MONDAY – November 4, 2024

Dear Valued Clients and Friends –

I know all eyes and ears are on tomorrow’s election, but there are some market things to bring around the horn first.

Dividend Cafe on Friday looked at several issues that may come out of the election – how it may change the Fed, what it may mean for the Federal Trade Commission, what it may do to the dollar, how it might impact European investing, how it might impact Chinese markets, etc.  The written version is here (my favorite), the video is here, and the podcast is here.

I was on Maria’s Wall Street Week this weekend talking about Friday’s jobs report, the Fed, and more.

Off we go…

Market Action

• The market opened down fifty points today, worsened, then got better, and closed above its low but below its high on the day.
• The Dow closed down -258 points (-0.61%), with the S&P 500 down -0.28% and the Nasdaq off -0.33%.

*CNBC, DJIA, Nov. 4, 2024

• Is there an expected market response if we have a very tight race tomorrow and one that moves to Advantage Harris or one that shows a need for multiple state recounts and contests to get an outcome?  I imagine bonds rally, and yields drop for a few days.  Other than that, I just imagine a noisy, unreliable, volatile market for the day, or two, or twenty.
• The VIX index is up (equity volatility), the MOVE index is up (bond market volatility), and the CVIX is up (currency volatility).  The ratio of put options to call to options was the highest last week in over three months.  These things all indicate short-term noise, whereas something that indicates long-term pressure (i.e., credit spreads) hasn’t moved a whisker.
• Elevated VIX?  Elevated put-call ratio?  Is this something to take note of?  Yes.  Take note that this is … wait for it … an election week.  And. This. Always. Happens.
• The largest semiconductor company on the S&P is on fire, right?  And they release numbers in over two weeks.  But the rest of the semiconductor space?  Only 25% of names are above their own 200-day moving average.  I will add that the Nasdaq 100 did not make a new high in the rally of late October (it has not re-touched the early July high).
• The ten-year bond yield closed today at 4.28%, down eight basis points on the day.
• Top-performing sector for the day: Energy (+1.87%)
• Bottom-performing sector for the day: Utilities (-1.21%)
• More and more people are asking about Berkshire Hathaway’s cash position, and whether or not the cash they have accumulated indicates that they believe the market is going to tank. Berkshire Hathaway has over $1.1 trillion of assets. Their average cash and equivalent position in Q4 has been $277 billion (the recent $325bn figure factors additional Apple stock sale and assumes there was no reinvestment, a fact not in evidence until next 13D filing at quarter-end). This means Berkshire is 75% long equities – a figure far more aggressive than most U.S. investors!! Berkshire has AVERAGED 17.1% cash-to-assets for 25 years, and spent most of this year at 17.7% …. This doesn’t seem newsworthy to me. In fact, what is useful here is the lesson of ratios (cash to assets, in this case) as a more meaningful data point than an absolute number that lacks context and relationship.

Public Policy

• A very renowned pollster in Iowa shocked political junkies Saturday night with a poll that had Harris winning Iowa by three points.  Another renowned poll in Iowa had Trump winning by ten (he won by eight in 2020).  A slew of polls in the closing days reflect, wait for it, a tied race.  I cannot understand any attempt to look at early voting patterns, polling, electoral college math, and more and conclude anything other than “I do not know what is going to happen.”
• I highly recommend one try to look at the information they have received in the last few days or will receive in the next 24 hours and remember a few key things about human nature:
  1. No one sharing information right now does so without their own presuppositions, biases, or agenda.
  2. Much more importantly than #1, no one RECEIVING information right now does so without their own presuppositions, biases, or agenda.
  3. What is more distortive than #1 will be those who, apart from a political or ideological agenda, have a professional or monetary one.  You don’t get famous (or rich) as a political prognosticator or guru at the nexus of politics and markets saying what everyone already knows; you go with an outlandish contrarian view based on asymmetry.  What is this “asymmetry” I refer to, you ask?  It is the unequal upside/downside risk/reward around doing such – where if you are wrong, no one will remember, and if you are right, you try to make a name for yourself.  I see it all the time in financial markets, and I have seen plenty of it this cycle in politics.  It is transparent, as far as I am concerned.

Economic Front

• The jobs report was the talk of the town Friday, and I commented on it this weekend on Maria’s Wall Street Week on Fox Business.  The bottom line is that the 12,000 jobs created were way below expectations, but the two hurricanes and the Boeing strike are clearly distorting the numbers.  The more negative component was the downward revision of 100,000 jobs from July/August.  We would expect a large bounce back in November as post-hurricane and post-strike realities kick in.
• The labor force itself declined by 220,000 people in October, which kept the unemployment rate at 4.1% but exacerbated the problems in the number I most care about.
• The manufacturing index declined again in October, this time reaching 46.5 (where 50 is breakeven, below 50 is contraction, and above 50 is expansion).  Five sectors reported expansion, and eleven reported contraction.

Housing & Mortgage

• Let’s take a break from our messed up housing market and discuss China’s messed up housing market.  We do not have enough homes, too little affordability, and a need for construction and peripheral sectors of housing to drive economic activity.  They have too many homes, dropping prices, and a need for construction and peripheral sectors to housing to drive economic activity.  China’s prices are now down -9% year-over-year (existing homes), with new homes down -6% year-over-year.  Oh, stimulus, where is thy sting?

Federal Reserve

• We are sitting at a 98.1% probability in the futures market of a quarter-point rate cut this week and an 82% chance of another quarter-point cut in the third week of December.
• Yes, the FOMC meets tomorrow and Wednesday and will announce their new rate policy at the normal time on Wednesday, along with the famous Powell presser.

Oil and Energy

• WTI Crude closed at $71.71, up +3.2% on the day.
• Oil was down by 3.5% last week, the S&P 500 was down by 1.5%, utilities were down by almost 3%, and yet midstream was down by just 1%.
• Midstream was up for the sixth month in a row in October despite MLPs being down for the second month in a row.

Against Doomsdayism

• “The best explanation for the good old days is a bad memory” (one of my favorite lines).
• GDP per capita in the United States in 1990: $48,000.  GDP per capita now: $76,000.  So not only have we grown 58% since I graduated high school (per capita), but we used to have a 10% better GDP per capita than Europe; we now have a 23% better GDP per capita than Europe.  Rumors of our demise have been greatly exaggerated.

Ask TBG

On Deck

• You may have heard – tomorrow there is a… Idaho State/Arizona State college basketball game!  I will get you an update as soon as I have it, but it may take a while tomorrow night to find out what is going on.
• Oh, also, tomorrow is the U.S. Presidential election (amongst other political races).

I wish you all a wonderful evening with your families, friends, and anything other than cable news.

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.