November | 2024 | Wellington Shields & Co. LLC

Trump Rally or Relief Rally

Posted on 11/08/202411/08/2024 by Andrea

DJIA: 43,729

Trump rally … or relief rally? As important as the election’s outcome, it might well be there is one. For now there are the winners, the Trump trades, and there are losers, but for how long is for now? The nice thing here is it seems another time when you get to figure things out – the time for predicting is over and now is the time for observing. Does a 5% overnight move in the Russell make sense? Is the Solar industry and the rest of renewables going away? Or are they the real opportunity here? And why sell Gold because the dollar is higher? Won’t be long before inflation is higher as well. For sure there is a surprise here, testament to which are the boarded windows in DC.

Despite what some had thought, a Trump rally apparently was not priced in. Perhaps more to the point, any rally was not priced in. Last month’s quietly down-market helped set the stage for this rally, though its extent of course has been a surprise. It has gotten many indicators stretched in a hurry, but good markets do get overbought and stay overbought. At the very least, they don’t turn on a dime. Where you’re in is often more important than whether you’re in, and even at this early stage the rally seems to be following the historical script. Small Caps have done best during the first three months after an election, and Value best in the next three months. That said, three stocks in long-term uptrends we’ve often mentioned were strong on Wednesday – Cintas (220), Grainger (1189) and Parker Hannifin (690).

On a day like Wednesday the losers stood out. The winners, or potential leaders, were more difficult to discern against the overwhelming strength. And in some cases, you have to wonder about that strength. One clear distinction was domestic versus international exposure, the former clearly outperforming. Still, is every Regional Bank about to merge or be free of regulations. Or are we never using toothpaste or washing clothes? While a great company, was Nucor (161) really worth 20% more on Wednesday than the day before? And when it comes to Tesla (297), his politics should help SpaceX, but probably not sell more cars. On a technical level, the blowout move in the Averages didn’t quite see the same move in the A/Ds – not important for now, but something to watch.

It’s the most wonderful time of the year. No not Christmas, for the stock market the most wonderful time is between now and the end of April. Since 1945 $1 invested in the S&P during this period is now worth $125. That entails a 76% win rate and a median return of 10%. Gains of 15% occurred 16 times while losses of 15% only twice, according to SentimenTrader.com. Making this all the more striking are the returns for the other six months, when $1 turned into just $2.75. These numbers make it sound a bit easier than it is – even good markets don’t go straight up; they often move in chunks. Little question, however, it’s a good time to be invested.

It seems a lifetime ago, but last month wasn’t a particularly good one. It was the first down month after five straight up. A/D numbers saw pretty much as many up days as down, and particularly weak were the level of new highs versus new lows – virtually flat on the NAZ. The weakness overall, however, was pretty much relegated to short-term time frames. Stocks above a 40-day moving average, for example, dropped from 64% to 38%, while those above their 200-day remained above a healthy 60% level. Important now is that we see a reset in these numbers to go with its renewed strength in the Averages. The end to five-month win streaks by the way, does not bode ill historically.

Frank D. Gretz

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US Strategy Weekly: Happy Election Day

Posted on 11/06/202411/12/2024 by Andrea

It is finally election day and hopefully results will come quickly, and it will not take days, or weeks, to get final tallies of votes. (It does not make sense to us that in this era of technology we cannot have results in less than a 24-hour timeframe.)

As we noted last week, results for Congress may be more significant than who wins the White House, but that does not mean there are no differences between the two presidential candidates. The rally in recent sessions has been called a “Trump Rally” by traders and we think we know why. To Wall Street, former President Trump represents less regulation, lower taxes, more energy production, and this means lowers energy and transportation expenses and higher margins. Vice President Harris has indicated she wants to raise the corporate tax rate, promises voters she will investigate corporations for price gouging, and is part of an administration that has increased regulation and initiated anti-trust cases against most US large technology companies. Wall Street tends to focus less on campaign rhetoric, promises, and threats of tariffs, and more on numbers and actions.

Still, the stock market should be able to handle any election result. In our view, a Republican sweep could trigger a short-term rally since this is more supportive of earnings growth. The more likely result would be a divided Congress which is something Wall Street has typically favored and historically it means little gets passed or done in Congress. If this materializes, politics will take a back seat to earnings results. A Democratic sweep is unlikely in our opinion but would not be ideal for stocks since it would mean more regulation and taxes on Corporate America. However, it would be good for companies involved in green technology.

This is also Fed week, and the Fed’s announcement could come before election results are finalized, which would be interesting. Nevertheless, the market has priced in a 25-basis point cut and we do not think the Fed will disappoint. What we see in the employment data suggests another cut or two may be in store in coming months.

Recent Economic Releases

In the third quarter GDP grew 2.8% on a seasonally-adjusted-annualized basis, just shy of the 3.0% seen in the second quarter and not much below the long-term average of 3.2%. Driving third quarter growth was personal consumption. However, services have usually been the main driver of personal consumption, but in the third quarter growth came primarily from durable goods, or more specifically vehicles. Government spending was also a significant positive in the third quarter, along with inventories. The major negative in the quarter was international trade, with imports exceeding exports. See page 3.

October’s employment report showed payroll growth was surprisingly low at 12,000 jobs, plus August and September were revised lower, reducing total employment by 112,000 jobs. While October’s weakness was attributed to hurricanes and the Boeing strike, it does not explain the weakness seen in earlier months. Keep in mind that earlier this year the BLS announced that there will be an annual revision for January 2025’s employment report and this could lower employment statistics by as much as 818,000 jobs, or more than 86,000 jobs per month, representing a 0.5% benchmark revision. This would be the largest benchmark revision on record in terms of the number of jobs and the percentage of the revision. In our view, this lowers the confidence one can have in these statistics, but it explains the massive divergence we have been pointing out all year between the establishment and household surveys. Headline job growth looked stellar in 2024 while the household survey showed zero growth. It appears that the household survey may prove to be more accurate in the long run. Weak job growth could become a very important topic in 2025 because year-over-year declines in the level of employment have been a reliable predictor of a US recession. See page 4.

The unemployment rate for October was unchanged at 4.1%, but the household survey reveals there are differences in unemployment according to age, sex, education, and citizenship. The unemployment rate for those 65 and older was the lowest at 2.7%; whereas the unemployment rate for women 16 to 64 was relatively high at 3.8%. The unemployment rate appears to be inversely correlated to level of education. The unemployment rate for those with a bachelor’s degree or higher was up but still low at 2.5%, for those with some college education it was 3.4%, for high school graduates it was 4.0%, and for those with less than a high school degree the rate was down, but still high the highest at 6.6%. The native-born unemployment rate was 3.9% in October and the non-native unemployment rate was 4.1%. See page 5.

The Bureau of Labor Statistics did a study of foreign-born workers based on 2023 data and it shows foreign-born workers were concentrated on both coasts and represented 23.9% of the labor force in the West and 22.6% in the Northeast. In both cases, this was above the US average of 18.6%. Native-born workers earn more than the foreign-born workers at most educational attainment levels. Among high school graduates, full-time foreign-born workers earned 88% as much as their native-born counterparts. However, among those with a bachelor’s degree and higher, the earnings of foreign-born workers were just slightly higher than the earnings of native-born workers. As of the latest data for September, there were 130.8 million native-born workers and 31.1 million foreign-born workers in the US, but on a year-over-year basis, native-born employment fell by 825,000 and foreign-born employment grew by 1.2 million workers. The foreign-born population includes legally admitted immigrants, refugees, temporary residents such as students and temporary workers, and undocumented immigrants. The survey data, however, do not separately identify the number of people in these categories. See page 6.

Average hourly earnings for production and non-supervisory workers rose 4.1% YOY in October, but average weekly earnings only rose 3.8% YOY due to a slowdown in hours worked. Looking at average hours, it is clear that manufacturing hours peaked at 42.3 in April 2018, and this represented a post-WWII record high. After a pandemic decline and a post-pandemic recovery, manufacturing weekly hours slowly declined to the 40.6 seen in October. This decline in manufacturing hours is in line with the weak data seen in the ISM manufacturing surveys. See page 7. The ISM manufacturing survey indicated that this sector of the economy was contracting at a faster pace in October. The headline number fell from 47.2 to 46.5 and business activity fell from 49.8 to 46.2. The biggest increase was in prices which jumped from 48.3 to 54.8. In October, the ISM service survey was up 1.1 point to 56 and it marked the eighth time this year that the composite index has been in expansion territory. October was driven by gains of more than 4 points in both employment and supplier deliveries; however, business activity and new orders both dropped by at least 2 points. In short, the ISM manufacturing survey remains anemic, and the service survey was mixed. We believe these releases fully support another 25-basis point cut in the fed funds rate this week. See page 9.

Gail Dudack

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Still Dancing … But Dancing in Place

Posted on 11/01/202411/04/2024 by Andrea

DJIA: 41,763

Still dancing … but dancing in place. While The S&P and NAZ are doing the Meringue around their recent highs, most stocks are at best stalled. Stocks above their 200-day average remain around 60% down from 70%, but still clear uptrends. Looking at stocks above a 40-day average, however, shows a drop from 64% to 43% in just the last couple weeks – short-term corrections. Stocks never go straight up and the weakness should be resolved in favor of the overall trend, on the side of the overall momentum. Earnings have been a factor, but here too the backdrop is mixed. There is a Google (171) but there’s an AMD (144), there’s a Shake Shack (122) but there’s a Wingstop (288). As always best to just keep an eye on the average stock, the A/Ds, which on balance remain positive.

A stall is clear in most of the short-term momentum measures. It also seems apparent in less dramatic ways. Good markets we like to think have their way of ignoring most bad news while going with the good. Though we’re not exactly qualified to judge how good or bad any piece of corporate news might be, we will anyway. How bad was that McDonald’s (292) news that took the stock down Tuesday? For that matter, how bad was the E. coli news when clearly it was a vendor problem not a McDonald’s problem, and clearly unlike Chipotle’s (56) problems. The same might be said of GE (172), IBM (207), and even PayPal (79). This seems symptomatic of a market that has lost upside momentum – not terminal, but certainly noticeable.

By now it has become clear there is more to AI than just Nvidia (133). Rather there is a range of related businesses that have become integral to AI and the data center. There is the infrastructure itself, where names like Vertiv (109) and Trane (370) are relevant. It’s also about power, specifically nuclear power, and the utilities that provide it. A few relevant names here are Constellation (262), Talen (181) and Vistra (125). Utilities already have had a good year, the ETF here being XLU (80). The Reaves ETF (UTES-64) also seems interesting in that the three stocks mentioned above are almost 30% there. And then, of course, there’s Uranium itself, URNM (47) an ETF there.

Rising yields, surprisingly, haven’t garnered too much blame for the market’s stall/weakness. Yellen’s announcement that auctions of long-term bonds will be unchanged compared to the previous quarter no doubt helped, and she also predicted there wouldn’t be a need to increase the amount of debt auctions for the next several quarters. Those auctions, you might recall, roiled markets a few times last year, and runs counter to the Trump trade idea that the Treasury will soon have to borrow more. Still, the fact remains yields are up, and this despite the jumbo cut of 50 basis points to the Fed funds rate last month. Higher rates can be a hurdle for stocks, but perhaps that’s just looking at the dark side. The positive economic data could be more than enough to explain what’s happening in Bonds.

Being wrong in the stock market is no fun – we’ve read about it. It’s especially annoying to be wrong because the charts don’t work. Annoying, but not enough to turn to the dark side – funnymentals. It seems to be happening quite a bit recently, including stocks we recently mentioned, those sketchy companies GE, IBM and McDonald’s. Being wrong happens, it’s part of the business. How long you’re wrong is the key to making money. If you recall, it was only a couple weeks ago that we were all great traders. We lay blame on the market, not that it’s bad, it’s just not the market of two weeks ago. This doesn’t seem a good time to push, especially given the chaos the election may bring.

Frank D. Gretz

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