Episode summary
Warning: The Fed's Rate Trap Is About to Crush Stocks
Summary
The host argues the recent stock selloff is a normal correction after an overextended rally, not a sign the bull market is finished. He says the extreme run in chip and tech stocks had become “comical,” and that he would be more worried if markets had not pulled back.
He links the move to a hot CPI print of 3.8%, which he says is the highest since May 2023 and a clear inflation shock. In his view, that inflation reading pushes the 10-year Treasury yield higher, and the 10-year is the most important number for stocks because higher yields pressure valuations and increase the odds the Fed will be pushed toward rate hikes. He presents that chain reaction as the main reason stocks fell.
He also says the upcoming SpaceX IPO on Friday, June 12th, may force fund managers to sell existing holdings to make room for the new stock. In his view, that can add extra pressure, especially on popular names already trading at “silly” valuations.
Key takeaways
- The host says a sell-off is normal when markets are overextended and is not usually the top of the rally.
- He says the 3.8% CPI reading, the highest since May 2023, is the key inflation shock behind the move.
- The host argues a hotter CPI print lifts the 10-year Treasury yield, which then pressures stock valuations.
- He says the Fed is under more pressure to consider rate hikes because inflation is still running hot.
- The host expects the SpaceX IPO on Friday, June 12th, to force institutional investors to sell other names to make room.
Notable quotes
“Sell-offs like this are normal. That's number one”
“The CPI number came in at 3.8% here. That is the highest level since May of 2023”
“the 10-year yield is the most important number in the stock market”
“that puts pressure on the chairman of the Fed to raise rates to slow down economic activity, to tamper down inflation”
“The SpaceX IPO is coming out Friday, June 12th, as everybody knows”
How the episode opens
Morning. This is Dylan Jovine with Behind the Markets. Happy Tuesday.
Today is Tuesday, June 9th. It is great to be back with you. And while I was gone, the markets sold off, which is very, very normal.
But I want to go today a little bit deeper, so that you begin to understand the cause and effect of why that happens. I have found that when I was young on Wall Street, the people who understood the most seemed to have the least amount of anxiety. And they kind of saw how the game was moving.
And the people that understood the least ran around like a chicken with the head cut off. Checking their portfolio every day, you know, log well back then we had to go to the quill try machine. Logging in, checking it, sitting there biting their fingernails, yada yada yada.
So, it was a big impression on me as a young person. And I wanted to be like the people who kept their cool under pressure. And I was like, well, how do I do that?
And I realized that comes with understanding. So, my goal here today is to help you understand some of the inside baseball, so that you can understand some of the cause and effects, okay? So, number one, I have six points I want to cover today.
First, number one, sell-offs are normal when markets are overextended like this, period. I'd be more concerned if there wasn't a sell-off. I was getting to the point where I was like, this is getting outrageous.
The other thing history teaches us is that sell-offs like this are rarely the top of the rally. Rarely the top of the rally. So, completely normal.
Thank goodness. These chip stocks were just becoming comical, actually.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rate hikes
- cpi inflation data
- ten-year treasury yields
- stock market selloff
- spacex ipo selling pressure
Companies and tickers mentioned
- SpaceX
Watch the episode
Watch “Warning: The Fed's Rate Trap Is About to Crush Stocks” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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