For those of you who would prefer to listen:
The Stock Market keeps on keeping on, as they say. This week, the S&P 500 hit its 47th fresh all-time-high in 2024. It’s been 6 straight week of gains for the Dow, S&P and Nasdaq. This marks the best performance for America’s Stock Market at this point in the year since 1997. Now that’s saying something. What makes it more remarkable is that it is occurring at a point where so many risks are on the rise, from wars overseas to the Presidential election in just 3 weeks. That age old saying that the Market climbs a wall of worry sure is accurate today.
Earnings drive stock prices. That’s been the case forever. Earnings have been strong and so far in the early stages of the Q3 reporting period, Corporate America’s results are coming in better than expected. Add to that the combination of a solid Economy and prospects for further rate cuts continue to fuel the rally.
People have been betting against the American Consumer. It wasn’t that long ago that 100% of economists surveyed, predicted a recession. The recession never showed up. Time and time again, it’s been a failed bet. America’s Economy is so resilient because it’s driven by the American Consumer. The rate of inflation has slowed. Prices are still elevated though. But it hasn’t stopped the spending of the American people. September Retail Sales came in better than expected. In fact, it was the strongest reading since June. Spending accelerated, despite many calls for a tapped consumer and an economic slowdown. What’s more, the Labor Market is strengthening again. Unemployment has settled in the low 4% range, and jobless claims reported this week shrunk again.
The U.S. Economy is expected to have grown 3.4% in Q3. The initial report will come the day before Halloween. That estimate has been increased over the course of the last few weeks. Even though polls suggest the Economy is weak and the country is headed in the wrong direction, the numbers show that America’s Gross Domestic Product is growing at a healthy clip for an expected record $29 Trillion for 2024. The polls clearly reflect that not everyone is feeling it. We all know this is a major issue heading to November 5th.
There’s been quite a bit of activity beneath the surface of the S&P. Cyclical rotation was a big story this week. Tech has been mixed, with just a handful of mega caps leading again. It’s been Financials, Industrials and Energy that have been Market leaders in October. The Banks issued almost unanimously strong guidance on their outlooks. Better than expected earnings reports from the Banks and the latest batch of solid economic data has provided further support for the soft or perhaps no-landing as a big tailwind for stocks over the 6-week rally.
The data suggests a Fed pause in rate cuts could be coming. In fact, one could surmise it might have been a mistake to have done a half-point cut after all. Inflation is simmering again. Commodity prices have risen. Yields and rates are going up again. The 10-Year Treasury yield hit 4.1% for the first time since July. It was 3.6% just a month ago. The price of Silver stampeded to a multi-year high. Gold topped $2,700 an ounce for the first time ever as investors seek safety in the face of geopolitical uncertainty. Ever is a long time, particularly in Gold terms. We’re talking roots back to Ancient Egypt. The value of Gold has never been higher. That’s not adjusted for inflation, which I didn’t have time nor ability to track it back to 1500 B.C. by today’s deadline.
With less than 3 weeks away from the Presidential election, the polls remain razor tight. The betting markets have indicated a Trump victory is more likely, with the former President taking the lead again within the last 10 days. The Stock Market prefers gridlock more than any single candidate. That outcome seems most likely as of now, according to our Washington sources. The Stock Market definitely likes the prospects of looser regulation and lower taxes. The Bond Market does not like the excessive spending in Washington. That’s a topic we will pick up again in the coming weeks.
The world is still waiting to see how Israel responds to the Iranian attacks a few weeks ago. It has been reported that Israel plans not to target Iranian nuclear facilities nor its energy fields. That sent the price of Oil back down below $70. A day later, the Hamas leader who masterminded the October 7th attack was killed. Is this a turning point? Far from clear. What is clear: The war premium built up in Oil has been erased. And the Stock Market rally has ignored the risk.
Despite the near-term risks around geopolitics and the election, American companies keep investing for a brighter tomorrow. AI has been the driving theme. Innovation reigns supreme. The need to power the Digital Age is large and getting much larger. It’s been Market-moving.
Big Tech is going big on nuclear power. Amazon joined Microsoft and Google this week by announcing $500 Million worth of investments in atomic energy. Amazon is fueling its data center demands and artificial intelligence ambitions while continuing to meet its clean energy goals. It’s a theme that’s early and looking incredibly robust. Data center power use is expected to roughly triple in the United States by the end of the decade. Goldman Sachs estimates it will require about 47 gigawatts of new generation capacity. Multiple sources are required to fill the gap. Nuclear joins Natural Gas, Solar and Wind as the primary source solutions.
The fact of the matter is that AI models require loads and loads of electricity. This is because of the vast amount of data that these models have to compute to generate responses. For perspective, a basic text response from these AI models can consume enough energy to power a 10-watt LED bulb for an hour. In comparison, a typical Google search can consume electricity equivalent to powering the same bulb for about two minutes. Nuclear is attractive over wind and solar for its consistency and stability to meet 24/7 demand.
Back to the Market:
Taiwan Semiconductor put a charge back under chip stocks with its Bullish revenue outlook. The AI boom blew the company’s Q3 profit past Street estimates. Management described AI-related demand as “insane” and is just beginning. That reignited a rally in Nvidia which represents 6% of the index and alone accounts for about a quarter of the 2024 gains. Taiwan Semi is a big deal. The company is responsible for over 60% of global chip manufacturing. Over 90% of the most advanced semiconductors, which are fueling the Artificial Intelligence revolution, are made in Taiwan. It’s that big.
Apple had a good week too. iPhone sales in China jumped 20% in their first 3 weeks compared with last year’s model. The new iPhone is branded with Apple Intelligence. That seems to have triggered an increased demand. That news also propelled Apple’s stock back to all-time highs Friday, building on its $3.5 Trillion value. Apple maintains its top position in America’s Stock Market followed by Nvidia and Microsoft. They’re the trio of $3 Trillion companies that combine to account for nearly 20% of the S&P 500. That’s some serious concentration at the top.
Despite the all-time record highs for the Stock Market, there hasn’t been much in the way of celebrating. It’s undoubtedly due to the contentious election season and uncertainty about the path forward for the Economy, Geopolitics and stubborn inflation. There’s also the fact that much of this year’s rally has still been driven by just a handful of stocks. Participation has definitely broadened since Summer. But the Big Boys and Girls are still the clear winners, and it’s clear that Main Street isn’t having the same experience as Wall Street. That wall of worry is a thing. That will definitely be an issue on the ballot on November 5th. Getting there will continue to be bumpy.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike