Market Musings 221124: US Retail Euphoria

23rd Nov by Edmund Shing

10 comments 1224 reads

Market Musings 221124: US retail euphoria

Podcast this week:

Trump Trade 2.0 starts to fade

The "Trump trade 2.0" has led to a stronger US dollar, higher bond yields, a sell-off in gold, and higher US stocks, particularly benefiting US small cap stocks.
The main drivers are expectations of lower corporate taxes, deregulation, and higher tariffs on imports, especially from China and Europe.
There is uncertainty about the actual impact of these policies, as Trump will not take office until 20 January 2025, and the current Biden administration remains in power until then.
Investment opportunities may lie in US agency bonds, short-term investment-grade corporate bonds, and gold, with a 12-month target of $3,000 an ounce.

Summary:

US stocks higher, other markets struggle to follow
Post-election winners start to stutter: bond yields, small-caps
But others continue to surge; US dollar, bitcoin
Boosted by massive inflows into US stocks, ETFs
Favoured US sectors: Financials inc. Insurance, Financial services, Industrials
Tech, Semis lag leading sectors
Gold starts to recover from post-election sell-off
Australia, Canada leads world ex US
Agricultural commodities hit 10-yea high
Chart of the week: Europe Financial Services

1. Post-election euphoria continues in US stocks, but World ex US struggles to follow

Concerns over economic growth prospects and potential new trade tariffs weigh on World ex US, while US stocks benefit despite very high 22x prospective P/.E valuation. It is all about momentum, at least for now...

2. US Small-Caps pause after fast post-election surge: US government bonds stabilise

3. Two seeming unstoppable Trump trades: stronger US dollar, bitcoin rises to nearly $100,000

The US dollar just continues to gain on the back of stronger expected US growth, higher import tariffs. Trump really is seen as the first pro-crypto President.

Note the weakening euro versus USD (EUR = $1.04),
with a number of brokers suggesting a 1:1 parity as target:

4. BUT: Record flows into US stocks in 2024: euphoria peaking soon?

Similar euphoria in crypto…

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Epitychia

23rd Nov

I think point 4 is most telling. Record flows into the market always precede a crash. (In a mechanical sense this has to happen for a top to be reached.)

The market is primed for a crash and Trump will speed up its arrival with a trade war.

FWIW my guess is that the sell off will start in earnest in May 2025 or perhaps earlier.

Rusty2

I thought gold had gone back up because of Ukraine started firing missiles into Russia.

Silver Moon

24th Nov

An impressive piece of work, thank you Edmund. I'm quite blown away and it's not just down to Storm Bert.

Surely it is becaue of constant bulk-buying by China, India, and Russia.

I was just talking about last week.

Apparently China has not bought any gold for 6 months, up until end of October, don't have any stats for November yet.

WTT

So the US is topping apparently… and in the UK we never really got much of a bull and aim is still in a bear seemingly lol

If the US crashes, so will the UK markets and the bear market will be worse and longer here, the US bounces back quicker.

The Ox 2906

Thanks Edmund very interesting as usual but I disagree with point no.6, there are a lot of “tech bros” heavily involved and influential in the incoming regime/administration and they will definitely push for easing of regulations and especially removing involvement from the FTC in Tech M&A. Expect the tech industry Stateside and around the world , even outside of the Mag 7 to be big beneficiaries and winners.

aflash

25th Nov

These articles are very helpful because they highlight and fine-tune tendencies in sectors in which I am already present, waiting for results.

Take #9 DBA soft commodities and Agriculture.

DBA

So it is coffee and cocoa now. It has been in box range all year

I also hold WEAT (down over 5 years and down more this year), MOS (fertilizer production limited by rise in price of natural gas) and ADM (processing and trading) which are up over 5 years and down this year.

Some company specific issues because CF Industries (more fertilizer) has done O.K.

Then there are the machinery firms who have just taken a jump. Reason ? Retail speculation ? Forthcoming inflation of grain prices ?

They should do well if US grain, soya and soft fruit were fetching good prices. Oranges are plagued by disease and the Bio movement complicates everything.

On the Canadian side there appears to be an anomaly worth pointing out.

In May 2022 you mentioned CGI (Canadian General Investments) (LON & TSE) (I hold) which is now showing a 43% discount on the London market. It holds several USA names such as NVDA, AAPL, MA as well as inter-listeds such as FNV. I thought it could be an arbitrage problems but the CAD$ price 40,60 broadly corresponds.

Further thoughts welcome

Open the Trading view charts in a new tab. All tickers on New York.

link here to May 2022:

https://www.stockopedia.com/co...

topvest

27th Nov

The US is mega expensive. China and many other markets are very cheap. This trade will reverse at some point. This is the worst time to get drawn into the euphoria. If you look at the S&P500 its had an incredible run. With recession possible in 2025, extreme caution is the order of the day in my view.

Market Musings 221124: US retail euphoria