HOW I SEE IT – by Bruce
Thanksgiving /JPM jumps in /Trump boost to roaring 20s
US Thanksgiving week - Expected equity markets to be flat - Dow and S&P 500 all-time highs - November historically a positive month- Will we see a YE Santa Claus rally?
Positives: AAII Investor Sentiment Survey - 37.1% bullish/ 24.3% neutral/ 38.6% bearish - bullish reading slipping -is it because of Thanksgiving week - many are on holidays?
RBC CM Strategy -10 things heading into 2025 US equities. YE 2025 price target 6600 S&P 500. Sentiment set up modestly constructive on a 12-month view but with potential for near term pullback. Not much room for further P/E expansion. Earnings outlook supportive of further S&P 500 appreciation. US equities may soon lose their appeal relative to bonds. US economy is at an important crossroads from stock market perspective. Interest rates may soon start to pinch more broadly. Political backdrop presents both tailwinds and possible headwinds. Value greater than growth and broadening of market leadership. Small versus large cap trade to remain choppy again to 2016 - 2018.
Charts - S&P 500 buybacks jump 35% in Q2 2024 to $236 billion near the all-time high record. Buybacks are fueling the stock market rally.
JP Morgan jumps into the party. Wall Street's most bearish bank has raised their 2025 YE price target to 6500.
Ed Pennock - “GDP came in at 2.8% right in line. Headline PCE is at 1.5% - 1.8% was expected. The economy is doing fine. That’s the underlying reason that consumer confidence numbers are holding in and core PCE is at 2.1% is now essentially flat.”
Jim Paulsen -"The 60/40 portfolio 4% trigger. The relative cost of the 60/40 balance portfolio skyrockets when the 10-year treasury bond yield is below the 4% trigger. The balance 60/40 asset mix reduces volatility. Since 1945, It comes with the cost of a lower long-term return- 9.4% annual total return which is 2.2% less than the 11.6% total return achieved by the S&P 500. Since 1945, the 60/40 portfolio has generated about 33% less volatility at a cost of about 20% lower total return. Essentially, at least since 1945, 4% bond yield is acted as a trigger for toggle switch significantly altering cost of investing in 60/40 portfolio.”
Dr. Ed Yardeni- “The bond market reacted favorably to Trump’s pick for treasury Secretary. We like Bessents plan, which might boost US economic growth and improve the perilous fiscal outlook. This should set the stage for a continuation of the roaring 2020 scenario for the rest of the decade. Potential normalization of the yield curve -we think it may be flatter than in past using cycles much as it was during the last half of the 1990s. With economic growth robust, the stock market at a record high - we’re living the roaring 2020s now. Economies resilience has been remarkable considering the headwind it has faced. Trump might boost productivity and economic growth, keep inflation of low, shrink the Federal government, slow the growth of government spending, and narrow the Federal deficit.”
Tom Lee - “Bottom line - stay on target into YE. Thanksgiving rally to 6100 remains intact. Beyond that, we see positive supports for equities into YE. 1. The median post-election and 2. given no recession and markets declined, 3. is 7% implying the S&P 500 6,300 or so. The drivers are 1. Deregulation. 2. Drop in cost of capital for businesses.3. General animal spirits given Republican White House and Senate.”
Negatives: Trumps 25% tariffs on products from Canada in Mexico- unclear if Trump actually intends to proceed with punitive tariffs on Canada or if this is a strong-arm tactic for better trade deals - Multiple sectors could see price reaction to potential tariffs- like Uranium.
Charts - Corporate insiders are dumping shares at the fastest pace in at least the last two decades.
Brian Westbury – “Budget rule shenanigans. The biggest problem today is not tax revenues. It is spending. Congress never has a problem spending more and the rules are biased against tax cuts.”
Investment strategy – “Life isn’t about getting and having, it’s about giving and being.” Kevin Kruse.
Bruce
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