ANGLES.

Wall Street’s eyes last week were firmly on important labor market data coming out on Tuesday and especially on Friday, with the release of the latest Jobs Report which would start to clean up the mess of last month’s data which was severely disrupted by hurricanes and labor disputes, effectively giving us two months worth of data at one time.

More tariff rumblings from Trump over the weekend with social media threats to countries deemed to be thinking about abandoning the US Dollar as a reserve currency (slightly ironic given his new-found rabid support for anything crypto) and a return to troublingly unorthodox cabinet and diplomatic picks gave the markets something of reminder that they need to expect the unexpected under the new administration and that the ride is going to be anything but smooth.

Nevertheless, trading was still cautiously optimistic on Monday with the S&P 500 tiptoeing quietly higher and deeper into record territory and tech stocks finally rebounded hard after their recent underperformance relative to the rest of the market and helped push the NASDAQ to its own all-time record closing high.

More of the same on Tuesday. Despite the bizarre events in South Korea (which briefly caused a dive in stock prices) and the Jobs Openings and Labor Turnover Survey (JOLTS) for October showing that job openings picked up while layoffs eased, the indexes were barely changed by the close, finishing slightly higher (thereby setting new record highs again) with tech names leading the way for the second day in a row.

Fed chairman Jerome Powell was scheduled to speak at the New York Times DealBook Summit on Wednesday and the stock market expressed its hopefulness about his interest rate-related comments by jumping nicely higher at the open and building on those gains throughout the day (more all-time highs of course, #56 of the year for the S&P 500 and #35 for the NASDAQ). This was despite the fact that Powell ended up saying that the economy looks better now than it did when the central bank began cutting interest rates in September, which could possibly be interpreted as meaning that the Fed can move more slowly in cutting interest rates.

It was a volatile day on the newswires with Trump’s choice of financial regulation-hater and crypto fanboy Paul Atkins to be Wall Street’s chief cop as head of the Securities and Exchange Commission (SEC), the collapse of the French government, the fallout in South Korea and the brazen murder of Brian Thompson, the chief executive of the insurance arm of UnitedHealth (UNH) in midtown Manhattan. The fact that the indexes are continuing to climb a wall of worry is a testament to the ongoing power of this rally.

It was party time in parents’ basements all over the world as the Atkins pick bolstered the price of Bitcoin which blew through $100k for the first time on Thursday but then substantially backtracked. Stocks took a breather ahead of the important Jobs Report the following day. Weekly New Jobless Claims, often a teaser to the big report, surprised a bit to the upside and helped keep something of a lid on interest rate cut expectations. The indexes all ended the session somewhat lower, although the dive in Small Caps was pretty significant.

The Jobs Report dropped before the open on Friday and came in mostly as expected with a +227k increase in payrolls, giving a three-month average of +173k when prior-month revisions were taken into account. The unemployment rate crept higher to 4.2%, which was a bit hotter than expected. The numbers did not really complicate things too much for the Fed with now just this week’s inflation data left to negotiate before December 18th’s interest rate decision and announcement.

Wall Street interpreted the report as pleasantly ambiguous, good enough for economic growth, but not so good that it could force the Federal Reserve to pause its rate-cutting plans and triggered a green light for a cut next week, the implied probability of which quickly jumped (see FEDWATCH INTEREST RATE TOOL below).

Stock and bond prices initially spiked higher in response but then spent the rest of session meandering gently back down towards the unchanged line ending up with small gains (but still enough for, you guessed it, more all-time record highs for the S&P 500 and the NASDAQ) and tech stocks once again outshining the overall market.

There’s a growing disconnect that is concerning some stock market observers. One of the biggest pillars of 2024’s remarkable rally has been the expectation of a future steady cycle of interest rate cuts from the Fed. Yet, when the market votes with its dollars in the futures market, the highest probability is assigned to between two and three cuts in 2025 following a December reduction (see FEDWATCH INTEREST RATE TOOL below).

This does not really compute since two or three cuts in a year cannot be described as a “steady cycle” and would imply about a 3.75% Fed Funds rate going into 2026, which could well fail to justify a rally built largely on the fact that lower interest rates than that have been anticipated.

Another possible threat to the steady cycle in 2025 is provided by so-called bond vigilantes, who are sharpening their knives and on the lookout for a resumption of inflation caused by tariffs, a fall-off in the labor market’s Goldilocks scenario, any signs of a government spending explosion under a Trump presidency and a downturn in economic projections.

We need to keep a really close eye on the data going forward since there is definitely potential for a trapdoor of a 10%+ correction in stock prices that have been pushed higher for over a year now by very optimistic interest rate expectations. Not a prediction but something to be aware of.

OTHER NEWS ..

Anger exposed .. The coverage of the shooting of United Healthcare’s Brian Thompson put the spotlight on a boiling level of deep public rage revealed on social media towards health insurance companies’ rapidly growing rate of denials of medical coverage and massive annual premium hikes under pressure from shareholders to preserve extremely high levels of earnings. The stocks of all the insurers fell hard over the week with UNH alone down 10% since the murder on the back of fears of intensified regulation from the upcoming populist administration.

No direct evidence has emerged to connect the shooting with a dispute over UnitedHealth’s business, though a shell casing and live ammunition round inscribed with “delay” and “depose” were recovered from the sidewalk at the midtown hotel where the attack took place. The words echo complaints many American consumers have about long waits for insurers to pay medical bills and often outright denial of claims, while at the same time raising their prices every year by a large multiple of the inflation rate.

These companies are among the most detested in the country. A Gallup survey last fall asked respondents what they thought of the service provided by their health insurers. Only 5% rated it as “excellent” with the vast majority calling it “poor” or only “fair”.

$$ On The Move .. The largest intergenerational wealth transfer in U.S. history is about to take place, moving about 80% of the wealth held today, though the vast majority of Americans are unlikely to inherit any money at all. About $105 trillion is projected to be passed down from older generations over the next quarter of a century, an amount roughly equal to the 2023 gross domestic product of the entire planet with $2.5 trillion passing next year alone.

Yet while the assets of millions of aging Americans are passed on, the percentage of the U.S. population that will benefit from inherited money has actually fallen, a sign of how accumulating family wealth has become more concentrated among the most affluent households. Almost 80% of American households will not ever inherit a penny, a slightly higher proportion than in the 1980s.

ARTICLE OF THE WEEK ..

Some real gems in here, including:

* “There are now more $100 bi…

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Everything is relative. Wall Street breathed a huge sigh of relief at the beginning of a holiday-shortened week that, despite all the glaring shortcomings of Trump’s pick Scott Bessent, financial markets have at least not been saddled with a clownish Dr. Oz-type figure as Treasury Secretary. A degree of calm returned to bond markets on Monday as interest rates eased and stocks moved higher at the open and held on to most of their gains throughout the session. Yet again, Small Cap names were the star performers (indicative of the continuing healthy broadening of participation in the rally) but Tech/AI stocks remained on ice, only minimally participating.

An exception was Macy’s whose stock got trashed at the open just days before its traditional NYC parade after the company was forced to cancel its scheduled earnings report as a result of the disclosure of an accounting scandal affecting $150m of expenses not taken into consideration. They were hidden, it would appear, by an individual employee.

Trump’s tariff policy began to come into focus on Tuesday with an opening salvo of specific threats on social media and overseas markets reacted badly. By the time Wall Street opened, Asian and European stocks had already buckled but it couldn’t derail the upward momentum of U.S. stock indexes which continued higher, with the notable exceptions of the three big U.S. automakers, which all tumbled on the tariff proposals.

Both the S&P 500 and Dow Jones Industrial Average (DJIA) reached new all-time highs yet again, as traders seemed to price in that the president-elect’s approach on this issue may be just characteristic bluff and bluster. As one equity strategist put it, “This is just Trump’s negotiating style: step one, punch in the face, step two, let’s negotiate.”

A deluge of retail sector earnings reports proved mixed at best. Kohls was an absolute disaster (punished by a 23% dive in the stock price in the first 30 minutes of trading), Best Buy was far from great, Abercrombie and Fitch’s fairly decent results failed to reach a very high expectation bar although the news out of Dick’s Sporting Goods was positive. The minutes from the last Fed meeting didn’t really throw up any red flags about an interest rate cut at the next one in December, the probability of which is now moving steadily higher again (see FEDWATCH INTEREST RATE TOOL below).

There was a big pre-holiday economic data dump on Wednesday morning, most importantly the Personal Consumption Expenditures (PCE) price index inflation measure, upon which the Fed relies heavily to determine its interest rate policy, which came in a touch hotter than expected at +2.3% annualized. Initial Jobless Claims, Durable Goods and the latest Q3 Gross Domestic Product (GDP) estimate of a +2.8% annualized increase all came in looking perfectly fine.

Markets mostly yawned in response at the open on what was the last full trading day of the month but there were rather troubling earnings reports from Dell, Hewlett Packard and Crowdstrike. Stocks retreated from record territory and a six-day winning streak for the S&P 500 finally came to an end after prices drifted lower in a light volume session, for the most part driven by yet more weakness in Big Tech names.

Traders returned to their desks on Friday for a half-day session showing no signs of any hangover, pushing stock prices further north to more new record highs for the S&P 500 and the DJIA and November proved to be the strongest month of 2024 so far for both those indexes.

The path of least resistance into year-end remains solidly higher and a few somewhat more conventional cabinet choices has been a market positive. If that continues and growth stays Goldilocks, then the S&P 500 could well remain above 6,000 and advance between here and New Year’s Eve. Once the confetti in Times Square has all been swept up in a few weeks time, however, the outlook may possibly start to feel rather different.

OTHER NEWS ..

Silly Season Is Upon Us .. Wall Street research firms are beginning to issue 2025 forecasts for the equity market. These reports have so far been entirely bullish. Major research teams have projected the benchmark index will finish as low as 6,400 next year or as high as 7,000 (it closed on Friday at 6032).

‌But as per usual, many of the current targets simply fall in line with the comforting anchor of the traditional average annual return of the S&P 500 over the last century. And that roughly 11% annual return hardly ever actually occurs in a one-year period.

The only useful takeaway from these hot takes is that it's more about the direction of the market than where the actual projections fall. In other words, at best they act as a compass, certainly not as a GPS.

In fact, the track record of these dart throws is embarrassingly pathetic when looked back upon in retrospect and the numerical price targets themselves, which are demanded and then loudly publicized by click-hungry financial media, should be disregarded by investors.

Things Will Change - So Why Worry Now? .. There has been some discussion around the reasons that markets have tended to react only lightly to some of Trump’s wackier cabinet picks (except for the Kennedy Health selection which had a very tangible and damaging impact on the stock prices of a number of healthcare-related stocks). The fact is that during the president-elect's first term in office, nearly half of the 15 people he initially appointed to lead the executive departments were already gone and had been replaced by the halfway point of his presidency. And it’s even possible that some of his initial choices may not even make it through the confirmation process.

Wall Street seems to be taking the view that, in Trump’s completely unpredictable and highly transactional world, very little is going to be definite, fixed or permanent.

ARTICLE OF THE WEEK ..

“We should be celebrating the miracle of the U.S. stock market. It’s the greatest wealth-building machine on the planet.”

THIS WEEK’S UPCOMING CALENDAR ..

It’s jobs week again with the Jobs Openings and Labor Turnover Survey (JOLTS) for October out on Tuesday and a big Jobs Report on Friday, which will seek to begin to clean up the messiness of last month’s numbers which were impacted by hurricanes and labor disputes over the studied period. Estimates this time around are for a 190k increase in payrolls and a slightly higher 4.2% unemployment rate as well as very significant revisions to September’s data.

More Q3 earnings will keep trickling in, including from Salesforce, Hewlett Packard, Dollar Tree, Kroger, Lululemon, DocuSign and Ulta Beauty.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Consumer Cyclical (two biggest holdings: Amazon, Tesla) - up 3.5% for the week.

Last week’s worst performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) - down 1.5% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price rose 1.2% last week, is up 26.8% so far this year and ended the week at its all-time record closing high.

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price rose 1.2% last week, is up 20.5% so far this year and ended the week 0.2% below its all-time record closing high.(11/08/2021).

AVERAGE 30-YEAR FIXED MORTGAGE RATE:

* ⬇︎ 6.81%

One week ago: 6.84%, one month ago: 6.72%, one year ago: 7.22%

Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.

FEAR & GREED INDEX:

“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.

The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators th…

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Stocks began the week on Monday in a more upbeat mood, with buyers re-emerging to scoop up some of the discounted Tech/AI names following the previous week’s gloom, although the early momentum slowly dissipated as the session wore on and the day ended with only minimal gains. Energy stocks jumped as Trump decided that a fracking company CEO was a good idea to become the next head of the Department of Energy.

Things turned sour again on Tuesday morning following a really ugly session in Europe as tensions surrounding the Russia/Ukraine war were ramped up by apparently U.S.-sanctioned Ukrainian long-range missile attacks inside Russia, swiftly followed by an apparent re-write of Russia’s nuclear protocols and these concerns spilled into U.S. markets.

Indeed, the post-election bump seemed on the brink of disintegration at one point as stocks fell hard at the open and so-called “safe haven” assets like Treasury bonds, the U.S. Dollar and gold pushed notably higher. As the day went on though, stock traders seemed to become more sanguine, the early geopolitical panic subsided and prices moved back into the green and remained there until the close.

Wednesday was always going to feel like a waiting game, with superstar Nvidia reporting after the close that day, although some horrendous earnings and forward outlook from Target caught Wall Street’s attention at the open and it crashed the stock more than 20%. The indexes fell, in line with this miserable news from a major retailer and stayed rather depressed all day in advance of the main event of Nvidia’s earnings after the bell.

The chipmaker released a broadly-positive set of results but the revenue forecast fell short of some of the admittedly sky-high expectations, which arguably showed that its dizzying AI-fueled growth run might possibly be reaching its limits.

Dip-buyers quickly bought up the knee-jerk initial sharp fall in Nvidia’s after-market price and by the time the real market opened on Thursday morning, the stock was largely unchanged. Another very healthy Weekly Jobless Claims number provided a much-needed injection of hope into the December rate-cutting case and stocks drifted north to finish the day higher with Small Caps and the financial sector particularly shining.

The market chopped quietly sideways for a while on Friday, before finally shifting a little higher again on still-intact interest rate cut hopes with Small Caps and financial stocks continuing to lead the charge and tech names once again struggling to keep up.

At around 6000, the S&P 500 is currently priced for perfection and perfection means: Goldilocks growth, an ongoing Fed interest rate cutting cycle, falling inflation and pro-growth policies that aren't derailed or unduly delayed by political turmoil, drama or incompetence.

While the ultimate policy direction could well be positive for stocks (pro-growth) the path to get to that destination is likely to be a bumpy one given Trump’s inclination towards chaos and that’s something to keep in mind as we look ahead to next year. It’s pretty safe to say that 2025 will be a more volatile year than 2024 as markets will have to digest headlines associated with:

* unorthodox policies from the incoming administration,

* potential higher volatility in Treasury yields and the U.S. Dollar,

* trade and tariff threats,

* familiar unknowns from 2024 such as the strength of the economy, pace and size of Fed rate cuts, inflation and growing geopolitical uncertainty. 

Put in plain English, the Trump administration and Republican government will have a pro-growth, low-regulation focus, but as 2016-2020 and recent post-election events have shown us, that can come with policy and rhetorical surprises and uncertainty and while the result of it all could still easily be higher stock prices, it’s unlikely to be as smooth a ride as 2024.

Higher volatility doesn’t necessarily mean a bear market and the technical setup for stocks in 2025 is still mostly positive. However, headline-driven volatility will rise and being able to determine what negative news stories are just flare-ups that will likely simply cause a mild and/or ultra-short term temporary pullback and what unfavorable news constitutes a real threat to the stock market rally will not be easy.

I’ll do my best to help.

OTHER NEWS ..

RIP the surveys - please! .. Sharp-eyed readers and listeners will have noticed that I almost never allude to consumer sentiment surveys in my main report, from which many analysts draw far-reaching conclusions about the state of the economy.

That is because they are utterly worthless nonsense. Many are still conducted by landline phone or snail mail paper, so are immediately compromised by selection bias. The response rate is pathetic and is subject to the extreme recency bias of the respondents (did they have a good/bad morning before they respond to the mailed survey in the afternoon?).

But the real reason that these surveys are absolute rubbish and should be completely ignored is that they are often nothing more than amateurish political opinion polling. That was on full display last week by the first post-election Expectations Index, which measures how consumers feel about the future as part of the Consumer Sentiment Survey from the University of Michigan, for some unknown reason the respected big daddy of all economic surveys.

Optimism jumped nearly 28 percentage points for Republican households from the previous survey right before the election and plunged almost 18 among Democratic ones. Say no more. What a useless data source upon which to base any kind of conclusion impacting what to do with your money.

?????? .. Concerns are growing on Wall Street about the quality and lack of political and diplomatic experience of some of Trump’s frankly bizarre cabinet picks and what they could mean for the fortunes of certain sectors and companies in the coming years. Trump has also proposed waiving any FBI or any other kind of background checks for his nominees.

On Tuesday, his selection of TV talk show host Dr. Oz to run Medicare/Medicaid was considered unlikely to soothe the worries of a severely distressed healthcare sector still reeling from the president-elect’s decision to give a shot in the arm to anti-vaxxers and tap Kennedy to head up Health and Human Services.

The Oz pick was swiftly followed by that of his old buddy Vince’s wife, former wrestling executive Linda McMahon, sued recently for enabling the sexual exploitation of children, to head up the Department of Education. Also last week, Trump loyalist Howard Lutnick, CEO of Cantor Fitzgerald, was chosen as Commerce Secretary with responsibility for managing policy on tariffs and international trade, Chris Wright, CEO of fracking company Liberty Energy was nominated to lead the Department of Energy and some ex-NFL footballer, Scott Turner, was named to run the Department of Housing and Urban Development.

Serious assault and sex trafficking allegations eventually forced Matt Gaetz off the ticket for Attorney General on Thursday but similar sexual assault accusations hang over another TV host, Pete Hegseth, the woefully inexperienced pick for Secretary of Defense, which could impact the fortunes of a number of defense and military contracting companies.

As the week’s trading closed, Wall Street was still on the edge of its seat bracing for what it viewed as the absolutely critical choice for Treasury Secretary with oversight of the world’s largest bond market, tax collection and economic sanctions. In the end, Scott Bessent, who was a largely unsuccessful macro hedge fund manager but who campaigned vigorously for Trump, got the nod after Friday’s closing bell.

ARTICLE OF THE WEEK ..

Sometimes what you should NOT believe about investing is even more important than what you should.

THIS WEEK’S UPCOMING CALENDAR ..

Some major retailer earnings and the Federal Reserve's preferred inflation measure will be the highlights of this holiday-shortened week. U.S. stock and bond market…

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The bond market was closed on Monday for Veterans’ Day, but the stock market was up and running and squeaked out a tiny further extension of its winning streak on light trading volume with Small Caps leading and Tech/AI lagging. The slight gain was enough, however, to achieve a first-ever S&P 500 close above the 6000 level (just 263 days after first breaking through 5000) and the first-ever Dow Jones Industrial Average close above 44,000.

Election outcome uncertainty transformed into policy uncertainty as Trump began to show his hand with cabinet appointments. The election-fueled rally finally cooled on Tuesday as stocks ran out of steam, easing lower with Small Caps in particular giving back a chunk of their recent gains.

Things were not helped when bond traders returned from their long weekend and proceeded to spike interest rates and send bond prices spiraling lower on the back of concerns that many of Trump's proposed policies, ranging from tariffs to mass deportations, will simply stoke higher inflation and a possible resulting slowdown in the rate-cutting cycle.

Before the open on Wednesday, we got the latest Consumer Price Index (CPI) measure of retail inflation which came in exactly as expected, up +0.2% for the month of October and an annualized rate of +2.6%. Wall Street is tending to treat “as expected” inflation numbers with some relief these days as they keep stock-friendly interest rate cut hopes alive and prices opened in the green before pulling back to close unchanged for the session. The Tech/AI sector once again struggled to keep up with the performance of the rest of the market.

Wednesday also saw the largely-predicted final confirmation of a Republican clean sweep as the party officially retained control of the House of Representatives to add to the presidency and the Senate.

Thursday began with the release of CPI’s baby brother, the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers which often foreshadows what consumers will pay in the future. It rose by a smidge more than anticipated, up +0.2% in October and +2.4% annualized.

Stocks initially responded positively, shifting higher at the open but then abruptly changed direction to finish the day in the red again. The sudden decline could mostly be put down to the Fed chairman Jerome Powell catching Wall Street off guard by telling business leaders in Dallas that the U.S. economy is "not sending any signal that we need to be in a hurry to lower rates" and that the central bank’s interest rate-cutting process “could be on the verge of a pause”.

Uh-oh.

Also unsettling investors were concerns about the possible impact of some of Trump’s often head-scratching cabinet picks and Musk’s growing role in policy-making (see OTHER NEWS below). For example, healthcare stocks plummeted on Thursday when it became clear that the president-elect had tapped vaccine-skeptic and all-around strange person Robert Kennedy to head up the Department of Health and Human Services.

Despite a pre-market release of some very healthy Retail Sales numbers, the reversal lower in stock prices resumed on Friday with the recurring pattern of stumbling Tech/AI. Losses intensified as the day went on, as bonds fell hard again on higher interest rates and the massacre continued in the healthcare sector as a result of the Kennedy pick. A tough week ended on a very sour note.

Whenever the market makes a dramatic move such as the one we saw in the wake of the election, it is always good practice to step back and at least consider certain scenarios that could play out that are different from the consensus outlook.

5%+ weekly moves up in stock prices generally tend to occur when the market outlook is uncertain, trader conviction is low and investors are far more worried about missing out on additional upside and far less focused on capital preservation.

There are market risks to the pro-growth agenda and proposed policies of the incoming administration. Do we take Trump literally in what he says he’s going to do, particularly in the area of tariff impositions, deportations and powers given to his recently-announced Musk/Ramaswamy-led Department of Government Efficiency or is it indicative of simply a broad direction of travel?

If the Republicans’ radical growth plan threatens to further balloon the deficit then the bond market taking interest rates substantially higher and crashing bond prices will inject significant volatility, no matter what any economic growth actually ends up looking like.

Higher yields in fixed income always suck capital from equities and make stocks less attractive on a risk-adjusted basis relative to the deemed-safer alternative of bonds.

The tailwinds provided by the vibrant economy may cause the Fed to slow the pace of interest rate cuts and markets have priced in two or three quarter point reductions over the course of ten meetings in 2025. That’s a lot of pauses where the central bank simply sits on its hands and does nothing.

Right now Wall Street seems to be just about at peace with that, but if the Fed is seen to row back a bit on even those cuts, that is going to strongly disappoint markets and likely throw a wrench into any stock market rally.

Economically speaking, 2024 has been a perfect storm in a good way. Everything went right. But what that means is that, going into 2025, we are riding the crest of a wave and that, while things can definitely still remain positive, it’s not going to be easy to build much further on that and get meaningfully better.

OTHER NEWS ..

Distracted .. Tesla shares soared 30% in the week of the election, but there is world where even gains of that size could soon become fleeting. Since then, there’s already been a sixth recall of all the company’s Cybertrucks, the proposed cancellation of the existing tax incentive for consumers to buy electric vehicles and the selection of Musk to head up a Department of Government Efficiency and even spending time getting involved in geopolitical diplomatic roles likely to cause yet more distraction from his duties at Tesla will be of concern to shareholders.

There is also a non-trivial possibility that he might just become the most hated man in America depending on exactly what this new department may implement in terms of spending cuts. That is unlikely to be good news for Tesla’s stock price and the company’s relatively high weighting in index funds means that the effect could be felt by many millions of investors.

ARTICLE OF THE WEEK ..

How boomers’ money secrets are a ticking time bomb for their kids.

THIS WEEK’S UPCOMING CALENDAR ..

Earnings from Nvidia after-market on Wednesday will be this week's highlight, as Q3 earnings season starts to draw to a close.

Other earnings of note include Walmart, Target, Lowe’s, Medtronic, Snowflake, Deere and Intuit.

Economic data coming out this week will be mostly housing-related.

LAST WEEK BY THE NUMBERS ..

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Financials (two biggest holdings: Berkshire Hathaway, JP Morgan Chase) - up 1.5% for the week.

Last week’s worst performing U.S. sector: Healthcare (two biggest holdings: Eli Lilly, United Health Group) - down 5.4% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from among the largest U.S. companies. Its price fell 2.0% last week, is up 23.2% so far this year and ended the week 2.2% below its all-time record closing high (11/11/2024)

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a group made up from among 3,000 of the largest U.S. stocks. Its price fell 3.9% last week, is up 13.8% so far this year and ended the week 5.8% below its all-time record closing high (11/08/2021).

AVERAGE 30-YEAR FIXED MORTGAGE RATE ..

* ↓ 6.78%

One week ago: 6.79%, one month ago: 6.44%, one year ago: 7.44%

Data courtesy of: FRED Economic Data, St. Louis Fed as of last Th…

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Wow. Where to even begin unpacking last week? OK, let’s give it a try ..

As an immense week began, Wall Street was acutely aware that following the 2020 election, stock prices swung around in both directions in an 11% range in the 24 hours following the closing of the polls and this time around the election looked even closer than it did then. If we go back to 2000, stocks fell 12% between election day and the Supreme Court’s removal of the ambiguity surrounding the outcome a few weeks later.

Throw in the current proximity to all-time record highs in stock prices and it was perhaps no surprise that many traders appeared to have decided to sit things out until some kind of clarity emerged. As one analyst predicted: “November 5th is going to be a blindfolded mud-wrestle in a minefield.”

Stocks were flat at the open on Monday, but drifted lower throughout the session as, if anything, uncertainty about the eventual winner actually increased on the final day of the campaign.

Election Day finally arrived on Tuesday and traders (and financial newsletter writers!) hunkered down for what was expected to be a long, caffeine-fueled 24 hours. Stocks opened cautiously higher on light volume with a calm-before-the-storm feel as Americans headed to the polls but then accelerated sharply upwards as the session wore on, with Small Caps leading the way.

This was mostly in reaction to a growing sense at the time that, however things were to shake out on a presidential level, neither party seemed likely to achieve a sweep of the presidency, House and Senate. This might help prevent anything too “crazy” from happening in the coming years and Wall Street really doesn’t like crazy.

Tuesday turned into Wednesday and as the results poured in, a resounding Trump win came into view pretty quickly, along with a confirmed Republican Senate grab with the House too close to call yet but likely also leaning red which would complete the trifecta, effectively giving the new president pretty much a blank check.

Traders reacted swiftly. U.S. stock index futures rallied substantially higher, interest rates shot up and Bitcoin soared to new all-time record high levels. Europe woke up to the prospect of another Trump presidency, an almost certain explosion of a global trade war and a changed dynamic in the Ukraine conflict and local stocks sold off.

When U.S. markets opened, stock indexes ripped higher, once again led by sky-rocketing Small Caps, on the prospect that the new administration will juice the economy and corporate earnings with lower taxes and deregulation as well just pure relief that the hurdle of U.S. election uncertainty had been cleared, regardless of who won. Wall Street now had the certainty it craves, at least.

On the other hand, bonds crashed hard as interest rates roared higher on the back of fears about a Trump-triggered spike in U.S. inflation and deficit spending.

Gains on this side of the Atlantic mounted as the session continued and it ended up being best single day for the S&P 500 in two years. The index closed at yet another all-time record high and within striking distance of the 6000 milestone. The NASDAQ also made new all-time highs. But the star performer of the day was the Russell 2000 Small Cap index which closed up nearly 6%, as smaller companies were seen to be the main beneficiaries of a high tariff policy like the one Trump has been talking about.

Possibly the penultimate interest rate-setting meeting of the Federal Reserve as an independent central bank free from presidential interference if Trump has his way concluded on Thursday afternoon in advance of chairman Jerome Powell’s press conference. Stocks built further on the previous day’s massive gains in advance of the 2pm ET announcement. It was notable however that Wednesday’s biggest winners were Thursday’s underperformers (actually a good sign for market breadth).

To the surprise of absolutely no-one, interest rates were cut by a quarter of a point by unanimous decree from the Fed committee. Neither the decision itself or the chairman’s rather tense presser afterwards had any real impact on stock prices, but the morning’s gains carried the indexes deeper into new all-time record high territory. The Fed’s move reinforced that nothing in the election or recent data has changed the fact that we are still in an interest rate cutting cycle and that’s good for stocks.

Perhaps the most interesting answer given by Powell, who has been Fed chairman since 2018 and whose term ends in May 2026, was when he was asked whether he would resign if asked to do so by Trump, to which he gave an emphatic one word answer; “No.”

Wall Street took something of a well-deserved breather on Friday, exhaling to digest the week’s tumultuous moves, but stocks still managed to move higher on the day, with the S&P 500 briefly breaking through the 6000 level before closing at its 50th all-time record high of the year. The stock market has its certainty, but it may come with a frothy price tag. 

The index scorecard for the week showed the S&P 500 up by 4.7% (its best week of 2024), the NASDAQ 5.7% higher and the Russell 2000 Small Cap index with an astonishing 8.8% rise (its best week for years).

Making investment decisions and moving assets around based on politics is a fool’s errand. Long after the torrid election reaction has faded, Fed policy, economic growth and earnings will again be what steers this market. Making knee-jerk, portfolio-changing decisions right now is a really, really bad idea.

The best investment advice I can give right now is to quote the next president from his 2020 campaign in reference to the Proud Boys, “Stand back and stand by”.

OTHER NEWS ..

That’s Rich! .. The net worth of the world's ten richest people surged by a daily record of $63.5 billion on Wednesday, the day after the election. Elon Musk (Tesla), Jeff Bezos (Amazon), Brian Armstrong (Coinbase), Changpeng Zhao (Binance) and Larry Ellison (Oracle) were among the top gainers, with Musk alone adding $26.5 billion to his net worth in six and a half hours, a pretty good rate of return on the $130m he poured into the Trump campaign. We were treated to the slightly ghastly spectacle of all these people and multiple other Silicon Valley bros lining up and desperately falling over each other to be seen to congratulate Trump in the wake of his crushing victory.

Nine of the ten are based in the U.S., the exception being Bernard Arnault, the French chairman of Louis Vitton Moët Hennessy.

But the 1% in Illinois beware: Voters in the state approved a proposal to add an extra levy on the income of high earners.

ARTICLE OF THE WEEK ..

There’s a mountain of articles out there dissecting the election from multiple different perspectives. But please make the time to read this one from Barry Ritholtz, who really knows his s**t when it comes to financial markets ..

10 Investing Lessons from the 2024 Election.

THIS WEEK’S UPCOMING CALENDAR ..

After the turmoil of last week, there’s not a lot of respite for investors this week with a pair of inflation reports, retail sales numbers, the tail end of Q3 earnings season and an address from Fed chairman Jerome Powell to navigate this week.

The earnings highlights include results from Home Depot, Cisco, Disney, Shopify, Alibaba, Applied Materials, Spotify, Occidental Petroleum, Sony, Under Armour, Live Nation and Softbank.

The main economic data event of the week will be the release of the October Consumer Price Index (CPI) measure of retail inflation on Wednesday. Estimates calls for a 2.5% increase from a year earlier. The Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers comes out the next day and then Retail Sales data on Friday.

Powell will take part in what will be a closely-watched moderated discussion at the Federal Reserve Bank of Dallas on Thursday afternoon.

LAST WEEK BY THE NUMBERS ..

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Consumer Cycl…

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit simonbrady.substack.com

U.S. markets shook off the weekend’s news of Israel’s bombing of Iran and looming political gridlock in Japan and embarked on an incredibly busy earnings and economic data-packed last full week before both the election and the next Fed interest rate decision on a positive note at the open on Monday. Oil prices suffered their biggest one-day fall in over two years on the back of an apparent lack of damage to Iranian oil facilities during Israel’s attack.

This hit the energy sector but most stocks generally got a boost from the retreat in recently-extended oil prices and at least a temporary dip in the geopolitical temperature and the indexes finished the session higher, although off the highs of the day.

Old school names Ford, McDonalds, Xerox, Black & Decker and Jet Blue all issued rather troubling earnings reports which weighed on markets on Tuesday morning. While the Job Openings and Labor Turnover Survey (JOLTS) showed a lower number of open job positions than expected, the Consumer Confidence Index showed a long overdue major leap in how confident consumers feel about what is clearly a really strong U.S. economy.

Stocks liked that and the indexes, led by the NASDAQ, recovered from their early losses to move into the green zone, but in the end the gains were relatively small as traders kept their powder dry ahead of the real business end of the week with the slew of big dog earnings and economic data starting after Tuesday’s closing bell.

Alphabet/Google kicked things off by solidly beating analysts' estimates for earnings and revenue but showed an alarming increase in capital expenditure, much of it AI-related. AMD’s results disappointed and Eli Lilly’s forward guidance was unimpressive. The bigger picture, however, remains vigorous, with Q3 Gross Domestic Product (GDP) coming in at +2.8%, pointing to an economy that’s humming along nicely, with strong consumer spending supported by a robust labor market, and business investment that remains solid.

The net effect on stocks on Wednesday ended up being minimal with the indexes floating around either side of unchanged most of the day, eventually ending the session with light losses.

After hours, we learned that Microsoft’s cloud-computing business and Office software fueled stronger-than-projected revenue growth in Q3 but the company is struggling to bring data centers online fast enough to keep up with demand for AI services. Meta/Facebook failed to beat estimates on revenue despite a decent earnings number and its wearables division (headsets and glasses) continues to rip through ridiculous amounts of cash with apparently very little sign of any light at the end of the tunnel.

The Bank of Japan held interest rates unchanged but the Microsoft and Meta reports gave the broad market no chance and dragged stock prices significantly lower on Thursday and things only got worse when the Fed’s favorite inflation measure, the Core Personal Consumption Expenditures (PCE) price index showed some unexpected stickiness in the rate of inflation.

This further hurt the narrative of imminent outsized Fed interest rate cuts. Stocks in general had a bad day (all of the S&P 500’s gains for the month of October were wiped out in the final session of the month) but tech and AI names did even worse, suffering something of a Halloween massacre.

After Thursday’s close Amazon reported better-than-expected earnings and revenue, with Amazon Web Services the standout performer. These days, Wall Street has become accustomed to the Magnificent Seven and other tech and AI-related names not just beating forecasts but absolutely smashing them. This proved to be Apple’s downfall as it reported slightly higher-than-expected earnings and revenues, but the word “slightly” proved to be a problem for the market which sent the stock tumbling in after-hours trading.

On Friday morning before the opening bell, the jewel in the crown of what was a very crowded week of data, the Jobs Report, was released. It showed a heavily-reduced payroll number of just +12k jobs added in October but with the huge caveat that the studied period was very distorted, including two massive hurricanes and significant labor strikes. Big revisions and corrections can be expected in next month’s report. September’s number was revised downwards but the unemployment rate remained unchanged at 4.1%.

Wall Street saw nothing here likely to derail a quarter point rate cut this week and interest rates fell back and stocks moved higher at the open and held onto those gains all day, but still ended up lower on the week. For the NASDAQ it was the first weekly loss in the last two months.

This week will be absolutely pivotal for markets. The world could be a very different place by the next time you read one of my reports. Or not. The U.S election is on a knife edge and, despite a bit of vocal pro-Trump bravado, Wall Street has absolutely no idea what the result will be. There is a scenario by which the outcome will be vociferously challenged both in the courts and in the streets and Wall Street’s most implacable enemies, uncertainty and disorder, could reign for weeks or possibly even months.

Meantime, the Fed this week needs to read the messy tealeaves of economic data recently tainted by hurricanes and strikes as well as trying to stay out of political trouble with its interest rate decision-making. I don’t envy Powell his job this week.

OTHER NEWS ..

All Change .. Nvidia will finally make an appearance in the Dow Jones Industrial Average, replacing Intel in the index this week. The swap reflects the reversal of fortunes of the two firms within the tech industry. Sherwin-Williams will replace Dow Inc. as well.

S&P Dow Jones Indices, which manages the 30-stock benchmark, said the changes were made to ensure a more representative exposure to the semiconductors industry and the materials sector. They take effect on November 8th.

Democracy Burning? .. Fires deliberately set at ballot boxes in Washington and Oregon destroyed hundreds of ballots in counties with very close races and are being investigated by the FBI and U.S. Attorney’s Office. Law enforcement has identified a vehicle suspected of being used by the firestarter. Meanwhile, conspiracy theorists who still believe Trump won the 2020 election are using Telegram to monitor and film polling places in swing states in an effort that officials say risks intimidating voters and suppressing voter turnout.

Crash! .. Super Micro Computer (SMC) admitted on Wednesday that Ernst & Young (E&Y) had resigned as its auditor. E&Y said in a statement; "We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee's representations and to be unwilling to be associated with the financial statements prepared by management".

This information was likely that provided by analyst firm Hindenburg Research which recently disclosed a major short position resulting from claims of rampant "accounting manipulation", which were strongly denied by SMC at the time. The company’s stock (SMCI), already beaten and battered by the Hindenburg report, promptly lost close to half of its remaining value and is now down over 78% from its high recorded just last March.

ARTICLE OF THE WEEK ..

Sorry, Your Insurance Bill Probably Isn’t Coming Down Much. Here’s Why ..

THIS WEEK’S UPCOMING CALENDAR ..

This week's presidential election will be followed two days later by a Federal Reserve interest-rate-setting decision. There could very well still be some doubt about the outcome (at least in the minds of some people) of the election by the time Fed chairman Jerome Powell steps up to the podium to give his press conference on Thursday. Markets are overwhelmingly pricing in a quarter-point reduction in the federal-funds rate.

Around 100 S&P 500 companies will release quarterly results during the week including CVS, Moderna, BioNTech, Monster Energy, DuPont, Novo Nordisk, Ai…

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Wall Street appeared rather disinterested on Monday ahead of a busy week of earnings reports and stocks weakened on the back of some unsurprising, but still low-volume, profit-taking on the back of six straight weeks of gains. Although the tech-heavy NASDAQ made something of a comeback later in the day boosted by a good session for some select tech names including Nvidia, the S&P 500 index still finished in the red.

The flourishing narrative that the Fed is going to be cutting rates less aggressively going forward than originally anticipated as well as the growing expectation in the bond market that the next President will be one who will spend money like a drunken sailor, start a global trading war and jack up the fiscal deficit, the rate of inflation and the probability of the US sliding into a recession sometime in 2025 or 2026 is driving market interest rates higher (and thereby bond prices lower).

This was noticeably on display on Tuesday morning with yields spiking upwards on these worries both in the U.S. and around the world, but particularly in the U.S. 10-year Treasury rate from which most mortgage rates pivot (see the AVERAGE 30-YEAR FIXED MORTGAGE RATE below).

Stocks, particularly Small Cap names, were unnerved by these interest rate gyrations and prices fell at the open, further pressured by disappointing outlooks from Verizon, Lockheed Martin and GE Aerospace. Despite a valiant recovery attempt in the late afternoon, the S&P 500 suffered back-to-back down-days for the first time in 31 trading sessions.

While a month and a half without consecutive negative days may not sound like much, that streak actually ranks among the best since 1928. Such is the stratospheric level of market optimism that we have reached lately.

A continuing move higher in interest rates, ramped up electoral rhetoric, McDonalds’ E. Coli woes (see OTHER NEWS below) and a horrendous Q3 report and outlook from Starbucks negatively impacted stock prices at the open on Wednesday and things only got worse as the session wore on as interest rates kept on climbing and the indexes’ losing run reached three days, not helped by underwhelming earnings reports from IBM, 3M and L’Oréal.

Recent enforced deep price cuts and aggressive sales promotions helped Tesla report better-than-expected earnings after Wednesday’s close. On Thursday, in response to the Tesla news (the stock went on to erase the entirety of its 2024 losses in just one session, despite Wall Street Journal revelations of Musk’s apparent ongoing secret chummy talks with Putin since 2022) as well as some other robust earnings from the likes of economic bellwether UPS and another surprisingly sharp fall in Weekly Jobless Claims, the broad stock market moved mostly higher, snapping the S&P 500’s three-day losing skid. Tech stocks outperformed.

The green on the screen continued into Friday morning as market interest rates finally retreated from recent highs. A major analyst downgrade of Apple took some of the shine off and by the time the closing bell rang the S&P 500 had petered out to finish basically unchanged although the NASDAQ still managed to eke out a gain. Overall, the S&P 500’s six week winning run came to an end but the NASDAQ just about extended its winning streak to seven weeks.

After Friday’s close, Israel started dropping bombs on Tehran and elsewhere in Iran, sending the geopolitical temperature soaring in the Middle East.

It’s important to recognize that much of the good news we’re getting (solid growth, stable earnings, falling inflation) is already reflected in the S&P 500 above 5,800. As such, simply more of the same is not very likely to propel the broad stock market much higher in the near term.

Equally important to understand is that there are still risks to this market. They may currently not be the catastrophic risks of 1) a sudden dramatic slowing of the economy, 2) a spiking resurgence in inflation or 3) a collapse in the quality of earnings reports, any or all of which could cause a serious fall in stock prices.

But lower-level, lower-consequence risks remain, including:

* Fewer Fed rate cuts than expected. If data is so good, then the Fed may cut less than expected, both terms of frequency and intensity. The market is pricing in a total of another half a percent of cuts in 2024 and then a consistent cutting cycle in 2025. If that starts to come into doubt, it’ll be a real problem for the rally since it is so baked in.

* Geopolitics and Politics. The stock market currently assumes no meaningful degradation in the Russia/ Ukraine war or in the Middle East conflicts and most likely a Trump victory at the polls with a possible red sweep of all branches of government. The geopolitical situation remains tense and unpredictable (see what happened on Friday evening in Iran) and the race for the White House remains extremely tight so the market’s assumptions may well not come to pass and we could be in for a very difficult post-election period (see OTHER NEWS below).

* Earnings. Q3 earnings season is off to a generally fine start. But it’s still early and the next two weeks are really the heart of the season. Mediocre (or even just “not great”) reports still have the potential to disappoint markets who could hand out severe punishment to the offending companies.

So, don’t be surprised if a) markets just continue churning at these levels even on the back of more positive news, or b) markets are ultra-sensitive to any sudden, negative surprises and fall harder more than the actual data might warrant.

OTHER NEWS ..

McSickness .. McDonald’s Quarter Pounders (or more specifically the onions used in the sandwich) were linked on Tuesday to an E. Coli outbreak that sickened at least 49 people, mainly in Colorado and Nebraska and killed one, the U.S. Centers for Disease Control and Prevention said. At least ten people were hospitalized, including a child, the agency said. All reported eating at McDonald’s shortly before falling ill and specifically mentioned having eaten a Quarter Pounder, the agency said.

The price of the restaurant chain’s shares dropped more than 10% in after-market trading on Tuesday and continued even lower as the week went on.

Trouble Brewing? .. Trump’s recent improvement in the polls and betting markets now makes it a near-certainty that, should he lose the election next month, he and his supporters will refuse to accept the result and this will likely unleash furious claims of fraud, multiple recount demands, a blizzard of law suits and very possibly organized political violence.

A U.S. intelligence services report just last week warned that Russia is planning to aggressively ferment and encourage such violence in the case of a Harris victory, amplified by outright lies and baseless and dangerous conspiracy nonsense via “friendly” and loosely-monitored social media platforms like X/Twitter, starting on the final days before election day on November 5th and all the way through to a violent climax on inauguration day on January 20th.

This would all inject Wall Street’s worst nightmare, uncertainty, into the equation potentially for an extended period of time after the election itself and cast a shadow over the end of year time period that is historically very strong for stocks. It can be argued that, at these current record-breaking-adjacent levels, stock markets could be severely underestimating the potential political and social chaos that could be generated by this election and its aftermath.

Growth Hiccup? .. The International Monetary Fund (IMF) lowered its global growth forecast for next year and warned of accelerating risks from wars to trade protectionism, state subsidies and tariffs.

It forecasts global GDP to grow by 3.2% in 2025. The biggest GDP growth is predicted to be in India (6.5%), Saudi Arabia (4.6%) and China (4.5%). The U.S. economy is expected to grow by 2.2% next year with Japan and European nations lagging behind that.

ARTICLE OF THE WEEK ..

Don’t be forced into a finan…

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit simonbrady.substack.com

The market’s positive momentum from the end of the previous week followed through into Monday after a generally quiet weekend on the newswires and with the stock market open but bond markets closed for Columbus Day, trading volume was weak. Prices across the board were bolstered by Fed-speak from a number of committee members and senior officials that was generally pro-steady interest rate cuts. We hit a landmark at the close, there have now been as many new all-time record closing highs this year for the S&P 500 as there have been presidencies in the history of the United States (46).

On Tuesday, Dutch chipmaker ASML Holding’s shares plunged the most in 26 years after it booked only about half the orders that analysts had expected, a startling slowdown for the Dutch company. What made it stranger was that we weren’t supposed to learn that until Wednesday but the high tech firm seemed unable to auto-schedule a press release properly and the information was published a day early (which drew the concerned attention of the regulators). The contagion spread to other names in the sector and, combined with another grim session for energy stocks resulting from the continued swoon in oil prices and some underwhelming earnings reports from UnitedHealth Group (UNH), CVS and Humana, it was a pretty dismal day overall for the indexes.

The financial sector resumed its role as the really bright spot in earnings on Wednesday with Morgan Stanley reporting solid numbers, but United Airlines got in on the act as well with a very positive report. With a reminder that it is actually possible to generate good earnings somewhere other than just in AI, the pendulum swung back in favor of the bulls and stocks ended the day nicely higher.

There was a lot to digest before the opening bell in New York on Thursday morning. The European Central Bank (EBC) duly cut interest rates for the third time this year by 0.25% as expected in an attempt to counter sluggish growth in the region. U.S. Retail Sales rose by more than expected and Weekly Jobless Claims came in way below the expected number.

These data points reinforced the extraordinary strength of the economy right now, so much so that some are now even beginning to question whether any kind of interest rate cut at all is needed at the next Fed meeting in November. We’ve come a long way from the assumption of a second consecutive half point cut from a few weeks ago.

Stocks generally liked what they saw and initially shifted higher but enthusiasm was dampened a little by data showing that Industrial Production fell by more than expected. The indexes spent the day slowly drifting back lower again, finishing the session pretty much unchanged from where they opened.

A Netflix earnings beat and very positive forward guidance from the previous evening cheered the market on Friday morning with the stock surging 10% at the open. Apple pitched in with its iPhone 16 launch apparently going down very well in China. Not such good news at CVS who followed up their miserable earnings report by a C-Suite shakeup and the stock spiraled markedly lower. On a big picture level, however, the major indexes moved upwards - led by the NASDAQ - to achieve a sixth straight week of gains, the longest such streak of the year and closing, once again, at new all-time record highs for the S&P 500 and the Dow Jones Industrial Average.

The S&P 500 is closing in on 5,900 and it’s obvious to anyone taking any notice that at that level the market is making no allowance whatsoever for any kind of growth slowdown. And to be fair, the economic data recently has been far better than expected and has strongly supported this uber-optimism.

A soft landing remains, by far, the most likely outcome for the economy as important economic data has strengthened across multiple fronts over the past month. It’s not an exaggeration to say this is as positive as the economy has looked all year.

What is of concern to some people is not so much that there is an increasing likelihood of any upcoming growth disappointments (there isn’t), but the extent of the damage that could be done to stock prices if such disappointments were to end up happening at some point, since the market is strongly assuming that they simply won’t come to pass and is very much priced accordingly. There is no buffer at all against evidence of any kind of growth setback. That’s why each piece of major economic data needs to be closely watched.

OTHER NEWS ..

Pension Rankings .. The Netherlands retained its title as the world’s top pension system in an annual international index, which warned that too many people globally are retiring without enough guidance on how to make their savings last. Iceland and Denmark came in second and third respectively.

The report, which rates retirement systems based on their adequacy, sustainability and integrity, said while those at the top are performing well, there are demographic challenges for pensions worldwide. “We’re just not having babies and we’re living longer,” David Knox, the report’s lead author, said.

The U.S., as usual, did terribly and ranked 29th out of 48, behind most of Western Europe, parts of Asia and Canada and Mexico.

Expensive Magic .. Walt Disney Co. is increasing ticket prices for its two Southern California theme parks by about 6% on most days. The most expensive tickets (typically weekends and holidays) are climbing over 6% to $206 per day. The lowest-priced admission, available for at least 15 days in January and February, will stay at $104, unchanged since 2019.

However, for a cool $400 per person, guests at Disney theme parks can skip the long lines at popular attractions such as the Indiana Jones and Star Wars: Rise of the Resistance rides. Resorts in Southern California and Florida will begin testing the Lightning Lane Premier Pass later this month.

 

ARTICLE OF THE WEEK ..

The math behind why younger investors should be frantically hoping for a really big stock market crash.

THIS WEEK’S UPCOMING CALENDAR ..

The week will be packed with corporate news, as about one-in-five S&P 500 companies publish their Q3 results, including Tesla, T-Mobile, Coca-Cola, Verizon, Colgate-Palmolive, AT&T, UPS, Southwest Airlines, Honeywell, General Motors, Lockheed martin, 3M, Newmont and NextEra Energy.

Economic-data highlights of the week include the latest Existing Home Sales data for September and the Durable Goods report.

LAST WEEK BY THE NUMBERS ..

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Utilities (two biggest holdings: NextEra Energy, Southern Co.) - up 3.5% for the week.

Last week’s worst performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) - down 2.6% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from among the largest U.S. companies. Its price rose 0.9% last week, is up 23.0% so far this year and ended the week at a new all-time record closing high.

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a group made up from among 3,000 largest U.S. stocks. Its price rose 2.0% last week, is up 12.4% so far this year and ended the week 7.0% below its all-time record closing high (11/08/2021).

AVERAGE 30-YEAR FIXED MORTGAGE RATE ..

* 6.44%

One week ago: 6.32%, one month ago: 6.09%, one year ago: 7.63%

Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.

FEAR & GREED INDEX ..

“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.

The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and …

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit simonbrady.substack.com

Stocks began the week nervously on Monday with tit-for-tat attacks further raising the geopolitical temperature in the Middle East and the resulting continued move higher in oil prices to above $80. Things just grew more dismal as the session wore on with analysts issuing rare downgraded outlooks for both Apple and Amazon. Yet another massive destructive storm began to take aim at Florida, which crushed the prices of insurance company stocks, particularly those with large exposure to the region. The indexes all finished the day significantly lower.

Chinese markets spectacularly crashed off from their recent sugar high after coming back from a week’s holiday on the back of a letdown regarding the next stage of stimulus, dragging European stocks lower. But Wall Street shrugged it off when the bell rang on Tuesday morning and set about trying to repair the previous day’s damage, doing a good job and erasing Monday’s losses with tech leading the charge higher. The energy sector, however, slumped as oil prices reversed sharply lower.

Stocks opened slightly softer on Wednesday following a report that the U.S. Justice Department is considering a breakup of Alphabet/Google, signaling a possible broad antitrust crackdown on Big Tech and more labor trouble at crisis-hit Boeing. The mood improved as the session went on with eyes on the CPI inflation numbers the next day and PPI the day after.

The minutes from the previous Fed rate-setting meeting were released in the afternoon and we learned that there had been pretty robust debate at the meeting between the Half-Point Cutters and the Quarter-Pointers and that the decision to go with the half point reduction was a lot tighter than it initially appeared. Stocks were too busy rallying hard to take much notice though and the S&P 500 closed at its 44th all-time record high of the year.

The Consumer Price Index (CPI) measure of retail inflation for September was released pre-market on Thursday. It came in a touch hotter than expected at an annualized rate of +2.4%. Weekly jobless claims spiked much higher to +258k, but temporary distortions due to Hurricane Helene were likely a major factor and that could also be repeated with this week’s data because of Milton as well as the labor dispute at Boeing. Stocks initially drifted a little lower in response and stayed depressed during what was a bland session overall.

Friday began with the release of the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers which contrasted with CPI by coming in a touch cooler than expected; prices were unchanged over the month of September and +1.8% annualized rate.

Q3 earnings season kicked off with sparkling reports from JP Morgan, Wells Fargo, Blackrock and Bank of New York Mellon but after Elon Musk gave a typically awkward, evasive and detail-light report on Tesla’s “Cyber-Cab” plans (remember, he once promised that a million of them would be on the road by 2020) which totally underwhelmed Wall Street and the stock was severely punished.

The solid earnings news from the financial names plus the PPI number mostly neutralizing the slight concerns raised by CPI the day before sent all the indexes floating higher (led by Small Caps) and the S&P 500 closed the week at all-time record high #45 of the year.

There is a lot of noise out there right now and it’s going to stay that way with the election less than a month away. The best way to cut through that noise and not get distracted by scary and unsettling headlines is to stay focused exclusively on the three key drivers of this market: 1) economic soft landing, 2) Fed interest rate cuts and 3) stable earnings. As long as news regarding those items stays positive, stocks could well remain resilient.

* Stable economic growth remains, by far, the most important influence on this market and as long as growth is solid, that’s a major support for stocks even at these high valuations.

* On the Fed, market expectations are volatile as investors consistently talk themselves into more aggressively-interest-rate-cutting Fed policy, but it’s a trap to get caught up in that. The best-case scenario for investors is consistent but measured set of rate cuts that support stable growth.

* Earnings reports remain somewhat mixed but they simply aren’t bad enough to offset solid growth or Fed rate cuts. Looking forward, earnings will be a much bigger focus of markets over the next three weeks and the key here is not so much the backward-looking sales and revenue data, but forward-looking guidance. Unless this guidance is much worse than expected and is so bad that it offsets the positives of solid growth and steady interest rate cuts, earnings reports of themselves are unlikely to be the main cause of any pullback.

OTHER NEWS ..

Hindenburg is back .. The latest target of Hindenburg, the research firm whose reports have recently rocked shares of firms owned by billionaire-investor Carl Icahn, India's Gautam Adani, as well as AI-server maker Super Micro Computer for exposed financial shenanigans is Roblox, the gaming platform popular among young children.

Hindenburg found that Roblox lied to investors, regulators, and advertisers about the number of people on its platform, inflating the key metric by 25-42% by deliberately conflating daily active users with the number of people simply visiting its site and also counting bots as legit users. The firm was also accused of failing to protect child gamers from an apparently large presence of in-game pedophile predators. After the report was published on Tuesday, Roblox stock plunged 10% in a matter of minutes.

Crypto Fraud Has Not Gone Away .. Three cryptocurrency companies and about a dozen individuals were charged with market manipulation and fraud as part of a wide-ranging investigation by U.S. authorities that included setting up a fake crypto firm and over 60 effectively non-existent cryptocurrencies. ZM Quant, CLS Global and MyTrade all conspired to make fake trades to boost the price and appearance of activity of the made-up tokens, according to federal prosecutors in Boston.

Distortions Coming .. Two massive hurricanes and (albeit brief) East Coast port closures during the studied period will likely impact upcoming economic data. While this will need to be taken into account when looking at imminent economic numbers, distortions can continue long into the future since such events can trigger later rebuilding activity, increased insurance costs to consumers and localized inflation.

ARTICLE OF THE WEEK ..

Josh Brown and I share the same investment principles and the same things annoy us both. But Josh is also a much better writer than me and he explains it all really well here.

THIS WEEK’S UPCOMING CALENDAR ..

Q3 earnings season ramps up this week, with nearly one in ten S&P 500 companies scheduled to report including Netflix, Taiwan SemiConductor, American Express, Bank of America, Citigroup, Goldman Sachs Group, Morgan Stanley, Proctor & Gamble, Johnson & Johnson, United Airlines Holdings, UnitedHealth Group, ASML Holding, Walgreens Boots Alliance and Prologis.

On Thursday, the European Central Bank (ECB) is expected to deliver its third 0.25% interest rate cut since June, taking its benchmark rate target to 3.25%.

Most of the economic data to watch this week is housing-related but we will also see the latest Retail Sales report on Thursday.

LAST WEEK BY THE NUMBERS ..

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Technology (two biggest holdings: Apple, Nvidia) - up 2.2% for the week.

Last week’s worst performing U.S. sector: Utilities (two biggest holdings: NextEra Energy, Southern Co.) - down 2.8% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from among the largest U.S. companies. Its price rose 1.0% last week, is up 21.9% so far this year and ended the week at a new all-time record closing high.

* IWM, the Russell 2000 Small Cap ETF, tracks the Ru…

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Q3 came to an end last week with the S&P 500 pulling off its best first three quarters in any year since 1997. It also completed its fourth straight quarterly gain, the longest such stretch since 2021.

It marked the beginning of a crucial and potentially volatile five week period in the lead-up to a knife-edge election and the next Fed meeting right afterwards during which time we will get to see multiple new economic data points including two Jobs Reports and one set of CPI/PPI inflation figures which could indicate whether Wall Street’s recent happy-clappy assumptions are correct (at which point the resulting stock market gains become further supported) or if they were overly optimistic (at which point anything from a 5% to 10% pullback could easily happen).

Proceedings kicked off on a downbeat note on Monday in the final trading session of the month and the quarter, following a big slide in Japanese stocks after a new prime minister was appointed, a dire German economic outlook, zero signs of any easing of the violence in the Middle East and the prospect of a massive strike by over 25,000 dockworkers at many East Coast and Gulf shipping ports for the first time in 50 years.

The indexes were in the red for most of the session but actually finished a touch higher after a late-day surge took the S&P 500 to yet another new all-time record high, boosted by more promising rhetoric on upcoming interest rate cuts in a speech from Fed chairman Jerome Powell as well as quarter-end almost literally last-minute portfolio adjustments by professional money managers.

The final quarter of 2024 started out with stocks under pressure on Tuesday as Israel moved troops into Lebanon with Iran launching (mostly ineffective) retaliatory attacks which spiked the prices of oil and other commodities and also the dockworkers strike began. The Job Openings and Labor Turnover Survey (JOLTS) showed an unexpected jump in job vacancies but a fall in the rate at which Americans feel able to quit their jobs.

After being pulled meaningfully lower early in the session, most of the indexes moderated their losses in the afternoon, although the partial recovery was absent among the higher valuation names such as those in tech and AI which remained stuck notably lower.

A tediously cordial vice presidential debate on Tuesday night seemed unlikely to move any needles and Wall Street had already brushed it off as irrelevant by the time the opening bell rang on Wednesday morning. The focus was more on the Middle East with some investors beginning to draw a line from the escalation of the conflict to commodity price increases and then all the way through to a possible increase in U.S. inflation.

As the day wore on, markets decided that, for the time being at least, the risks of contagion in the Middle East were somewhat limited and decided to take a wait-and-see attitude and the result was a nothing burger of a session with the indexes unchanged.

Thursday was another choppy but mostly inconclusive session with a slightly negative outcome as oil prices continued their relentless march higher, experiencing their biggest daily jump in over a year. Most of the market’s attention, however, was focused on positioning for the Jobs Report the following morning. After the close, the dockworkers’ strike was suspended following an improved wage offer.

The unveiling of the Jobs Report finally took place before the open on Friday morning. Given that the Fed is now cutting interest rates, it is important that economic data points like this continue to reinforce the soft landing narrative.

It was an astonishingly strong report, with +254k new payrolls that obliterated estimates of +147k, the previous month was revised upwards and the unemployment rate fell from 4.3% to 4.1% (in fact, very close to 4.0% when you look at the rounding). Average hourly earnings were also higher than expected.

This monster upside surprise that points to an incredibly strong economy completely demolished market bets on another jumbo half point interest rate cut next time around at the Fed’s November 7th meeting (see the dramatic weekly changes in the FEDWATCH INTEREST RATE TOOL below), with a quarter point reduction now considered a near-certainty, although - as mentioned earlier - there will be a lot of new inflation data, one more Jobs Report and an election before then.

Wall Street loved the blowout report, ripping higher at the opening bell, led by tech and Small Caps. The giddiness subsided a little as the session went on as it dawned on investors that they were now likely not going to get the second jumbo rate cut that they had been hoping for, but stocks still finished the day nicely higher and with slight gains for the week.

OTHER NEWS ..

Not-So-Smart Money .. Harvard University’s once-legendary endowment fund is now close to a laughing stock after two decades of poor returns. Your average office worker throwing a few dollars into a target date fund in their 401k every two weeks has comfortably outperformed the Harvard Endowment over that time and certainly paid much lower fees.

The dreadful performance stems from a classic investment mistake: shifting strategies and fund managers at the absolute worst times, otherwise known a chasing shiny objects and paying exorbitant fees to outside advisors and hedge funds for extremely lackluster results.

The endowment remains the biggest in higher education but that may not last much longer as the University of Texas system is being turbocharged by oil revenue.

“Don’t Fall For The Hype” .. AI will only replace 5% of jobs performed by humans, and will be far from the game-changer that the media and Big Tech is constantly telling us it will be, according to MIT economist Daron Acemoglu. “A lot of money is going to get wasted.” Acemoglu said. He predicted that the frenzy could build for another year or so, but AI could then collapse under the bloated weight of its own deluded self-importance after driving up corporate costs much faster than it improves revenues and that could lead to disenchantment among investors, employees, executives and students who quickly flee.

Frozen .. Just 2.5% of homes in the US changed hands this year in the first eight months, the lowest turnover rate in over 30 years, according an analysis by Redfin. The latest data underscores just how much the housing market has become frozen in 2024 as Americans faced a toxic combination of record-high home prices and elevated mortgage rates, creating one of the most unaffordable housing markets in generations.

A big interest rate cut by the Federal Reserve this month has fueled hopes that the interest rate-sensitive housing market will soon experience a fresh jolt, but that still remains to be seen (mortgage rates are no lower now than they were on the day the Fed made the cut).

Genius? Yeah, Right .. The value of X, formerly known as Twitter, has crashed by 79% since supposed genius Elon Musk bought it just two years ago. A newly-released disclosure report from Fidelity’s Blue Chip Growth Fund, which has an equity stake in the social media company, has once again adjusted the value of that holding based on transactional data. By Fidelity’s calculations, the company is now worth $9.4 billion dollars versus the $44 billion that Musk paid for it.

The news will come as a blow to another major X shareholder, Sean Combs, although he’s currently facing bigger problems, behind bars charged with sex trafficking, assault and rape involving scores of women and young girls.

ARTICLE OF THE WEEK ..

That 5% CD Is a Great Deal. Until the Bank Calls It Back.

THIS WEEK’S UPCOMING CALENDAR ..

Q3 earnings season kicks off this week, with results from major U.S. financial institutions like JP Morgan, Wells Fargo, Bank of New York Mellon and Blackrock and several other big companies like Pepsico and Delta Airlines.

On Thursday morning, the latest Consumer Price Index (CPI) measure of retail inflation will come out, with an expectation of a …

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit simonbrady.substack.com