The Largest Green Week Of 2024

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

DJIA

• 52-wk: +29.91%
• YTD: +11.74%
• Weekly: ±2.68%

S&P 500

• 52-wk: +41.06%
• YTD: +21.77%
• Weekly: ±0.96%

NASDAQ

• 52-wk: +46.47%
• YTD: +23.36%
• Weekly: +0.16%

SPDR S&P Retail ETF

• 52-wk: +30.37%
• YTD: +4.40%
• Weekly: -3.35%

1. Overall Market Performance

S&P 500: The S&P 500 ended last week higher, bouncing back from some of the prior week's volatility. The index rose as investor sentiment was buoyed by corporate earnings, a strong jobs report, and optimism around key economic data suggesting the economy could be on more solid footing than previously feared. Deftly, supported by solid performances from a few key blue-chip stocks in the industrial and financial sectors. The index benefitted from gains in stocks like Caterpillar and Goldman Sachs, which helped offset weaker performance in other sectors.

Nasdaq Composite: The Nasdaq was the biggest winner, posting a notable rally thanks to tech sector strength. Earnings reports from major tech companies like Microsoft and Alphabet (Google) continued to impress, particularly in areas like cloud computing and artificial intelligence (AI), which supported investor confidence in growth stocks.

2. Key Market Drivers

U.S. Jobs Report (October 2024): The October nonfarm payrolls report showed the U.S. economy added 336,000 jobs, significantly higher than expected. This positive data reinforced the view that the economy remains resilient despite higher interest rates. However, average hourly earnings rose at a more moderate pace, which suggests inflationary pressures may be easing. The report raised some concerns that the Federal Reserve may continue to keep interest rates elevated for longer to curb inflation.

Earnings Reports: Q3 earnings continued to support stock prices, especially in technology, consumer discretionary, and healthcare sectors. Strong results from big tech companies like Apple, Microsoft, and Amazon fueled optimism in the broader market. Tech earnings benefited from continued growth in cloud services, AI-related offerings, and robust demand for software solutions.

Federal Reserve Outlook: The market remained sensitive to the Fed's stance on monetary policy. The Federal Open Market Committee (FOMC) meeting in early November confirmed that the central bank is likely to maintain its current rate levels for the near term, given the economic data showing strong labor market conditions and persistent inflation risks. However, Fed officials indicated that they would remain data-dependent, which left investors uncertain about whether the central bank could ease rates in 2025.

3. Sector Performance

Technology: Tech stocks were a standout, with the Nasdaq benefiting the most from this trend. The AI boom continued to be a major driver for large-cap tech companies, especially those with a strong presence in cloud computing and AI infrastructure.

Energy: Energy stocks were under pressure due to a sharp decline in oil prices. Crude oil fell over the last week as concerns about weaker-than-expected demand from China and other global growth concerns overshadowed supply disruptions in the Middle East.

Financials: The financial sector showed moderate gains, particularly in large banks like JPMorgan Chase and Goldman Sachs, which reported solid earnings driven by strong investment banking activity. The higher interest rates have been a double-edged sword, benefiting lenders' margins while also creating headwinds for certain types of financial services.

Healthcare: Healthcare stocks gained, boosted by strong earnings from some biotech companies and pharmaceutical giants. Investor interest in the sector is also being driven by ongoing developments in medical treatments, including innovations in gene therapy and oncology.

4. Notable Stock Moves

• Tesla: Tesla shares surged after a strong third-quarter earnings report, driven by continued demand for electric vehicles (EVs) and a steady ramp-up of production for their newer models. Despite some concerns about margins, investors were optimistic about Tesla’s growth potential in the coming years.
• Apple: Apple continued to perform well as investors focused on the growth of its services business, particularly its cloud and app store revenues, even as iPhone sales came in slightly weaker than expected. The company also made headlines with new announcements around AI-driven features and software updates.
• Amazon: Amazon shares ticked up after strong results from its Amazon Web Services (AWS) segment, which showed sustained growth in cloud computing. Amazon's advertising division also continued to outperform, as digital ad spending remained robust.
• Caterpillar: Shares of Caterpillar, a bellwether for the industrials sector, were up, reflecting a solid earnings beat and optimism about global infrastructure spending, particularly in the U.S. and parts of Asia.

5. Geopolitical & Macro Developments

Middle East Tensions: Geopolitical risks remained elevated, especially around the Israel-Hamas conflict, but markets largely brushed off these concerns as economic data and earnings reports took center stage.

China & Global Growth: Economic data out of China remained a concern, particularly as the country faces challenges with its property sector and slower-than-expected growth in consumer demand. However, China's stimulus efforts, including infrastructure spending, were seen as positive for global markets.

Though big tech stocks like Meta Platforms (META), Arm Holdings (ARM), Alphabet (GOOGL) have enjoyed robust gains in 2024, those gains are likely to extend into 2025 because of robust expectations.

Forward EPS expectations are one of the key ingredients of the Zacks Rank and are the best predictor of stocks moving forward. Several big tech stocks like the ones mentioned above enjoy a Zacks Rank #2 (Strong Buy).

Meanwhile, Wall Street estimates for Nvidia (NVDA), the most important AI company, suggest the company will more than double its EPS in for full-year 2025.

Finally, companies like Tesla (TSLA), which reported EPS last recently, benefit from the newly "dovish" Federal Reserve monetary policy stance. Tesla guided auto growth to 25% in 2025, smashing estimates of 16%.

Tesla's regulatory credit revenue plunged 17% quarter-over-quarter, but earnings beat expectations by a wide margin due to a dramatic improvement in the cost of goods sold (COGS). TSLA rewarded the bulls with a 22% jump last week.

Sharp, deep-pocketed investors are accumulating massive amounts of call options in big tech names like META and AAPL. Because big tech stocks comprise such large market caps and are critical to growing industries like AI, strength in these names will equate to strength in the general market. Investors should get a better sense of AI, cloud, and big tech growth in general when Google reports earnings tomorrow after the close.

Seasonal Tailwinds

Seasonality dramatically favors the bulls into year-end. According to Ryan Detrick of Carson Investment Research (@RyanDetrick) November, December, and January are historically the best three months of the year using data going back to 1950. Meanwhile, November has been green in eleven of the past twelve years.

Relative U.S. Equity Positioning

Despite the rally in U.S. Stocks, relative U.S. equity position (versus the world) is significantly underweight compared to the past two presidential election cycles (according to Seth Golden @sethCL). In other words, domestic markets have room for more upside if investors become more bullish.

Risk-on Industries are Strong

Risk-on market areas are moving higher, while risk-off areas are moving lower. For example, bitcoin proxy MicroStrategy (MSTR) is crushing the S&P 500 Index year-to-date. At the same time, energy was slammed today after the geopolitical situation in the Middle East showed signs of cooling off.

As investors think about the potential impact of Donald Trump’s win over Kamala Harris, they shouldn’t forget about dividends.

For starters, a second Trump term means something won’t happen. Democratic nominee Harris proposed quadrupling the stock buyback tax to 4% from the 1% President Joe Biden enacted in 2022. In economic terms, you tend to get less off what you tax, so a new levy would have crimped stock buybacks. But Biden’s levy doesn’t seem to have done that.

S&P 500 (SPX+0.38%) companies bought back some $860 billion in stock in 2021, spending about 50% of free cash flow on share buybacks. Over the past 12 months, companies repurchased another $960 billion in stock, about 65% of free cash flow. That’s good news for investors who focus on cash returned to shareholders.

The bigger impact on dividend payers comes through Trump tax policy. He wants to cut the corporate tax rate to 15% from 21%, boosting net income margins. Tax rates might seem like a tertiary concern for income investors, but dividends are paid out of after-tax income, so the lower the taxes, the more cash can be paid out.

Some math: Dividend payers in the S&P 500 typically pay out about 40% of net income as dividends. A six-percentage-point rate cut has the potential to boost income, and payouts, by roughly 7% to 8%, all else being equal. There are some caveats with the Trump tax plan, the biggest being that the 15% rate would only be applied to domestic production.

So the biggest bump from the Trump tax plan goes to companies with larger U.S. businesses, which means focusing on how much money companies make in the U.S., says accounting expert Robert Willens. That typically means small-cap stocks. Companies in the small Russell 2000 generate roughly 90% of their sales in North America, according to Bloomberg, compared with about two-thirds for those in the S&P 500.

Small-cap stocks with attractive dividend yields should be poised to outperform. Three that fit the bill, with above-average yield and support from Wall Street analysts, include retailer.

Camping World (CWH +0.85%) and energy companies Crescent Energy (CRGY +0.74% and Kodiak Gas Services (KGS +0.81%). They yield an average of 3.5%. The three stocks gained an average of almost 6% on Wednesday after the Associated Press called the election for Trump. Investors don’t have to sift through the thousands of small-cap stocks in the U.S. There are several small-cap dividend-focused exchange-traded funds, including WisdomTree U.S. SmallCap Dividend (DES +0.52%) (ticker: DES) and ALPS O’Shares U.S. Small Cap Quality Dividend (OUSM). Those ETFs currently yield about 2.6% and 1.3%, respectively.

Investors don’t have to go small. Large-cap companies might not benefit as much, but they’ll still benefit. Shares in the S&P 500 with above-average U.S. exposure and higher-than-average dividend yields include retailers Dollar General and Target, food companies J.M. Smucker, Conagra Brands, and General Mills, distributor Sysco, cleaning products company Clorox, and Starbucks.

That group yields about 3.2% on average and is concentrated in the retail and staples industries. Some manufacturing companies with a lot of domestic production include Caterpillar, Deere, and Boeing. Cat and Deere, however, have below-average dividend yields, and Boeing stopped dividend payments in 2020. Ford Motor stock, however, yields north of 5% and management paid an additional special dividend in 2023 and 2024, though Ford could also be hit by Trump’s tariffs and electric-vehicle policies. Precisely calibrating all the variables isn’t easy, but lower tax rates for domestic producers will help small-cap companies and their dividends—and that’s enough.

The trend is your friend, until it’s not. Factors this week I'm focusing on this week:

1) The Consumer Price Index (CPI) Report for October 2024, scheduled for release on November 13, will be critical for assessing inflation trends and could impact market expectations for future Fed policy.

2) Retail sales data for October on Friday

3) Can the upward trend continue

Richie

DATA: Barron’s print edition page 28 11/11/24 Market Week Paul La Monica

Paragraph: one ChatGPT Market recap for week ending 11/8/24

Paragraph: two Weekend Wisdom online edition 11/9/24 5 Reasons to Be Bullish in Q4 Andrew Rocco

Paragraph: three Barron’s print edition 11/11/24 page 25 Dividend Investors Al Root

Paragraph: four Closing remarks & factors I’m looking at. Richie Naso

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