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 shit 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 Cyclical (two biggest holdings: Amazon/Tesla) - up 7.5% for the week.
Last week’s worst performing U.S. sector: Consumer Defensive (two biggest holdings: Costco, Procter & Gamble) - up 0.8% 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 4.7% last week, is up 25.9% 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 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 8.8% last week, is up 18.6% so far this year and ended the week 1.8% below its all-time record closing high (11/08/2021).
AVERAGE 30-YEAR FIXED MORTGAGE RATE ..
↑ 6.79%
One week ago: 6.72%, one month ago: 6.32%, one year ago: 7.50%
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 safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
FEDWATCH INTEREST RATE TOOL ..
Where will interest rates be after the Fed’s next meeting on December 18th?
Higher than now .. 0% probability (0% a week ago)
Unchanged from now .. 35% probability (17% a week ago)
0.25% lower than now .. 65% probability (83% a week ago)
0.50% lower than now .. 0% probability (0% a week ago)
All data based on the Fed Funds interest rate (currently 4.625%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
% OF S&P 500 STOCKS TRADING ABOVE THEIR 50-DAY MOVING AVERAGE:
65% (323 of the S&P 500 stocks ended last week above their 50D MA and 177 were below)
One week ago: 48%, one month ago: 67%, one year ago: 67%
% OF S&P 500 STOCKS TRADING ABOVE THEIR 200-DAY MOVING AVERAGE:
74% (368 of the S&P 500 stocks ended last week above their 200D MA and 132 were below)
One week ago: 69%, one month ago: 73%, one year ago: 48%
Closely-watched measures of market breadth and participation, providing a real-time look at how many of the S&P 500 index stocks are trending higher or lower, as defined by whether the stock price is above or below their more sensitive 50-day (short term) and less sensitive 200-day (long term) moving averages which are among the most widely-followed of all stock market technical indicators.
The higher the reading, the better the deemed health of the overall market trend, with 50% considered to be a key pivot point. Readings above 90% or below 15% are extremely rare.
WEEKLY US INVESTOR SENTIMENT (outlook for the upcoming 6 months) ..
↑Bullish: 42% (39% a week ago)
⬌ Neutral: 31% (30% a week ago)
↓Bearish: 27% (31% a week ago)
Net Bull-Bear spread: ↑Bullish by 15 (Bullish by 8 a week ago)
For context: Long term averages: Bullish: 38% — Neutral: 32% — Bearish: 30% — Net Bull-Bear spread: Bullish by 8
Survey participants are typically polled during the first half of the week.
Data courtesy of: American Association of Individual Investors (AAII).
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