Stock Market Today: November 18th - 22nd, 2024

Welcome to the trading week of November 18th!

Dow closes 300 points lower Friday as rate worries hinder postelection rally: Live updates



Stocks tumbled on Friday as the postelection rally fizzled and investors fretted over the path of interest rates.

The Dow Jones Industrial Average lost 305.87 points, or 0.70%, to end at 43,444.99. The S&P 500 slipped 1.32% and closed at 5,870.62, while the Nasdaq Composite fell 2.24% to 18,680.12.

Declines in pharmaceutical stocks weighed on the 30-stock Dow and the S&P 500, with Amgen down about 4.2% and Moderna off by 7.3%. President-elect Donald Trump said on Thursday that he planned to nominate vaccine skeptic Robert F. Kennedy Jr. to lead the U.S. Department of Health and Human Services. The SPDR S&P Biotech ETF (XBI) tumbled more than 5% and posted its worst week since 2020.

The information technology sector of the S&P 500 was the worst performing corner of the market, down more than 2% as Nvidia, Meta Platforms, Alphabet and Microsoft tumbled. Tesla was a rare exception among its Magnificent Seven peers, as shares of the electric vehicle giant and so-called “Trump Trade” were higher by 3%.

“While we think the macro backdrop still bodes well for risk assets, in the near term we should expect some micro volatility, particularly around potential policy shifts under a new administration,” said Kristy Akullian, head of iShares investment strategy, Americas, at BlackRock. “We expect the U.S. equity market to continue to move higher, but don’t expect that rise to happen in a straight line.”

Traders also grappled with recent comments from Federal Reserve Chairman Jerome Powell, who said on Thursday that the central bank wasn’t “in a hurry” to cut interest rates. He noted that the economy’s strong growth will permit policymakers to take their time as they decide the extent to which they reduce rates. Boston Fed President Susan Collins took the cautious sentiment further, telling The Wall Street Journal that a rate cut next month isn’t a certainty.

October retail sales data on Friday showed a 0.4% increase, slightly better than the 0.3% forecast from economists polled by Dow Jones. That finding follows an October consumer inflation report that was in line with economists’ projections.

The major averages had been coasting on a postelection rally since President-elect Trump’s victory at the polls — the three indexes touched fresh highs on Monday — but the upward momentum has been slowing. The S&P 500 posted a weekly loss of 2.1%, while the Nasdaq Composite slid about 3.2%. The 30-stock Dow fell 1.2% in the period.

This past week saw the following moves in the S&P:


S&P Sectors End of Week:


Major Indices End of Week:


Major Futures Markets End of Week:


Economic Calendar for the Week Ahead:


What to Watch in the Week Ahead:
(N/A.)

 

Big-Tech & Bullion Battered, Bitcoin Bid As 'Goldilocks' Narrative Collapses
FRIDAY, NOV 15, 2024 - 04:00 PM

'Good news' was definitely 'bad news' this week as US macro data generally surprised positively...



Source: Bloomberg

...with both growth and inflation surprises soaring...



Source: Bloomberg

Not exactly the kind of data that supports a dovish Fed and the market has notably reduced its expectations for rate-cuts...



Source: Bloomberg

Interestingly, the 'Trump Trade' actually survived pretty well this week (Republican policy basket vs Democratic policy basket)...



Source: Bloomberg

But, Powell's comments were a giant rug-pull for the market over all with all the US majors having a horrible week...



...Nasdaq's worst week in the last ten...



The Nasdaq puked back to the same level it was at the last OpEx...



Energy and Financials were the only sectors to end the week green while tech and healthcare were clubbed like a baby seal...



Source: Bloomberg

Mega-Cap Tech stock have erased all the post-election gains...



Source: Bloomberg

Cyclicals remain well bid against Defensives still too...



Source: Bloomberg

'Most Shorted' stocks puked hard this week - the worst week since early August as last week's short-squeeze ran out of ammo...



Source: Bloomberg

Treasury yields were all higher on the week led by the long-end, but trading was very volatile...



Source: Bloomberg

The 10Y Yield touched 4.50% at the highs today and reversed - the first time it has reached that level since May 2024...



Source: Bloomberg

It wasn't just bonds and stocks that were hit, gold suffered its worst week since Jun 2021, falling back to two-month lows...



Source: Bloomberg

The dollar rallied for the seventh straight week top its highest since Nov 2022...



Source: Bloomberg

Bitcoin had another biog week - the best two-week run since March - hitting new record highs and holding above $91,000...



Source: Bloomberg

Bitcoin is also nearing a record high in terms of gold too...



Source: Bloomberg

Crude oil prices tumbled on the week back to post-Israel-Iran 'optics' battle lows...



Source: Bloomberg

Finally, here's why The Fed is fucked... With The Fed funds rate still at 4.75% and the trajectory of cuts diminishing rapidly, US financial conditions are basically as 'loose' as they were before the rate-0hiking cycle started...



Source: Bloomberg

'Animal Spirits' and re-inflation imminent - 'Proper fucked'...

 

Why We Think Inflation Has Normalized and the Fed Can Cut Rates


The October Consumer Price Index (CPI) data held no surprises for markets, either to the downside or the upside. Since inflation had already normalized, that means the latest data confirms the pre-existing trend. Headline CPI rose 0.2% in October and is up 2.6% year over year. Core CPI (excluding food and energy), which is typically used as a gauge for underlying inflationary pressure by the Federal Reserve (Fed), rose 0.3% last month and is up 3.3% since last year.

It probably sounds bonkers to say inflation has normalized when these numbers are clearly above the Fed’s target of 2%. The thing is, almost all of the “excess” inflation is coming from shelter inflation. If you take out shelter inflation, which makes up about 35% of the CPI basket, headline CPI is up just 1.3% year over year. Even over the last three months, CPI ex shelter is running at an annualized pace of 1.3% versus 2.5% for overall CPI.



You may be thinking, “Wait! Housing is in fact a big portion of a household’s budget. You can’t just throw it out.” That is true, except the heat in shelter inflation actually comes from rent increases we saw in 2021, when rents surged. As Ryan and I have discussed over the last two years, official shelter data has significant lags to what we see in the private market real-time data. Private data (via Apartment List) indicates that rental inflation has slowed significantly, and new rental lease prices have been falling for over a year now. Our friends at WisdomTree have done one better, re-constructing CPI, but with more real-time housing price data. This is from their data:

• Headline CPI with real-time shelter is up 1.3% year over year versus 2.6% for CPI with official shelter data.
• Core CPI with real-time shelter is up 1.8% year over year versus 3.3% for core CPI with official shelter data.

Jeremy Schwartz, the Global Chief Investment Officer at WisdomTree, put it succinctly: “The Fed should continue recalibrating to neutral.” I couldn’t agree more.

The good news is that the Powell-led Fed seems inclined to do so as well. There’s been a question about whether the Fed should be cutting when economic growth and the stock market are running strong. But the Fed does not have a GDP mandate. Nor do they have a stock market mandate. As Ryan pointed out in his last blog, the Fed has historically cut with stocks near all-time highs (and stocks were higher 20 out of 20 such times a year later, with an average return of 14%). The Fed has a stable inflation mandate, and a maximum employment mandate. It’s pretty clear the former goal has been met. But there’s some risk to the latter, which the Fed seems thankfully aware of. As Powell said after the most recent Fed meeting in November:

“The labor market has cooled a great deal from its overheated state of two years ago and is now essentially in balance. It is continuing to cool, albeit at a modest rate, and we don’t need further cooling, we don’t think, to achieve our inflation mandate.”

In short, the Fed doesn’t want the labor market to get weaker. Their most recent unemployment rate projections (from the September meeting) confirm this – they projected the 2024 and 2025 unemployment rate to remain steady at 4.4% (it’s currently at 4.1%). As I wrote back then, the Fed is essentially putting a cap on the unemployment rate, or rather, a floor under the economy. Crucially, the fact that inflation has normalized is what allows them to do this. There’s good reason to think this dynamic will play out in 2025 as well, with shelter disinflation in the pipeline and continuing to put downward pressure on overall inflation.

To Powell’s point, the labor market does not need to cool further for them to achieve their inflation mandate. And it had cooled quite a bit, as Neil Dutta at Renaissance Macro Research points out. A good place to see this is in wage growth. The latest Employment Cost Index data for private sector service industry workers showed wages growing 3.6% since last year but slowing to a 2.7% annualized pace in Q3. This metric is historically correlated with services inflation, and it looks like there’s further moderation ahead.



This is further confirmation that the inflation problem is over, and the Fed can normalize interest rates (and should do so). Elevated rates are clearly having a negative impact on rate-sensitive segments of the economy, especially housing. The Fed’s latest survey of bank loan officers also showed much weaker demand for loans in Q3, despite a pullback in the net number of banks tightening standards. The net percent of banks reporting stronger demand for commercial and industrial loans pulled back from 0% to -21% for large and middle-market firms, and from 0% to -19% for small firms. This is not what you want to see if investment spending is to pick up.



Long story short, policy is too tight. But the Fed has a lot of room to cut because inflation has normalized, and the inflation outlook looks good as well.

What’s interesting is that markets are now more hawkish than the median Fed member. Markets currently expect the policy rate to land around 3.9% at the end of 2025, implying just 2-3 more rate cuts. Fed members estimated the 2025 rate at 3.4% in their September projections. Looking further out into 2029, markets expect the policy rate to remain close to 4%. That’s well above the Fed’s long-run estimate of just 2.9%. At some point these divergent views will have to reconcile, and it may take investors becoming a tad less optimistic about future growth and perhaps Fed members becoming a tad more optimistic.



The Economic Outlook Looks Pretty Good, and Opportunities Abound – Part 2


“We have two kinds of forecasters, the ones who don’t know and the ones who don’t know they don’t know” – John Kenneth Galbraith

In Part 1 of this blog, I discussed a framework for thinking about the economic outlook in 2025. There’s clearly a lot of policy uncertainty ahead. As the incoming Trump administration and Congress fully work out the details. It’s going to take time for it all to play out, and it would be foolhardy to predict what’s coming down the pike, let alone predict the precise impact. That said, even before we start thinking of what may be coming ahead, it’s useful to take stock of where we are right now. I used a SWOT analysis (strengths, weaknesses, opportunities, and threats) to assess the economy as it stands today (strengths and weaknesses) and external factors that could impact it going forward (opportunities and threats). This allows us to think about the odds of each of these factors, and position portfolios accordingly.

To recap Part 1: The economy is on solid footing right now — thanks to strong income growth, solid household balance sheets, and productivity growth. That does not mean there are no potential risks. Elevated interest rates, even in the face of Federal Reserve cuts, are a big risk to the economy. Higher rates are a function of stronger growth expectations, but it’s hurting sectors like housing, manufacturing, and investment spending. Loan demand is also weak due to elevated rates.

In terms of external forces, we have potential monetary and fiscal policy opportunities that could provide a steady tailwind for markets and the economy. At the same time, threats that could upend the outlook include tariffs and resurgent inflation. Let’s walk through all of these.



Opportunities – Don’t Fight the Fed, or Congress
There’re questions about whether the Fed should even be easing rates when GDP growth is running at 2.5–3.0%. However, as I wrote in the previous blog, the Fed does not have a GDP target. They have an inflation target and a maximum employment mandate. The inflation outlook looks good going into 2025. Headline inflation, as measured by the Fed’s preferred personal consumption expenditure (PCE) metric, is running at a 2.1% year over year (the lowest since February 2021), and is up just 1.8% annualized over the past three months.



The Fed does focus on core inflation (excluding food and energy), but it’s good to recall they actually target headline inflation. To that end, oil prices remaining around $70/barrel (WTI) is a big positive — it’s hard to worry about inflation when energy prices are muted. It matters even for core inflation, since energy feeds into items like restaurant prices and airfares. On the core inflation front, most of the excess inflation (above the Fed’s 2% target) is coming from lagging shelter data. The good news is there’s likely more shelter disinflation coming through in 2025. The relatively benign inflation picture will allow the Fed to focus on the employment side of their mandate. Even after their November meeting, Powell noted that the labor market is solid, but they don’t want it to cool further. In other words, they’re putting a cap on the unemployment rate (or a floor under the economy), to the degree that it’s under their control. This implies policy is likely biased towards the dovish side in 2025, and that’s a big positive. Markets are currently pricing in another 0.75%-points of cuts through 2025.

Fiscal policy could provide another tailwind in 2025. The 2017 Tax Cut and Jobs Act (TCJA) had several provisions that “sunset” at the end of 2025, mostly on the individual side but also a few on the business side. But the odds of the economy going over a fiscal cliff from automatic tax increases on January 1, 2026, has been reduced close to zero amid Republicans capturing all three branches of government. There’s a good chance that most, if not all, of the expiring provisions will be renewed, and then some. The corporate tax rate, which was permanently reduced from 35% to 21% in 2017, may be further reduced to 15%, which would boost S&P 500 earnings per share (EPS) by about 4%.

Now, there is caution warranted given the slim 4- to 5-seat majority Republicans will have in the House, the narrowest Republican majority ever. Even in 2017, writing a tax bill took the better part of a year despite Republicans commanding a 20-25 seat majority in the House. The narrow house majority this time around, combined with a 53-47 majority in the Senate, means that serious spending cuts are not going to be on the table (as in 2017). Keep in mind that if defense, Medicare, and Social Security are off the table, it’s going to be hard to find serious savings. The path of least resistance will likely be more deficit spending. The only question is, How much? Republicans in Congress will actually have to settle on a deficit number before proceeding to write the tax bills. Note that permanent renewal of all expiring provisions of TCJA could cost up to $4 trillion. There are also some big differences between now and 2017: deficits are already high and the government’s interest costs are much higher too (thanks to higher rates).

From a market perspective, deficits are not a bad thing as it can potentially boost corporate profits, assuming it doesn’t crowd out consumer spending or private sector investment. And profits are what matter for stocks. At the national aggregate level, corporate profits are the result of net saving versus consumption (the opposite of savings) by the four major sectors of the economy: households, businesses, government, and the rest of the world (via trade). Rising household savings and rising government savings (budget surpluses) drag from profits, and vice versa. More business investment and dividends paid out add to profits. A rising current account surplus means the rest of the world is buying more US-made goods and services than Americans buy from foreigners, and that increases business revenues and profits, whereas an expanding current account deficit (which is typically what the US has) means Americans buy relatively more from abroad, and that’s a drag on profits. Note that this aggregate picture doesn’t tell us which companies are growing profits, or how it’s distributed across industries.

Profit growth surged over the 2016-2019 period on the back of higher fiscal deficits (from TCJA). Even over the last six quarters, households have started saving more (relatively) but corporate profits rose because fiscal deficits started growing again.



Another potential positive is deregulation, though it’s always hard to pinpoint precisely how this impacts markets. An easier stance from agencies like the SEC, FTC, CFTC, and even Department of Justice, could lead to a rise in “animal spirits,” likely manifesting in things like increased M&A activity and IPOs (which have fallen a lot over the last two years, partly due to higher rates depressing valuations). Deregulation could see more supply-side activity, including in areas like energy production. That will also be positive for the inflation outlook.

Tariffs and Potential Inflation Resurgence Pose a Threat
The threat of tariffs, and a retaliatory trade war, is clearly on everyone’s mind. All else equal, tariffs will raise the price of imported goods (though it’s a one-time price level increase). But things don’t work as neatly as that. For one thing, it’s hard to predict what tariffs will actually be implemented, let alone their impact. The Biden administration kept in place most of Trump’s tariffs from his first go-around, and even implemented a few more. President-elect Trump has discussed implementing 60% tariffs on Chinese goods and up to 20% tariffs on other imports. It’s highly unlikely we see anything close to this. For one thing, the market reaction would be extremely negative, perhaps prompting a tempering of any extreme proposals. More targeted tariffs are the likely reality.

Also, bilateral tariffs may simply shift trade to other countries. The share of U.S. imports coming from China is now just 14%, versus 22% in 2018. Yet, the share of imports from countries like Mexico, Canada, and Vietnam has risen. In fact, the overall non-petroleum goods deficit rose by 14% between 2018 and 2019, thanks to surging goods imports. Another factor here is the dollar. The dollar appreciated soon after Trump’s 2016 election, but then pulled back in 2017 as the focus shifted from tariffs to tax cuts. But it resumed its increase in 2018-2019, making imports cheaper even as the trade war was raging. The dollar has appreciated by about 5% since September 2024, thanks to expectations of stronger economic growth (and higher rates) in the US relative to other countries. But part of this dollar surge occurred post-election. A stronger dollar could offset some of the price increases associated with tariffs.



All in all, we’re skeptical about an inflation surge in 2025 on the back of tariffs. As I noted above, there are disinflationary trends in the pipeline that will likely keep a lid on inflation in 2025 (including shelter). If anything, a potentially higher probability inflation threat remains an unexpected energy price shock (like in 2022) arising from major disruptions in the Middle East. Still, the absolute odds of this are relatively low. Strong oil production increases in the US and Canada will help mitigate this (keeping supply strong), along with continued weakness in China (keeping a lid on demand).

Overall, economic strengths clearly outweigh areas of weakness, and the opportunities likely have a higher probability of coming to fruition than the threats. The balance favors continued strength for equities, which is why we’re maintaining our overweight to stocks, especially US stocks. Equities do have strong momentum going into 2025, but it may not be smooth sailing while Congress and the new administration fully work out policy changes. Combine this with potential risks on the horizon, and we see good reason to maintain a robust array of diversifiers in our portfolios, including bonds, gold, and managed futures.

November Monthly Option Expiration Day: Russell 2000 Best

Russell 2000 (the small-cap index) has been up 16 of the last 21 years on November’s monthly option expiration Friday with an average gain of 0.48% in all years. Since 2012 Russell 2000 has been even more consistent, up 13 of 14. DJIA has been second best on November’s monthly option expiration Friday with an average gain of 0.42% and up 15 of the last 21 years. It is not a mistake that DJIA’s November monthly op-ex day has the same point change and percent change in 2014 and 2015. It was triple checked and it’s correct.

Full-week performance has been historically weaker. Average performance for the week is negative across the board with losses ranging from –0.32% by Russell 2000 to –0.18% from DJIA. Week after performance has been better, with NASDAQ and Russell 2000 strongest.




The Other Thing That Happened Last Week


“No.” -Federal Reserve (Fed) Chairman Jerome Powell when asked if he would resign if President-elect Trump asked him to.

Yes, the election and huge stock market rally took all the headlines last week, but there was another very big event. The Fed cut interest rates again, by 0.25% (after the 0.50% cut in September) to a range of 4.5%–4.75%.

This was universally expected and overall the statement was virtually the same as last time, so there wasn’t much of a curveball from this decision. Still the door is wide open for another cut in December and we think multiple cuts in 2025.

Powell and Trump Probably Don’t Like Each Other
The bigger question though was just how much Powell and Trump don’t like each other. It was a contentious relationship the last time Trump was in the White House and given Powell’s rather curt answer last week (in the quote above) it is safe to say they might not be sending holiday cards this year either. But the press conference didn’t stop there, as a reporter asked if the President could demote or fire him. “Not permitted under the law,” Powell fired back. “Not what?” the reporter responded. “Not permitted under the law,” said Powell, a lawyer himself, this time pausing for emphasis after each word.

Sonu Varghese, VP Global Macro Strategist, wrote some about the Fed last week in The Economic Outlook Looks Pretty Good – Part 1. This week I’ll take a look at a few other things with the Fed that you might find interesting.

Let’s Talk About Fed Cuts
First off, they cut on a Thursday due to the election. You have to go back to October 1998 and then July 1995 the time before for the last time they cut on a Thursday, as most meetings conclude on a Wednesday. 1998’s cut was an intra-meeting cut due to Long-Term Capital Management (LTCM) going under. 1995 was a normal meeting, but that was back when the Fed would cut and no one would even know about it until the next day.

Last week the Fed cut interest rates with stocks near all-time highs. Here’s a chart we’ve shared many times before, but it is just as relevant now as it was then. We found 20 other times (back to 1980) the Fed cut with the S&P 500 within two percent of an all-time high and stocks were higher a year later 20 times and up an average of nearly 14%. As much as the Fed was a headwind in 2022 when they aggressively hiked to slow inflation, it has been a tailwind since July 2023 when they stopped hiking. Now, as this easing cycle continues, the tailwinds remain strong.



Why We Aren’t Worried About Higher Inflation
We’ve been on record for well over a year now that our country would see very strong productivity and that is exactly what has played out. Below is what Sonu had to say recently about productivity.

Productivity growth is also running strong – over the last six quarters, productivity growth has clocked in at a 2.6% annualized pace. That’s well above the 1.6% annual pace we saw between 2005 and 2019. This productivity boost is something we talked about a year ago, including in our 2024 outlook. As we discussed back then, a key factor here is a strong labor market. Workers who were hired back in 2021 and 2022 have gotten a lot more productive as they got trained and stay in their jobs (with relatively higher pay). Entrepreneurship is another likely factor boosting productivity, with new business formations running well ahead of what we saw in the last decade. New business creation also provides employees opportunities to switch jobs for higher pay. The good news is that strong productivity gains allow wage growth to remain strong, without creating inflationary pressures — this dynamic has been playing out over the past year and half and we expect it to continue into 2025.

The reality is some of the best years for the economy and stock market have been during periods of strong productivity, which makes sense since productivity growth is a key input to GDP. Last year for instance saw nominal Gross Domestic Product (GDP) up nearly 6% and we are now looking at back-to-back 20% years for the S&P 500, something we don’t think is a coincidence with productivity strong. The last time we saw an extended period of strong productivity? The mid to late1990s, one of the best periods ever for investors.

We hear all the time that should the Fed cut here, it could lead to higher inflation. Yes, that’s a worry, but again go look back at history. When you have higher productivity it allows for higher wages, but also puts a cap on inflation. It sounds like a perfect scenario, but we indeed saw a similar situation in the mid-1990s and the Fed cut, wages stayed strong, and inflation wasn’t an issue. As long as productivity remains strong (like we think it should) the path is there for the Fed to continue to cut interest rates and not worry about inflation soaring back.



Small Business: Poor Sales and Politics
Tue, Nov 12, 2024

Early this morning, the NFIB updated their latest gauge on small business sentiment. The headline number came in at 93.7 this month compared to a lower number of 91.5 last month. That was a larger than expected uptick as it was forecasted to only rise to 92. At current levels, the index remains in the bottom quartile of its historical range, but it's tied with this past July for the strongest reading since February 2022.



In the table below, we show each category of the report including non-inputs to the Optimism Index. We show this month's reading, last month's reading, and the month over month change in addition to how each of those rank as a percentile of all periods. As shown, improvements were broad in October with no inputs to the Optimism Index falling and many of those MoM gains ranking in the upper quintile of monthly changes or better. Breadth was a bit weaker for indices that are not inputs to the Optimism Index. For example, higher prices was lower, although that can be considered a good thing.



Even though the release showed most categories moving higher, overall it was somewhat of a mixed bag. As we discussed in today's Morning Lineup, labor readings are weak but showing some signs of stabilization. When it comes to many demand gauges, as shown below, outlook for general business conditions remains negative as has been the case for a record span of almost four years running (47 straight months). Granted, October saw the best reading since the 2020 election (this survey's political sensitives discussed in more detail below). Meanwhile, the share of firms reporting now as a good time to expand their business is still very low historically, albeit picking up to 6%. Elsewhere in outlook/expectations indices, sales expectations have rebounded significantly but remain negative.

Those weak but improving expectation indices contrast with much weaker readings for actual sales and earnings. Actual sales changes continue to plummet reaching a new low of -20 in October. The only periods in which this was lower was the depths of COVID and during the Financial Crisis years. Actual earnings changes moved higher for a second month in a row, but current levels are likewise some of the worst on record. As for inflation, the higher prices index is no longer falling at the same pace as yesteryear having stabilized around still historically elevated levels.



The NFIB has some auxiliary data within the report that surveys businesses reporting lower earnings on the reason for such a response. Weak actual sales are again reflected here. The share of businesses reporting sales volumes as the cause for lower earnings jumped to 16%. That matches last November for the highest reading since March 2021 and unseats increased costs for the number one reason. While increased costs are no longer the most common response, the reading is still well above pre-pandemic norms and has been mostly flat over the past few years.



More broadly in response to the question posed to all businesses of what is their most important problem, 9% of firms reported poor sales. That reading has been trending higher and is now the most elevated since March 2021. While poor sales is rising, other issues like inflation (23%), quality of labor (20%) and taxes (16%) all rank higher at the moment.



Circling back on expansion outlooks, again a historically low share of firms see now as a good time to grow. As shown below, economic conditions are far and away the most common reason given for this outlook. However, the next most common reason is political climate. As we often note including in today's Morning Lineup, one downside to the NFIB data is consistent sensitivity to politics.



In the chart below, we show the combined share of businesses reporting politics as their reason for a negative or uncertain expansion outlook. As shown, this reading has tended to rise sharply ahead of an election. After Trump won in 2016, this measure dropped sharply while the opposite played out in 2020 when Biden was elected. This go around, it has again risen into the election, but since Trump has won, it will likely head lower (maybe even dramatically so) in the next report. It also wouldn't be surprising to see this sort of positive turnaround in other categories of the report.

The Dollar and Domestics
Mon, Nov 11, 2024

As noted in today's Morning Lineup, the US dollar among other assets has continued to rise post election. The Bloomberg Trade-Weighted Dollar Index is now up 1.66% versus the close on election day. With those gains, the dollar is now trading at some of the highest levels of the past year.



In last week's Bespoke Report, we discussed the market's winners and the losers from the election, and obviously as shown above, the dollar has fallen into the winners category. As we have discussed in the past, generally in strong dollar environments, the stocks most poised to benefit are those that generate the highest share of revenues domestically. Conversely, in weak dollar environments, it's the stocks that generate the majority of their revenues outside the US that tend to perform relatively well as their goods and services become cheaper for international customers.

That dynamic has exactly played out. Below, we show the average performance since Election Day by deciles of Russell 1,000 members based on their international revenue exposure. Decile one is comprised of all stocks with 100% domestic revenues (domestics), and each group moving up the chain to decile 10 has an increasingly higher share of international revenues. The top performers, with an over 5% average gain, are the domestics whereas the most internationally exposed stocks are up a meager 1%.



The Economic Outlook Looks Pretty Good – Part 1


Amidst all the election news, the Federal Reserve’s (Fed) November meeting almost went under the radar. The good news is that the Fed didn’t give us any surprises. As widely expected, they cut the federal funds rate by another 0.25%-points, taking it down to the 4.5-4.75% range. Fed Chair Powell pointed out that this is simply ongoing recalibration of interest rate policy – policy is still restrictive even as inflation continues to move to their target of 2%. The labor market has cooled off quite a bit, but they don’t want to see any more softening. They believe the employment situation is solid and want to keep it that way. All of which is very positive.

At the same time, they’re in no hurry to “normalize” policy. They’re going to take a gradual approach as more data comes in, i.e. no big moves like the 0.50%-point cut in September. Economic growth is solid, as recent data has highlighted. Quoting Powell:

If you look at the U.S. economy, its performance has been very good. And that’s what we hear from businesspeople, and expectation that that will continue. If anything, people feel next year—I’ve heard this from several people—that next year could even be stronger than this year.

This is a telling outlook and worth unpacking as we look toward 2025. Real GDP growth has clocked in at an annualized pace of 2.9% over the last two years (through Q3). That’s above the 2017-2019 pace of 2.8%. There’re questions about whether the Fed should even be easing under this scenario, but as Skanda Amarnath pointed out when Ryan and I spoke to him on our recent Facts vs Feelings podcast episode, the Fed does not have a GDP target. They have an inflation target and maximum employment mandate.

Note that Powell was quick to add that they haven’t accounted for any impact of the new administration’s proposed policies. We’re not quite sure what policies will actually be passed, and to what extent. It’s going to take some time for things to come into focus, and even more time for it all to play out. Given that uncertainty, I thought it would be useful to do a SWOT analysis for the US economy in 2025, i.e. considering its strength, weaknesses, opportunities, and threats. In this piece, I’ll cover strengths and weaknesses. I’ll save the discussion of potential opportunities and threats in part 2 of this blog.



Strengths
To start with, it’s useful to recall that consumption accounts for just under 70% of the economy. Consumption has been driven by income growth this cycle, and right now aggregate income growth (across all workers in the economy) is running at a 5.3% year-over-year pace. That’s above the strong pre-pandemic pace of 4.5%. There’s no reason to expect this to pull back significantly, but we may see a shift in dynamics. Aggregate income growth is the sum of employment growth, wage growth, and change in hours worked. Going forward, aggregate income growth is more likely to be powered by strong wage growth, even as employment growth slows to a 150,000-175,000 average monthly pace.



Household balance sheets are also in really good shape. Household net worth is 785% of disposable income, close to all-time records. Mostly thanks to rising home prices and stock prices. Even if income growth pulls back further, strong balance sheets give households room to maintain consumption (by reducing the amount they save each month).



Productivity growth is also running strong – over the last six quarters, productivity growth has clocked in at a 2.6% annualized pace. That’s well above the 1.6% annual pace we saw between 2005 and 2019. This productivity boost is something we talked about a year ago, including in our 2024 outlook. As we discussed back then, a key factor here is a strong labor market. Workers who were hired back in 2021 and 2022 have gotten a lot more productive as they got trained and stay in their jobs (with relatively higher pay). Entrepreneurship is another likely factor boosting productivity, with new business formations running well ahead of what we saw in the last decade. New business creation also provides employees opportunities to switch jobs for higher pay. The good news is that strong productivity gains allow wage growth to remain strong, without creating inflationary pressures – this dynamic has been playing out over the past year and half and we expect it to continue into 2025.



The main risk to this productivity boom is a recession, which can really harm the labor market. However, we don’t think that’s on the cards for 2025. Our own proprietary leading economic indicator has consistently said that the US economy is not close to a recession for over two years now (including in 2022 and 2023, when everyone was calling for one). It continues to tell us that the US economy is growing on trend, or slightly above it. Moreover, the Fed has pointed out that they don’t want the employment situation to soften any further. That’s crucial support.



Weaknesses
Interest rates have risen sharply since the Fed meeting in September, despite rate cuts. The 10-year treasury yield jumped from 3.64% on September 17th (the day prior to the Fed’s September meeting) to 4.33% as of November 7th. We did see a big jump on the day after the election, but yields pulled back the following day. These are big moves, but for the most part it reflects lower recession fears thanks to strong economic data in recent weeks.



Normally I’d put higher interest rates as a “Threat” but it’s already hurting and causing weakness in certain sectors of the economy. For one thing, higher interest rates can adversely impact investment spending that is dependent on borrowing, and we’re already seeing signs of that. Business equipment spending has picked up over the last two quarters, coinciding with a big drop in interest rates. However, with rates reverting higher now, there’s some risk that equipment investment flatlines (as it did in 2023). Investment in structures has boomed over the last couple of years, but this has been driven by the CHIPS Act and IRA (Inflation Reduction Act) crowding in investments in manufacturing structures, specifically high-tech manufacturing. However, investment in structures outside of manufacturing has been weak. This is unlikely to rebound unless interest rates ease.

High interest rates also hinder consumers from tapping into credit, such as auto loans or even home equity that’s built up over the last few years. Overall consumer credit growth is running at just over 2% year-over-year, well below the 4.5-5% pace we saw back in 2019.

The weakest area of the economy is housing, which is a critical cyclical sector of the economy. And no surprise, it’s highly dependent on interest rates. 30-year mortgage rates closely track 10-year treasury yields, and they’re back over 7% now. That’s not conducive for housing activity. Both single-family and multi-family segments are getting hit. Completions are running 25% above starts, which indicates that builders are not confident about the outlook and are more focused on just completing homes already in the pipeline. Instead of starting new ones.



Housing by itself may not be pull the economy into a recession, but it’s a drag. Residential investment has already dragged from GDP growth for two quarters in a row. This is likely to continue into the beginning of 2025, unless mortgage rates pull back. Construction employment has been running solid until now, but if housing remains weak, we could see that start to pull back as well. Historically, construction employment has foreshadowed further weakness across the labor market. This is something we’re going to be watching very carefully over the next few months.

Overall, I think it’s fair to say the strengths currently outweigh the weaknesses, especially because the latter are isolated in smaller areas of the economy. Still, it’s something to be aware of as we move into next year. In my next piece, I’ll discuss potential opportunities and threats for the 2025 macroeconomic outlook.

 

Here are the percentage changes for the major indices for WTD, MTD, QTD & YTD in 2024-



S&P sectors for the past week-

 

Here are the current major indices pullback/correction levels from 52WK highs as of week ending 11.15.24-


Here is also the pullback/correction levels from current prices


Here are the current major indices rally levels from 52WK lows as of week ending 11.15.24-

 

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Here are the upcoming IPO's for this week-

 

Stock Market Analysis Video for November 15th, 2024
Video from AlphaTrends Brian Shannon


ShadowTrader Video Weekly 11/17/24
Video from ShadowTrader Peter Reznicek

 

StockBoarders! Come join us on our stock market competitions for this upcoming trading week ahead!-

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StonkForums Weekly Stock Picking Contest & SPX Sentiment Poll (11/18-11/22) <-- click there to cast your weekly market direction vote and stock picks for this coming week ahead!

Daily SPX Sentiment Poll for Monday (11/18) <-- click there to cast your daily market direction vote for this coming Tuesday ahead!

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It would be pretty sweet to see some of you join us and participate on these!

I hope you all have a fantastic weekend ahead!

 

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Here are the most anticipated Earnings Releases for this upcoming trading week ahead.

***Check mark next to the stock symbols denotes confirmed earnings release date & time***

Monday 11.18.24 Before Market Open:

Spoiler: CLICK HERE TO VIEW MONDAY'S AM EARNINGS TIMES & ESTIMATES!

Monday 11.18.24 After Market Close:

Spoiler: CLICK HERE TO VIEW MONDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Tuesday 11.19.24 Before Market Open:

Spoiler: CLICK HERE TO VIEW TUESDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Tuesday 11.19.24 After Market Close:

Spoiler: CLICK HERE TO VIEW TUESDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Wednesday 11.20.24 Before Market Open:

Spoiler: CLICK HERE TO VIEW WEDNESDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Wednesday 11.20.24 After Market Close:

Spoiler: CLICK HERE TO VIEW WEDNESDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Thursday 11.21.24 Before Market Open:

Spoiler: CLICK HERE TO VIEW THURSDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Thursday 11.21.24 After Market Close:

Spoiler: CLICK HERE TO VIEW THURSDAY'S PM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Friday 11.22.24 Before Market Open:

Spoiler: CLICK HERE TO VIEW FRIDAY'S AM EARNINGS TIMES & ESTIMATES!

(T.B.A.)

Friday 11.22.24 After Market Close:

Spoiler: CLICK HERE TO VIEW FRIDAY'S PM EARNINGS TIMES & ESTIMATES!

(NONE.)

 

And finally here is the most anticipated earnings calendar for this upcoming trading week ahead-
($NVDA $SNOW $WMT $PANW $NIO $SYM $TGT $ZIM $TCOM $WKHS $LOW $BTBT $POWL $BIDU $PDD $XPEV $TJX $JACK $WIX $BTDR $DE $MDT $AZEK $BRBR $CPA $EH $ROST $DY $ESTC $GAP $INTU $BRC $TUYA $TWST $SQM $KEYS $BJ $FUTU $VIPS $VIK $ZTO $MMS $MOND $ATAT $ACM $ALLT $WSM $LZB $MYTE $J)


If you guys want to view the full earnings post please see this thread here-

• Most Anticipated Earnings Releases for the week beginning November 18th, 2024 <-- click there to view!

 

Top of the morning StockBoarders! Happy Monday to all of you and welcome to the new trading week and a frrrrrrrrrrrresh start. Here is a quick check on those futures as we are under an hour into the US cash market open.

GLTA on this Monday, November the 18th, 2024!

 

Here are today's gappers up & down:

 

Here are today's economic calendar events:

 

Here are today's analyst stock upgrades & downgrades:

 

Here are this morning's pre-market earnings results:

 

Morning Lineup - 11/18/24 - He Loves Me, He Loves Me Not
Mon, Nov 18, 2024

Two headlines on the front page of the Wall Street Journal stood out to us this morning. The first was “Investors Are Betting on a Market Melt-Up.” There’s not much to say about this except that if you are bullish on the market, given the election results and other factors, you’re not alone. That’s not to say that the market has to go down, but gains could be harder to come by. The beach is always much better when it's less crowded.

The second headline concerns the still-awaited nomination from President-elect Trump over who should become Treasury secretary (“Jockeying To Lead Treasury Spills Out In Public”). Heading into the weekend, it looked like it was a two-person race between Scott Bessent and Howard Lutnick, but now it appears that the lobbying has annoyed Trump, and he is now expanding the potential field from more than just those two. This pick is easily the most important remaining pick of the future President’s cabinet, and depending on who “gets the rose” it would impact US trade policy and the dollar's direction.

Markets hate uncertainty, and perhaps some of the increased uncertainty over who will lead the Treasury Department has shown up in the performance of gold and bitcoin this morning, as both are trading higher.

Starting with gold, after an 8% pullback from its late October high and breaking its uptrend that had been in place since earlier in the year, the SPDR Gold Trust (GLD) is trading up over 1% this morning after bouncing near support levels coinciding with its late summer base. If you’re long GLD, seeing a bounce after six days in a row of losses is nice. The real test will come in the days ahead as it looks to get back above that former uptrend line.



It's hard to attribute a daily 1% move in Bitcoin to anything specific as it’s such a volatile asset. But even after many assets that surged in the immediate days after the election have started to pull back, bitcoin remains within 1% of its record high last week.

 

Here is a final look at today's market and futures maps, as well as how each sector performed individually at the close on Monday, November 18th, 2024.