CWS Market Review – November 12, 2024

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On Monday, the stock market rallied to another new high. This was the S&P 500’s first ever close above 6,000 and it was the index’s 51st record high this year. The S&P 500 closed a bit lower today which snapped a five-day winning streak. Over those five days, the index gained a little over 5%.

For some context, the S&P 500 first closed above 600 on November 17, 1995. The index first closed above 60 on July 7, 1959.

We can even go back to a few days in 1932 when the S&P 500 closed below 6, but there’s a footnote attached to that stat. That would be the last time the index closed below 6, but we can’t say when the first time was because that day preceded the lifespan of the S&P 500. Still, a 1,000-fold gain in 92 years is impressive.

The Trump Trade Takes Over Wall Street

We now know what the “Trump Trade” is, but it may not last long. The Trump Trade is the market rewarding cyclicals, especially domestic manufacturers. That tends to skew towards small-cap stocks and the little guys have been very popular in recent days. The Russell 2000 ETF (IWM) is already up more than 10% this month.

The bond market reacted swiftly. The yield on the 10-year Treasury jumped 16 basis points to close at 4.42%, although the yield has backed down after the past few days.

I’ve been impressed by how some cyclical stocks have responded. That often happens at the same time long-term bond yields rise. For example, the S&P 500 Industrials ETF (XLI) has performed well. Financial stocks have also done well. The S&P 500 Financials ETF (XLF) rallied more than 6% on Wednesday and continued to go higher after that.

A good example of rallying financials comes from our Buy List. On Tuesday, shares of Farmer Mac (AGM) rallied more than 6% thanks to a good earnings report. Then on Wednesday, the day after the election, Farmer Mac ran up another 10%. The shares reached their highest point since this summer. The stock had been cheap for a long time, but the market seemed to only realize it all at once.

How about the rally in Bitcoin? President-Elect Trump promised to be a crypto-friendly president. He even talked about having a bitcoin strategic reserve. On election day, Bitcoin rose 9%, and it gained another 10% over the weekend.

Bitcoin is getting very close to $90,000. Two years ago, it was at $17,000. So far this month, Bitcoin has gained 28%, and November isn’t even half over.

By the way, in September, former NBA great Scottie Pippen made a deadly accurate prediction about the price of Bitcoin.

If you feel that you need to invest in Bitcoin, I’ll simply add that Bitcoin has had several major pullbacks in its short history.

Wall Street Braces for Tomorrow’s CPI Report

Now that Wall Street is past the election, the next big test for the market comes tomorrow morning when the October CPI report is released.

I’ll be honest, this report has some folks scared. The inflation data has mostly been getting better, but a bad report could unravel a lot of market narratives.

For September, the Consumer Price Index increased by 0.18%. That almost matched the 0.15% increase we had in July, and the 0.19% increase we had in August. The last five reports have all come in less than 0.2%.

For September, the 12-month rate reached 2.4% which was more than expected. Still, that’s a lot better than March when the 12-month rate hit 3.5%, and it’s far better than the peak of 9.1% reached in June 2022. Inflation has been improving, but it’s happened slowly.

The “core rate,” which excludes food and energy prices, hasn’t fared as well. For September, core inflation increased by 0.3%. That was the highest since March. In September, the 12-month core rate reached 3.3%.

The Fed meets again in five weeks, and there appears to be some doubt whether the Fed will cut rates again. Futures traders currently think there’s a 55% chance that the Fed will cut and a 45% chance that they’ll hold steady.

I suspect that a cut is probably coming next month but the number of cuts for next year may be in doubt. In September, Wall Street thought the Fed would have interest rates at 3% by this June. Now they think the Fed will be at 4% by June. I wouldn’t be surprised if we only see two more rate cuts next year.

Fed Chairman Jerome Powell was recently asked if he would resign if President-Elect Trump wanted him to. He gave a one word reply: “No.”

I noticed that Home Depot (HD) raised its sales guidance today. Last quarter, ending in late October, same-store sales fell 1.3%. Those beat expectations, and it was HD’s best sales performance in nearly two years. That says a lot when your best quarterly growth of the last seven quarters was still a drop.

I like to keep an eye on Home Depot’s fortunes because it’s a good barometer for the health of the home improvement sector. HD said it now expects to see comparable store sales fall by 2.5% for this year. That’s not great, but it’s better than the previous guidance for a drop of 3% to 4%.

Home Depot saw a pickup in demand for seasonal items and supplies for certain outdoor projects, some of which was related to hurricanes that have struck the US in recent months. Warm weather also helped with sales of products like grills, Chief Financial Officer Richard McPhail said in an interview Tuesday.

Home Depot said it anticipates some hurricane-related sales during the current quarter. Generators, lumber and clean-up products typically sell well during weather events.

Home Depot’s business can be particularly sensitive to the Fed’s policies since consumers often use debt to finance their home improvement projections. HD said that sales of garden and paint products increased but lumber and plumbing came in below expectations.

Home Depot is one of the first major big box retailers to report earnings. Soon we’ll get reports from companies like Target, Walmart and Lowe’s. These companies could be looking at a strong holiday shopping season.

Shares of Tyson Foods (TSN) got a nice bump today after the food company said it beat earnings. At one point, TSN was up more than 12% in today’s trading. It was the best-performing stock in the S&P 500 today.

This is interesting to see because Tyson is a good company, but the stock price had not done well. Tyson now sees its operating profit rising by 22% this year. That’s more than Wall Street had expected.

Demand for chicken, Tyson’s second-largest source of revenue, has improved as consumers look for cheaper alternatives to beef. Plunging prices for corn and soybeans also made it cheaper to feed animals, while a series of factory shutdowns and other measures boosted cost savings.

Last quarter, Tyson’s chicken business made up 70% of its sales while beef was a money loser. For its fiscal Q4, Tyson made 92 cents per share. The consensus on Wall Street had been for earnings of 69 cents per share.

Over the last five years, the S&P 500 has nearly doubled but TSN is down by two-thirds. Even after today’s rally, shares of TSN still yield a healthy 3.3%. Tyson’s been down so long, it’s hard for me to see this as a bargain, but with more quarters like this last one, Tyson would be a compelling buy.

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

– Eddy

Posted by on November 12th, 2024 at 6:20 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.