Welcome to Stocks and Translation, Yahoo Finance's video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right decision for your portfolio. I'm Jared Blicky, your host, and pleased to be back in action after a three week hiatus. And joining me to be sure that we don't veer off too far into jargon land is Yahoo Finance senior reporter Ali Canal. First, please like, subscribe, and comment on stocks and translation on Spotify.Apple Music, Amazon, or YouTube. And today we're gonna be talking about the markets and the economy through the lens of psychology. One of my favorites. Our phrase of the day is the wall of worry. Investors must face it, embrace it, and try not to chase it. And this episode is brought to you by the number 43%. That is the share of American adults who say money stress is hurting their mental health. We dig into money dysmorphia and how to confront it.And today we are welcoming back Kelly Cox. She is the chief market strategist at Ritholtz Wealth Management, a firm now guiding over $5 billion for global investors, and she's known on the street as Optimistic Cali, the voice behind the United States of relentless optimism and one of the sharpest reads on sentiment swings. Hello, Cali. Hey, great to be here. Thank you. To start out with, why don't you set the stage for us market-wise with all the conflicting psychological influence that investors are facing and weighing right now.

Yeah, it's been all about the psychology recently, and what I mean by that is, you know, markets, the stock market bottomed around April 8th. That was right after Liberation Day, the day when Trump brought out the big poster with all the tariff rates, and you remember that went to see them. I remember that very clearly. You wrote a lot about it. I did, I did. I was following it like a hawk when it happened.But you know, since then the market sold off almost 20%. Now we've rebounded back to record highs, and not much has changed except for the psychology and the mood of the markets. So it's really required a lot of attention on how people feel, how allocated they are to the stock market. If there's this sense of FOMO, which there is bubbling up among investors, and that's really what's been driving stock prices higher. So I'm glad we're chatting.About psychology today.

Me too. So let's get now to our phrase of the day, which is wall of worry. The wall of worry is investors' persistent fears about markets, from recessions to rate hikes, even as stocks climb higher against those expectations, and it seems appropriate with stocks at all times highs, which is leading to the classic investor dilemma. Fear of jumping in versus fear of missing out. So it's oji versusAnd I just learned about Foji, by the way. So talk about these terms, these wacky terms and how investor psychology kind of plays into this wall of worry that investors are facing right now.

Well, I wonder if there's more foji or more FOMO. I would say that there's more FOMO right now, at least now that we're back at the highs. It's weird because, you know, you look at consumer confidence surveys, Americans aren't very confident about whatThe future holds, they're pretty confident about their finances right now, but understandably they look into the future, they say, I don't know what's coming next. I'm just going to keep on as status quo, especially when it comes to the stock market. People are pretty worried, but that's actually a good spot to be in if you know you're an investor looking 3 to 6 months down the road. Reason being that you're keeping the bar really low and anyBetter than terrible news, uh, can drive people to get back in markets because it provides that certainty that they need. And I think that's what's happening right now. Although I would question a little bit how low the bar really is, you know, now that we've hadMonths of tariff news and we've had the economy weakening we had a lot over

the weekend and markets are kind of like ho hum. I'm just a little bit, a little bit doesn't seem to make much of a difference, but I know you have a burning question.

Well, I'm just curious when it comes to the vibes improving, the fundamental story hasn't changed. Why do youI think the vibes are better now than they were even a monthago.

I think the vibes are better now because they were so bad back in. I think right after Liberation Day, and you have to remember too, we had so much news around them. I think 150% tariffs on China were thrown around for a little bit.And it's like we were all staring into the abyss. We were like, OK, well, recession is confirmed. I didn't say that, by the way, some people were, but, you know, everybody was kind of staring into this awful, awful worst case scenario and then suddenly that was taken off the table. So it's almost like we saw a ghost.And now, you know, now that we've seen the ghost, we, we, you know, cherish every day that we're not seeing it.

Yeah,it's a

friendly ghost.

But does that put that the market rally that we've seen at risk of deteriorating considering we still have a lot of unknowns and a lot of question marks.

I think it does. I, when you see a rally this strong, you want it to be confirmed by economic data and earnings data because the the stock market ultimately drives higher on the economy and earnings. It's following corporate America's fortunes, basically.And we just haven't seen that. We've actually seen earnings momentum and economic momentum slow down since the April 8th trough. So I, I don't believe in a perfect rally. I don't think you can point to a checklist and say, OK, well we haven't checked all these boxes, means we're going lower. I don't think that's how investing works. Um, there's a lot of psychology that goes into it, but would I feel better if we saw it confirmed by earnings and economic data? Yeah, I would.

I want to follow up on the picture of this rally right now because I mentioned I was gone for 3 weeks and we had this big 3 week rally, and I was looking at the leaders of this and we have tech materials and consumer discretionary all up more than 5%. Those are the number 12, and 3 spots here over the last 3 weeks. And you've written that these are some of the sectors that are most heavily influenced by tariffs, and yet they're doing, they're flying higher. So how do you reconcile that? And is that kind of a contrary signal maybe in any kind of way?

I think there are a few things coming into play here, Jared, and since you were out, you also missed a lot of talk about around rate cuts, which I think happened a week or two ago. Powell came out actually at this conference in Central and Portugal and said, you know, a July rate cut isn't necessarily off the table. I think that's Powell's way of saying anything can happen, but of course markets heard that and they said,weeks away that OK, there's a, so you're telling me there's a chance. Uh, so I think the rally we've seen over the past few weeks has been a little bit of that tariff relief, um, so a continuation of what we've really seen since April, and that's tech consumer discretionary, that's materials, that's industrials, like a lot of the cyclical type sectors you can think of.There's also been a lot of optimism around a rate cut or lower rates coming. I think it's misplaced optimism because I'm not sure a rate cut isn't this big celebration that everybody thinks it is, but that's dissipated a little bit, I think because of some Fed speak since then and some economic reportswe got.

And also the jobs report came in better than expected in a lot of ways, at least on the surface, but we, but to your point, when we saw that better than expected jobs.Report, the odds of a July rate cut pretty much evaporated. So when you look at the rate cut path and how we might cut for bad news rather than good news, how should investors think about that? That was

my question because you write about celebratory versus panic. Yeah,

yeah, and this is something I talked about last year because I firmly believe that we are in the celebrat camp. The the point where the Fed lower rates because the economy is in balance and they don't.Need to have their foot on the brake too much anymore. I don't think we're there right now. Um, the July jobs report was strong on the face, but it was strong because of some additions in state and local government jobs, which is great if you're a firefighter or a police officer.

7000. That was kind of a surprise to me with all the jobs that are going on,

but you said you're being affected by governments, but that's not the cuts that you're reading about in the news.The the breadth we're seeing in hiring isn't as strong as I would like to see, and it's concentrated a lot in education and health care, which is great, but those are the sectors that you expect to hire regardless of where the economy is. So you know, for you or me in a white collar job, it's not as easy to find a job. We're seeing unemployment claims keep rising, you know, people are clearly having a much harder time finding employment and to somebody like me who believes that the job market is the foundation of the economy.You don't want to see that. That's not, you know that people are struggling underneath that and it's just a matter of time before the market breaks down.

But do you think it's a good thing that layoffs aren't happening? You're talking about corporate America, and at this point we're not seeing companies aggressively lay off workers. They're having a hard time finding a job if they're out of one, but at least for now those that have their positions are able to toThe course. Well,

there was a pickup in layoffs that we saw around March and April, even in private sector jobs. So we've seen government layoffs pretty much throughout the year. There was a spike of those in February and March, and we expect to see another spike in September or October when a lot of those layoffs come off of admin leave. They're not paid anymore. Um, we've definitely seen layoffs pick up in jobs data, in private sector data.Uh, the layoffs were a little calmer in June, but, um, the March, April, May time frame was really rough for corporate America. Uh, clearly it hasn't pushed us to a breaking point yet.Uh, but I think it's getting to the point where the Fed may not have a lot of time on its side. And look, I don't know what the future holds, but I do know that when the job market breaks, it breaks quickly. So the Fed might find itself, you know, a little behind the curve here in lowering rates and giving us the breathing room that or giving the economy the breathing room that it needs. All right,

so you're, we've been.Talking about job market breadth, and I want to talk about market breadth because here's an interesting stat. 43% of S&P names, uh, S&P 500 names are beating the index this year, so that's only 43% and that amounts to what you're calling a skinny bull market. I love the term, uh, but a skinny bull market means that we don't have that large breadth of participation. How concerning is that to you?

Yeah, well, we've had a skinny bull market since the beginning of it in 2022, I think mega dominance. Yeah, it's the mega cap cap cap dominance. It's the mag 7 that you hear about all the time.Again, it's not something that is ideal, you know, when you want, when you see a bull market, you want all stocks participating. That rarely happens, but usually you see a majority of them moving higher, and that just hasn't been the case this time around. Part of it is because the Fed hasn't really cut rates. It was hiking into the beginning of the bull market. You rarely see that. I think it's only happened one other time in recent history, and because of that, the Fed has affected.put its foot on the neck of the bull market. It said, OK, we want you to exercise restraint in the economy, in your portfolio, but at the same time, you know, the stock market has fought to move higher. It's just done so in a very bifurcated way, and we're still there, even though 43%, believe it or not, is a better showing than last year's 30% and the year before it's 28% of S&P stocks beating, beating the market. SoYou know, we're really in an environment where I think technicians have a lot to be excited about, but economists and more fundamental. Yeah, I'm speaking to one rightnow.

Um, so one more question on the wall of before we go to break. Um, what, what cracks the wall? What's the Humpty Dumpty moment when, uh, you know, there's a fall and there's a tumble and when you don't want to chase that wall anymore or climb it?Yeah, what are the cracks in the *** in the armor that you're looking for in the economy or the market?

Thebig crack is the job market. I think tariff policy could also push us there. I think there's an element of the market kind of pushing on the taco trade right now. This isn't really going to happen. Trump isn't really going to implement these tariffs on August 1st, as we saw in April, that mirage is basically gone. Like maybe he will go for it. So I'm afraid news that dramatic push.Over the edge. I also think inflation is something to watch because we still haven't seen tariff-related inflation really flow through to the reports that we watch, especially on the consumer side. And

we will be getting CPI data as soon as this episode drops, so be tuned to that. We need to take a short break, but coming up we're going to be talking money dysmorphia and a runway showdown featuring vibes versus reality.This episode is brought to you by the number 43%, another 43%. This is the share of US adults who say money stress actively hurts their mental health, and this is according to a recent bank rates survey, a big red flag for the growing problem of money dysmorphia. And this is I'm gonna define this for you. Money dysmorphia is a distorted perception of personal finances, often leaving people feeling poorer than they really are.And Kelly, you wrote about this recently. You wrote about this about a month ago in June, and I was really impressed with it, and it rang true for me as well. So just talk to us a little about a little bit about dysmorphia.

Well, I'm so glad you're bringing this up because I keep telling people this is the most important thing I'll ever write, and I can't take ownership of that term. I believe I found it from the Money with Katie show. Katie Gattis and shout out to you, butIt's this term that describes people who have a different financial situation than what they think is the case. It's like looking into a mirror and saying, you know, I look a certain way and other people see it a different way. Um, I wrote about it because I have a certain form of it. I'd say it's probably on the milder side now because I've worked on it, but you know, as a child growing up, I didn't have a ton of money and it, you know, my childhood really set some benchmarks in my head, um.Especially money related benchmarks that made it harder for me to really adapt to adulthood and making a paycheck and, you know, understanding what it costs to live and it's something I've been struggling with for a while and I think about it a lot because whether you realize it or not, your risk tolerance is really set in your childhood and how you learn about money.And that's an almost insurmountable battle as you get older, um, especially, you know, as as you start having your own money that you can invest, um, you know, people talk about where the market is going all the time, and I think that's important. I think education is important, but there isn't enough conversation around this piece that matters so much to how you think about money.

What tools helped you the most, whether it be books, resources to help you overcome a lot of that battle,

therapy.

I was gonna I was gonna

go for, go to therapy even if you don't think you need it. Well, then you then you probably need it more than anybody, but seriously, go to therapy. I hate that there's a stigma around it. I've been in therapy for years and years and years now.But one thing that helped me was understanding what normal is, um, because as a child, you have a very warped perception of normal. You basically have what adults put before you and you say, OK, this is my normal because I know nothing outside of this bubble, and then you kind of grow up with that in mind and then you get to your adult years, you get to your twenties, and then suddenly you're almost redefining that normal and getting into therapy, talking with an objective person or a party really helps you nail down.Where you've kind of gone off the, off the range a little bit. Um, so I've found a lot of help and talk therapy. I love to talk to, so, um, I go figure, but there are some really good books out there that can help you too. Psychology of Money is one of them. I like

that redefining your definition of normal at each stage of your life. That's probably an important one. How about social media? How has social media impacted money dysmorphia? Yeah,

yeah, I.It's there have been a lot of impacts. I was, I was tempted to say for the better, and I think as people talk about money more, then yes, you know, social media is for the better. If we, if we all feel comfortable sharing our stories and sharing our experiences with money, I think everybody wins. Of course, there's also the side of being able to see how other people live and, you know, seeing a highlight reel of somebody else's life that may not be reflective on how they really think or how they really live. I think that's damning.But really since COVID, I think the conversation around money and especially the hard stuff around money has really exploded because we all had so much time to sit and think and ruminate on where we were at a point where we were worried about our jobs, we were worried about our health, and then eventually the government started throwing money at us and rates were ultra low, you know, we got to a point where we felt comfortable saying to a friend, I don't know about this investing thing. I don't feel great where I am. I have the time to fix it, so let's talk aboutit.

I want to just run some stats by you here. This is a survey that was conducted by Qualtrac, Qualtrix on behalf of Intuit Credit Karma, and they're saying that this is a generational problem that disproportionately affects the millennial and the uh Gen Z populations. 43% of Gen Z, 41% of millennials saying they experience money dysmorphia compared.to only 25% of Gen X and just 14% of respondents aged 59 or above, so maybe the boomers in that category, but is that surprising? Um, I would go back to my own childhood and my early adult life where I had lived paycheck to paycheck, mostly in my twenties, and I remember trading during that time and I was, I was always taking money off the table too quickly. Any profits I would.I would quickly take them off the table and it took me years to figure out exactly why that was happening and now with hindsight I realized a lot of these issues are related, but I'm just wondering how you see this. Do you think this is a generational thing because of the times in which we live, or is it just that as people get older they naturally have more money and they kind of become a little bit more.Accustomed to having this money and a little bit better seated in life.

I think the overarching reason to what you saw in that survey is because as you get older, you accumulate more money, you feel more comfortable where you are, but I definitely think that there's a generational aspect. So this

is specifically more difficult, especially for younger people.

I think, I think younger people have a lot of tragedy or trauma to grapple with, um, when it comes to money and when it comes to a lot of world changes, like, I'm a millennial, so I can speak most confidently from a millennial point of view, butI mean, millennials had to go through the tech bubble bursting, the great financial crisis, and COVID, 3 world altering crises in the span of, I mean, counted up 20 years or so, and their formative years too. I mean, I said this in my piece, but I was in high school during the great financial crisis, so I was too young to open a brokerage account, but I definitely felt it. Both my parents, my mom lost her job and my dad lost a lot of income as a residential electrician, and, and that affected my risk tolerance. I sawThe bad side of risk. So I think a lot of the millennial and Gen Z population is at a point where they've seen a lot already in their lives and you contrast that with an incredibly unaffordable.Environment where, you know, everybody's been touting homeownership, but it's become less and less reachable and you have a really tough recipe where you have to grapple with a lot of these thoughts.

All right, we got to get to our runway showdown here where investing style meets market reality and we're going to keep it on market psychology. This is a great discussion here. Today it is a battle between two distinct looks. And first up, we have the vibe trader riding high on market momentum in a sleek bullhorn jacket lying for living for.Today's gains while confidently ignoring tomorrow's risks, and on the other catwalk is the reality checker, hard hat on, clipboard of econ data in hand, keeping the mood in check with a clear-eyed view of the labor market and economic fundamentals, as well as market realities. So Callie, I have an idea of which contestant you might gravitate towards, but answer through this lens, who's wearing it better in the stock market rally that we are in right now? The stylish vibe trader or the steady reality checker?

I think this is a personal style question, really, it's do you prefer leather or do you prefer denim?Obviously the vibes trader is winning at the moment. I'm more of a fundamental gal, so I would say that I'm wearing that outfit and I probably relate to that a little more, but the gap between the two, I think, is just so wide that you're going to have a lot of different answers here. You know, if you're, I think this is where time frames come into play, you know, if you're saving up for retirement, if you're thinking years and years down the road, then you're probably a little more fundamental like us. Ultimately, I say like us, Jared's like.Uh, but you know, you're thinking more about earnings in the economy and how changes in the American economy and the global economy, um, affect the future over years and years and years. The vibes trader, you know, you're thinking more technician, where is the price now? What are the price levels that matter? You're

lucky if you're lucky if the vibe trader is a technician.

I was, I thought a vibe trader might be someone that has a longer time horizon, right? I feel like they could weather a lot more volatility because if you know, years and years down the line, that's when you want to take your money out, that's when you want to retire. At least you have that mentality that stocks usually go up all the time and maybe maybe that is a little like.Interesting psychology,

but

yeah,

because I would think if you're close to your retirement, you are a little bit more careful with what the current state of the market is and you maybe want to remove, take some money off the table quickerthan usual.

Well, you bring up a great point, and your time frame isn't something that you, it's not an ideal for everybody. You're right, there are a lot of investors closer to retirement and they have to be.A lot more conservative here because you know they're going to be living off their portfolio in 5 to 10 years. The thing I would say to that is you don't drop dead right after you retire, at least I hope you don't. You're going to be living for a few more decades if you're lucky. So there is an element of risk that you still have to take, but there's also a good middle ground that you can strike there between income, safety, and beating inflation.Over the long run with your investments.

All right, we're gonna have to leave it there. Another episode of Stocks and translation is nearly in the books. Be sure to check out other episodes of our video podcast on the Yahoo Finance site and mobile app. We are also on all your favorite podcast platforms. So be sure to like, leave and comment, and subscribe wherever you get your podcast, and we will see you next time on Stocks in Translation.