Monday Takeaways: When Reality Bites

Shah Gilani|November 18, 2024

Wall Street just had a “ruh-roh” moment…

How else could you describe going from a new high of 6,000 on the S&P… to a 2% drop on the week?

From Trump’s controversial Cabinet picks… to inflation that just won’t quit…

Reality sunk in… and investors got nervous Trump’s victory won’t be full steam ahead.

But that’s not where all the jitters come from…

We’ve got some big retail earnings reports this week…

And the biggest report of them all.

Remember when it used to be “Where GM goes, so goes the market”?

Then it was Apple… and now it’s Nvidia.

Tune in for your critical Monday takeaways as we start a big week. Don’t miss what’s moving your money… NOW.

Click on the thumbnail below to watch.

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways.

First big takeaway from last week was “ruh-roh, not so fast.”

Starting the week off with the S&P getting above 6,000 for the first time – yes, another record day on Wall Street.

Markets turned tail. By the end of the week, especially Friday, we saw a pretty monumental selloff as far as selloffs go these days because things have been pretty up and up.

So why? What’s the takeaway? Well, why did the markets turn tail? I think the takeaway is that they didn’t like what was happening with Donald Trump president-elect’s Cabinet picks. They have to be approved by the Senate, and the thinking is there’s not going to be smooth sailing when it comes to confirmation of some of these picks.

RFK Jr. for Health and Human Services – wow. Bit controversial because of his vaccine stance. Some other issues with him, but some other great things I think he could do based on what he would like to do: get processed foods out of our diets and really cool stuff we’re all overdue on. Still, there’s controversy there. We got Tulsi Gabbard from Hawaii.

Problem with her is, people aren’t sure if she should be the one to head up all the U.S. intelligence services. There are issues there with her. And, of course, Matt Gaetz from Florida, the Florida House representative who stepped down last week, a day before an investigation report was supposed to come out, an ethics report from the House. Didn’t matter to him because he’s already been reelected for the next seating of the House of Representatives.

But now Donald Trump is perhaps putting him up for attorney general. That’s a real problem for a lot of folks in the country and in Congress.

So what does all that and some other questionable positions mean for investors? This might not be smooth sailing if some of these confirmations aren’t going to be easy or not at all. And there’s another issue that markets, investors, smart traders were picking up on.

This is the takeaway that I want you to get from that. It’s not so much that they didn’t like it and there’s going to be controversy. It’s that in the process, or even if the process is completed, several of those names – three, perhaps more – will come out of the House if they’re confirmed. That leaves those House seats and the majority that the Republicans have in the House at risk for not being as strong as it is and perhaps even who knows?

Markets didn’t like that because there would have to be special elections to replace those House members who end up being in Donald Trump’s Cabinet. Markets don’t like uncertainty, and that’s really when the selling started. So the takeaway there was, yes, political stuff, but that matters. Why? Because policy matters, because getting stuff through Congress matters, because the makeup of Congress matters.

The issue on top of that all was what are his policy prescriptions potentially going to do to inflation?

And that’s a problem because the takeaway there is, well, nobody really knows. The smart thinking is it’s going to pump up inflation.

You can’t have tax cuts.

And, again, to speak to the most important tax cut right up front will be the TCJA, Tax Cuts and Jobs Act, which was enacted in President Trump’s first term, expires at the end of 2025. I think his first order of business is to get Congress to listen to him, to cut again, but first, to extend the TCJA. He’s going to want to do that in the first half of 2025.

He doesn’t have the House. He doesn’t have – if there’s controversy over his picks, who knows? But that’s really the tactic could be No. 1 for him. And the markets are wondering, well, if that doesn’t happen, then will that be problems?

Will that be indicative of he’s going to have problems with other stuff? He wants to cut taxes on Social Security and on tips. Sounds great, but less revenue for the Treasury. He wants to boost the cap on state and local tax deductions – less revenue for the federal government. He wants to reduce corporate taxes from 21% to 15%. This at the same time, he’s going to try and create some fiscal stimulus somehow. That’s presumably where that stimulus is going to come from – from tax cuts.

You know, this is the supply side thing. So markets aren’t so sure because deflation isn’t going anywhere. And what happened last week is we got numbers, and they weren’t great. So CPI core, what was interesting about CPI core is it was up 0.3%.

That’s three months in a row based on the October reading. Three months in a row, CPI core was up 0.3%. It’s annualizing at 3.3%. That’s well above the Fed’s 2% target.

So not coming back down. It’s kind of stuck, and everybody thinks if it edges up, that’s a problem. How do we know that’s a problem? Because the bond market says it’s going to be a problem.

Ten-year Treasury yields backed up to 4.5% on Friday.

That’s up 88 basis points from two days before the Fed’s September 18 50-basis-point cut in Fed funds target range.

So since September 16 when the rate was 3.63 to Friday, the rate on the 10-year Treasury yield jumped from 3.63 to 4.5%. And the problem there, people, is this.

It’s the stock market.

Looking at S&P, you see this rollover here. All right. This is a one-year chart of the S&P. That’s a pretty scary rollover.

Look at what happened on Friday. So the week we saw new highs and then boom, we roll over. And then Friday was like, uh-oh. Profit taking, I’ve been saying.

Good takeaway from this is when you see a move like that, there’s nervousness out there. Why? Because there’s a lot of profits on the table. And if investors are going to sell, why not?

Because you’re going to pocket a lot of money. This has been one heck of a run. And if the Trump bump is temporarily over, maybe take some profits. Not saying it is, but investors have become cautious as the bond market has backed up.

And this is what’s happened every time the bond market has backed up. So keep an eye on the 10-year Treasury yield. We’re at 4.48 this morning. It’s premarket on Monday.

And if we get above 4.50, but there’s going to be some questioning. And if we continue to rise, then we look like we’re going to get to 4.75 on the way to 5%.

You bet. This here is going to see stocks way down here and maybe even down here somewhere. Maybe, yes, possible in a nasty selloff to test the 200-day move back. That would be pretty scary, but a massive buying opportunity. So that’s it for the takeaways from what’s happened last week. Looking forward, here’s something to think about.

2025 estimates are coming in as far as what we might do, and the range on the S&P goes anywhere from 4,700 to 7,500. What? You can drive a Mack truck through those kinds of estimates for where the S&P will be at the end of 2025.

We’re going to get a taste of where it could go this week. We’ve got some important numbers coming up.

We got earnings, I think, that are going to be important. And those earnings are Tuesday. We got Lowe’s and Walmart. How’s the consumer doing? Are they still spending, are our wealthier consumers coming back down and spending more at the likes of a Walmart? Thursday – excuse me, Wednesday – we’ve got Target and TJX Companies.

Again, where is the consumer spending? Are they still spending? How robust is the spending? Very important. And, really, the last thing I’ll leave you with is Wednesday after the close, it’s going to be Nvidia earnings. You know what, people? The thing with Nvidia earnings is when I started, and I’m talking back in late ’81 and certainly into ’82, the mantra on the floor of the Chicago Board of Options Exchange was pretty much “as GM goes, so goes the market.”

That got eclipsed years ago by “as Apple goes, so goes the market.” Now it’s “as Nvidia goes, so goes the market.” If Nvidia disappoints, be careful out there. Could be some selling.

If it’s got a high hurdle to beat well above estimates and it’s got to have some really robust forward guidance, then we could see the market pick back up and move higher. But heaven forbid, they fail to enthusiastically pump up investors because there’ll be some profit taking. Be careful out there. I’ll catch you guys next week.

Cheers.