CWS Market Review – November 19, 2024

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

Fifty Years Since the Big Low

We’re soon coming up on a major market anniversary. Two weeks from Friday marks the 50th anniversary of one of the most dramatic lows in Wall Street history. On December 6, 1974, the S&P 500 closed at 65.01. That was the market’s lowest close in the last 60 years.

It’s hard to convey just how low this low was. This was near the low point for post-war American optimism. The stock market had given back all its gains from the previous 12 years. At its low, the market was not far above its peak from 45 years before. In fact, adjusted for inflation, the market was about where it had been in 1929.

Here’s the inflation-adjusted S&P 500 over the last 12 decades:

According to data I saw at Professor Robert Shiller’s data library, the stock market’s P/E ratio in December 1974 was 7.5. It’s more than three times that today. The dividend yield for the entire S&P 500 reached 5.4%.

This was a brutal time for investors. Watergate, Vietnam and inflation dominated the news. In less than two years, the stock market was cut in half. The 1960s saw an explosion in optimism and faith in the future. All of that seemed to unravel by the 1970s.

It’s interesting to note how nostalgic the 1970s was. People were looking backward not forward. One month after the market’s low, President Ford said in his State of the Union Address that the state of the union was “not good.”

Today’s investors assume a constantly rising market that will hit some bumps along the way. That belief hasn’t always been so widespread. Many investors, especially those who had lived during the Great Depression, thought that the stock market was a useless casino that was rigged against them.

As terrible as the headlines were in December 1974, it was a great time to invest. It just took a little courage and a lot of patience. Not including dividends, the stock market has risen more than 90-fold over the last half century. That works out to an annual gain of about 9.5%.

The market works, you just have to wait a little.

Walmart Hits All-Time High

Last Friday, the government released its retail sales report, but today we got an even better report, Walmart’s (WMT) earnings. The retail giant’s earnings are probably a better barometer of how happy consumers are than any government report.

The good news is that Walmart’s customers seem to be pleased. Interestingly, Walmart seems to be doing better with affluent shoppers.

For the quarter, Walmart made 58 cents per share which was a nickel ahead of expectations. Quarterly revenue was $169.59 billion compared with expectations of $167.72 billion. On average, Walmart generates $1.3 million of revenue every minute of every hour of every day for the entire quarter. The stock rose to an all-time high today.

Walmart now expects full-year sales growth of 4.8% to 5.1%. That’s up from the previous forecast of 3.75% to 4.75%. Sales of general merchandise had year-over-year sales growth for the second straight month, but that comes after 11 straight quarters of declines.

The current quarter, which ends in January, is the all-important holiday shopping quarter. For many retailers, this quarter is the biggie. That’s why so many retailers have off-cycle reporting dates. They don’t want to have December and January in different reporting quarters. Last week, I told you about the encouraging report from Home Depot (HD). We’ll soon hear from other big box retailers.

Walmart said it expects sales growth of 3% to 4% for this quarter. Last quarter, Walmart’s e-commerce sales increased by 22%. It’s now 18% of Walmart’s overall business. This was a solid quarter for Walmart and it could be an omen for a good holiday shopping season.

Housing Starts Plunged Last Month

This morning, the Commerce Department said that single-family housing starts fell last month. The drop was most likely due to the recent hurricanes in the South. Still, higher mortgage rates are holding back the housing market.

Even though the Fed is lowering interest rates now, the housing sector is still dealing with the Fed’s aggressive rate hikes of 2022-2023.

Single-family housing starts, which account for the bulk of homebuilding, plunged 6.9% to a seasonally adjusted annual rate of 970,000 units last month, the Commerce Department’s Census Bureau said. Data for September was revised higher to show homebuilding rising to a rate of 1.042 million units from the previously reported pace of 1.027 million units.

Single-family starts dropped 10.2% in the densely populated South, large parts of which were devastated by Helene in late September. Milton struck Florida in October. Ground-breaking on single-family housing projects plummeted 28.7% in the Northeast, but increased 4.6% in the Midwest and the West.

Single-family homebuilding slipped 0.5% from a year ago.

Starts for multi-family housing jumped 9.8% to a pace of 326,000 units. Overall housing starts dropped 3.1% to a rate of 1.311 million units. That was below Wall Street’s forecast. What’s happening is that many homeowners already locked in low rates on their mortgages so they’re reluctant to move now.

The yield on the 10-year Treasury, which tends to track mortgage rates, recently touched a five-month high. Longer yields have moved against the Fed’s policy of lower short-term rates.

This is a good reminder that it takes time for the Fed’s policies to impact the real economy. Traders currently think there’s a 60% chance that the Fed will cut again next month. That’s much lower than I expected. Perhaps Wall Street thinks there will soon be good reasons for the Fed to pause.

Get Ready for Nvidia’s Earnings

One more item. Nvidia (NVDA) is set to report earnings tomorrow. Get ready because this report could move the entire market. I confess, I have no idea what to expect, and neither does anyone else. The company now has a market value of roughly $3.6 trillion.

A year ago, Nvidia made 40 cents per share. The consensus this time is for earnings of 75 cents per share. Sales are expected to increase from $18.12 billion to $33.14 billion.

We can look at the action in the options market and see what to expect. For example, options traders expect shares of NVDA to swing by 8.5% after the earnings report comes out. That’s up or down and that average swing is roughly $300 billion. That amount is far larger than the vast majority of companies in the S&P 500.

NVDA has had several impressive after-earnings rallies, but that didn’t happen last time. Reuters quoted Matt Amberson who said that of the last 12 quarterly earnings reports, five post-earnings moves have been outside what has been expected by the market. “Of those, all have seen the stock price go higher, Amberson said.”

Nvidia’s CEO recently said that demand for the company’s next-generation AI chip Blackwell is “insane.” What would people in 1974 have said?

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on November 19th, 2024 at 5:06 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.