Monday Takeaways: Ride the Tiger, but Mind the Claws

Shah Gilani|October 21, 2024

Six straight weeks of a rally…

Nine out of the last 10 weeks ending higher…

The markets simply want to go up.

Money is flowing into the markets… and earnings are beating estimates.

Ride the tiger, my friends.

But don’t forget that tigers have sharp claws.

As valuations climb higher…

There are three warning signs I’m watching.

See what’s going on in your Monday Takeaways, your inside track on what’s moving your money… NOW.

Click on the thumbnail below to watch.

Transcript

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

It is premarket this morning. It’s a little bit after 9 a.m. here on the 21st of October.

Looking back at last week, it was another record week for stocks.

They just hit it out of the park right, left, and center. That’s six weeks in a row that stocks have rallied. Six weeks in a row. It’s actually nine out of the last 10 weeks that stocks have rallied.

What’s the takeaway there?

Stocks just look like they want to go up… and they have been going up. So the takeaway there is, don’t fight the trend.

I know a lot of you are getting nervous out there because maybe valuations are getting a bit rich, and they are. But that doesn’t mean we can’t go higher.

So the takeaway is we’ve seen a rally nine out of the last 10 weeks, six straight weeks of stocks rallying, making new highs and higher highs, 40-plus new highs this year. We’re going to hit 50 probably by the end of this week or next week, new highs in the S&P for the year.

So, wow, color me impressed.

Last week, earnings reports were fabulous. They started with the banks rolling out a couple weeks ago. They were excellent. And last week, we saw a lot of good company earnings, and stocks were rewarded.

So, again, we’re seeing a lot of companies make new highs. Stocks are making new highs because earnings are good.

Now, the takeaway from earnings being good and seeing beats is that analysts have consistently been knocking down earnings estimates even for upcoming reports for the third quarter. Analysts are knocking them down days and weeks before they’re going to report, which makes it obviously easier for them to beat analyst expectations, and that’s moving stocks higher.

So if analysts keep playing this game and companies can beat, then there’s a reason that investors are going to be energized because earnings are good, and they’re beating estimates.

Therefore, things must be better than analysts who supposedly know so much figure. And most of the time, they don’t know that much. But everybody seems to think that if analysts are cutting their estimates, then things aren’t great or as good as they could be. But when they beat, it’s like, well, the analysts were wrong.

Oh, no. The analysts aren’t wrong. It’s just that the company did much better because things are really good. And that’s what we’ve been cheering on, better earnings and why we’ve been going higher.

So lots of good news there.

My expectation for earnings for Q3 is I know the S&P and a couple of other consensus estimates are for 3% to 4%. I think we’re going to be closer to 7%, 8% on earnings growth for third quarter once all is said and done across the S&P 500 companies.

So we got one big techie coming out this week.

Tesla’s coming out on Wednesday. It’s going to be about the deliveries. So that could maybe shake up the market a little bit.

Not a big week as far as economic numbers to hang our hats on.

It’s going to be about earnings, earnings, earnings as it really should be.

So that’s really a great positive. There’s also money coming off the sidelines. There’s a lot of money flowing into mutual funds and ETFs, U.S. equity ETFs. In general, there’s money globally flowing into funds, but a lot of money is flowing into U.S. equity based mutual funds and moreover ETFs.

We’re also seeing retail come in big time. So the money that’s going into ETFs, chasing a lot of the Mag 7, replacing all the high performance stocks, and the ETFs that have all those in them makes sense. Then the underlying sponsors have to buy all of the stocks that make up whatever is in those ETFs, which are the high performing stocks, and you get this wash, rinse, repeat market that can go higher.

I think we can go higher into year end because I think earnings are going to justify it.

As long as the consumer remains resilient and continues to spend, then I think things are going to be good. GDP is still good. We’re not seeing any subtle or even less than nuanced changes in anything. Things have been pretty steady to good, and I don’t see a reversal of any of those things that are pretty good.

Doesn’t mean it won’t happen. But the takeaway from there is if things look good because they are good, then don’t fault that. Just keep playing from the long side. It doesn’t mean you’re not supposed to be somewhat conservative and maybe make sure you have stops in because there are always issues, always black swans out there.

For example, gold is rising. Another new high in gold. What’s the takeaway there? Gold is a safe haven for a lot of reasons. And this is worrisome longer term, but it’s maybe going to come into focus a little sooner.

Gold is hitting new highs for two reasons.

Geopolitical problems, obviously.

We saw that a drone hit Netanyahu’s house. Now, there was very little damage, and he wasn’t there. But this is likely to lead to an escalation in the Middle East. And there are rumors, there are supposed leaks, that the U.S. is going to aid Israel in an attack on Iran.

Don’t know if any of that is true, but that’s sending gold higher.

And last week there was a new high for gold. That’s a bit worrisome because it also speaks to investors worried about the exploding debt of not just the United States, but pretty much every sovereign country. Debt is exploding everywhere. So it’s all good right now, but gold is telling us there’s some stuff out there that we should be concerned about.

So don’t take your eyes off gold. If it continues to go higher, that continues to prove that there’s stuff out there that smart investors are willing to say, “I know it’s there.”

It’s not affecting stocks right now, but it could. And your safe haven fallback is gold.

That’s something to keep an eye on. Another thing that I noticed last week, insider selling has been picking up.

As stocks have been making new high, insiders have been selling.

And by one measure, from I saw a report that said that the last 30 days saw the highest monthly reading of insider selling in three years.

The last time we saw a bit of a spike in insider selling was in July, and we know what happened in July. July led to a sell-off. It was part of that insider selling and investors got worried if insiders are selling, maybe we’ve reached highs and those are the highs.

Well, no.

We’ve been high. We’ve been considerably higher from August onward. So maybe insiders selling again is telling us something or trying to tell us something.

We know that Warren Buffett sold his huge Apple position. He still has some, but he also sold most of his Bank of America position. Both of them made new highs. So that doesn’t mean he’s right. Doesn’t mean these folks and the insiders and the big guys and gals like Buffett selling mean anything necessarily because I’m sure Mr. Buffett wished he hadn’t sold because he would’ve gotten a lot more money had he waited ’til Apple made another new high.

So this is a little bit worrisome because it just speaks to investor confidence and sentiment in terms of what the insiders are selling.

Or valuations are too high. And is this what they’re saying? We don’t know because sometimes they, maybe want to buy a house or second house or fifth house and want to cash out. Maybe some of them are just smart and know, well, this stock is at a near high or at a record high.

I’m going to sell some shares because it makes sense. So don’t know that it means anything in particular, but it does sometimes have implications. So the takeaway there is just keep an eye on insider selling people because if it becomes a real thing and it kind of has become a thing for the last month, then, it could mean that the smart money is getting out near the top. So last thing I want to say about debt is… as good as the equity market is, the bond market’s been rustled.

The 10-year is going higher. The yield in the 10-year is going higher.

You know, now the talk is, will the 10-year get to 4.25%? Will the 10-year get to 4.50%? There’s one bank analyst out there saying the 10-year is going to go to 5% again.

That is not going to bode well for stocks. So keep an eye on bonds.

As good as things are in equity market, with stocks just looking like they want to go up, I think we can have a great continuous rally through the end of the year, get the Santa Claus rally or wrap things up, and then we’ll take a revisitation in the first quarter as to where’s all that debt, where’s the 10-year doing, and will markets sell off? Because if we continue to rally into the year end, valuations are going to get and look very stretched.

And then if rates rise, that could be some trigger point for some selling. So until then, you ride the tiger because stocks just look like they want to go up. That’s the takeaway.

Ride the tiger. Catch you guys next week. Cheers.