Equities are holding within 2% of all time highs, despite benchmark ten year yields hovering near 5% and crude oil topping $100 a barrel. And while markets were pricing in a near a certain Federal Reserve rate hike for this Wednesday following hotter than expected core inflation data, surging real rates and robust corporate earnings are derailing traditional bearish thesis.
Now, historical trends show that when the S&P 500 is up double digits through August, it finishes the year higher. Nearly 90% of the time. So to break all this down and kind of walk us through what's going on and what we could expect is Matthew Tuttle, CEO and founder of Tuttle Capital Management. Matt, thanks for joining us again.
Thank you very much for having me.
All right. So last week, hotter core CPI prints have Wall Street pricing in a near certain 25 basis points rate hike this Wednesday from Chairman Warsh. So is a September rate hike already fully baked into stock valuations? Or it could an aggressive dot plot trigger a fresh wave of volatility?
Yeah I mean an aggressive dot plot could definitely trigger that. I think everyone is assuming he's going to raise rates in September. I'm still not 100% sure. I mean, he's in a rough spot. Trump brought him in to lower rates. He could keep things steady. The bond vigilantes will probably raise rates anyway.
He'll probably do it. But he's going to take a lot of flak from Trump. And yeah, I do worry about a more aggressive plot.
Yeah, and it's interesting because I know everyone is eyeing his words. His next move. So now I want to talk about the yields because yields have been making headlines. Benchmark ten year yields are near 5% and crude oil is over $100. So yet the S&P 500 sits just 2% off all time highs. So why are equities absorbing real rate rates so well?
And are stock investors right to ignore rising borrowing costs at this point?
So they're not and I think equities are missing it. You know we are laser focused on rates 5% on the ten years kind of our line in the sand where I would get very nervous about stocks. You just mentioned rising oil prices. That's going to impact inflation. The Houthis just joined the party that's going to make oils, even oil, even worse.
And no one is really talking about what's going on in the end that could impact rates as well. You've got to be laser focused on rates here.
Yeah, it's definitely interesting to see how all this changes and develops throughout the couple the next couple of weeks. So historically, historic data shows that when the S&P gains over 10% through the month of August, it finishes higher from September to December in 25 out of 28 instances. So do you buy this 89% historical high rate or our current macro headwinds strong enough to break that trend?
I mean, what do you think?
Yeah, I mean, all that stuff is fun to talk about, but at the end of the day, you've got to look at what's going on. As you said, we've got macro headwinds. Dario just threw a monkey wrench into things with his essay over the weekend. That's not going to help sentiment. A lot of what's going on has been driven by AI.
Anything that gets people worried about hyperscalers slowing down, you know so I don't put any stock into that. We've just got to see what happens here.
I think that's the name of the game because it could. Like you said, that monkey wrench thrown over the weekend. It definitely changes things. So the recent surge in yields have driven primarily by our real rates rather than inflation expectations. So driven by resilient GDP and massive AI infrastructure CapEx, so does resilient corporate profitability provide a stronger enough floor for valuations to prevent a deeper retirement?
It depends. If rates get over 5%, I don't think they do. And I'm talking about ten year rates. That's our line in the sand, what we're looking at. If we can stay under that level. Yeah. People will focus more on profitability once we get over that level. You know, we could be staring at 2022 all over again.
All right. I want to talk a little bit more about you because you're known for active, high conviction conviction tactical strategies and contrarian trades against the ETF space. So where are you seeing the best risk reward opportunities right now? And which crowded sectors are you actively shorting and avoiding at this point?
Yes.
So we love oil and gas. We love property and casualty insurance stocks. We're launching an ETF for those tomorrow. Um, those are our two oil and gold. Uh, but gold is a little weird. It's kind of turned into a risk on trade. I think it's down pretty big today. Still love gold. We are cautious right now on AI.
We still think you need to have the AI bottleneck trades. Watch your position sizing. You know, you're coming into a day like today and you're panicking. You've got too much in those trades. You've got to balance them out with the oil and gas names, property and casualty names. Have some gold, have some crypto.
I think crypto is up today. It was last time I looked. Have all of that stuff together and you can ride this out.
And really quick. Just before we wrap up, what is something that people aren't aren't watching for it? And what's something they can add to their portfolio that maybe people aren't talking about or aren't making headlines? What would you say?
It's property and casualty stocks. Look at what they did in 2022 when rates were going up. They made money. Look at what they did in oh eight. A lot of them were up in zero eight as well. We think that's something you ought to add to your portfolio. Nobody's thinking about it.
Awesome. Well, Matt, thanks for joining us today. Great to have you.
