Transcript:
Caroline Woods
Joining us now, Danielle DiMartino Booth, CEO and chief strategist at QE research. Danielle, great to have you back.
Danielle DiMartino Booth
Caroline, thank you for having me. Good to be here.
Caroline Woods
So, Danielle, stocks are lower today after a hotter than expected CPI report. Do you look at this as a pause after a huge rally. Or is the market starting to worry about inflation again.
Danielle DiMartino Booth
Well well I think the market’s been worried about inflation for some time. In fact it’s kind of unusual for markets to do what they’re doing today. Usually it’s you know, buy the room or sell the news. Actually that actually conforms exactly with what the market is doing today. They’re selling the news. But, I think what’s more interesting is that Kevin is really going to be walking into a minefield.
Danielle DiMartino Booth
And I think that that’s what markets are beginning to convey.
Caroline Woods
Explain the minefield for us right now, especially on the heels of the better than expected jobs report. Inflation. That, of course, is sticky. But what are the biggest minds out there?
Danielle DiMartino Booth
Well, I think Warsh is young enough to know that he shouldn’t follow seasonally adjusted ancient data that is very lagged in nature and constantly revised. I think any young college graduate right now could tell you that the unemployment rate is very misleading, and that the underemployment rate tells you a better story. I think worship is a young enough and dynamic enough new leader to appreciate more alternative data sets.
Danielle DiMartino Booth
Let’s put it that way. But when it comes to inflation, this gasoline persistence is really going to test him. What we saw in this morning’s CPI report, though, is that companies are having a hard time passing these higher costs along to their customers. So we’ll know more with the CPI report tomorrow. But this is a very stagflation environment with a job market that is not as robust as some of the data would suggest.
Caroline Woods
You’ve been warning about cracks in the labor market for a while now. What are you seeing beneath the surface that concerns you most about the data? And the headlines aren’t reflecting? What are investors missing with the stock market lower today? Although the Dow has just turned positive, that, that concerns you most.
Danielle DiMartino Booth
Well, I think most of it comes out of the survey data. And the fact that we’re seeing so many white collar workers lose their jobs. This drags on income more than if a lower paid worker was to lose his or her job. We’re seeing it in the University of Michigan. We’re seeing in the contract conference board. We’re seeing it in other gauges of job insecurity that are only with the only parallel we have is the 2007 2009 Great Recession.
Danielle DiMartino Booth
So there’s a huge disconnect right now between the official data and what Americans are telling us.
Caroline Woods
There’s also a big disconnect between what the stock market is doing and what you’re saying the economy is showing. Obviously, we know the stock market is not the economy, but why does it feel so disconnected right now? And what does that ultimately mean for where you think the market goes from here?
Danielle DiMartino Booth
Well, you just mentioned the Dow returned green for the day. You know, in 2019 99, we saw days like this when the tech sector that had run up incredibly. I mean, there aren’t enough segments to explain how quickly the Philadelphia, semiconductor index has risen. It’s just been remarkable to witness. But sometimes when things rise parabolic like they have, there are going to be setbacks.
Danielle DiMartino Booth
And so when you see the Dow green on a day that you see the Nasdaq red, that means that there’s a lot of defensive posturing going on, people trying to hedge themselves.
Caroline Woods
What could the setback look like though. Because despite the fact that we are seeing the Nasdaq down almost 2% today, it’s still almost 2% away from all time highs.
Danielle DiMartino Booth
That’s exactly right. And this is exactly what these types of cycles feel like when there are so many. A few weeks ago, had we said that West Texas Intermediate, that the price of oil per barrel was north of $100. You would have seen stocks in the red across the board. And that’s not what we’re seeing right now. So it’s a very, very intriguing environment.
Danielle DiMartino Booth
And again, one that reminds me showing my age of what it was like to be in the market in 1999 and in 2000 when things would go parabolic, play off and then put a parabolic lead down. So I think again, investors right now have to be very mindful of how they can be. They can protect their positions.
Caroline Woods
So what would a parabolic move to the downside look like. What are you actually expecting here.
Danielle DiMartino Booth
It’s you know it’s very hard to say. It’s hard to say if this is the last big hurrah before we have a long bear market or if this is just a pause and we’re going to continue to melt up. But this is beyond any melt up again. The stocks index equated to what we saw in, at the peak of the.com boom.
Danielle DiMartino Booth
So it’s we’re we’re in almost uncharted territory right now for the markets.
Caroline Woods
If you if you are concerned about the labor market and really the broader economy are right, what parts of the market look most vulnerable from here?
Danielle DiMartino Booth
I would say, just to borrow from Michael Burry and his recent warning, I would say that you need to be very careful of the price to earnings ratio. You need to be very careful of the integrity of the E in that equation. How real the earnings are that are being reported out of the tech sector, which are beginning to be questioned on a more broad based, by more investors.
Danielle DiMartino Booth
The Financial Times had an article out last week that suggested that 39% of big tech earnings are kind of being fabricated, or at least, flattered.
Caroline Woods
So where would you rather be positioned?
Danielle DiMartino Booth
Well, I, I think financials are in the crosshairs because that is where a lot of the leverage that is that is backing AI is coming from. And we came into the year saying that, you know, from the beginning of the year to the end of the year, you want to be long utilities, short financials. And we stand by that call given where we are today, which isn’t very much different where we were at the beginning of the year.
Caroline Woods
So for the retail investor, listening in and thinking, oh, shoot, that doesn’t sound all that good from Danielle DiMartino Booth. What is your message to them? What did they need to be considering watching paying closer attention to?
Danielle DiMartino Booth
So when I was a young investor in my 20s, I had a sticky, on my monitor that said, pigs get fat, hogs get slaughtered. That’s still a mantra that I live by. And if you feel like you’ve made exorbitant profits in the market, well, then it’s always safe to take some of those profits off the table. And then you don’t have what it back.
Danielle DiMartino Booth
And I didn’t I didn’t time the top perfectly. That’s okay. If you’re taking a ton of profit with you.
Caroline Woods
What about those who are sitting in index funds though, and just riding higher with the S&P 500?
Danielle DiMartino Booth
Well, that’s a different story. I mean, you’re talking about a 401 K investor here. And and sometimes it’s much more difficult for investors in funds like that to hedge themselves. I think it’s time to pick up the phone and call and find out what avenues you have to protect your position. And I’m a friend of mine recently asked the very same question of me.
Danielle DiMartino Booth
I’m in A41 case on what should I do? She just picked up some calls of called fidelity, and they moved her to a slightly more defensive posture so that she could show that she could harvest some of those gains.
Caroline Woods
What is it, though, that what’s the catalyst, do you think that finally forces investors to care more about the economy, which in your view, is weakening then things like I enthusiasm and earnings growth that we have been seeing this earnings season.
Danielle DiMartino Booth
Well, again, I refer back to today’s CPI report that showed us that companies are having a hard time passing along higher prices. You know, we are hearing constantly that credit card debt, automobile debt, student debt, you name it, we’re we’re seeing foreclosures rise as well. You know that the consumer is strange. You know, that wage inflation, the rate at which wages are growing, is back to 2019 before the pandemic hit.
Danielle DiMartino Booth
So, you know, the consumer is squeezed and there it’s coming through in the hard data. So in that sense, you know, I think you’re going to start seeing it filter through in a margin squeeze. And that is something that we’ve been writing about quite a bit.
Caroline Woods
If we do see a resolution to the war with Iran and we see oil prices start to pull back, I mean, it’s over US crude is over $100 barrel right now, but if we do see a meaningful pullback, say that maybe not 60 but 80, would you change your your tone here in terms of how much consumers will be squeezed?
Danielle DiMartino Booth
I would certainly think that if it was something that happened tomorrow, I think I think the war is ended about nine times now, according to the headlines, if it was something that happened very quickly. Yes. Bank of America came out with a report this morning, though, that showed that the rise in gasoline prices is already eaten through the rise in income tax refunds and that the consumers skating on thin ice because of that, because there’s so little in the way of cushioning when the underemployment rate is at 8.2%, the cycle high.
Caroline Woods
You know, you mentioned the strain consumer. And we’ll hear more from some of the bigger retailers next week in terms of how their consumers are holding up. We know that the lower end is definitely feeling it the most from, you know, places like McDonald’s, for example. But they’ve remained surprisingly resilient at the same time. So what is it you think that finally causes households to to pull back in a meaningful way?
Danielle DiMartino Booth
Well, I think I think it’s that top 10% of households who pull back that really, really gets the market’s attention. And that would be a serious catalyst. And what we’re seeing is, although they do continue to spend the top tier, the top tier. So the top third of income earners passed out in the University of Michigan. Their confidence has really been falling in the future.
Danielle DiMartino Booth
So the volatility that they’re seeing in the stock market is not something that is calming and they’ve not stopped spending yet. To your point, the top 10% is still going out to eat and going on vacation and spending. But we are seeing a lot of hesitation come out in the surveys among those who earn the most and are at the top of that case, shaped economy.
Caroline Woods
You talked about Kevin Warsh at the top, but he’ll be taking over as Fed Chair Jay Powell. Term ends on the 15th. You mentioned the minefield that he’ll be navigating. Do you have confidence that he could, you know that he can do it? And what should his next move be?
Danielle DiMartino Booth
Well, we’ll see what happens with private credit and whether private credit spills into, the public credit markets and tests. Kevin Warsh as Jay Powell was tested when he was first chair in 2018. When markets misbehave, especially credit markets that feed into the stock market. Whether you have great ideas for shrinking the Fed’s balance sheet, and you don’t like quantitative easing, and you’re resisting zero interest rate policy and all of these wonky economic terms.
Danielle DiMartino Booth
As Mike Tyson said, you know, everybody has a plan until they get punched in the mouth. And all.
Caroline Woods
Right, so how.
Danielle DiMartino Booth
Is he getting worse tested?
Caroline Woods
Sorry. There. So help us with our plan. I know you’re watching what you said. It’s going on in the private credit market here. You look at the soft data, the consumer surveys. What else should be on our kind of checklist in terms of what we need to be paying attention to as potential warning signs?
Danielle DiMartino Booth
I think people should be following the bankruptcy cycle more closely, and that is easily accessible data. We’re seeing quite the pick up compared to 2025 in bankruptcies. It’s now bleeding into personal bankruptcies. And that’s one of the reasons why, when we see continuing jobless claims reported every Thursday morning, we shouldn’t go, oh, everything’s okay. We should look further into the data and realize that of the seven plus million Americans who are unemployed, only 1 in 4 are collecting benefits right now.
Danielle DiMartino Booth
So we have to be very careful because there’s ever been such a disconnect, a divide between the bankruptcy cycle and continuing jobless claimants. But that has more to do with the fact that 3 in 4 are not even collecting those benefits. They’re driving for Uber instead.
Caroline Woods
Okay. All right. I think it’s a great time to transition to our rapid fire game of this or that. Quick questions. Quick answers. Are you ready, Danielle?
Danielle DiMartino Booth
I’m ready. Let’s do it.
Caroline Woods
Soft landing or recession? Recession 2026 or 2027 story.
Danielle DiMartino Booth
2026.
Caroline Woods
Inflation risk or growth risk?
Danielle DiMartino Booth
Growth will supersede the inflation risk.
Caroline Woods
Consumer resilience or consumer exhaustion? Consumer exhaustion stocks new highs or near a ceiling?
Danielle DiMartino Booth
Definitely near a ceiling. But ceilings ceilings can be pierced.
Caroline Woods
Okay bigger market driver AI boom or economic slowdown?
Danielle DiMartino Booth
I think they feed into one another. That wasn’t the answer you wanted, but I believe that’s the case.
Caroline Woods
Defensive stocks or tech leadership.
Danielle DiMartino Booth
Defensive stocks here.
Caroline Woods
Just Kevin Warsh is Fed chair bullish or bearish for stocks.
Danielle DiMartino Booth
Right now. It’s bearish. He’s in between a rock and a hard place.
Caroline Woods
Warsh is next move cut or hike.
Danielle DiMartino Booth
The middle of it stand pat.
Caroline Woods
Fed independence and tax are under threat.
Danielle DiMartino Booth
Definitely under threat.
Caroline Woods
Stocks at year end higher or lower from here.
Danielle DiMartino Booth
I would have to say lower given the two choices. And given where we are today.
Caroline Woods
How much lower?
Danielle DiMartino Booth
That I could not answer.
Caroline Woods
All right. We’ll leave it there. Danielle DiMartino Booth, CEO and chief strategist at QE research. Thank you so much. Really appreciate it.
Danielle DiMartino Booth
And thank you for having me.
Caroline Woods
If you enjoyed this conversation, check out our full street talk with Adam Turnquist, where he explains why he’s still very bullish on this market.