November 7, 2024
By Clint Gharib
You’ve likely heard the adage that Wall Street hates indecision. I had often commented that I expected the stock market to rally after the election regardless of who became President, so long as it was not a drawn-out result like we had in 2000 (I’ll never forget the term “hanging chads”). There seemed to have been a buildup of buying pressure recently from the uncertainty of the election outcome and policy direction accordingly. Meanwhile, corporate earnings generally continued to come in strong, with interest rates leveled. With the clear and rapid election resolution – boom – US stock market prices jumped the day after the election. I believe we will continue to see rallying conditions into the year end because of the positive trend of corporate earnings, interest rates levelled, and near historic amounts of cash and market hedges that had been anxiously accumulated leading up to the election.
Right now, while outlooks for the year-ending quarter remain positive from many companies, probably no outlook is anticipated more this quarter than when Nvidia reports after the market November 20th. Should they issue a negative outlook, which I do not believe is the case, it seems likely that the markets would reverse course rapidly, especially for AI related stocks. Beyond this, barring an unforeseen shock, the main threat to this rally seems to me to be raising interest rates either from:
- if the Federal Reserve talks of raising rates again to stem inflationary threats. While this seems a low probability at this point it is still a possibility for which I remain on watch.
- US Bond 10-year bond yields rising back up to 5% or higher. Remember as bonds are sold, the price drops thus raising the yield, like a teeter-totter. I am watching this factor even more so.
Looking ahead, I will not be surprised by some profit taking after the new year since many investors do not wish to realize more capital gains this year. Any serious dip before then or at that time, I see as a chance for investors overweighted with cash to invest in quality opportunities. I tried to use dips before the election to allocate to themes that I felt were political party agnostic, so many of the themes that I had favored prior to the election {e.g. cybersecurity, AI build out (especially inferencing) energy services, medical equipment, and basic services (water, trash and food)} remain favored by me still. As the new administration comes together and initiates policies, I will look to alter my allocation accordingly.
I continue to be grateful to work for you, and I daily strive to keep the confidence and trust you placed in me as your advisor. Please contact me at your convenience with any questions or to discuss your portfolio or situation in more detail. God bless the United States of America, and I wish you a joyful week.
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