November 7, 2024
Good morning,
As a lifetime student of markets, the early seminal lesson I learned at the foot of a master technician (Alan Shaw) 40 years ago gets played out in real-time in markets over and over again; “The best predictive tool of a market’s future is the market itself.” Translated, the market message today lays out what the market is most likely to do in the future – unknown, unknowns notwithstanding. Part II of this lesson is time – the predictive quality of the market message fades from near term (days) to long term (6-8 months). The stock and bond market nailed this election. But that’s history now. What’s ahead?
Donald Trump won about as a decisive victory as one can expect in this highly polarized political environment. While his victory is disappointing for nearly half the country, for investors, one positive is that it removes a piece of uncertainty. Breadth, sentiment, and the history of Democrat-to-Republican transitions support the continuation of the current rally into year-end.
The biggest risks to the equity rally’s continuation are interest rates and inflation expectations in the near term (day/weeks) and a fiscal cliff in the intermediate term (weeks/months).
Longer term? I’m afraid it is a repeat of the same story I’ve been squawking about for over a year now – comfortable with near term market prospects, uncomfortable beyond the 6–8-month purview of markets (see paragraph one). There are a host of concerns, in no particular order: highly elevated valuations, non-zero probability of recession in 2025, and the extreme fiscal strains the new (old) administration’s proposed policies portend. And not to be dismissed – Warren Buffett is selling stocks at a record pace (for him).
A monthly is due; I’ll tighten up my thoughts about 2025 in that note. It’s best if I get it out before the deluge of annual forecasts hits all of our inboxes.
Be well,
Mike
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