Is The New Fed Chair A Negative Gamechanger For Stocks?

[00:00:01]In this week's video, we'll review the latest charts and data to help us answer the question, is the new Fed chair a negative gamecher for stocks?

[00:00:12]Given the new Fed chair's press conference spooked the markets, it may be a good time to talk about how secular bull markets end.

[00:00:22]This is the secular bull market in the S&P 500 that began in 1950 and lasted until 1968.

[00:00:31]This is price the S&P 500 and this is a monthly Ballinger band. You can see we have numerous pullbacks within the context of the secular bull. But none of them kill the secular bull. Meaning we never hit a tipping point that causes the primary trend to end and/or roll over. And at some point that changes. In this case, the peak in 1968 ushered in a secular period of stagnation.

[00:01:04]Thus, it's never one event, the Fed potentially raising interest rates that kills a secular bull. The combination of fundamental factors varies from secular bull to secular bull. They're not the same in the 1950 to 1968 bull market.

[00:01:23]They're not the same in the 1982 to 2000 bull market. And they haven't been the same in the current secular bull. The secular bull ends when the total equation including but not limited to inflation rates valuations recession risk and confidence cross some type of threshold or the market or market participants hit a tipping point. So here the net aggregate opinion of all market participants regarding all subjects on all time frames wobbles but it doesn't hit a tipping point and it stays net bullish. That shifts in here.

[00:02:03]It flips to net bearish and never really recovers. And while the Fed raising rates was a big part of this peak right here, it was far from the only factor.

[00:02:16]The government had been spending heavily on the Vietnam War and the Great Society that brought Medicaid and Medicare. And we also had tax cuts.

[00:02:26]All of that resulted in large government deficits somewhat similar to what we have in the present day. So ultimately, the weight of the evidence eventually hits a tipping point. And that's what the charts and our models help us monitor. You can see the secular bull from 1950 to the peak in 1968 looks different relative to this point right here. We hold, we hold, we hold, we hold near the Ballinger band. And this time we slice right through it. And there's nothing magical about these monthly Ballinger bands, but used in the context of a weight of the evidence approach, they can be effective. So that's why we ask 489 different questions using 136 different charts. So it helps us better assess the probability of something like this happening relative to something like this or this happening. In the first leg down, the S&P 500 lost over 36%. The second leg down over 48%.

[00:03:36]And maybe more importantly, this is important here in 1969, early 1970 because unlike the secular bull market, we enter a period of secular stagnation that is significantly different. This really doesn't look anything like the trend between 1950 into the fourth quarter of 1968.

[00:04:00]and our allocation should look significantly different in this environment relative to this environment.

[00:04:08]Since the topics of inflation and government spending and deficits are similar in this window to what we have today, let's put additional context around this peaking process. In 1969, CPI, the consumer price index was at 5.5%.

[00:04:26]It jumped to 5.8% 8% in 1970.

[00:04:31]So this is where the Fed starts to tighten interest rates aggressively. And why do they do that? Because politically these type of numbers are very difficult to tolerate. It's very difficult to get reelected when inflation starts to get really out of control relative to growth. So the number one priority to get reelected becomes getting inflation under control.

[00:04:58]And you may be sitting there thinking at home, wait a minute, members of the Federal Open Market Committee or Fed officials, they're not on the ballot.

[00:05:05]That's true. But when inflation becomes politically and economically painful, elected officials face pressure from voters, and that pressure can increase scrutiny of the Fed. Set another way, the Fed doesn't operate in a political vacuum. Fed Chair Powell regularly met with the Treasury Secretary, a member of the president's administration, and he regularly met and had contact with members of Congress.

[00:05:33]So, the Fed tightens aggressively here.

[00:05:36]And ultimately, they do bring down inflation. 1971 4.3% CPI, 1972, 3.3%.

[00:05:45]And unfortunately, they started to cut rates.

[00:05:50]had a nice bull run here off of this low and then inflation started to take off again. CPI hitting 6.2% in 1973 and hitting double-digit numbers in 1974, 11.1%.

[00:06:06]Very difficult to try to get reelected when CPI is in this range. Hence the number one political priority becomes getting inflation under control and raising rates suddenly becomes acceptable politically.

[00:06:22]Now let's look at these same settings on the monthly Binger bands in the context of the 1982 to 2013 period. Very very similar to the 1950 to 1968 window. The S&P 500 tends to make a stand near the monthly Ballinger band here, here, here, and here. And then things change here when we hit that tipping point. This is late in the year 2000 here. If you know your stock market history, the bear really started to accelerate to the downside in September of the year 2000.

[00:06:59]This looks significantly different relative to this. And the same can be said for the financial crisis over here.

[00:07:06]So in both cases we get a single dip then a double dip single dip then a double dip in the context of a secular period of stagnation. And just as Fed policy and interest rates were a factor in this peaking process, they were also a factor, one of many factors in this peaking process. In 1999, the Fed increased rates by 25 basis points in June, 25 basis points in August, again 25 basis points in November, another 25 basis point hike in February of the year 2000, another 25 basis points in March of 2000 as the S&P 500 is peaking. And then the nail in the coffin, they raised rates by 50 basis points in May of the year 2000. And that changed the math relative to stock valuations. Stocks were overvalued, increased the probability of a recession, and significantly harmed confidence.

[00:08:13]Thus, if we were to look at this chart between 1950 and 1968 and the constructive period between 1982 and the peak in the S&P 500 in March of 2000, how does the same chart look today? the same monthly Ballinger band settings. Does it look like this or does it look more like this?

[00:08:36]The answer is it still looks like a secular bull market. We're well above the monthly Ballinger bands. Chart on your screen is dated Thursday during the short week June 18th, 2026.

[00:08:50]Thus, if this starts to morph into something more like this or more like this or we see something like this, concerns would increase. And you get this look when the net aggregate opinion of all market participants regarding all subjects including Fed policy on all time frames flips from net bullish to net bearish. This is a full flip. This is not. This is not. And this is not.

[00:09:22]Notice even though the combination of fundamental factors driving the bull and the combination of fundamental factors that brings the secular bull to an end are different in this window, in this window, and in 2026.

[00:09:39]An uptrend still looks like an uptrend and a downtrend still looks like a downtrend. Which means we don't have to obsess over what happened earlier this week. If it's relevant and it brings the secular bull to an end, it will start to be reflected in all of the data sets and all of the charts that we cover. Given our secular volatility model scores on June 18th, 2026, that's not close to happening. These are very strong scores. What do these scores here tell us? Not only do they tell us that it looks like a secular bull market, they also tell us it looks like one of the stronger periods of a secular bull market.

[00:10:25]And if the Fed ends up raising rates multiple times and it causes pees to compress, valuations come down and we get something like this, then we pretty much know absolutely positively without a shadow of a doubt that these numbers will not look like this, this, this, and this. And all of that may happen very, very soon. It just hasn't happened yet.

[00:10:52]It's also important to point out we can be confident about the data that we have in hand. We can be confident about these numbers. They're based on facts. They're based on things that have already happened. That doesn't mean that we're overconfident about the future. That's why we take it day by day with an open mind.

[00:11:17]And while there's no question Fed policy is relevant, has been relevant, and will continue to be relevant, as long as earnings hold up, it's very, very difficult to envision the secular bull ending. And from a valuation perspective, it's very difficult to say 2026 looks like the year 2000. Source of the information here, this is the source. Here's the source over here.

[00:11:46]And our buddy JC points out, very, very difficult to think about the secular bull ending with pessimism being so strong. Markets hovering around all-time highs, fifth consecutive week with more bears than bulls. And as we've shown with numerous charts in recent weeks, and we'll cover those charts again, the market doesn't seem to be screaming inflation is about to get out of control.

[00:12:17]And we also have to keep in mind we have a new Fed chairman who plans to make significant changes at the Fed. not a big fan of forward guidance. So, we don't want to read too much into the statements that he made at the press conference earlier this week. And pause your video player. Similar comments here on that topic. Now, based on the data that we have in hand, does it look like the current Fed chair, the new Fed chair, is going to have to raise rates later in the year aggressively as the Fed did in 2022.

[00:12:57]If we answer that question based on this chart, it does not look like 2022 and it does not look like he's going to have to raise rates potentially at all later in the year, but that's to be determined.

[00:13:10]This is the NASDAQ composite relative to the S&P 500.

[00:13:15]And we know NASDAQ companies tend to be more susceptible to higher rates. Growth companies, you're buying earnings in the future. You're buying earnings growth.

[00:13:28]You expect earnings to be higher in future years. When the Fed raises interest rates, you tend to get valuation compression, which is what happened in 2022. So, the NASDAQ logically started to underperform the S&P 500 significantly.

[00:13:44]This is January of 2022.

[00:13:47]We make a new multimonth low right here.

[00:13:51]We just recently made a new multimonth high on the same ratio. And if you look at the anchored weighted average price lines, resistance in here, confusion, but now we're above those lines and we're consolidating above them in a healthy manner and they're turning up.

[00:14:11]That looks significantly different from 2022.

[00:14:17]If this starts to morph into something more like this, a discernable lower high relative to this high, we just made a discernable higher high in 2026.

[00:14:30]Similar situation here, breaking to a new low in January of 2022. This is the ratio of AI and tech to the S&P 500. AIQ in the ETF world relative to SPY.

[00:14:46]new low here. This is a bearish breakdown. We just had a bullish breakout from a period of consolidation here in 2026.

[00:14:56]Here we're below the AWAP lines, the colored lines. They're downward sloping.

[00:15:02]Now we're above them and they're turning up. It's fair to say this looks significantly different relative to January of 2022.

[00:15:15]Similar theme, a new low here in Q1 of 2022 in investment grade corporate bonds. These are VWAP lines. This includes volume. We break down here.

[00:15:29]Recently, we broke out above this level here. And we've been consolidating in a healthy manner. Here we're below the VWAP lines, volume weighted average price lines. Here we're above them. Here they're rolling over in a bearish manner. Here they're converging and they all have positive slopes.

[00:15:52]This speaks to inflation expectations just as this drop here in 2022 spoke to inflation expectations.

[00:16:04]January of 2022, making a new multimonth high on the ratio of XLE energy to XLK right here.

[00:16:13]During the session on Thursday, June 18th, we were making a new multimonth low. This really doesn't look anything like this.

[00:16:25]Similar situation, making a new multi-month high on West Texas Intermediate crude relative to the S&P 500 in Q1 of 2022.

[00:16:36]It's not what we have in the present day. We broke above the AWAP lines here in Q1 of 2022. This is a bullish breakout for crude oil relative to the S&P 500. Those same lines are converging. They tend to have negative slopes and this acted as resistance thus far and it has been firmly rejected in that important area that we identified weeks or months ago earlier in 2026.

[00:17:08]If this starts to morph into something more like this, then concerns would increase.

[00:17:15]If the look of the NASDAQ 100, upper right hand corner of your screen, starts to morph into something more like this with a discernable lower high and price starting to fall below these moving averages and the moving averages roll over, then concerns would increase. But at the moment, this really doesn't look anything like this period here that led to a blowoff top in the spring of 2000.

[00:17:44]And this looks like a relatively early stage breakout.

[00:17:50]Two periods of consolidation from here.

[00:17:52]This is the year 2000. This is 2020. And then we consolidate from 2020 roughly to the present day. This looks like a bullish breakout here above these levels and above this level. the ratio of the NASDAQ 100 to the S&P 500 trading above an upward sloping 200E moving average in red.

[00:18:16]There's that issue with valuations.

[00:18:18]Again, it's logical that the triple Q's growth oriented stocks relative to the S&P 500 underperformed when the expectation was for higher interest rates.

[00:18:34]Similar to the other charts, we undercut this low here early in 2022. Make a multimonth low. We're making a multimonth slash alltime new high on the same ratio today. This is what it looks like when the market's concerned about inflation dropping below the 30-month moving average. This is what June 18th, 2026 looks like.

[00:19:02]ratio drops below the blue span in 2022, drops below the red span in 2022. Blue crosses below red in 2022.

[00:19:12]The lagging span back here drops below price. We don't have any of that on June 18th, 2026. In fact, the triple Q's relative to SPY on the monthly cloud batting five for five. And you could say six for six because the green cloud is also rising.

[00:19:35]We covered this chart recently. This week as of 2:02 p.m. on Thursday, the short week, the ratio of the NASDAQ 100 tech sector to RSP, the equal weight S&P 500 was up 5.59%.

[00:19:53]This really doesn't look anything like the breakdown here and new multimonth low that was made in January of 2022 when market participants were concerned about their discounted cash flow models based on the expectation that the Fed was going to raise rates multiple times due to rising inflation.

[00:20:16]is RSP relative to XLK at 2:05 p.m.

[00:20:20]Eastern time on Thursday, June 18th. RSP was underperforming XLK for the week by 4.03%.

[00:20:30]Keep in mind that's intraday on Thursday before the close. RSP relative to XLK batting 0 for5 on the weekly cloud tends to align with many of the charts that we've been covering now for several weeks or several months.

[00:20:49]None of this predicts anything. All of this commentary is based on the charts and data set in front of us.

[00:20:58]Also noteworthy, late in 2021, value stocks started to significantly outperform the S&P 500.

[00:21:08]This is 2022 here. The ratio moves from the lower left sharply to the upper right. That's not what we have. We have a downtrend here. This was a counter trend move. And then we went on to make a new all-time low in SPY VS in Victor relative to VU. This is a weekly chart.

[00:21:30]All of this occurring below a downward sloping 200E moving average. If this, which recently broke down and made a new low, morphs into something like this, where we made a new multi-month high in 2022.

[00:21:47]And if we could overtake the 200week moving average as we did in 2022, concerns would increase. At 2:09 p.m.

[00:21:56]Eastern time on Thursday for the week, SPYV underperforming VU by 1.49%.

[00:22:06]And we all know the only way that we can continue to use all of this effectively is if we head into next week and every week with that flexible, unbiased and open mind.

[00:22:21]The material in this video has no regard to the specific investment objectives, financial situation, or particular needs of any viewer.

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[00:23:14]We recommend that you consult with a licensed and qualified professional before making any investment decision.