Archive for December, 2024

• CWS Market Review – December 3, 2024
  Eddy Elfenbein, December 3rd, 2024 at 6:21 pm

  (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.”)

  Before I get into today’s email, I have to apologize for some snafu that prevented last week’s premium issue from being emailed out. Perhaps I had too much turkey. In any event, paid subscribers can see that issue here.

  The S&P 500 continues to have a great year. This looks to be Wall Street’s best year since 2021. It’s odd how many people get upset by a rising market. As I’ve often said, “nothing gets people angry quite like good economic news.” That’s even my pinned tweet on X.

  

  Citigroup said that things are getting so bad for the bears (meaning good), that many hot shot short sellers are finally throwing in the towel. The more they’ve held out against the bulls, the worse they’ve done.

  European stocks, in particular, have lagged badly versus the U.S. Wait, let me rephrase that—they’re lagging horribly versus the U.S.

  Valuations in the U.S. are far higher than what we see across the pond. To be fair, this is like comparing apples to Müeslix. The U.S. markets are much more heavily weighted toward tech stocks, so perhaps they should command higher valuations.

  Although it’s just started, the last month of 2024 is proving to be a very good one for growth stocks. On Monday, growth creamed value: +0.79% to -0.76%. The gap between high beta and low vol was even greater: +1.87% to -0.96%. Growth beat value again today.

  In plain English, this means that investors are willing to shoulder great risk in search of greater returns. This kind of market typically aligns with rising interest rates. Or in this case, rates that may not be going lower as rapidly as expected.

  This is a part of a growing gap between what the Federal Reserve has said and what the markets expect. The Fed has consistently said that it’s looking to bring down rates, or in their view, take back the previous rate hikes.

  Wall Street doesn’t buy it. Traders think the Fed will cut rates again when it meets in two weeks. That’s not that controversial. The murky part is what comes next. For all of next year, Wall Street only expects two 0.25% cuts from the Fed.

  Here’s a cool chart.

  

  This shows the where the Fed is in blue, and the market’s take on the two-year Treasury in red. I like this chart because you can see how the red line anticipates the blue line. It’s like the red is the blue line, just faster.

  Notice how the red line has been moving up recently. That shows you how Wall Street is growing less confident in the Fed’s rate-cutting agenda. That’s also what’s driving the sector rotation I described earlier.

  Whom to believe? When in doubt, I side with the market’s expectations rather than a roomful of economists. Still, you never know.

  What Happened to the Recession We Were Promised?

  I feel as if I was promised a recession for this year, and we’re not going to get one. That news is far more upsetting to some folks than I would have expected.

  We still have one more month left of this year and of Q4. Goldman Sachs currently pegs Q4 GDP growth at 2.4%. The Atlanta Fed’s model is at 2.7%.

  Yesterday we got the ISM Manufacturing Index for November. I tend to like this report because it comes out quickly, usually on the first business day of the month. The GDP reports are great, but they tend to come out long after the fact.

  For November, the ISM was 48.4. That’s up from 46.5 for October. Any number below 50 means the factory sector of the economy is shrinking. This was the eighth month in a row that the ISM came in below 50, and it was the 24th time in the last 25 months that it was under 50.

  This Friday, we’ll get the November jobs report. Last month, the report for October said that only 12,000 jobs were added to the economy. That number was probably distorted by the storms down south. For Friday, Wall Street is expecting a gain of 214,000 new jobs.

  

  This morning, the Labor Department released its JOLTS report (Job Openings and Labor Turnover Survey) and it said that job openings rose in October by 372,000 to 7.744 million.

  There are now 1.11 job openings for each unemployed person. That’s up from 1.08 jobs for September. While that’s nice to see an increase, job openings are still down over the past year by 1.3 million.

  Economists polled by Reuters had forecast 7.475 million vacancies. The increase in job openings was led by the professional and business services sector, with 209,000 unfilled positions. Vacancies rose by 162,000 in the accommodation and food services industry and climbed by 87,000 in the information sector.

  But there were 26,000 fewer open positions in the federal government. The job openings rate increased to 4.6% from 4.4% in September.

  The number of quits also increased. That’s a good metric to follow because a rising number often signals confidence in the economy. Layoffs fell to 1.6 million. That’s the largest drop in layoffs in 18 months.

  Stankey’s Bold Turnaround at AT&T

  I wanted to comment on the recent success of AT&T (T). The stock has done very well this year, and it’s due to a very simple strategy. The company got rid of its entertainment holdings.

  I’m not sure why, but too many companies decide that they need to buy up other firms in order to make their own firms unnecessarily complicated. I remember that Peter Lynch warned of the dangers of holding too much cash on a firm’s balance sheet. They’re liable to spend it unwisely. Lynch referred to this as the Bladder Theory of corporate finance. I see it in action all the time.

  AT&T has moved in the other direction. CEO John Stankey got rid of AT&T’s Warner Brothers unit and also its satellite-TV company DirecTV. What was the point of owning them? Stankey also improved the company’s balance sheet by getting rid of tons of debt. The biggest issue was resolving AT&T’s terrible move of merging with Time Warner.

  

  This morning, the company said it is aiming, over the next three years, to return $40 billion to shareholders via dividends and share buybacks. It wasn’t that long ago that Stankey had to cut AT&T’s dividend, and he sold WarnerMedia to Discovery Communications.

  Since getting rid of Warner, AT&T is up 50% including dividends while Warner hasn’t done much. AT&T is smaller now, but it’s focused on telecom which is what it does best. AT&T still holds a dominant position in fiber-optic broadband subscribers. Investors love recuring revenue and that’s what AT&T provides with its monthly cellphone bills.

  The company’s major challenge now is to upgrade its fiber lines to better compete with companies like Verizon. There’s a lot of work ahead for AT&T and I’m afraid the company will have to shrink its workforce, but this is a good example of a company taking the right steps to make itself more competitive.

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

  – Eddy

• Morning News: December 3, 2024
  Eddy Elfenbein, December 3rd, 2024 at 7:06 am

  Welcome to the Post-American New World Disorder

  Will Trump’s Dollar Diplomacy Roil Global Trade?

  China Targets Critical Metals in Tit-for-Tat Response to US

  Italy to Require Companies Buy Insurance for Climate Risks

  Brazil Economy Beats Forecasts Again as Consumers Spend Big

  Fintechs Launder Cocaine Cash for Brazil’s Largest Criminal Gang

  Investors Punish France Over Budget Turmoil

  Construction Industry Braces for One-Two Punch: Tariffs and Deportations

  Americans Risk Losing Life Savings When Retirement Homes Go Bust

  Wall Street Short Sellers Throwing In the Towel, Citigroup Says

  BlackRock Buys Credit Firm HPS in $12 Billion All-Stock Deal

  AT&T Gave Up on the Media Business, and Its Stock Has Surged

  Revolut Co-Founder Storonsky Says UK Can’t Compete with US on IPOs

  Musk and Ramaswamy Have Their Work Cut Out for Them

  The Supreme Court Won’t Save Musk’s DOGE Plans

  It’s Not Conservative for Conservatives To Spend the Money of Others

  SpaceX Weighs Tender Offer at Roughly $350 Billion Valuation

  Tesla’s China Sales Fall as Competition Heats Up

  Will Elon Musk Ever Collect His Full Tesla Pay Package?

  Intel’s Patience Runs Out on CEO Gelsinger’s Long-Term Strategy

  Striking Volkswagen Workers Numbered Nearly 100,000 on Monday, Union Says

  Why Europe’s Vaunted Car Industry Is in Crisis, in Charts

  G.M. Will Sell Stake in E.V. Battery Plant to Its Partner LG

  NYC Coffee Chain Matto Uses $3 Lattes to Win Over Office Workers

  Carlsberg Sells Russian Baltika Breweries Business

  Terence Reilly Made Crocs and Stanley Cups Cool. Can He Do It Again With HeyDude?

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• Morning News: December 2, 2024
  Eddy Elfenbein, December 2nd, 2024 at 7:01 am

  Milei Touts $50 Billion From Investors Eyeing 30-Year Loopholes in Argentina

  EU Nears Deal on €1.5 Billion Fund to Boost Its Defense Industry

  European Factories Struggled Last Month as China’s Perked Up Ahead of Trump Tariffs

  Asian Manufacturing PMIs Send Positive Signals But Tariff Threat Tempers Upside

  US Tightens Curbs on China’s Access to AI Memory and Chips Tools

  A Roadmap Through the Drama and Realities of Trump’s Trade War

  Trump Tariffs Don’t Worry Mexico’s Only Chinese Car Plant Chief

  Metal Prices Slide; Significant Volatility Expected on Trump, China Policies

  Trump Changes Tune on Strong Dollar

  American Dollar Flexes on Trump Swipe, French Politics, Yuan Slide

  Coinbase Policy Chief Expects Speedy Approval of Crypto Laws Following Trump’s Victory

  The Fed’s Next Big Policy Rethink Needs Rethinking

  Investment Banks Will Lose Billions of Dollars to Private Rivals

  Singapore Central Bank Fines JPMorgan $1.8 Million Over Misconduct by Relationship Managers

  Things to Put On Your Holiday Gift List Before Tariffs Make Them More Expensive

  Most Black Friday Shoppers Bagged Their Deals Online this Year, with Record Spending

  This Old House? Home Buyers’ Best Deals Are on Builders’ Lots

  Musk’s Rivals Fear He Will Target Them With His New Power

  Nvidia Joins $700 Million Nebius Deal For AI Cloud Services

  Volkswagen Workers Begin Striking as Labor Dispute Escalates

  Stellantis Reels After CEO’s Early Departure Leaves Void

  Peugeot Family Backs Stellantis After CEO Tavares Quits

  The Billion-Dollar Railways Driving Biden’s Last Overseas Trip

  McDonald’s Inflation Tug of War Should Worry More Companies

  Whole Foods Chases Shoppers With Minimarket Concept

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