Executive summary:
- GOP sweep 2024 elections
- Quick and conclusive election outcome helped unwind hedge trades put on prior to the election
- Markets rally to all-time highs
- S&P 500 crosses 6000
- Fed cut rates by 25bps, as expected
- Please see the note at the bottom for a note about fractional shares in reverse splits
Index performance for November:
U.S. equities staged a broad-based, post-election rally in November as all the major indices notched new highs.
The S&P 500 posted its best month of 2024, rising nearly 6%, closing the month out at all-time highs. Small-cap stocks also participated, as the Russell 2000 posted its best monthly gain since December 2023.
The headline story for the month was the quick and conclusive presidential election outcome. Republicans in the ensuing days also claimed majorities in both chambers of Congress. The GOP sweep will presumably place President-elect Donald Trump’s government in a position to quickly enact economic policy that his campaign ran on, including lower taxes, higher tariffs and government deregulation which investors hope will foster economic growth. Sell-side analysts are estimating that federal corporate tax cuts (from 21% to 15%, as proposed by Trump) will boost S&P 500 EPS by 4-5%.
Post-election, market attention has turned to Trump’s cabinet nominees which have generated mixed reactions. Health and Human Services pick Robert F Kennedy Jr. sent ripples through the healthcare space as the S&P 500 Biotech Index declined over 7% post nomination. Treasury Secretary pick Scott Bessent was very well received by the markets because of his hedge fund background and support for tax reform and deregulation.
The other major story for November was the Fed’s continued normalization of monetary policy against a backdrop of economic growth, which has historically been associated with a strong stock market.
The FOMC voted unanimously at their November meeting to cut the target range for the fed funds rate by 25 basis points to 4.50‐4.75%. Federal Reserve Chair Jerome Powell said the U.S. economy was performing remarkably well, with the labor market “normalizing” and inflation cooling off, trends he said looked set to continue. Chair Powell also reiterated (as he has multiple times in the past), that policy is data dependent and future rate decisions will be made on a meeting‐by‐meeting basis.
October’s economic data has also been a bright spot for the markets, though it showed that the Fed isn’t out of the woods yet when it comes to inflation.
Q3’24 GDP reading was unchanged from the advance estimate showing growth of 2.8%. The Fed’s favorite inflation index, the PCE Price Index, while slightly disinflationary (+0.3% M/o/M, +2.3% Y/o/Y) was in line with economists’ expectations. Personal income (0.6%) rose above expectations while spending ticked up slightly.
CPI was inline (+0.2% M/o/M, +2.6% Y/o/Y) and October headline retail sales came in higher than expected (+0.4% M/o/M) with big upward revisions to September’s data (+0.8% vs 0.4% previously).
Labor (initial and continuing claims) data remained consistent with a normal, though slowing, labor market.
Sector performance total return for November:
Rate cut odds suggest a 66% chance of a cut at the December FOMC meeting with a pause in January:
Holiday Sales:
Mastercard SpendingPulse preliminary 2024 Black Friday data showed that U.S. retail sales (ex-autos) rose 3.4% compared to 2023. According to the report, e-commerce sales grew +14.6% Y/o/Y, while in-store sales increased only 0.7%.
The National Retail Federation (NRF) forecast that 2024 November and December holiday spend would increase 2.5% – 3.5% this year or about $979.5 billion – $989 billion (2023 saw $955.6 billion). If this is the case, it would mark the lowest annual increase since 2018 (1.8%). Reminder there are five fewer shopping days this year between Thanksgiving and Christmas than in 2023.
Earnings commentary:
S&P 500 corporate earnings for Q3’24 has nearly concluded and, according to Bloomberg data, the average upside beat was 6.91% for the quarter while sales increased by 1.31%. The earnings growth rate stood at +8.17% while sales growth rose 5.08%.
FactSet notes that analysts are predicting low double-digit earnings growth in Q4’24 (which would mark the best performance in three years), with expectations of double-digit earnings growth for all four quarters next year.
S&P 500:
Russell 2000:
Yield on the 10-year Treasuries:
Oil:
Our colleague (Brian Joyce, CMT) wrote an interesting note on potential breakdown of the WTI chart. I included his comments in this month’s note below.
WTI crude made its cycle high (~$124) in 1H 2022 during the initial days of the Russia / Ukraine War. For nearly three years, there has been clearly defined support at the ~$66 level. Over this time, rallies off the $66 support are consistently making a pattern of lower highs. The declining trendline connecting the lower highs has been tested on numerous occasions which is noteworthy for a few reasons:
- The increasing number of times the resistance trendline is tested increases its importance.
- The trendline has been a reliable resistance level every time it has been tested.
- The trendline is converging closely towards the ~66 support level resulting in a “coiling” price action since the start of September (circled). This narrow/coiling price action is measurable by looking at a “price volatility indicator” known as Average True Range-ATR (lower panel) which is near four-year lows.
Periods of low volatility are eventually followed by high volatility, which for this chart would likely be triggered either by a breakout above the declining resistance line, or conversely a break below the $66 support. A pattern of lower highs into horizontal support (descending triangle) is traditionally viewed as bearish. Given the heightened geopolitical tensions, it is noteworthy to see price trading near three-year lows. An improvement on the geopolitical front is one potential catalyst that could pressure price below support. There is also the risk of increased supplies from both OPEC+ and the U.S. under the new administration. Given the size and duration of this setup, a breakdown below the $66 support could be accompanied by strong downward momentum.
WTI Crude (weekly period):
U.S. Dollar:
The DXY rallied 1.8% in November, following a 3.2% rally in October. As tax cuts become implemented under the Trump administration, expectations are for a continued rally in the stock market and the dollar itself.
Looking ahead:
Market’s focus this week will be on Friday’s nonfarm payrolls report for November. Economists predict the unemployment rate to remain at 4.1% with 214,000 new jobs added. The reading will come after the number of jobs added in October plunged to just 12K, due to devastation from hurricanes and a prolonged strike at Boeing. There will be numerous Fed Speak headlines over the next week ahead of the Dec. 18 FOMC meeting, most notably will be Chair Powell this Wednesday. Note that Q4 triple witch will occur on Dec. 20, with numerous indices rebalancing including the Nasdaq-100 Index and various S&P indices.
Background and Recent Developments implicating Fractional Shares in Reverse Splits.
When a company effects a reverse stock split, it must decide how to treat any fractional shares remaining after application of the split ratio. In many cases companies will pay cash to the holder in-lieu of issuing the fractional share. However, in other cases companies will opt to “round up” any fractional share to the next whole share.
Recently, Nasdaq has observed that companies opting to round up fractional shares of beneficial holders following a reverse stock split are being asked to issue more “round-up” shares than anticipated. As a result, these companies may face unexpected dilution to their capital table.
For example, a new investor in a company effecting a 1:20 reverse stock split might buy one share of the pre-split stock at $0.50 with the expectation that the resulting 0.05 fractional share will be rounded up to a whole share after the reverse stock split, worth $10.
While the potential profit in each investor account is not great, as the popularity of “reverse split arbitrage” has spread in the retail trading community and online forums, the aggregate effect of such transactions has resulted in the companies being asked to issue a significant number of round-up shares. In some cases, this has surprised the companies and caused administrative issues.
To protect against unintended consequences, Nasdaq recommends that companies consult with their transfer agent and advisors about methods of handling fractional shares.
Companies are also reminded that their public disclosures create expectations in the investment community about the handling of fractional shares and should determine the appropriate method for handling fractional shares before making any such disclosures.
Questions:
If you have questions about reverse splits, please contact Nasdaq Corporate Data Operations at 877-308-0523 or the Nasdaq Market Intelligence Desk at 888-437-5242.
The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.