WASHINGTON – Stocks rallied strongly to close out last week’s end-of-October action. But for Wall Street bulls, what’s even better is that Mr Market launched the first full trading week of November by tacking on roughly another 0.50 percent gain thus far on Monday. Those numbers are good as of approximately 1:30 p.m. ET (now back on Standard Time, BTW). So who knows how things will end at the 4 p.m. closing bell? But right now, the rally continues. The action largely reflects optimism on a potential US-China trade deal and, surprisingly, a normalized yield curve. At least for today.
End-of-October market recap
Innovative Income Investor preferred stock guru Tim McPartland provides a good recap of last week’s action.
“Last week brought plenty of new economic data (employment and interest rate cuts) which moved markets–stock and bond markets–although not in a real dramatic way.
“The S&P500 moved in a range of 3023 to 3067 before closing the week at the high around 3067–up about 1% for the week. The 10 year treasury moved in a range of 1.73% to 1.86% before closing at 1.73%–this will be interesting to watch to see where we head from here.
“The Fed balance sheet grew by a massive $50 billion. The Fed said they were going to grow the balance sheet and they have certainly done that.”
November gets off to a bullish start
And moving right along, CNBC gets off from its #NeverTrump headlines long enough to give us the lowdown on Monday’s bullish start to the trading week.
“The Dow Jones Industrial Average reached a milestone on Monday, joining the S&P 500 and Nasdaq Composite at record levels, as investor sentiment was lifted by strong earnings, a rebound in economic data and a potential U.S.-China trade deal.”
Some big individual stocks, including two industrial sector surprises, one big oil winner and a perennial tech winner, continue to lead the way today.
“The 30-stock [Dow Jones Industrials] measure rose 135 points, or 0.5% to hit its first all-time high since mid-July. Chevron [trading symbol: CVX] led the way higher for the Dow, rising 4.3%. Trade bellwethers Boeing [BA] and Caterpillar [CAT] also traded higher. The S&P 500 and Nasdaq both climbed 0.5%, reaching fresh records after closing at all-time highs last week.
“Apple [AAPL] is by far the best-performing Dow stock since the index hit its previous record, rallying more than 25%. Intel, J.P. Morgan Chase and United Technologies are all up at least 10% in that time.”
Stocks anticipating a US-China “Phase 1” trade deal? Again?
Could be that Apple shares are anticipating a fairly impressive US-China trade deal, which would improve the company’s declining sales in the Chinese market. At any rate, CNBC’s report puts today’s current market gains into perspective.
“Monday’s rise brought the Dow’s year-to-date gain to nearly 18%. That would be the biggest one-year gain for the Dow since 2017, when it jumped 28.2%. The S&P 500 is up more than 22% for 2019 and is on pace for its biggest one-year gain since 2013, when it rallied nearly 30%. The Nasdaq is also up more than 27% this year.
“‘The market rally is now broadening out, meaning it’s not just confined to tech and we’ll likely go a little bit higher,’ said Peter Cardillo, chief market economist at Spartan Capital Securities. ‘It’s based on a lot of enthusiasm that continues to build around trade.’”
Cardillo, too, apparently anticipates that stocks rally big-time if any kind of reasonably positive US-China trade deal gets inked later this month.
So, what has Mr Market done for me lately?
Quite a lot, it seems, at least given today’s bullish numbers based on little news. The big question? Even as stocks rally today, will mysterious forces eventually derail the ongoing bullishness? And do so by violently snuffing out 2019’s generally positive market direction? And will this happen in much the same horrendous way that 2018’s 9-month rally turned the whole year into a massive loss for many investors, including this one? A suddenly scuppered trade deal could kick off a big time market crash in a New York minute. That’s for sure.
Only time will tell. But I still know where my favorite hedges live. Namely the regular short and double-short S&P 500 ETFs. Trading symbols SH and SDS, respectively. Problem with these is, you’re never quite sure when to put these on to protect your portfolio. Not to mention the size of your short hedge position. Fingers crossed. Right now, I’d prefer to enjoy watching stocks rally. That’s something I usually don’t expect on Mondays.
Favorable seasonality incoming?
On the other hand, the notorious September-October scary period is officially over, so we should be entering what technical investors call a period of “favorable seasonality.” That’s a time of year when stocks are generally in a good mood. And perhaps today’s good-looking and unanticipated normalized yield curve in US Treasurys will help nudge things along.
That said, however, look what happened last November-December. Instead of a nice, big Santa Claus Rally, investors got a dump truck load of coal in their tattered portfolio stockings.
Checking out those portfolios. Now’s the time…
I’m about as over-invested as I’ve ever been, which is sort of nerve-wracking. On the other hand, the portfolios are probably as diversified as they’ve ever been. About 50 percent of current holdings are in preferred stocks and similar investments. These have already reacted favorably to today’s normalized yield curve. The remaining 50 percent of our investments are spread out among all 11 S&P investment sectors. But I remain deliberately underweight in the Industrials, given their ongoing miserable performance this year.
On the other hand, given today’s performance in beaten down Boeing and Caterpillar shares, maybe it’s time to start creeping into that sector.
On yet another hand, however, Boeing, due to its still unsolved solution to its twice-fatal, worst-in-corporate-history software error, I’m not sure this one can bank on a recovery until Q1 2020 at the very least. Their bad. You can’t rush new technology. The company did, and a whole slew of companies in their supply chain get to pay for it with suspended and/or unpaid-for orders.
The cynic within mecan’t help thinking that the European Airbus consortium (symbol: EADSY for American Depository Receipts [ADRs]) and its friends in the Eurozone’s regulatory community, will continue to Boeing’s clearance to return its ill-fated 737 MAX line to service. And start selling those jets once again. Maybe it’s better to have some contracted customers switch their orders to competing Airbus planes in the meantime. Or maybe I’m a horrible nationalist just being paranoid. But after all, we are living through the 4thTurning. So anything goes.
Wrapping things up
Anyhow, given those positive trade deal rumors, that normalized yield curve, and the continuing implosion of Shifty Schiff’s Deep State coup attempt here in The Swamp, I’m going to enjoy today’s rally. It’ll come to an end soon, though. So maybe you and I ought to book at least some profits by selling a few of our weaker winners. Before Mr Market gets into a snit once again and drives these stocks back down to negative ink territory. He’s done so many times before. Usually when we don’t expect it, too.
– Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.