• Current read is 37 on the fear greed index vs 34 last week.

• The Fear & Greed Index improved from 34 to 37 this week, but investors remain firmly in fear territory. This is where opportunities are being created for those willing to focus on fundamentals instead of emotions.

• Market Fearful = Potential Opportunity/Deals. (consider buy calls/sell puts/buy shares)

• Market Greedy = Potential Over Valuation. (consider buy puts/sell shares/take on less risk)

• I like to be bullish when there is extreme fear

• I like to be bearish when extreme greed.

• Opportunity is out there, just gotta find it!

• 30 year fixed mortgage rate decreased to 6.45% Today, vs 6.46% last week.

• 10 year treasury bond yield decreased to 4.45% Today, vs 4.48% last week

• 2 year treasury bond yield increased to 4.17% Today, vs 4.08% last week.

• Not much movement this week in bonds. That is ok!

• As I always say, interest rates are gravity!

• As interest rates/bond yields INCREASE, stocks become LESS attractive because bond yields go UP which makes the risk free bond look MORE attractive.

Hope everyone had a great week!
Here is this week’s newsletter.

This past week was a pretty important week for the stock market.

The NASDAQ finished up about 3.2%, and a big part of that move came from investors starting to price in a potential Iran deal, a potential ceasefire holding, and the Strait of Hormuz opening back up in full swing.

Now, I want to be clear. The market still needs time to process this. Just because there is a headline does not mean the risk is gone forever. Investors want to see if this actually holds, if oil keeps flowing, and if the fear around the Middle East starts to fade.

But if the Strait of Hormuz fully opens back up, and oil supply keeps coming back online, oil prices could fall more than most people think.

And that matters a lot.

Because if oil prices fall, inflation expectations usually fall with it. If inflation expectations fall, interest rate expectations fall. And if interest rate expectations fall, that is usually very good for the stock market.

On top of that, we are also seeing the USA, Venezuela, and other countries ramping oil production. That could put even more downward pressure on oil prices.

And again, that feeds directly into the inflation story.

Right now, the market is still pricing in around 50 basis points of rate hikes this year, which is 0.5%.

Personally, I think the market is getting that wrong.
And that is actually bullish.

Because if the market is pricing in rate hikes and those rate hikes do not happen, then the market has to unprice those hikes. When that happens, bond yields usually fall. And when bond yields fall, stock valuations start to look more reasonable in the stock market.

That is why I always say interest rates are gravity on the stock market.

The higher rates go, the more attractive bonds look, and the harder it is for stocks to justify higher valuations.

But when rates fall, bonds become less attractive, stocks become more attractive, and the cost of capital gets cheaper across the economy.

That means mortgages can get cheaper. Car loans can get cheaper. Credit card debt can get cheaper. Companies can issue debt at lower rates. Businesses can invest more. Consumers can breathe a little bit easier.

So in general, the economy usually does better in a lower rate environment.
And I do think that is where we are likely headed in the coming quarters.

Now, another part of this story is inflation data.

A lot of tariff inflation is now starting to get priced in on a year over year basis. So as that happens, CPI inflation could start to come down. According to Truflation data, inflation is around 1.8% right now, while the official CPI data is still showing inflation a little bit higher.

This is important because the Fed is still trying to get inflation back down to 2%.

We also got commentary from Kevin Warsh (new fed chair), and the big takeaway is that he still seems very serious about getting inflation back to 2%. But it also sounds like there could be some changes to how the Fed looks at inflation data over time.

In English, some of the government inflation data we use is old, slow, survey based, and not always the best real time picture of what is actually happening in the economy.

So if the Fed starts looking at more accurate and more real time data, there is a real chance that inflation starts to look closer to target than the current official numbers suggest.

That would make it even harder to justify more rate hikes.

And that is why I think the idea of hiking rates this year is probably not the right call.

If inflation keeps cooling, oil prices keep falling, and the economy holds up, then rate hikes become less and less likely.

We also got initial and continued jobless claims this past week, and overall, that data came in pretty good. Nothing in that data screamed major labor market breakdown.

So when I look at the market right now, I keep coming back to the same 4 things I always talk about.

The economy.
Interest rates.
Earnings per share growth.
Valuations.

And on balance, all 4 look pretty good right now.

Valuations are still a little bit high. I would say probably 5 to 10% high. But the reason the market can get away with that is because earnings growth has been very strong.

This is not just a random “bubble” rally.
This is an earnings led rally.

S&P 500 earnings per share growth is running around 22% year over year, and that helps justify why the market keeps pushing higher.

Think about it like this.

The S&P 500 has averaged about 10% per year over the last 10 years, and a big reason for that is because earnings per share growth has averaged roughly 8 to 10%.

So if earnings growth is running more than 2 times the normal average right now, should it really shock us that the market is going up more than average?

Not really.

That is why the entire story right now comes back to earnings.
If EPS growth continues, the show likely goes on.
If EPS growth breaks, then we have a different conversation.

But as of right now, earnings are still the backbone of this rally.

Looking ahead to next week, the biggest thing I am watching is Micron earnings on Wednesday.

That is going to give us a good feel for what is happening in the AI sector, especially around memory demand.

My base case is that memory demand is still very strong. But that does not mean Micron stock has to go straight up. There could be a lot of volatility around the report.

Then on Thursday, we get initial jobless claims, personal income, personal spending, and PCE inflation data.

That will give us another feeler for what is happening with the consumer, the economy, and inflation.

Outside of that, it is not the craziest week coming up.

We are in that weird period between Q1 earnings and Q2 earnings where there is usually a little bit of a gap in major company reports. But Q2 earnings season will start ramping up in about 2 weeks, and that is when things get a lot more interesting.

I will be breaking all of that down in Discord in real time like always.

So where do I stand right now?

Long term, I am bullish.
Short term, I am cautiously optimistic.

That does not mean every day is going to be green. That does not mean there will be no pullbacks. That does not mean you should get reckless and start chasing everything that moves.

It means the setup is still good on balance.

The economy is holding up.
Rates could move lower.
Earnings growth is strong.
Valuations are a little high, but not crazy when you factor in earnings growth and the possibility of lower rates.

And then on top of all of that, we still have the massive AI tailwind coming through the economy.

I have said this before and I still believe it.

AI is not just a little trend.
I believe this is an AI industrial revolution.
And with every new emerging technology, there is always going to be fear, uncertainty, doubt, and volatility.

That volatility is not something to be scared of if you know what you own and you have a real plan.

That volatility is what creates the opportunity.

So the story remains the same.

Buy great companies at good prices.
Do not chase garbage.
Do not let your emotions run your portfolio.
Keep your ratios in check.
Keep your pants on.
And only use stock options to magnify ultra high confidence plays where you would still be completely fine in a 50% market crash.

That’s my thoughts for this week!
See you next week!

-Brandon

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Economic/Earnings Calendar For June 22 - 26
(all times in pst)

Monday June 22:
See how market reacts to iran situation & long weekend

Tuesday June 23:
6:45a Services PMI
6:45a Manufacturing PMI
FedEx Earnings (post market)

Wednesday June 24:
7a New Homes Sales
Micron Earnings (post market)

Thursday June 25:
5:30a Durable Goods Orders
5:30a GDP Revision (Final Q1)
5:30a Initial Jobless Claims
5:30a Personal Income
5:30a Personal Spending
5:30a Core PCE data

Friday June 26:
7a University of Michigan Consumer Sentiment (Final)

Everything will be broken down in real time in Discord!