Has The Santa Rally Began?

The stock market had a mixed but generally positive week from November 18 to November 22, 2024, with notable sector rotations and record highs for certain indices:

1. Major Indices:

The Dow Jones Industrial Average reached a record high, buoyed by strong performance in cyclical stocks like industrials and financials. These sectors benefited from optimism about an improved economic climate under the upcoming U.S. administration​. J.P. Morgan Charles Schwab

The S&P 500 rose slightly, closing at 5,969.3, with buyers stepping in during market dips​. Charles Schwab

The Nasdaq, heavily weighted in tech, underperformed as technology stocks like Nvidia, Amazon, and Meta Platforms faced pressures, partly due to sector rotation and policy concerns​. Charles Schwab

1. Sector Performance:

Tech and Semiconductors: Tech stocks lagged, reflecting broader consolidation in the sector after outsized gains in recent years. Semiconductor companies, in particular, faced challenges due to export restrictions on China​. Edward Jones Charles Schwab

Cyclicals and Industrials: Stocks tied to economic growth, including automakers, steel manufacturers, and heavy machinery companies like Caterpillar, outperformed as economic optimism spurred demand​. Edward JonesCharles Schwab.

Retailers: The retail sector saw a mix of earnings results, with stronger performances from some retailers offset by disappointments from others, such as Target​. Charles Schwab

Market Trends: A shift from mega-cap growth stocks toward value-oriented and smaller-cap companies has been observed, which many analysts view as a sign of healthier market breadth​. Edward Jones Charles Schwab

Investors are optimistic about pro-growth policies while remaining cautious about potential tariff-related inflationary pressures​. Edward Jones

Overall, the week highlighted investor interest in cyclical and value stocks amid sector rotations, signaling diversification in market leadership.

Is Warren Buffett feeling deja vu in 2024?

In the 1960s, growth stocks staged a big rally, with 50 of the top growth companies in cutting edge industries like technology and pharmaceuticals, becoming so popular they were called the "Nifty 50."

The Nifty 50 were considered "sure things" with investors willing to pay as high as 50x earnings to own the stocks under the belief that those innovative companies would keep growing at a fast pace forever.

By 1969, Buffett found nothing of value to buy, so he dissolved his investing fund and moved to the sidelines.

And he waited.

The party finally ended in 1973, as the Arab Oil Embargo, a recession and the inflation that followed, rippled through the world's global stock markets.

When the sell-off was over, the Dow had fallen 45% in 2 years.

Suddenly, there were many value stocks and Warren Buffett came back into the game, this time as CEO of Berkshire Hathaway.

In a now infamous 1974 interview with Forbes Magazine, Buffett could barely contain his giddiness.

Forbes asked how he felt about the market opportunities after the big sell-off and he replied "Like an oversexed guy in a harem. This is the time to start investing."

In the Forbes interview, Buffett talked about how 1974 reminded him of the early 1950s, when the Great Depression bear market finally ended and stocks were cheap.

"Look, I can't construct a disaster-proof portfolio. But if you're only worried about corporate profits, panic or depression, these things don't bother me at these prices," he said in 1974.

Sound familiar?

Buffett has been mostly on the sidelines for much of the past decade, building a massive $325 billion cash position in Berkshire Hathaway. His last mega-deal was when he spent $26 billion to buy Burlington Northern railroad in 2009. He famously didn't even buy any new stocks in the March 2020 coronavirus crash.

But suddenly, in 2022, with stocks off their highs by double digits, Buffett's Berkshire Hathaway deployed $51 billion of the cash hoard into energy stocks like Occidental Petroleum and Chevron.

He has since been accumulating even more cash as stocks continue to race to new highs.

Buffett may have been giddy over the buying opportunities in stocks in 1974, but it turned out that the rest of the decade was a golden era for value investors too.

Will that be the case in this decade too?

1. It's Okay to Sell Your Winners

Apple has been in the Berkshire Hathaway equity portfolio since 2016. Buffett has described it as one of the 4 pillars of Berkshire Hathaway. It's one of the company's key foundations.

That's why the sale of a big chunk of shares in 2024 shocked Wall Street. Why is he selling a part of the 4 pillars?

Buffett claimed at the May 2024 annual meeting that he sold Apple for tax reasons. Whether that's true, or not, it does confirm a valuable lesson: that it's okay to sell your winners.

You don't have to sell a complete position. Buffett hasn't. You can sell, say, 50% of a big winner and let the rest ride.

But it's okay to sell and take your profit.

2. Cash Is King

Several times in his career, specifically in the 1970s and 2000s, Buffett has been able to get "deals" from others in distress because he had a strong cash position. During the financial crisis, banks were calling him directly looking for a bailout.

Berkshire Hathaway now has an incredible cash position of $325 billion. It has plenty of firepower should buying opportunities present themselves in the next few years. And, meanwhile, the cash is earning 5% in US treasuries.

3. Patience Wins in Stock Investing

In the late 1960s, early 1970s, Buffett waited about 5 years from the time he wound down his original investment fund to becoming CEO of Berkshire Hathaway. That's a long time to wait on the sidelines.

But patience wins. Recently, Buffett has stopped buying shares of his own company, Berkshire Hathaway, whose valuation has touched on new all-time highs. Previously, he vowed that he wouldn't buy back shares of Berkshire unless they were cheap.

Even on his own company buybacks, he's willing to be patient. You should be too.

While it seems like stocks will go up forever, there will always be buying opportunities in great companies.

Buffett Gets Out the 1970s Playbook

We're already seeing Buffett, and Berkshire Hathaway, mimicking the strategy of the 1970s.

Like the Nifty 50 growth stock era, where companies like Xerox were going to grow forever, there is a bit of speculative behavior again in 2024 with the AI Revolution.

In the 1970s, while the stock market indexes lagged until 1981, the top value managers like Buffett and Fidelity's Peter Lynch became investing legends as they found buying opportunities. Value investing saw great success.

Holiday Spending Looks Strong This Year. Where to Find Bargains in Retail Stocks.
Retailers are lifting their earnings guidance as shoppers hit the stores. Five names in the bargain bin.
It’s looking like a jolly holiday season for America’s retailers, based on company guidance and economic forecasts. That’s because many U.S. consumers are in good financial health on the eve of the greatest shopping marathon of the year. At least 10 retailers recently raised their sales or earnings guidance for the current fiscal year to reflect continued spending, including Walmart WMT, GAP, TJX, RL, BJ’S, HD and e.I.f. Beauty.

Shopping for Value

- Ticker: Abercrombie & Fitch / ANF

Recent Price: $141.57

YTD Change: 60%

Forward 12-Month P/E: 13.2

2025E EPS Growth: 67%

- Dick's Sporting Goods / DKS
Recent Price: 201.63

YTD Change: 37

Forward 12-Month P/E: 13.7

2025E EPS Growth: 8

- Nordstrom / JWN
Recent Price:

YTD Change:

Forward 12-Month P/E:

2025E EPS Growth:

- Ralph Lauren / RL
Recent Price: 207.12

YTD Change: 44

Forward 12-Month P/E: 16.0

2025E EPS Growth: 14*

- Tapestry / TPR
Recent Price: 55.41

YTD Change: 53

Forward 12-Month P/E: 11.7

2025E EPS Growth: 7**

It appears to me that the investors have been buying dips and the foundation is being laid for a yearend rally. Maybe starting on a short Thanksgiving week.

Factors I'm focusing on this week:

1) FED releases minutes from its November meeting on Tuesday

2) PCE index for October.

DATA: Barron’s print edition page 26 11/25/24 Market Week Jacob Sonenshine

Paragraph: one CHATGPT online market recap 11/18/24-11/22/24 listed above

Paragraph: two Zacks Weekend Wisdom 11/23/24 Warren Buffett's Stock Selling is Sending a Big Signal Tracey Ryniec

Paragraph: three Barron’s print edition page 11 11/25/24 A Jolly Holiday Awaits Sabrina Escobar
Paragraph: four Richie Naso closing remarks

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