Keep Buying the Rally? 12/6/24
Halftime Report
Deep Dive
Why are stocks rising, and should investors continue buying into the rally?
Stocks are rising and reaching record highs due to a strong jobs report, with the S&P 500 nearing 4,600. Many believe the market is in a "Goldilocks" scenario, with a soft landing expected and an accommodative Fed. However, some analysts express concern about market froth and rich valuations, particularly given the S&P 500 trading at 22.5 times next year's earnings, which are projected to be 10% higher. Despite these concerns, market sentiment remains largely bullish, driven by positive economic conditions and expectations of further, albeit slower, rate cuts by the Federal Reserve.
Why is DocuSign surging, and what's behind its strong performance?
DocuSign is surging after earnings, hitting a 52-week high. The company reported strong Q3 results, with revenue up 8%, billings up 9%, and international growth up 13%. Operating income increased by 19%, and operating margins reached 30%. This profitable growth is a key driver of the stock's performance, along with the company's strong brand recognition and limited competition.
What are the Investment Committee's latest portfolio moves?
Several moves were discussed, including: - Buying more Bitcoin due to its momentum and potential for further gains. - Buying more Netflix based on its focus on profitability and growing market share. - Adding to Nvidia, Meta, and Amazon for trading positions to capture momentum into year-end. - Selling Kohl's due to disappointing performance and an unclear investment thesis. - Selling B&G Foods due to inconsistent performance and lack of a clear path forward. - Buying Conagra as a safe, drama-free investment with a 5% dividend yield. - Buying Honda for its 5.5% dividend yield, strong balance sheet, and growth potential, particularly in the motorcycle segment. - Selling Intuit due to concerns about potential tax filing reforms and weak stock performance. - Selling GXO Logistics due to concerns about growth and the CEO's retirement after a failed sales process. - Buying more Honeywell due to a recent sell-off related to a new deal with Bombardier and the potential for a breakup of the company.
What is the Federal Reserve's current stance on interest rate cuts?
The Federal Reserve is signaling a potential slowdown in the pace of rate cuts. Cleveland Fed President Loretta Mester, a voting member, suggests one more rate cut, possibly in December or January, with a few more cuts in 2025 if inflation declines as expected. She emphasizes the need for convincing evidence of inflation returning to the 2% target. Other Fed officials have expressed similar views, indicating that future rate cut decisions will be close calls. The market seems to have priced in these expectations, with the December 2025 fed funds contract implying three or four cuts over the next year.
What are the risks and opportunities in the current market environment?
The market faces potential risks from froth and rich valuations, particularly in high-momentum stocks. However, the strong economy and potential for further, albeit slower, rate cuts present opportunities for continued growth. Investors are showing strong appetite for equities, with inflows into stocks and crypto assets at record levels. The focus for next year is expected to shift to policy, particularly tax policy, which could impact market performance.
Why is Uber facing its worst week of the year, and what is the outlook for the company?
Uber is facing its worst week of the year due to concerns about the impact of Tesla's robotaxi plans on the ride-hailing industry. While some analysts believe the competitive landscape has fundamentally shifted, others argue that Uber's vast network, diverse business streams, and innovative leadership will enable it to navigate these challenges. The company's partnership with Waymo and strong growth in delivery and mobility are seen as positive factors.
- Market experiencing a 'Goldilocks' period with rising stocks and records within reach.
- Unemployment rate at 4.2%.
- S&P 500 nearing record highs.
- Debate on market sustainability and potential overshoot in Q1.
- Focus on policy and its potential impact on the market.
- Federal Reserve considering slowing the pace of rate cuts; one rate cut anticipated by January 2025.
- Monetary policy considered only somewhat restrictive.
- Market priced for 3-4 rate cuts next year.
- Inflows into equities for nine straight weeks; largest four-week inflow into crypto assets ever.
Shownotes Transcript