CWS Market Review – December 3, 2024
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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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CWS Market Review – November 26, 2024
Posted by Eddy Elfenbein on November 26th, 2024 at 7:09 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.”)

Healthcare Stocks Have Lagged the Market for Two Years

The stock market closed at another new all-time high today. The S&P 500 has closed higher for seven days in a row. This was the index’s 52nd new high for this year. There were zero last year. The big caps did the heavy lifting today while the Russell 2000 was down by 0.73%.

Lately, I’ve been asking, what’s going on with healthcare stocks? For years, this was one of the best-performing sectors on Wall Street. Not lately!

Make no mistake, there’s a lot to like about healthcare investing. The industry is heavily supported by the government. That’s a great customer to have. The sector is also helped by demographics. All those Baby Boomers need to have their joints replaced, and not how they used to have their joints replaced.

Investors also like that healthcare performance tends to be steady. There are several healthcare companies who regularly deliver consistent gains. That makes analyzing these stocks much easier. I love many cyclical stocks but those tend to follow boom-and-bust cycles. With healthcare, the lines on the graph are nice and smooth.

But healthcare has been badly lagging! Look at this chart below. I’ve included the S&P 500 Healthcare ETF (XLV, in black) along with the S&P 500 ex Healthcare ETF (SPXV, in blue), meaning everything in the index besides healthcare.

Over the last two years, healthcare stocks have lagged the rest of the market by nearly seven to one. Healthcare stocks currently make up about 11% of the S&P 500. That means that if you combine the two lines above at a nine-to-one ratio (nine black and one blue), that roughly makes up the S&P 500.

Until two years ago, just about any lagging performance from healthcare was a reliable signal to buy. Part of the reason for healthcare’s poor performance can be chalked up to the superior performance of other sectors, particularly large-cap tech.

Some investors think that healthcare stocks were held back by an unfriendly administration in Washington. That could be, but healthcare stocks continued to lag in the days after the election. To be fair, the sector has acted a little better in the last week.

There’s also a far simpler explanation: perhaps healthcare stocks were badly overpriced two years ago. For example, shares of Eli Lilly (LLY) have broken down over the past few months, and it’s still very pricey.

There are currently 62 stocks in the S&P 500 healthcare sector. On our Buy List, we own four of them: Abbott Labs (ABT), Cencora (COR), Stryker (SYK) and Thermo Fisher Scientific (TMO). Over the year, Stryker has been a particularly successful stock for us.

I also suspect that healthcare has done poorly because defensive stocks have been on the outs on Wall Street. That will quickly change in a recession. When things get rough, investors flock to those steady stocks.

I always take notice when an entire sector flounders, especially one that has done so well over the years. That’s a good place to find bargains. For now, if you’re willing to have a little patience, the healthcare sector may be a rich source of long-term winners. I obviously like our four the best. When the cycle turns, I expect to see some very nice gains.

Consumer Confidence Rises to a 16-Month High

Wall Street had some good mixed news today. On the positive front, consumer confidence rose to a 16-month high. This is important to watch. Without confidence, the economy can’t do much. For November, the consumer confidence index increased to 111.7. That’s up from 109.2 for October. Wall Street had been expecting 111.0.

What’s the reason for the optimism? The labor market is still holding up well, although I’d like to see greater wage gains. Also, the outlook for inflation is much better than it was two years ago.

Within the consumer confidence report, there’s also an index of consumer expectations. That index rose to 92.3 which is the highest reading in nearly three years. Earlier this year, the expectations index got very low.

While that’s the good news, the bad news is that the Census Bureau said today that the sales of single-family homes dropped to its lowest level in nearly two years. Clearly, the recent storms impacted these numbers. For October, new home sales fell by 17.3% to 610,000. Wall Street had been expecting 725,000.

Sales in the south fell 28% to 339,000. You have to go back to the early days of Covid to find numbers that bad. Home prices are still going up. Last month, the median price for a new home sold was $437,300.

Tomorrow, the government will update its numbers for Q3 GDP growth. Last month, we got the initial report, and it said that the U.S. economy grew in real annualized terms of 2.8%. That’s not bad. I don’t think the revision will be very different than the original report.

What about Q4? We’re a little over halfway through Q4, and the Atlanta Fed’s GDPNow model estimates that the economy grew at a real, annualized rate of 2.6%. That estimate was recently increased by 0.1%. It will be adjusted again tomorrow. If these numbers are right, then we successfully averted a recession in 2024. That would have surprised a lot of people 18 months ago.

I’ve noticed a growing divergence between what the Federal Reserve expects and what Wall Street expects. The Fed keeps talking tough about interest rates, but market participants don’t buy it. Here’s a look at the Fed funds rate adjusted for inflation:

The Fed meets again in three weeks, and traders think there’s a 63% chance that the Fed will again cut rates by 0.25%. That’s probably too low.

After that, the markets see the Fed cutting rates twice next year, but the Fed sees itself cutting four times next year. When in doubt, I prefer to side with markets over economists. This afternoon, the Fed released the minutes from its most-recent meeting. In it, the Fed confirmed that it’s looking to lower rates but at a gradual pace. As you know, I’m an expert in the bizarre, convoluted dialect known as Fedspeak. I’ll try to translate their foreign language into regular English.

The Fed said that if the current situation continues to improve, then “it would likely be appropriate to move gradually toward a more neutral stance of policy over time.” Note that in the Fed’s mind, it’s not lowering rates but it’s really taking back the rate hikes from 2022-2023. Interestingly, the Fed didn’t say anything about the election or possible tariffs.

The Fed members discussed the “neutral” interest rate. This is the idea that there’s a magic rate of interest and if you go above it, you choke the economy. But if you go below it, then you flood the economy with dollars. The hip econo-name for the neutral rate is R-Star.

The only hitch is that we don’t know where the neutral rate is. We can only guess. Austan Goolsbee, the Chicago Fed President, started calling it “R-Sasquatch.” There’s a general consensus that wherever R-Star is, we’re probably above it.

The minutes said, “Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually.” In other words, they’re as confused as everyone else.

Over the coming few months, I suspect the Fed will gradually reel back its plans for rate cuts for next year.

Milei Looks to Free Argentina’s Economy

Last year, I told you about Javier Milei, the libertarian outsider who was looking to become the president of Argentina. Since then, Milei was elected and he’s upending the political establishment.

He’s also become popular with investors. Bloomberg notes that the Argentina ETF (ARGT) has experienced massive inflows. Last week, ARGT had inflows of $144 million. The ETF has performed well.

I think investors are genuinely shocked that Milei is following through on what he promised. Since Mikei took office, the assets of ARGT have increased sevenfold. The economy in Argentina is getting better and inflation is finally cooling off.

I have to confess that I’m fascinated by Milei and his attempt to fundamentally change his country. It’s like a real-world experiment in macroeconomics.

He’s not done yet. The next big hurdle for Milei is removing capital controls. The fear is that once lifted, money will stampede out of Argentina. That’s happened before when Argentina has moved toward more market-friendly policies. Still, there’s good reason to believe that Milei is an exception.

The capital controls force the currency to be far stronger than it is on the open market. The government tightly controls the exchange rate. Buying foreign currency for savings is limited to $200 per month.

Of all his reforms, ending capital controls could be the most difficult for Milei. The reason is that it’s most likely to cause large-scale disruptions within the economy. Milei probably won’t tackle capital controls for several more months.

Milei is definitely worth following. Argentina is taking a big risk. If he’s right, Milei may offer the blueprint for how other countries can provide shock therapy to their economies.

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

– Eddy

Morning News: November 26, 2024
Posted by Eddy Elfenbein on November 26th, 2024 at 7:05 am

UAE Considers EU-Style Plan to Penalize Polluters for First Time

Italy’s Banco BPM Rebukes UniCredit’s $10.5 Billion Bid

The Bank for Moving On From Communism Questions Rise of Industrial Policy

Trump Plans Tariffs on Mexico, Canada and China That Could Cripple Trade

Trump’s Tariff Threat to Top US Trading Partners Roils Markets

Trump Tests Xi’s Appetite to Play Ball With Early Tariff Threat

After Trump’s Tariff Threat, Is a China Currency War Next?

Bessent Will Have to Fix America’s Finances. Good Luck With That.

An Economic Model That Moves Beyond G.D.P.

The US Gig Economy Is Holding Steady, Not Booming

Why Real Estate Stocks Took a Hit as Developers Cheered Trump

Biden Proposes Medicare, Medicaid Coverage of Obesity Drugs

WorldQuant Stages Shark Tank-Style Contest to Find New Whiz Kids

The Magnificent 7 Are Beginning to Look Average

The World’s Pioneering Tech Cop Is Making Her Exit

The ‘Rocket Docket’ Judge Who Will Decide the Fate of Google’s Ad Technology

China’s Huawei Takes Aim at Apple With Latest Smartphone

Intel Gets $7.9 Billion Chips Award for US Factory Expansion

One of the Hottest Stocks in the Oil Patch is a Defunct 19th-Century Railroad

What Spirit’s Bankruptcy Means for US Holiday Travel

U.S. Airlines Collected More Than $12 Billion From Seat Fees

Best Buy Lowers Full-Year Forecast Amid Turnaround Efforts

Frozen Home-Improvement Spending Could Take Time to Thaw

Target Lost Its Mojo. Hits Like $25 Leggings Are Key to Getting It Back

Dick’s Sporting Lifts Outlook After Strong Back-to-School Season

Sony’s Pursuit of Anime Publisher Holds More Opportunity Than Risk

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Morning News: November 25, 2024
Posted by Eddy Elfenbein on November 25th, 2024 at 7:05 am

G-7 Poised to Boost Pressure on China Over Russian Support

Inside the Frantic Maneuvers That Saved COP29 Talks at a Cost

EU Seeks to Streamline ESG Regulations Amid Growing Backlash

German Businesses Grow More Pessimistic as Geopolitical Pressures Mount

UniCredit Irks Rome with $11 Billion Banco BPM Swoop After German Backlash

The World’s Biggest Debtor Gets a New Manager: Scott Bessent

Dollar, US Yields Fall on Bets Bessent Will Dilute Trump Plans

A Hedge Fund Manager Should Be Able to Run Treasury

Trump Trade Muddles Inflation Outlook in Fed’s Favorite Gauge

Citi Bonuses Buy Time for New Wealth Boss’s Rush to Revamp

Jamie Dimon Says the Next Generation of Employees Will Work 3.5 Days a Week and Live to 100 Years Old

Apple’s Cook Joins CEO Summit With China Premier as Economy Sags

Amazon’s Moonshot to Rival NVIDIA in AI Chips

Washington Curtails Intel’s Chip Grant After Company Stumbles

Rocket Lab Signs $23.9M CHIPS Incentives Award to Boost Semiconductor Manufacturing

Google Chrome Sale Could Upend the Browser Market

Adani’s Legal Troubles May Worsen With Risk of Investor Lawsuits

How Trump Could Upend Electric Car Sales

How Southwest Airlines Lost Its Groove

Concrete-Maker Quikrete Strikes $9.2 Billion Deal for Summit Materials

Oneok to Acquire EnLink Midstream in $4.3 Billion Stock Deal

Big Food’s RFK Selloff Looks Overdone, but the Industry Has Other Problems Too

Are Value Meals Worth It for Restaurants?

Macy’s Delays Earnings After Employee Hid Millions in Expenses

Wrangler and Lee Jeans Maker’s Plan for Growth: Sell More to Women

The Charm Bracelet Shop That Keeps Going Viral

Shopping and Shame Share the Shelves in ‘American Bulk’

Without Drama or Banana, Art Auctions Struggle

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Morning News: November 22, 2024
Posted by Eddy Elfenbein on November 22nd, 2024 at 7:03 am

COP29 Summit Pushes for $250 Billion Deal to Narrow Divisions

Zambia Weighs $900 Million Coal-Power Plan as Drought Hits Hydro

Putin’s Nuclear Threat Is a Magic Trick, but a Dangerous One

Ex-Goldman Banker Turned Lithium CEO Vows to Ride Out Downturn

China’s Plan B to Save the Economy: A Crusade Against Busywork

Japan Approves $141 Billion Stimulus to Boost Economy, Offset Living Costs

ECB’s Lagarde Sees Europe Under Growing Trade Threat

European Farmer Angst Revs Up Again Over Trade Deal and Tax

Inside the Deadliest Job in America

Why Trump Allies Say Immigration Hurts American Workers

While You Do 5-Day RTO I’ll Watch Your Best Workers Quit

What Bondi Might Do as Attorney General

The High Risk, High Reward Trump Market

Dollar Set for Longest Run of Gains in a Year Amid Haven Demand

Goldman Gives the Blockchain Revolution a Home

Crypto Tokens Targeted by US SEC Jump on Gensler’s Planned Exit

Private Equity Financier’s Returns Slump in a $1.2 Trillion Market

US Probes JPMorgan’s Ties to Iranian Oil Kingpin’s Hedge Fund

China’s Hacking Reached Deep Into U.S. Telecoms

How Adani’s Indictment Rocked His Empire and What Comes Next

MicroStrategy’s Infinite Money Glitch Won’t Last

Future-Proofing Biden’s Chips Legacy

Japanese Chip Maker Kioxia Plans Tokyo Market Debut

Jeff Bezos Says Elon Musk’s Claims Are ‘100% Not True’ After the Tesla CEO Reignites Their Feud

Roadrunner Scores Fresh Investment, Eyes Deals

What Happens When US Hospitals Go Big on Nurse Practitioners

McDonald’s Reaches for Choosy Diners With Value Menu Revamp

Amazon’s Black Friday NFL Game Is a Play to Keep You Paying for Prime

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Morning News: November 21, 2024
Posted by Eddy Elfenbein on November 21st, 2024 at 6:57 am

BOJ Will Consider Impact of Weak Yen in Making Price Forecasts, Gov Ueda Says

Europe Is Gaslighting Itself About Its Energy Woes

Turkey Holds Rates, Signals Cuts Coming on Slowing Inflation

French Bond Risk Rises as Budget Tensions Keep Markets on Edge

French Factories Shrug off Trump Tariff Threat as November Mood Lightens

Trump Recruits His Season 2 Cast Straight From the Small Screen

Trump Seeks His Perfect Treasury Candidate as Search Drags On

Trump’s Economic Policy Can’t Be Just Nostalgia

Trump’s Tariffs

Banks Hoping For Looser Trump Reins Are Too Giddy

The US Stablecoin Startup Fueling a $3 Billion Boom in Africa

Worldline to Raise New Debt After Tumultuous Year Hurts Earnings

Nvidia Says New Chip on Track After Forecast Disappoints

Apple Pay, Other Tech Firms Come Under CFPB Regulatory Oversight

U.S. Proposes Breakup of Google to Fix Search Monopoly

US Watchdog Issues Final Rule to Supervise Big Tech Payments, Digital Wallets

Clear’s Dominance in Airports Could Be Coming to an End

Baidu Revenue Falls Again as Advertising Demand Remains Weak

Alibaba Integrates E-Commerce Operations Into Single Business Group

Adani Charged by US in $250 Million Bribery Case, Shaking India

US Charges Erase $15 Billion From Gautam Adani’s Wealth in Hours

Archegos Founder Bill Hwang Is Sentenced to 18 Years

Brazil Finds Chinese Ally in Its Feud with Elon Musk

What Elon Musk Might Want From America

How Froot Loops Landed at the Center of U.S. Food Politics

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Morning News: November 20, 2024
Posted by Eddy Elfenbein on November 20th, 2024 at 7:08 am

COP29 Summit Enters Final Stretch With Nations Far Apart on Finance

The Clandestine Oil Shipping Hub Funneling Iranian Crude to China

Asia’s Dark Fleet Hub Highlights Trump’s Oil Sanctions Headache

Trump’s Treasury Search Gains Steam With Fresh Round of Meetings

How Howard Lutnick Could Shake Up Global Trade

Trump’s Cabinet Blitz Is Straight From Orban’s Playbook

Trump and the Triumph of America’s New Elite

Wall Street Is Too Pumped About Trump to Worry About His Policies

American Companies Are Stocking Up to Get Ahead of Trump’s China Tariffs

VCs Look to Secondary Share Sales as The New Exit While M&A Falters

Senator Warren Urges Fed to Keep Wells Fargo Asset Cap

Archegos’ Bill Hwang to Be Sentenced for Massive US Fraud

Why Some Tax Cuts Can Be Better Than Others

To Get the Housing Market Moving, Raise Property Taxes

Miami Condo King Extends Bet on Wealth Boom Spreading up Florida Coast

Resentment is Building as More Workers Feel Stuck

Nvidia Traders Brace for Potential $300 Billion Earnings Move

How Google Spent 15 Years Creating a Culture of Concealment

Iger’s Hero Act Could Leave His Successor Playing the Fool

Comcast to Spin Off Cable Networks, Including MSNBC and CNBC

The Onion’s Bid to Acquire Infowars Has Gotten Messy

Traffic on Bluesky, an X Competitor, Is Up 500% Since the Election. How Will It Handle the Surge?

Target Shares Tumble After Retailer Cuts Profit Outlook

U.S. Military Selects Little-Known Utah Supplier for Drone Program

Hennessy Workers Strike Over Plans to Bottle Cognac in China

The Unusual Power of VW’s Union Boss Is Being Put to the Test

NIO’s Net Loss Widens on Lower Revenue Amid EV Pricing Pressure

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CWS Market Review – November 19, 2024
Posted by Eddy Elfenbein on November 19th, 2024 at 5:06 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.”)

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