If you’re an investor looking for income, you’re facing what I’d call a Yield Drought. And this is no temporary dry spell. Things on the income investing front look they’ll get worse before they get better. Unless a financial crisis intervenes in 2025 to make everything else much worse and the yield story much better. Because, you see, there are two parts to the current Yield Drought.
I expect more breathless speculation on who will fill the most important posts in the Trump Administration that will be sworn in on January 20, 2025. The consensus, which I agree with, is that this administration will be much different than the first Trump team with fewer figures with anything approaching old-style conservative Republican credentials. Thinkoif the contrast between second Trump administration vice-president J.D. Vance and first administration pick Mike Pence. That difference has made any meaningful handicapping of this race for power extremely difficult–even though the issue of who will fill what chair is incredibly important. For investors I think the most important pick to watch is Treasury Secretary.
I continue to see this rally continuing through the fourth quarter of 2024vbefore faltering in the first quarter of 2025. That call does assume that we’ll get through today’s election and its aftermath with relatively little actual violence–protests in the streets from the losing side and lots of court cases, but no mass armed violence. And it assumes that projected earnings growth in the fourth quarter will live up to expectations and show the highest growth rate in all of 2024. No one knows what this post-election period will bring. So let’s move onto assumption #2: How likely is it that fourth quarter growth will hold up?
Yields rose and bond prices dropped again today as weak demand in a pair of Treasury note auctions suggested investors are anxious about supply on the eve of the next financing quarter. For the day, the yield on the benchmark 10-year Treasury rose 4 basis points to a yield of 4.28%. The yield on the 10-year Treasury is now up 53 basis points in the last month.
I don’t know which candidate will win the election. Right now the polls are within the margin of error on the national level–and even tighter in the seven battleground states that will likely decide the electionm. But I do know the results on November 5 will move stocks. Some right off the bat even before the results are certified. Ans more significantly as a new administration clarifies its policy views and takes office.The results will move the stock market in general
And they will move individual stocks and sectors in particular.
The U.S. economy grew at a stronger pace in the second quarter than initially reported. Gross domestic product, GDP, rose at a 3% annualized rate during the April-June quarter, up from the previous estimate of 2.8%, the Bureau of Economic Analysis reported Thursday, August 29.
Remember the good old days–say, 2023–when all you had to do was slap AI in the name of a company and the stock would soar? I kept waiting for AI Burgers made from AI cows, or AI Shoes, which used AI machine learning algorithms to tell you what size shoe you needed. This investor embrace of all things AI led to the fear that there was an AI-stock market bubble that would send the entire stock market into a very painful bear market when it broke. The appetite for AI stocks is still huge–witness the rebound in Nvidia (NVDA) shares that added $400 billion to the stock’s market cap in a four-day recovery from the “sky-is-falling, we’re-headed-to-a-recession stock market retreat. But this stock market still has a big AI problem. We will find out how big when Nvidia reports earnings after the close tomorrow, August 28. Here’s the problem: Most AI companies aren’t making money.
Gold hit a new all-time high today of $2554 an ounce on the Comex for December delivery. Gold’s 20% or so gain in 2024 to date (as of August 26) is a result of strong central-bank buying plus Asian purchases plus anticipation that the Federal Reserve was about to cut interest rates. Now that Fed chair Jerome Powell has just about promised a cut at the Fed’s September 18 meeting it looks like gold will climb further in 2024 on the fundamentals. Bullish Wall Street targets say $2700 to $3,000 by the end of 2024. That’s a decent reason to hold gold. But the very scary geopolitical landscape over the next six months makes me anxious to add more gold even at the record nominal high for the metal.
No doubt about it. A soft-landing would way better for the economy than a poke in the eye with a sharp stick. No big spike in unemployment. Decent growth in real personal incomes. Controlled and relatively low inflation. Real interest rates falling–slowly–from their current historically high levels. It would be a huge positive achievement if the Federal Reserve could engineer a soft landing after raising interest rates to slow the economy and cut inflation and then beginning to reduce interest rates to make sure that growth didn’t slow too much or too quickly. A huge positive the economy. I’m not sure, however, that an economic soft landing is quite so big a positive for the stock market.
Core CPI inflation rose at a 3.2% annual rate in July. That was the slowest rate of increase since early 2021.And that rate of increase was low enough to keep the Federal Reserve on track for cutting interest rates at its September 18 meeting.
A plunge in new corporate borrowing in China combined with Chinese households preferring to repay debt rather than expand borrowing saw bank loans in China shrink last month for the first time since July 2005. That deepened China’s years-long battle with weak credit demand, as a property slump spurs caution on buying homes and expanding investment. This has raised fears that China’s first bank loan contraction in nearly two decades could send the world’s No. 2 economy toward a “balance sheet recession” similar to that in Japan decades ago.
Profit growth at the Magnificent 7–Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia-—still raced ahead of the rest of the S&P 500 in the second quarter, But for the first time in five quarters, the rest of the S&P 500–the S&P 493 if you will–showed positive year-over-year growth in profits.
