As I write this the Dow is up 3.21%, The Russell 2000 is up 5.01%, the S&P 500 is up 2.12% and the Nasdaq is up 2.42%. Meanwhile, all of your commodities are down. Gold is down 2.65%, WTI is flat and silver is down 4.53%.
However, Bitcoin is hitting all-time highs! Coinbase is up 27% (COIN), CleanSpark (CLSK) is up 18% and Marathon Holdings (MARA) is up 17%. All because Trump said some nice things about crypto on the campaign trail.
Contrarily, interest rates are flying. The 10-year is up 3.78%. The 30-year fixed rate mortgage is now over 7%.
And there is a two-day, Fed meeting today with the market betting that they announce an interest rate cut of 0.25% tomorrow. None of this makes sense. Someone is wrong…
Can’t Both Be Right
First off, the majority of the small caps which make up the Russell 2000 don’t make any money and are heavily committed to rolling short-term debt. This means that higher rates are bad for them. With bond yields surging, they should be selling off.
And why is the Dow beating the S&P 500? Tariffs are better for small companies that make stuff in America than for large multinationals that sell in China. That has to be bad for the Mag 7 which makes up 30% of the S&P 500.
Upon further review, it is the banks that are pushing the Dow Jones Index – plus Caterpillar, which is up 8% today on the idea that reshoring and more mining in the U.S. will lead to more business. That line of reasoning seems like a stretch.
Can the Fed cut rates when the market is pushing them higher? Will it matter?
And what about the housing market? Mortgage rates over 7% will be a slap in the face to all those sellers who were delaying open houses until after the election. This just stomped out whatever breath was left in the chest of the real estate market. There will be no volume.
You’d think this might be bad for banks but Bank of America is up 8.37% today. Citigroup is up 9%, JPMorgan is up 11%. And Wells Fargo (the worst of the group) is up 14%.
The market thinks that this is the greatest bull market in history and will continue to hit all-time highs because it believes that Trump will lower interest rates, cut government spending, slash taxes, and negotiate the end to all wars.
Or perhaps it’s a relief rally based on the idea that it was a decisive election. We won’t have to collectively suffer through three months of lawsuits and bickering over who won the damn thing.
No one knows what is going to happen. I don’t think that the Trump victory will have such a dramatic impact across all of these markets. We know unemployment is increasing amid a global slowdown. We are on the verge of a debt crisis that the new government is unlikely to fix.
Those who have been in power and carrying water for the Biden administration with crooked numbers and optimistic outlooks will have every reason to dump the kitchen sink on the Trump administration.
I do know that today is not the day to make any big investment decisions. If you’re a trader I’d recommend fading these extremes with the market at all-time high valuations – it is a good opportunity to sell into the euphoria.
We will see what Chair Powell has to say over the next few days. It will be a lot less enthusiastic than his last meeting I am sure.
All the best,
Christian DeHaemer
Outsider Club
P.S. Those baby-boomer cruise ship stocks are up around 7% today, but those stocks I’d let ride.
Boomer stock:
https://www.outsiderclub.com/sell-oil-buy-this-boomer-stock/
No:
https://www.outsiderclub.com/ferc-says-no/
Stocks on Fire:
