, are getting hit with those counter tariffs. And Visual Capitalists here notes that a lot of those are swing states when it comes to elections. So see how that plays out here in a few weeks.

[21:57] Chris: Higher prices in the Markets, more allocation to equities. Is leading to a little bit lower equity risk premium. So this is the concept that if you're going to invest in stocks, there should be a premium over and above what you get in treasuries to entice you for taking that risk. So it's sort of, it's not a, there is some art to coming up with this number, but this was from, So Vita Subramanian at Bank Of America, she's their chief strategist there. And she says the equity risk premium will likely be lower than the 2000s and 2010s, closer to the productivity era of the 80s and the 90s.

[22:52] Chris: So as rates go up on treasuries and as prices go up on stocks, that is squeezing that equity risk premium. Equity risk premium daily at this point. One of the other factors of coming into the higher rate conversation is that many other countries are choosing to not purchase treasuries here from the FT, showing China's holdings of U. S. Treasuries have fallen to the lowest since 2008. And this has been a steady thing since really 2012. You notice, though, from 2022, there was a bigger drop-off, and that was at the start of the Russia-Ukraine War. And you have to think probably there was some notice of the fact that those treasuries were seized in that conflict.

[23:59] Chris: Stopped buying the treasuries and many global central banks have started to purchase gold instead. Gold has overtaken treasuries in central banks, foreign exchange reserves. This is from Bloomberg. The sources were the IMF and the Department Of The Treasury. And you can see there's just been a huge ramp up in gold since that, about 2023. So over the last three years or So. And that is just continuing to be a trend that we've seen in the Markets. But it's not only the sovereign nations, it's also pensions and endowments. They've moved much away from fixed income in general, but from treasuries as well.

[24:46] Chris: And this from Sober Look showing the state and local government pensions and the endowments, you can see that over time they've increased their holdings and public equities and alternative assets over the last few years. And so not just households that are... More allocated to equities, but also state and local governments as well. Also forced on that Tina assumption. And you wonder how much of the fact that the Bond market has gone through so many struggles would get kind of like a recency bias in us that's like, well, hey, this has been the environment. Stocks have done great. Bonds have just been awful investments.

[25:34] Chris: So therefore, that's the way it's going to be in the future, kind of extrapolate the current and recent past into the future. It's one of the known psychological blind spots that we all have called a recency bias. And you wonder if it doesn't affect the professionals just like it affects the households when it comes to these asset allocation decisions.

[26:01] Dano: Chris, that's exactly, I want to stick there for a second. That's the fourth slide in the deck. That's ostensibly showing bonds are left for dead, right? Everybody hates them. Everybody hates them. Inherently aren't a class that people love because it's just, as we've said many times, it puts people to sleep. So what have, you know, past performance is not indicative, but what can happen sometimes when an asset class is left for dead? And it's obvious.

[26:32] Chris: Well, You know, one thing, if you just think about it from an investment standpoint of like, you know, if you're going to buy a rental house in your neighborhood and, you know, the old rule of thumb is buy the one that's, you know, needs the most work and is the kind of worst house in the neighborhood because there's the most potential there. There's the most potential for, you know, future returns. You make your money on the way in, right? And if it's the worst house in the neighborhood, not that many people are going to want it. The price is going to be low. And so therefore, you're taking a bigger risk and you might have a chance at a higher expected return. Now, the flip side of that, I think most people can understand is if there's the hot thing, the prices get very high because everybody wants them.

[27:31] Chris: And people are willing to kind of pay any price because they assume that it's just going to keep going up. And I think we all know countless examples of that. And we started off talking about Buffett, and he's famous for the saying of, you pay a high price for a cheery consensus. Essentially, when everybody feels good about something, that's where you're going to pay a high price, and therefore your expected future returns are likely to be lower. Now, when can bonds shine? Well, it's not now when inflation is high. This from RBA advisors, Richard Bernstein's advisors. They say deglobalization. The U. S. Is now importing more inflation than during the pandemic. Core import prices, this is not energy or food, are eclipsing core CPI.

[28:30] Chris: Return stream inflation is like kryptonite. So that's playing into the very real reasons why people hate bonds right now. Now, the flip side of that, reading this book called 1873, and I'm just starting it, but it's really good so far. And he talks about at that time, that was the boom of the railroads. And the nation went through this huge expansion. People were tripping over themselves to invest money in the railroads. And just like most big technologies like that, it eventually collapsed. And we went through over 20 years of deflation. And they were talking about in there that the one asset class that did really, really well was government bonds because the deflation took effect. The prices on stuff fell. And yet the people that had held those bonds that were receiving their coupons at the higher interest rates did extremely well.

[29:42] Chris: And, we saw that after the great financial crisis too, that was also a deflationary time period, which a lot of times recessions tend to be deflationary prices on things fall, including the price of money and interest rates fall in those, in those, times. So, so the cycles can change and when they do change, different asset classes can shine in those examples. Okay, one kind of last one on the investors and treasuries and price sensitive. So one of the reasons why they're having so much trouble keeping the rates down is because there's fewer price insensitive buyers, which would include the Federal Reserve, foreign government, central banks.

[30:32] Chris: We just showed you that there's not many of those price insensitive buyers or as many as before in the market. While price-sensitive buyers, which would be households, non-financial businesses, insurance companies, pension funds, etc., are taking up a larger portion. So it's much more difficult to keep that price of money in line with what they're shooting for. And on the positive side of things, this was released, I think, This last week, they updated the inflation-adjusted median household income, just hit an all-time high in 2025. And so the higher incomes that people have, they spend more, and that can contribute to inflation, too. So it's not always bad things like wars that cause inflation.

[31:26] Chris: Sometimes it's good things like growth in the economy and inflation-adjusted income. And we have seen that continue up. Likely with these higher interest rates, going to be paying out higher payouts on different types of debt. That is probably likely to continue for those asset holders that make up so much of the consumption in the US economy. Along with the AI CapEx, this is a great visual from S&P Global and by way of the Idea Farm and they show just... The massive expectations around the AI build out and how much the, what they're calling the hyperscalers, the hyper five here are planning to put into, the AI CapEx build out. And it's going to dwarf really, all the other sources that previously, you know, were responsible for most of the CapEx just on their own.

[32:30] Chris: And so you're still going to have the CapEx. Expectations of the, the rest of the NASDAQ, the rest of the S and P 500. And in addition to that, you've got the five hyperscalers just, in a, in a, well, at least up until last week in a, in an all out sprint to outpace one another in the AI world.

[32:56] Dano: All right. Before we get to Darren's technicals, I saw this this week and, you know, I like to keep you guys up to date with what the kids are saying. And something I found in the social sphere also ended up bleeding into the business sphere. So I know you two don't know what this phrase is. So here we go. Education time. There is such a phrase in on social media as a mog, a M O G, which is the alpha male of the group is a phrase that people use. So whoever is kind of the leader of the group, as people say, oh, he's the a mog. Not that it couldn't be a woman, but that's the phrase. And so I watched this 49Ers, I watched this 49Ers game in Australia last week and it was broadcast on Netflix on the right.

[33:41] Dano: You've got a former player as a Hall Of Famer, Luke Keekly, and you've got the broadcaster, Ian Eagle, Noah Eagle on the left there. And they said that the guy on the right is frame mogging the guy on the left, which means basically a guy who's huge is standing next to a guy who's small and he's diminishing him visibly. Right. And so I thought, okay, that's kind of a weird phrase. Well, then also this past week was the Dreamforce Conference, which is Salesforce's annual conference. And. Here comes all the AI biggies. You've got Sam Altman there, Dario's there, Jensen from NVIDIA is there, and people online saying that Mark Menioff, who's the CEO of Salesforce, is frame-mogging these guys.

[34:28] Dano: And if you can see the picture on our stream here, he's just, I mean, just the size of him compared to all three of these AI biggies is just like 50% bigger in weight and height. And it's so much so that Jensen even made a joke about it to everybody. But I only put this in the deck just to say, isn't it very interesting how sophisticated we are? We're allegedly approaching AGI. And yet with everything going on, an almost primal sense of like the size of one person compared to the other and what that might mean for your prosperity, it still kind of taps into your brain there. And that just felt like something kind of that we always keep in the back of our mind to how We think we're so sophisticated, but we're also still kind of got a reptile brain.

[35:13] Chris: You're making me really self-conscious about the company pictures coming up, Dan. I wasn't going to say it. I get frame-mogged by Darren. I wasn't going to say it.

[35:26] Daren: I think it doesn't help that at a tech conference, the guy's wearing a white shirt and tie and a suit with Mr. Cool himself, Mr. Jeff Bezos. Jensen there in his classic leather.

[35:42] Chris: It's also interesting the, the horseshoe of the, like the richer you are, the fewer clothes you wear. Like that's what Jensen's always wearing. Remember Steve jobs always wore the same thing. I feel like it's, it's so funny to see, you know, these richest guys and they're just wearing like the same thing every day. Funny.

[36:04] Dano: Isn't it? I do always have to say about Benioff, he donated $2 million during Sonoma County wildfire efforts. Does he live in Sonoma County? I don't know his connection per se, but he personally, there was a lot of organizations that any donation is wonderful. But he put together a big concert and he personally donated $2 million right off the bat. And so I'll never forget that. Darren, let's take to the charts. Enough with the Gen Z terms. I've got you guys current. Let's get current on what's happening with the market.

[36:35] Daren: How's this for overwhelming for a chart, guys?

[36:39] Dano: Merry Christmas.

[36:41] Daren: Yay. What on earth are we looking at? All right. Well, let me break it down. So this is the S&P 500. For those who are newer to the show, the S&P 500 is the largest 500 US-based stocks. So generally, when people say, quote unquote, the market, this is what they think of. The market. Some people think of the Dow, which is only 30. Most serious market. Technicians don't could care less about the dow it doesn't tell us a lot maybe some directional for the large large cap type stocks but most are looking at the S&P 500 for a read on the quote-unquote market so the headline is this what's driving the market right now is still the big AI stocks we're not getting broad participation from the rest of the market in any substantial way So it's kind of more of the same that we've seen over the last couple of years, which is obviously more concerning to the overall continuation of this cycle.

[37:42] Daren: Ideally, we want to see everything and all tides rise. We're not really seeing that. And I'm going to show you under the hood why that is. But first, let me break down this chart. So what you see is this pie in front of you. These candlesticks, green and red here, those represent one day in the market. So we can look at different. That's a weekly chart. That's a daily chart. We can look at monthly chart. And the idea is that the more you step back, the more signal that that market is going to have for us and telling us what's actually going on in the market. So there's a huge week. But even amidst the idea that we rose increased rates this week, the market shrugged off pretty good. However, we did close in a decision zone, which you can see right here, 756 to 763. And this little candlestick right here is the candlestick we're watching. For those who've watched our show for many years, you know that I've talked about Fibonacci lines as a way to kind of understand movement in the market.

[38:46] Daren: As it is right now, we're closing right below this 20-period moving average, which is this kind of light white line here. So that's 20 days all added up divided by 20, and that gets you that line. For us to say the short-term to medium-term stance of the market is risk-on, we'd want to see a close above that. The fact that we closed right below that. After losing it yesterday, tells you it's still hanging on. There's some threads of life. I would say the general look of this is we have a bull flag. You can see this is the bull flag pull. And then this is the flag and it can descend down and then it breaks up. And you'll see that kind of happening in the Bitcoin market when I show that chart in a minute.

[39:33] Daren: So overall, the read on the market right now is constructive. Where would I change my mind and change my opinion? Well, where we were down on Wednesday, we actually dropped below in the first failure point at 746 to 749. And we held that. That also happened to be the 61.8 Fibonacci line in that area. But that's the bottom end of the bull flag. If we lose that bull flag there, all is off. This line is kind of lighter gray line is the 50 day moving average, which is going to be less sensitive than a 20 day moving average. So right now we have a close above the 50 day, but we're still below the 20 day moving average. So overall that's positive. We close the day and you can see the week at 761. The 20 day moving average is at 762.

[40:25] Daren: The 50 day moving average is at 757. The big we need to watch this or else we're in trouble is a 7-12 and we're way down there. So if there's nervous Nellies out there about all this war and things going on with politics and midterm elections, we're quite a ways away at this point from any systematic concern in the market. Right now, it's trending sideways, looking like it's building and basing support to go up further. And that's the stance you have to take. That's the read on the market you have to take. Now to what concerns me about this. The market. What's driving the market is the Qs. And you can see this. The Qs are the large cap tech stocks.

[41:10] Daren: They are the stocks holding the market together at this moment. You can see we closed above that 20-period moving average that you have to re-bullish. That's positive. That's good. You can see that green candlestick here on the daily chart. If we look on the weekly chart, We were. About to lose that 20 week this week and we didn't we closed above it again we came in for a big swing here and it's looking good again it's looking more like a bull flag in consolidation mode you can't read that any other than that's positive now in actually i want to go back to this chart and i want to show you all something so you hear me talk about this on the pod quite a bit and this is about the seasonality of the Markets So what this represents are fractals, annual fractals of the market.

[42:05] Daren: So orange was 2024, green was 2025, blue is 2026. You can see the market so far this year and where it's been. Why I often tell viewers that in September we expect a more challenging market, you can see it tends to be more negative. In 24, it was definitely that way. Less so last year. And we've kind of bled down a little bit this year. We're at the point, though, where we would probably want to see the market start doing well. I don't expect to see a lot of clarity in the market till November. So it wouldn't surprise me to see this kind of tread sideways until we know what's happening with the midterm elections here in the United States. How that plays out can impact things quite a bit.

[42:57] Daren: Well, I think that... Best place to look at what's happening in politics is to go to the betting Markets, not the polls, because the polls are junk. But right now we have a 60% chance the Democrats take the Senate. This is people actually betting, we're putting their money where their mouth, we're putting their money, yeah, money where their mouth is, and betting that the Democrats take the Senate and a 90% chance the Democrats. Take the house. So if we're looking to the market and saying, well, how might things play out around here and what will that, and how will that impact things right now? The market is probably pricing in uncertainty that if we're going to have a split government moving forward, which would be the expectation, then you would expect to see, you know, kind of this trade sideways to down. Here's a look at. A little further out, if we look at the fractals and the seasonality of the market, in 22, we just traded down.

[44:06] Daren: That was that long. That's when inflation really took off. If inflation is back at it and it's really strong, and as pointed out by the Fed this week, and they rose rates, then maybe we see more of this kind of Bond deflationary environment for bonds. I'm not convinced, though, that the Fed is convinced that inflation is that big of a deal. And the reason I say that is because, and it's hard to tell, though, if it's the Fed or the Treasury, but the pipes of the market, meaning the cash flow coming through the market right now is quote-unquote loose. There's a lot of money in the market moving the pipes. When you raise rates, in theory, that's a tightening move.

[44:56] Daren: Tightening the market. You're trying to slow the economy down because you're trying to bring inflation down. But the current administration with the Fed is kind of talking out of both sides of their mouth. Shocker. But they're not saying, oh, inflation is really a big deal. We are tightening the market from the pipes. We're pulling in money so there's less money out there for the economy. They're not doing that. They're making it a looser environment, but they're raising rates at the same time. So I really kind of question how much of a... Back to 25 basis point move has and will have on the market other than maybe a psychological impact like we're seeing when people say oh rates are going higher which is absolutely destroying the housing market which has been in a recession and it still is a recession and if it had any life of it it just got kicked with raising more rates higher so we Thank you.

[45:57] Daren: The long story short is, as it currently stands, although they raise rates, I don't really see that having a huge impact on the market because we still have liquidity. Now, if the Fed were to tighten liquidity on the other aspects and how much cash is out there and slow down the pipes, then I would feel a little bit different. But until that proves itself, I don't feel that way.

[46:25] Dano: Darren, can you? Functionally explain the difference between rates and liquidity?

[46:31] Daren: Well, so rates, you're controlling the front end of the yield curve, right? So if we take our 10-year, let's look at our 10-year, so the Fed can impact the shorter end of the curve, closer down to the two-year, and you can see we move rates up and that pushes rates up. The Fed can control that, but even when you get out to the tenure. The market starts to control it more and get further out, they start to control the 30-year. What we were talking about in previous weeks where Besant went out and started buying treasuries, that's putting cash. Because if you think about it, if Besant goes out and buys treasuries from the market, cash comes onto the market. So money comes on.

[47:17] Daren: So you can tighten rates, put rates up higher, but still put more cash into the market by actually buying treasuries back. That makes sense. So by buying treasuries back, you're actually putting more liquidity into the market, which is stimulative to the overall market. By raising rates, you're making it harder to spend money, harder to take out loans, harder to buy houses, harder to put HELOC so we can put that pool in. That'll have a slowing effect on the economy. So you have Besson, who you could argue is... More politically influenced by the administration. And you have Warsh, who everyone thought would be a Trump yes-man, clearly is not at this point, and his crew raising rates. So in one sense, you have Warsh in the Federal Reserve saying, inflation's too high, we need to get this thing under control. And you have Besson saying, no, you're wrong, I'm going to go buy more Treasury bonds. And then that ends up being very stimulating. Stimulant.

[48:23] Daren: Now, we don't really know why Besson was buying bonds. We know why he told us. We know why the market thought he was, but we don't really know why, right? Because it's a political game. It's a political hot potato. But you can clearly see rates go up. The 10-year settled right around 5%, and that's problematic. Now, it doesn't really matter that we have high rates. I guess it does on some level. What matters is how fast we move in either direction. So for the purposes of this show, when we're trying to give people a sense of what the overall economy and market is doing, we're looking at a confluence of factors that impact the market and the economy to get a sense of what might be happening out there.

[49:09] Daren: As long as stuff moves orderly and smooth, it's not as big of a deal. Where it becomes problematic, is when we start to see different parts of the market move in an aggressive fashion. Because when it moves in an aggressive fashion, then we start to have issues of the rest of the market adapting to those moves. This rate move up does have a bit of concern, and you can see in the past when we've had moves up, when rates move fast in one direction, it doesn't give market participants enough time to adjust for those rate moves.

[49:51] Dano: And also to be considered, speaking of that, Darren, is the elimination of the dot plot. Meaning the Fed is going to be giving less and less guidance in the future. So the potential for exactly what you're describing, which is rate moves and they're no longer telegraphed, could end up having an impact on the market that we haven't seen in a while.

[50:15] Daren: Well, the issue is misinterpretation, right? Because if you're not telegraphing what's going on, then it's more likely that you have misinterpreted moves. And the market does things and thinking that the Fed's doing something and they might or might not be doing that. So by not telegraphing, you run that risk. But also by not telegraphing, it gives you the opportunity to control inflation or to do something in the market without having to give it away before you do it, therefore creating a more meaningful impact. By telling everybody what you're doing, in some ways, you're removing some of the power you have to create the real impact because you've told them what you're doing before you do it.

[51:10] Daren: And there's different schools of thought. Some say that watch the Fed. Well, that's a great thing. Give the market time to adjust. Others say, well, then it's harder to make the changes we need to change, make. This being the S&P 500, we talked about the Qs, which really drove the stock market this week. Then we go to RSP. And so RSP is the relative. So this makes every single company in the S&P the same size. When we look at the S&P 500 from a cap weighted standpoint, we look at the SPY ETF. This is what that index looks like. So if NVIDIA goes up or Apple goes up or Amazon or Google, they can drag the whole market up while the rest of the market is pretty red. These big dogs did all the heavy lifting. What we're looking for, though, when we look at the RSP chart, is we're looking to see if the equally weighted index, so meaning all of those 500 stocks in the S&P get equal weight, none are bigger than the other.

[52:16] Daren: That tends to tell us if there's broad participation. Meaning that the rally is being driven by all of the stocks. And in fact, when we look at the RSP, you don't see that, right? Like it actually looks like the RSP is starting to get itself in trouble with that 20-day moving average closing below it. Not a huge deal yet, but it is kind of open one eyelid and go. Then we look at IWM where we try to say, well, are the smaller stocks participating in this continued rally. Well, you see that they're not. They're below the 20-day moving, or this is 20-week even, excuse me. This shows you even more below that 20-day. So the continued trend is down for the small caps. So we have small caps and we have the equal weighted going, they're not feeling so comfortable here. So the breadth of this rally is still really being driven by the AI companies. So then we start looking, okay, let's look at the ratio of RSP. So this is equally weighted to the cap-weighted index.

[53:27] Daren: Because then we want to say, well, what's the ratio between? Because if the ratios are going up, we have broader participation. If the ratio is going down, then we have less broad participation. And ideally, we want to see that. What's interesting is you can see the rate is descending. We're not so concerned about where it is, but the trend direction of it. It's more important. Then we say, okay, well, let's look at the small caps in the S&P 500. So IWM and SPY, and you can see clearly the trend is down. So there's not the broad participation confirming what we saw here, confirming what we saw here. Then we say, okay, well, let's look at the 50-day average. So what this shows you is of those 500 stocks, which ones of those are above their 50-day moving average?

[54:17] Daren: The trend is down again. What that means to us is less stocks are above their 50-day, less stocks are participating in this rally. It's still the big cap stocks, technology stocks. Then we say, okay, let's look at how many stocks in the S&P 500 are above their 200-day moving average. And now you can see as of today, we closed right below 50%. That means 50% of the stock 250-ish. Of the S&P 500 stocks are closing below their 200-day moving average. So that tells you, maybe this rallies and there could be risk here. Again, not shocking because we've been expecting from that seasonality perspective for September, October, going into midterms, it'd be rough. It would be the surprise if it's not. Great if it's not going to be.

[55:17] Daren: But that's the unlikely outcome. So then we say, okay, well, let's see the advance decline. How many stocks are advancing versus how many are declining to tell us if there's really a sell-off happening and we don't see anything meaningful there. Then we go to our VIX. I've talked about the VIX a lot on this show. This is a measurement of how complacent those who trade the futures, the S&P 500 futures are. And what this shows you right now is it's down. Down is good if you like market going up. And right now, The VIX is fairly complacent. So we don't see any immediate fell off potentially happening. The move index is fairly muted as well. And this is looking at a measurement of volatility and how complacent the people who trade the Bond market are from a volatility perspective. And again, you can see these big spikes start to happen. This is when we got our last real big pullback early on in the year.

[56:16] Daren: And we're just kind of steady sideways. Again, the VIX and the move tend to be more responsive indexes. They don't necessarily warn you, right? Again, we're looking for the confluence of data that's going to give us the story of the market and the economy that we're trying to look at. One, I would say, this is concerning, right? We're not broad participation in the S&P. We see rates spiking and going up. Looks like they're going to close above 5%. That's not necessarily great. If we go to gold, sometimes we'll see gold really go up when people feel like risk off. We're not seeing anything measurably interesting there in the gold side. Bitcoin did get one of its candles today. And I think you need to be on the lookout for a breakout on Bitcoin. $82,535, I'm going to call the neckline. We break above that. I think we get some serious short squeezing today.

[57:15] Daren: We had a big short squeeze. That's what... Pushed up that candle when we see these candles we tend to see more of them because the short squeezing kind of feeds on itself and i i see there's something going on there so watch 82 500 on Bitcoin which is interesting because if we are going risk off you would think that Bitcoin would start telling us that it's not telling us that Bitcoin tends to lead the rest of the market it's certainly not doing that at the moment Mortgages, again, the housing market is pretty much getting left for dead at this point. It's been a rough go. Rates are not going down. Eventually, buyers will adjust to higher long-term rates. Perhaps this was the bottom of low rates for 30 years. We don't really know.

[58:09] Daren: I would argue that that's a bull flag in rates. Hard to say. And certainly, the Fed doesn't have the room with inflation to push down interest rates. Mortgage rates have a pretty connected, correlated relationship with what the Fed's doing with interest rates. So all in all, the rally's still alive. The rally's still going. It's just not super healthy. And the reason it's not super healthy is because it's large cap tech that's driving this thing higher. We've got interest rates showing up. Going higher, which is problematic for long-term growth. Perhaps we're in a more long-term inflationary environment, which will continue to play out. We don't know yet.

[58:58] Daren: I don't think we're going to get any clarity per se until we get past the election. I think we're going to leave it there for today.

[59:08] Dano: Information from Redfin, by the way, this week, just looking at Nashville. According to Redfin, 2.4 million homes, sellers per one buyer is the latest.

[59:21] Daren: Per one buyer.

[59:22] Dano: Per one buyer.

[59:24] Daren: See, that's wild.

[59:26] Dano: If you don't think, and real estate especially, Markets are different. It may not be the same here in Sonoma County, but that's just one market as an example. If you're wondering if perhaps prices might just start to come down there. I wonder if, because you know, Darren, I like to pick out a single. Here at the end just to follow a story. Since we talked about Salesforce, could you pull up Salesforce? I was looking at that. So very interesting. Looked a little bit like a thrill ride.

[59:53] Daren: Let's see. Let's check it out here. All right. Salesforce. I think I've got it on here. Like shame to admit. There we go. I was like, what is the ticker for Salesforce? Okay. So. I mean, Salesforce, it's one eye open here, right? We on Salesforce just lost this 20 day moving average today, but it's, you know, my pine script or whatever, the technicals are basically showing a decision point between 205 and 244. So it's got to come way down here for anything else. Right now you just have this massive move up and then this pullback.

[60:59] Dano: If you go back, just in my look, if you go back like five years, if you put in 10,000 five years ago, you'd have 9,800 today, depending on what month we're looking at.

[61:11] Daren: Yeah, I mean, it looked incredible until right about here. And then 2020 has just been a sideways chop. You know, based upon this news here, it looks to me like what's driving this drive is. Benioff is going to be ditching his suit pretty soon to look like an AI boss, not like a CRM boss.

[61:39] Dano: Funny.

[61:40] Daren: Yeah. Yeah. Interesting. Interesting. All right. We'll leave it there.

[61:49] Dano: Thank you so much for checking out our show on the Markets from Fermata Advisors and our private wealth arm, Sonoma Wealth. You can learn more about Sinoma Wealth at sinomwealth.com. Also, our other brands, including Fermata 401K, Fermata Tax. Those are at those, Fermata401K. Com, FermataTax. Com. Wherever you found this show, make sure you subscribe. Hit the bell on YouTube so you get notifications so you don't miss future episodes. And we will see you next week on The Markets.

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