Dear Valued Clients and Friends –
Lots of fun today, but first…
Dividend Cafe on Friday did a pretty extensive post-election assessment, looking into many subjects, themes, and policies and looking at what we know (so far) in terms of personnel. The beat goes on, meaning there is more to come, but I do believe this was a comprehensive post-election analysis with good actionable conclusions. The written version is here (my favorite), the video is here, and the podcast is here.
I had a lengthy interview covering a lot of topics on Fox Business Friday.
Off we go…
| Subscribe on |
Market Action
- The market opened down -100 points today and zigged and zagged just a little bit, closing not all that far from the opening.
- The Dow closed down -55 points (-0.13%), with the S&P 500 up +0.39% and the Nasdaq up +0.60%.
*CNBC, DJIA, Nov. 18, 2024
- The 30-year bond yield is now higher than the Fed funds rate for the first time in two years!
- The “Mag 7” names make up 33% of the S&P 500 at present and are expected to represent 23% of the market earnings over the next year. That disparity represents a compelling case for over-valuation. What sectors have a disparity the other way (i.e., a lower weighting in the market than their forward earnings represent)? Financials, and Health Care.
- The ten-year bond yield closed today at 4.41%, down one basis point on the day.
- Top-performing sector for the day: Energy (+1.05%)
- Bottom-performing sector for the day: Industrials (-0.17%)
- Semiconductors outside of the two largest names (Nvidia and Broadcom) as a sector are down -27% since the summer highs.
Top News Stories
- Yesterday, President Biden authorized Ukraine to use American long-range missiles in Russia (they have been asking for permission for months, and the White House has hesitated to allow it until now). North Korea’s increased efforts with Russia caused the White House to change its stance and allow Ukraine to increase its latitude.
- The Pennsylvania State Supreme Court ruled that some illegal ballots that a county commission ruled could be counted in the U.S. Senate race were, in fact, illegal (and therefore ineligible).
Public Policy
- This weekend, President-elect Trump announced Chris Wright as his nominee for the position of new Energy Secretary. Chris is the CEO of Liberty Energy, a renowned fracking company based out of Denver, and a leading defender of the shale revolution. He also selected Gov. Doug Burgum of North Dakota to be the Secretary of Interior and to serve as Chairman of a new National Energy Council, which will coordinate amongst all departments, agencies, and entities in government around national energy policy.
- On the economic team front, this weekend, the rift between backers of Scott Bessent for Treasury and Howard Lutnick for Treasury spilled out into the public. The public reports (and my private sources) indicate that neither is now likely to be named. I do believe Scott Bessent still has a good chance of being named National Economic Council Director. Names being discussed for Treasury head now include Marc Rowan, CEO of Apollo, and Kevin Warsh, former Fed governor. I will share more when I have more that can be shared.
- A theme that I am hearing more and more, especially in light of several nominations so far where the person nominated is famous but not heavy in executive or management experience, is that the deputy secretary appointments now become more important than we normally would treat them. In other words, some are suggesting that part of President-elect Trump’s strategy (with some appointments, certainly not all) is to go for a “splash” (sometimes purposeful controversy) with the lead Secretary of a department or position but then use the Deputy Secretary for more departmental management. I am just reporting what I am being told without any further commentary.
- Brendan Carr was picked to be the Federal Communications Commission chairman this weekend. Carr has been on the commission for some time.
Economic Front
- Industrial Production declined by 0.3% in October, led by Utilities expanding +0.7%, but was held back by Mining and Manufacturing.
- Retail sales were up +0.4% in October and are up +2.8% compared to a year ago. Auto sales drove the increase (up +1.6% on the month).
Housing & Mortgage
- The NAHB Home Builder index was up three points on the month, still below 50 but better than expected. Present Situation is still not good, but Expectations have come higher. Regulatory relief is the most cited reason for improved optimism.
Federal Reserve
- The odds of a quarter-point rate cut next month are down by 58%, as implied in the Fed funds futures market, with a 42% chance of no change at all. Powell’s comment last week that “the economy is not sending any signals that we need to be in a hurry to lower rates” was understandably taken as a less-than-dovish communication.
- We haven’t spent a lot of time talking about it, but the odds of a rate cut after the January meeting are just 19% right now, meaning a 19% chance of the rate being half a point less than it is now after the January meeting.
- And to go much further out, the current market projection for the fed funds rate will be a year from now (at the end of 2025, it is somewhere between 3.25% and 4.25%, with the belly of the bet being around 75-100bps less than it is now. This is one full percentage point higher than the lowest expectations the futures market had a few months back.
Oil and Energy
- WTI Crude closed at $69.22, up +3.4% on the day.
- Midstream rallied today despite the market decline, something that is likely attributable to the strong selections made over the weekend (see above) to lead the Energy Department in the Interior Department. Now, I guess a fair question may be, was there some kind of doubt before the announcement as to the midstream friendliness of the nominees that the President-elect would select?
- In fairness, last week, well before the personnel announcements, midstream was up +1.5% in a week, the S&P 500 was down, and oil itself was down -5%.
Against Doomsdayism
Ask TBG
| “With the Trump administration’s desire to ‘drill baby drill,’ wouldn’t the concern of flooding the market with more oil, and thus causing a drop in overall price, paradoxically require the U.S. to cut back its production? Drop oil below a certain price point, and much of the shale oil production in the midwest goes bust (or at least pauses) and, along with it, many of the jobs that Trump would probably prefer not to be lost on his watch. How has this corner been squared in the past and, with the US being the top producer in the world?” ~ Gabe G. |
| I actually addressed this very issue in my initial post-election commentary on November 8. There is no magic number at which supply and demand are optimally connected to the optimization and maximization of profits for all. Well, actually, what I ought to say is that number is not easily and immediately discoverable. But it certainly is the entire name of the game for all oil producers, always – seeking peak profits with price and volume together. Demand is eroded by higher prices, and higher prices are fostered by lower supply, so supply and demand work in crux with one another to make a market. Now, it should go without saying this is true of all things, always – not just oil. But the fundamental thing to remember to help answer your question is our government doesn’t produce oil or drill for oil. President-elect Trump’s mantra of “drill baby drill” is an ethos around eliminating impediments that artificially hold oil production down (regulation, lack of permits, etc.). He cannot force producers to produce oil unprofitably. So all at once (see my link above), you have, in theory, a new administration seeking greater freedom to produce and oil companies operating in their own self-interest in search of that equilibrium between volume and price towards the optimization of profits. It’s not just how the square is circled – it’s the ONLY way to square the circle. |
On Deck
- More Trump administration appointments throughout the week (presumably).
And with that, I wish you all a good night!
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
dbahnsen@thebahnsengroup.com
The Bahnsen Group
www.thebahnsengroup.com
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
