Yesterday the stock market made history on election victories for Donald Trump and the Republican Party. The S&P 500 and Russell 2000 had their best day after an election day ever recorded. The Nasdaq’s 3% gain was the largest since the November 2020 election. The Dow Jones Industrial Average surged over 1,500 points. That was the 4th biggest 1-day point gain in history.
Coming off Wall Street’s massive election rally, markets brace for today’s Federal Reserve rate decision. Indicators of what the Fed might do show nearly 100% odds of a quarter-point cut today. Major indexes gained in overnight trading while Treasury yields stabilized in anticipation of this Fed move. Currently, the fed funds rate for large banks stands at a range of 4.75%-5% following a half-point cut made in September.
So, that captures the big news stories for yesterday and today. What can be expected in the market and economy looking ahead? It often helps to start by paying attention to what the stock market is telling us. Also, the Fed, investors, and American corporations and foreign ones alike should now be thinking ahead to the potential impact of President-elect Donald Trump’s policies. His campaign promises, including tariffs, have already raised inflation concerns and a big reason why Treasury yields embarked on an epic rally over the last six weeks and hit four-month highs yesterday. Possible changes under a Trump administration have already raised questions about the Fed’s next move. Chances of a rate cut in December slipped this morning to 68%, down from close to 80% a week ago. This matters. More attention will be paid to what Chairman Jerome Powell says for insight on the future path – less than what the Fed does today.
The financial markets are by their nature discounting mechanisms. As such they provide reliable and consistent insight about their future directions. Clear messages were telegraphed by the markets yesterday. Stocks gave one message, the bond market another. And, the cryptocurrency market still another. A loud and clear message from the stock market was own small cap stocks now. The small-cap index surged 6% in the premarket yesterday on an overnight boost from the Trump win. The index closed yesterday with its best day since 2022. Small-cap stocks were seen as potential winners under a second Trump presidency, as investors expect it would ease regulations on businesses, which tend to weigh more heavily on smaller businesses. The market signaled the same message during the week of the 2016 presidential election. Now, like then, Trump’s domestic focused agenda and deregulation policy are expected to increase small business confidence. The bond market’s message was a solid tip to expect higher interest rates. Bonds dropped as rates popped. The 10-year Treasury yield jumped more than 14 basis points to trade at 4.433%, hitting its highest level since July as investors bet a Trump presidency would increase economic growth and potentially fiscal spending. The long bond market is down nearly 9% over recent weeks as rates have gone up. Even before the election results were in, the cryptocurrency market – led by bitcoin – has seen heavy buying on increased demand sparked by a pro-crypto President Trump.
The markets offer our the best source for future economic and investment outlooks. The information is free – interpreting it can be very expensive. Investment decisions based on the way markets are and not how you think they should be can improve the experience.
TAKING PERSPECTIVE
Proper Perspective: In our hectic and often hard to comprehend world, it is very easy to lose perspective. You may agree it is sometimes difficult to see the big picture. The media often doesn’t help with this, but unfortunately instead encourages us to see things in a most negative light. Here is hopefully a pause to gain positive perspective.
Famous Quote on This Day:
“Let me triumph as a man or not at all.”
~~ Rutherford B. Hayes, 1841
What Happened On This Day November 7, 1944 – Franklin D. Roosevelt elected for a record fourth term as President of the United States.
MARKET ANALYSIS
INDICATORS OF INTEREST:
Market’s Current Signal: Market in confirmed uptrend. Analysis of the stock market over 130 years of history shows we can view it in terms of three stages – market in uptrend, uptrend under pressure and market correction. I analogize this to a traffic signal’s changing colors from green to yellow and then to red. The current signal is still green. Since the 1880’s, this perspective has led to investment out-performance relative to market indexes. This is due to trend analysis which determines risk reducing, return enhancing market entry and exit points.
The Stock Market Trend: Market in confirmed uptrend. After a market peak July 16 with the SP500 at 5,670, a market correction ensued with a 10% fall to 5,120 on August 5. The market’s trend turned bullish Tuesday, August 13. The fourth day of a new rally attempt confirmed the rally with a follow-through day. with yesterday’s closing price for the SP500 of 5,797 it is back above the July high and near an all-time record high. Th SP500 set its 47th record closing high of the year last Friday -marking a significant milestone in 2024’s stock market performance. This places 2024 in the top 10 for the highest number of record closes in a single year since 1954 as the graph below shows.
Here are key market levels as of Monday, November 4.
Recapping Last Week
As I said in this section of the last ERPE Excerpts, the stock market is resilient. U.S. equities fended off notable semiconductor weakness to finish last week positive, with small caps outperforming due to financial sector strength. The Russell 2000 index rallied nearly 2%, while the S&P500 and Nasdaq Composite each gained less than 1%. Nine of eleven S&P500 sectors posted gains, and while utilities were the best performer, factor performance was far from defensive. The PHLX Semiconductor index plunged more than 5% early last week after reports emerged that U.S. officials may further limit the sale of advance AI chips to designated countries. Also weighing on the sector was a negative earnings report from Dutch chip equipment maker ASML Holding. However, some analysts downplayed fears of a demand slowdown, citing temporary overcapacity at chip factories. The energy sector struggled after crude oil futures tumbled 8.8%. A looming global oil surplus and concerns over China’s waning growth prospects overshadowed potential supply disruption risks from Middle East conflicts. While other commodities seemed unfazed, the strength of the U.S. dollar acted as a headwind to crude. Gold futures jumped more than 2% to reach a fresh record high near $2,735 per ounce. U.S. Treasury yields were slightly lower, rebounding from steeper declines after stronger-than-expected retail sales data and a drop in jobless claims. Manufacturing activity was mixed—industrial production fell in September, while the Philly Fed survey revealed expansion in that region. U.S. homebuilder confidence edged higher this month, while housing starts and building permits fell despite a pickup in single-family home construction. Overall, the U.S. economy’s resilience reinforced expectations for only a 25-basis point rate cut from the Federal Reserve in November.
On the international front, China’s equity markets saw a nauseating amount of volatility as investors tried to make sense of the latest economic data and government stimulus proposals. The country’s trade data for September missed the mark, while tame inflation pointed to continued weak domestic demand. China’s central bank moved to support markets after GDP came in at the lower end of its annual growth goal—at 4.8% for the first nine months of 2024. The bank announced plans to inject 800 billion yuan ($112.38b) for companies to buy back shares, among other measures. Elsewhere, the European Central Bank lowered interest rates for the third time this year, with another quarter-point cut expected by year-end. The UK’s annual headline inflation rate dropped sharply last month, to 1.7% from 2.2%, supporting expectations for a November rate cut. Lastly, Japan’s core inflation slowed in September but remained above the central bank’s 2% target, indicating that further interest rate hikes are on track.
Current View
Yesterday’s major market indices climbed to new record highs. I’m calling the stock market’s gains today the Trump Bump. Stocks soared after Donald Trump’s decisive victory as investors contemplated the potential impact of Republican policies. There was great strength in financials, consumer discretionary, energy, and industrials sectors. The charge higher in today’s stock market was led by small cap companies. Stocks surge came on the hope that the new administration could help businesses and the economy grow more quickly. Stocks that performed best tended to be ones closely tied to potential U.S. economic power that could potentially be unleashed with less regulation and a more protectionist stance. But, the post-election enthusiasm didn’t extend to fixed income. So, bonds fell. Yields, which move the opposite direction of Treasury notes, set new four-month highs on worries that Trump’s tariff and tax agenda could spark inflation. Trump’s tariff-driven policy plans gave the U.S. dollar a lift against other currencies. The greenback enjoyed its biggest one-day gain since June 2016.
Though today’s 3.57% gain in the Dow Jones Industrial Average was no where near a record move up, the indexes’ 1,508 point jump was the the 4th biggest in history. For perspective, see the table below.
Industry Group Strength: BULLISH. As of yesterday, 152 out the 197 groups I monitor are up year-to-date. 45 are down.
New Highs vs. New Lows: BULLISH. As of now, there were 336 new 52-week highs and 79 new 52-week lows.
Dow Dividend Yield: BEARISH. The current yield for the Dow Jones Industrial Average is 1.79%. The 10-year Treasury now 4.45%. The benchmark interest rate is up from 3.81% a month ago.
Volatility Index: NEUTRAL. Volatility has been volatile. The “VIX” is 16. It is down from 19 two weeks ago. The index is also known as the “Fear Index.” It is considered a contrarian indicator and therefore viewed as bullish as it rises indicating investors are becoming more fearful. The VIX:
Fear / Greed Index: BEARISH. Investors are driven by two emotions: fear and greed. Too much fear can create a condition of oversold/ undervalued stock prices. Too much greed can result in overbought/overvalued stock prices. The AAII Investor Sentiment Index is now neutral. BE FEARFUL WHEN OTHERS ARE GREEDY. At 60, the Fear & Greed Index is down from 63 two weeks ago.
CLICK VIDEO FOR MORE ON THE “FEAR & GREED INDEX”
How CNNMoney’s Fear & Greed Index works
Bull / Bear Barometer: BEARISH. This secondary market indicator should also be viewed with a contrarian perspective. As of yesterday, according to the latest survey of stock market newsletter writers by Investor’s Intelligence (see below), bullish sentiment is 58.3%, up from 43.5% A month ago. The bear sentiment is now 21.7%, down slightly from a month ago. This reflects a decrease in bullish and bearish sentiment over the last two weeks. Consider this a contrarian indicator because the crowd is often wrong at market tops and bottoms. In other words, extreme bullishness has been seen near several market tops in the past, while extreme bearishness has been seen at market bottoms.
Put / Call Ratio: BEARISH. The ratio of put-to-call options is 0.62, down from 0.51 two weeks ago. The put-call ratio tracks the mood of what options investors are doing, not just saying. They typically buy puts if they think a stock will decline and calls if they think it will rise. If they’re buying lots of puts, they see the market declining. And if they’re loading up on calls, they’re generally bullish. Historically, market bottoms occurred when the reading spikes to 1.2 or more. Market tops are often made when the reading is 0.6 or less. Note how reliable this is with respect to the February record low coinciding with the market high. Keep in mind this is also a contrarian indicator.
ECONOMIC UPDATES
Global Economic Indicators & Analysis:
POSITIVE INDICATORS
Services Economy Up: Service-oriented companies such as retailers and restaurants grew in October at the fastest pace in more than two years, a survey found, offering further evidence of strong momentum in the U.S. economy. An index of service businesses climbed to 56% last month from 54.9% in September, the Institute for Supply Management said. It’s the highest reading since July 2022. Numbers over 50% are viewed as positive for the economy. Service companies such as retailers, banks and hospitals employ most Americans and dominate the economy.
Consumer Confidence Up: The U.S. consumer-confidence index surged to 108.7 in October from a revised 99.2 reading in the prior month, the Conference Board said last Tuesday. This is highest level of confidence since January. Economists polled by the Wall Street Journal had forecast the index to register 99.5 in October, only up slightly from the initial September reading of 98.7. The index entirely reversed the steep decline seen in September. A measure that looks at how consumers feel about the economy right now jumped 14.2 points to 138.0. A confidence gauge that looks ahead six months, on the other hand, rose 6.3 points to 89.1.
Inflation Trends Good: Prices in the U.S. rose modestly in September, but not enough to suggest inflation is turning higher or to prevent the Federal Reserve from cutting interest rates. The Fed’s preferred PCE index moved up 0.2% last month, the government said last Thursday. That matched the forecast of economists polled by The Wall Street Journal. The increase in inflation in the past 12 months slowed to 2.1% from 2.3%, leaving it just above the Fed’s 2% target. Yet the closely followed core rate that strips out food and energy rose a somewhat sharper 0.3% to match the biggest increase in six months. The core rate is still a source of concern to the Fed since it’s viewed as a better predictor of future inflation trends. The Fed gives more weight to the core rate when deciding the level of U.S. interest rates.
WEAK INDICATORS
Jobless Claims Up: Today’s weekly jobless claims edged up to 221,000 in the latest reported week, meeting the Econoday forecast. U.S. economic productivity in the third quarter rose 2.2%, according to a preliminary meeting, missing a consensus forecast for a 2.5% rise.
Jobs Market Weak: A strike at Boeing and a pair of major hurricanes curbed employment gains in October as the U.S. added a paltry 12,000 new jobs, according to last Friday’s report from the Labor Department. The increase in employment was the smallest since December 2020. The Federal Reserve is expected to look past the October employment report and cut interest rates again next week when it meets after the presidential election. The unemployment rate, meanwhile, was unchanged at 4.1%. Economists polled by The Wall Street Journal had forecast a 110,000 increase in new jobs in October.
Manufacturing Down: A closely watched index that measures U.S. manufacturing activity fell to 46.5 in October from 47.2 in the prior month, according to the Institute for Supply Management last Friday. This is the seventh straight month below the 50 threshold for growth. It was the lowest reading since July 2023. Economists surveyed by the Wall Street Journal had forecast the index to inch up to 47.6% in October from 47.2% in the prior month. New orders for factory goods rose 1.0 to 47.1% in October. New orders have fallen in 25 out of the past 26 months.
Factory Orders Down: Orders for manufactured goods fell 0.5% in September, the Commerce Department said Monday. It is the fourth decline in orders in the past five months. The drop in September was in line with the forecast of economists surveyed by the Wall Street Journal, as the advance report on durable goods had already signaled weakness. In the more comprehensive data released Monday, durable-goods orders were revised to a 0.7% decline in September. That’s down slightly from the initial estimate of a 0.8% fall and follows a 0.9% drop in August.
Call me if you have any questions. I am always happy to help!
For my Market Monthly podcast, click on the link below. I provide a review of global stock market highlights over the past month and preview of the month ahead. Forward insights and perspectives are based on current financial market and economic trends with an emphasis on relevant developments in various areas from Fed policy to company earnings announcements.
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Equity Research & Portfolio Evaluation
Equity Research & Portfolio Evaluation (ERPE) utilizes its propietary approach in analyzing investments. Its proven success researching equities is based on a blend of fundamental and technical analysis. ERPE's time-tested Top 10 Tenets guide the investment process to achieve Portfolio Optimization: This is through minimizing risk without sacrificing return.
