The first wave of earnings announcements is usually dominated by the major banks, and in the wake of JPMorgan Chase’s better-than-expected results, plus CEO Jamie Dimon’s positive guidance, I expect that many other major banks will also provide upbeat guidance. The increase in Treasury yields since the Fed’s rate cut on September 18th is not yet a concern for banks, but it must be monitored since if yields continue to rise, it could throw a “wet blanket” on the plans for future Fed rate cuts in late 2024 into 2025.
Last Thursday, as expected, the European Central Bank (ECB) cut its key interest rate by 0.25% to 3.25%, and the Bank of England is now anticipated to cut its key interest rate in November. In cutting its rate, the ECB said that the “disinflationary process is well on track.” Eurozone inflation is now running at a 1.7% annual pace through September. At her press conference, ECB President Christine Lagarde said that she does not expect the eurozone to slip into a recession, but Eurostat announced that the eurozone’s trade surplus declined by 4.6 billion euros ($5 billion) in August, as its exports to China declined sharply.
Here are the most important market news items and what this news means:
- After the November Presidential election, many of our petty differences in America and our foreign policy will hopefully be resolved in the New Year. Most Presidents get 120 days before criticism mounts. The first job of our President-elect will be to diffuse the tension in the Middle East as well as to get an acceptable peace agreement between Ukraine and Russia. In the event that foreign conflicts are resolved, and the threat of a nuclear World War III diminishes, the stock market should benefit from a “peace dividend” and stage an extended rally, similar to when Bill Clinton was President.
- Central banks are expected to continue to cut interest rates. In fact, the Fed is expected to cut key interest rates two days after the Presidential election and again at the December Federal Open Market Committee (FOMC) meeting, which will boost M2 and fuel and continued stock market advance.
- We are in the midst of another exciting earnings announcement season that should drive our fundamentally superior stocks significantly higher. China’s CATL announced that its third-quarter earnings rose 26% to $1.8 billion, but its sales declined 12.5% and were far below its projections earlier this year. Weak sales of electric vehicles (EVs), especially in Japan and Germany are both experiencing EV sales declines, which is now adversely impacting CATL, which is the world’s largest battery manufacturer that supplies nine major EV manufacturers, including Tesla. CATL’s EV market share actually rose to 37.1% (up 1.6% compared to a year ago), while South Korea’s LG Energy’s market share declined to 12.1% (down 2.3% compared to a year ago). I should point out that CATL dominates the production of cheaper, iron-phosphate batteries that are increasingly being used in EVs, especially cheaper city EVs, while LG Energy makes predominately lithium-ion batteries that are used in more expensive EVs. I expect CATL and BYD in China to continue to dominate iron-phosphate battery production.
- Donald Trump has another iconic photo that should help him win over voters after he was trained to make French Fries at a McDonald’s in Philadelphia and greeted customers at the drive-up window. The photo at the McDonald’s window with Donald Trump wearing a bib makes him look like a man of the people. Donald Trump said, “I wouldn’t mind this job.” Of course, Donald Trump also likes McDonald’s and gave away free French Fries to customers and the press.
Overall, the U.S. remains an oasis around the world. So even with a $35.8 trillion cumulative budget deficit, the U.S. remains the favorite currency for international trade. Furthermore, while other countries like China and most of Europe struggle with a declining population, the U.S. still benefits from household formation and better assimilates immigrants. So, despite earnings warnings from some major European countries, the U.S. is poised to lead economic growth for the entire world.
