One Election-Day Certainty
A not-so-bad day... Election Day is getting close... Who the market is saying will likely win... Things could change... An Election-Day certainty... A commodities update... Stansberry Investor Hour: War and big government...
It was a mixed, at worst, day...
The benchmark S&P 500 Index finished 0.6% lower today, pulled down by the likes of Nvidia (NVDA) and Meta Platforms (META). Nvidia shares were down 4.5% alone. UnitedHealth (UNH), down 8%, lowering its full-year outlook didn't help, either.
But things looked slightly better below the surface...
The equal-weight S&P 500 was off 0.4 % yet is just one day removed from a new all-time high. The small-cap Russell 2000 Index was a touch higher and is near a new 52-week high.
Six of the 11 major S&P 500 sectors were up, led by real estate (1.2% higher).
Energy stocks fell as oil prices sold off another 4% in the past 24 hours on reports that Israel doesn't plan to attack energy infrastructure in Iran as part of an escalation in the warring Middle East. Longer-term bond yields fell a bit, too.
That said, gold – our "chaos" and inflation hedge – also moved higher again toward its recently minted all-time high. Meanwhile, bitcoin traded close to $67,000, after being less than $60,000 just five days ago.
So you could describe today's action as "mixed." But I (Corey McLaughlin) will note short- and long-term technical trends for the major indexes continue to look good. That said, we'll be keeping a close eye on the market action of the next few weeks, as earnings season continues, more labor market data is due, and a potential volatility-stoking event is nearing...
Politically speaking...
We're less than a month away from Election Day here in the U.S. We've seen countless polls and heard much speculation about who will (or should) win the White House. Most of it goes in one ear and out the other quick, though this passage from MarketWatch this morning did catch my attention...
Most of the [recent] rise in Treasury yields is due to U.S. economic data coming in stronger than anticipated, with the unemployment rate actually falling while inflation has been stubbornly resilient. The election also may be a factor.
Former President Donald Trump... has proposed a "yuge" list of tax cuts, from exempting tips from income tax to lowering the corporate tax rate to 15% for domestic manufacturing, that the Tax Foundation estimates would cost as much as $6 trillion over a decade.
Not to be outdone, Vice President Kamala Harris has a basket of tax-and-spending policies that could cost $3.5 trillion over a decade, according to the Committee for a Responsible Federal Budget.
In a nutshell, any proposed promises to cure inflation – absent a return to a sound currency – are empty. If I were to bet on anything coming out of this Election Day, it will be more inflation, in one way or another. As we wrote last month...
Most people look at the stock market and try to think about which will be the "winning" companies or sectors if a certain candidate wins the White House or one party or the other controls Congress.
It's true that some parts of the economy may benefit from the specific policies of Democrats or Republicans. And there may be trades to be made around the likelihood of either side winning in the short term. But that's not the most telling information to consider.
I'm not going to sit here and predict November's election result with any certainty.
Whoever wins, we will end up with more debt as a nation. We will want to own inflation protection, like shares of high-quality stocks and other assets that can't be printed because Congress or a central banker says so. We will sleep easier that way.
Most folks' attention is on the presidential race, but don't forget about "down the ballot" races and the composition of Congress, which will matter just as much for what happens in Washington, D.C. over the next two to four years.
For example, most political pundits believe the House of Representatives majority is a "coin flip" right now. Some think a split Congress – with one party controlling the Senate and the other the House – is bullish because it means significant legislative changes are less likely.
And depending on the outcome of the congressional races, presidential agenda items could be moot points (though we're willing to bet "more spending" wins out no matter what).
But for those who need to scratch an election-prediction itch... the more reliable indicator is what the market is doing before the election. Regular readers know we've been tracking an important historical trend over the past few months.
The stock market will probably tell us the winner...
As I wrote in our July 18 edition, the stock market has accurately predicted who has won the White House more than 85% of the time since 1928...
If the S&P 500 is up from July 31 to October 31, it tends to favor the incumbent president or party that controls the White House winning again. If the U.S. benchmark index is down in the three months before November, often the incumbent president or party loses...
Here's the historical precedent for this indicator... In the 23 presidential elections since 1928, 14 were preceded by gains in the three months prior. In 12 of those 14 instances, the incumbent (or the incumbent party) won the White House.
Conversely, in eight of the nine elections preceded by three months of stock market losses, incumbents were sent packing. This was the case in 2020, by the most razor-thin of margins. From July 31, 2020, to October 31, the S&P 500 lost a slim 0.04%.
And, perhaps appropriately, the election result was slim in [Joe] Biden's favor (and contested by Trump). In any case, this indicator was again "right" about the election result, as it has been about every one since 1984.
However, with the S&P 500 roughly flat between July 31 and September 10, the market was still undecided on the winner leading up to the presidential debate between Trump and Harris.
Now, though, the U.S. benchmark index is up about 6% since July 31, indicating that the winner will be Harris. (If that's not who you're voting for, remember, I'm just the messenger.)
That said, 6% isn't all that much. It can be wiped away in even the slightest garden-variety bull market correction. As we noted yesterday, October is typically a volatile month.
It's also worth noting that since 1932, the incumbent or incumbent party has never failed to win reelection unless a recession occurred during the current presidential term. That proved true in 2020... when Trump lost reelection after a brief recession amid the COVID-19 panic.
But with the unemployment rate dropping the past two months – for whatever reasons you want to attribute it to... immigration and lower interest rates could be two – we're not going to get an "official" recession call before Election Day.
The latest estimates for third-quarter GDP show just more than 3% growth. The first "official" third-quarter GDP data is due on October 30.
Finally, a commodities update...
Let's put a bow on our discussion about the impacts of the recent hurricanes to hit Florida and the Southeast U.S.
Last week, Hurricane Milton hit the Tampa area. But any supply issues around fertilizer (a major industry of the region and for American and global supply chains) are being resolved.
Mosaic (MOS), which mines phosphate rock and produces roughly three-quarters of North America's phosphate fertilizers, idled operations ahead of Milton's landfall. It now expects to be fully operational in the coming days.
Yesterday, the company said it sustained "limited damage" in its facilities and to products in warehouses. Plus, all power has been restored to its operations, and it noted that ports in the region have reopened.
Meanwhile, in the town of Spruce Pine, North Carolina, which flooded from Hurricane Helene, quartz miner Sibelco resumed operations on Thursday.
However, Spruce Pine's other major mining company, the Quartz Corporation, has yet to announce plans to reopen its three plants in the area. As we reported last week, the plants were all affected in different ways and the company says production impacts to them will "vary."
Retired U.S. Army colonel and current MBO Partners director Jonathan Shaffner joins Dan Ferris and me on this week's Stansberry Investor Hour. We talked about the impacts of the wars around the globe, the nuances of big government business, and more...
Click here to watch the interview now... To hear the full audio version of this week's Stansberry Investor Hour, visit InvestorHour.com or find the show wherever you listen to your podcasts.
You can also catch Jonathan at our annual Stansberry Research conference, which kicks off Monday in Las Vegas. In-person tickets are sold out, but you can also watch via our Livestream Pass. Find more details here.
New 52-week highs (as of 10/14/24): Automatic Data Processing (ADP), American Express (AXP), Brown & Brown (BRO), BWX Technologies (BWXT), Pacer U.S. Cash Cows 100 Fund (COWZ), Cisco Systems (CSCO), Carlisle (CSL), Cintas (CTAS), Commvault Systems (CVLT), Fair Isaac (FICO), Comfort Systems USA (FIX), W.W. Grainger (GWW), Houlihan Lokey (HLI), Intercontinental Exchange (ICE), iShares Convertible Bond Fund (ICVT), Illumina (ILMN), iShares U.S. Aerospace & Defense Fund (ITA), Jack Henry & Associates (JKHY), Kinross Gold (KGC), Kinder Morgan (KMI), Lumentum (LITE), Lockheed Martin (LMT), McDonald's (MCD), VanEck Morningstar Wide Moat Fund (MOAT), Motorola Solutions (MSI), Nvidia (NVDA), Ryder System (R), Invesco S&P 500 Equal Weight Technology Fund (RSPT), Sherwin-Williams (SHW), Skeena Resources (SKE), S&P Global (SPGI), SPDR Portfolio S&P 500 Value Fund (SPYV), ProShares Ultra S&P 500 (SSO), Texas Pacific Land (TPL), Trane Technologies (TT), The Trade Desk (TTD), Tyler Technologies (TYL), ProShares Ultra Financials (UYG), Veralto (VLTO), Vanguard S&P 500 Fund (VOO), Vertiv (VRT), and Zebra Technologies (ZBRA).
In today's mailbag, more thoughts on Dan's Friday essay and our report yesterday on "one of the stock market's best years ever... so far"... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Hey Corey, Another great read from Dan [on] Friday. Brett's most recent plays on lower rates in True Wealth and Doc's play on us boomers makes sense to me. Otherwise, I agree with Dan. This high-priced market should be approached with caution.
"However, in the back of my mind, due to the past few years of inflation and foolish over spending by the government, hasn't this pushed the M3 money supply to exorbitant, never seen levels? Given all this money sloshing around, wouldn't higher stock prices and higher PE ratios follow? Due to this, maybe we are experiencing 'inflation adjusted' stock valuations?
"Just a thought. Always enjoy my 'daily' read. Thanks as always." – Subscriber Steve R.
Corey McLaughlin comment: Thanks for the note, Steve. I can't tell you exactly where prices will go from here, but you're right that greater money supply isn't a headwind for stocks, and the money supply's rise or fall is followed as an inflation indicator.
The government stopped reporting the M3 measure of money supply that you mention – which some prefer as their favored measure of inflation – in November 2023. (Of course they did.) Though you can find proxies, like from the Center for Financial Stability here.
But we do have more recent Uncle Sam numbers for M2 – which includes currency in circulation and cash people have in checking and savings accounts. It moves similarly to M3.
While not at the record $21.7 trillion that it was in March 2022 – before the Federal Reserve started raising interest rates to "fight" inflation – M2 money supply has risen by about $500 billion since October 2023 to $21.1 trillion today. The S&P 500 is up about 42% in the same time span.
Remember, stocks are inflation protection, but it's also wise to buy shares at reasonable valuations and manage risk. On that point, I'll be watching for signs that monetary policy might get "tighter" again – and quicker than the market appears to expect right now.
All the best,
Corey McLaughlin
Baltimore, Maryland
October 15, 2024