CWS Market Review – December 10, 2024

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Before I get to today’s issue, I have a quick announcement.

Be sure to circle December 25 on your calendar. That will be a very special day this year. That’s when I’ll email you the Buy List for 2025.

This will be our 20th annual Buy List. In honor of the new Buy List, the New York Stock Exchange will be closed on December 25. I want to thank the exchange for the recognition.

As usual, our Buy List will have 25 stocks. We will add five names and delete five names. All the stocks will be equally weighted at the beginning of the year. The New Buy List will go into effect at the start of trading on January 2 which will be the first day of trading in 2025.

Mondelez Is Looking to buy Hershey, Again

Speaking of our Buy List, we had exciting news this week. Bloomberg reported that Mondelez (MDLZ) is interested in buying Hershey (HSY).

This isn’t the first time that Mondelez has looked into buying Hershey. In 2016, they looked into it but Hershey wasn’t interested.

To be clear, there’s no deal on the table, and Bloomberg said, there’s “no certainty that discussions will lead to a deal.”

If these two got together, it would be a huge deal. Mondelez already owns Oreo and Cadbury. A deal like this does make sense. The fact is that consumers are becoming more health conscious. Recently, Mars bought Kellanova for close to $30 billion.

I can see what Mondelez is thinking, and it makes sense. Buying Hershey would give a big life to Mondelez’s presence in the North American market. Mondelez only gets 31% of its sales from North America compared to 93% for Hershey.

Shares of HSY have not done well this year. The global cocoa crop had a very poor year and Hershey’s stock felt it. A few weeks ago, the chocolatier cut its sales and earnings forecast. Cocoa prices are still quite high. In a separate report, Hershey said that the head of its confectionary business will leave after three months on the job.

One important issue with buying Hershey is the Hershey Trust. The trust owns almost all the “B” shares of HSY, so any deal needs its approval. Historically, the trust has been opposed to any deal. This time could be different.

Even though no deal has been announced, the stock market has been having a grand time with shares of HSY. At one point, HSY was up 19% in Monday’s trading.

At the end of the day, HSY closed higher by $18.95 per share or 10.85%. That gave Hershey a market value of about $39 billion while shares of Mondelez fell a bit, and Mondelez has a market value of $82 billion.

What would be interesting is that if the Hershey Trust is open to the idea of a sale, perhaps other players would jump in. In fact, you could even see a bidding war for Hershey break out. I’m sure the folks at Nestlé will be watching what happens.

The Jobs Market Is Still Doing Well

On Friday, the government reported that the U.S. economy created 227,000 net new jobs last month. That’s quite good. Wall Street had been expecting a gain of 214,000. Also, the anemic number for October was revised higher by 36,000. The storms down south and the Boeing strike impacted the original report. The number for September was also revised higher.

As expected, the unemployment rate ticked up by 0.1% to 4.2%. The unemployment rate has now been below 4.3% for the last 37 months in a row. In April 2020, the unemployment rate peaked at 14.9%.

Job gains were focused in health care (54,000), leisure and hospitality (53,000), and government (33,000), sectors that have consistently led payroll growth for the past few years. Social assistance added 19,000 to the total.

At the same time, retail trade saw a decline of 28,000 heading into the holiday season. With Thanksgiving coming later than usual this year, some stores may have held off hiring.

The broader U-6 rate increased to 7.8%. Also, the labor force participation rate dropped 0.1% to 62.5%. That number is often misinterpreted on social media. In reality, the labor force participation rate is strongly influenced by demographic trends. It’s not a good barometer for the overall health of the economy.

One concerning statistic in the jobs report is that the number of full-time jobs fell by 111,000 while part-time jobs dropped by 268,000. For black workers, the unemployment rate increased by 0.7% to 6.4%.

Average hourly earnings rose by 0.4% for the second month in a row. Over the last 12 months, average hourly earnings have increased by 4%.

The next big report comes tomorrow morning when the CPI report for November is released. It appears that the improvements to inflation have crawled to a halt. We’ll learn more tomorrow. Wall Street expects to see a gain of 0.3% for both the core and headline rate on inflation. It appears that it was quite easy to bring inflation down from 9% to 4%, but getting it from 4% to 2% is proving to be very difficult.

The Federal Reserve meets next week, and it’s very likely that the Fed will again lower interest rates by 0.25%. This will be the Fed’s third rate cut over the last three months, and it will bring the Fed’s target range for the Fed funds rate to 4.25% to 4.50%.

After that, it looks like the Fed may pause on any rate cuts at its January meeting. Traders see the Fed cutting twice more in the first half of 2025, but after June, they don’t expect any more cutting. If that’s the case, then the market may not be so hot next year. There are few things Wall Street likes more than falling interest rates.

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

– Eddy

Posted by on December 10th, 2024 at 5:39 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.