U.S. STOCKS CLOSE BEST MONTH IN A YEAR
The “October Surprise” of a stock market meltdown did not happen. Instead, after managing small gains last Friday to close its best month since November 2020, the Dow Jones Industrial Average began the new month with another record close and traded briefly above 36,000.
The NASDAQ added 97 points on Monday, also closing at a record level.
The two markets gained 6.9 percent and 7.3 percent, respectively, in October.
The Standard & Poor’s 500 index also added 6.9 percent last month and notched a new record as this week began, closing above 4,613.
Totally ignored are the economic realities of shortage of labor, supply chain disruptions, and the biggest of issues… rising inflation. Instead, investors were cheered by the strong earnings reports and the lack of other investment venues offering U.S. equity markets’ combination of safety and returns.
And on the inflation front, once again, Gregory Mannarino spells it out clearly. “Inflation ‘Contained?’ How About NO.” And he notes why the stock market continues to set new record highs and what to expect:
“The Federal Reserve IS public enemy number one. More specifically, the Fed is the adversary of the entire middle class. The Fed, by keeping rates suppressed since the onset of quantitative easing in November 2008, has literally robbed the middle class of TRILLIONS of dollars in realized wealth by not allowing people’s interest earning accounts to even remotely keep up with the surging rate of inflation. This is GRAND THEFT on an epic scale. This legal theft mechanism has, at the expense of the middle class, re-inflated a massive stock market HYPER-bubble. Moreover, QE now going on for 13 years has created monumental distortions across the entire spectrum of asset classes—AND NONE OF THIS IS BY ACCIDENT…”
TREND FORECAST: The market rises makes investment sense. As we have noted continually with our “Bigs Getting Bigger” weekly articles, with so few monopolizing business and industry, without competition and fewer alternatives for people to spend their money, profit margins of the major businesses are increasing.
However, we maintain our forecast, when the Federal Reserve raises interest rates, the higher rates rise, the deeper the equity markets and economy will decline.
Also, the vaccine Green Pass mandates which prohibit a sizable sector of the population from going to restaurants, travel, trade shows, events, etc., will crimp economic growth. Remember, in the last quarter of 2019, before the COVID War was launched, the U.S. economy grew just 2.1 percent which was the slowest pace in three years amid a continuing drag in business investment.
Thus, to make it clear, even in the free of COVID times with no restrictions, GDP growth was weak. And now with more COVID mandates, economic growth will be tampered down.
Wall Street’s Not Main Street
And, to further illustrate that what is going on with Wall Street has no relationship to Main Street, the pure inequity in what “once upon a time” was called “The Land of Opportunity,” with so few owning so much, the rest of America’s middle class keeps sinking lower.
Today for example, a survey by Medicare.com showed that almost half of Americans age 65 or older fear they wouldn’t be able to pay their medical bills and would fall into bankruptcy if a major health situation hit their household.
To illustrate the level of new poverty crushing the country as the billionaires rake in more billions, the survey reveals that nearly 30 percent have less than $500 saved to cover medical expenses.
The Street Talk
More than four in five S&P 500 companies reporting earnings so far have beaten analysts’ predictions, FactSet noted.
October’s performance is a sharp turnaround from September’s, when markets turned in their worst month of the year, falling 4.8 percent on fears that earnings would be damaged by the array of woes besetting the economy.
Tech stocks rallied in October, with Microsoft up 17 percent and Google parent Alphabet gaining 11 percent.
Tesla’s sale of 100,000 cars to Hertz pushed the maverick company’s market cap above $1 trillion for the first time (see related story in this issue).
Rising oil prices and tightening global inventories lifted ExxonMobil’s share price 10 percent for the month and Chevron’s almost 13 percent.
TREND FORECAST: As Trends Journal subscribers have known for a long time, the rising stock market is not the result of underlying value but of the decades-long drip of monetary methadone that central banks, i.e., money junkies, sell to addict gamblers on the Street, also known as “investors.”
Equity markets will slide when the U.S. Federal Reserve cuts its bond purchases, raises interest rates, and the government takes out the financial IV line that pumped trillion to inflate economic growth.
As the Fed’s withdrawal begins, markets are likely to overcorrect briefly out of panic.
Share prices will continue to edge down until the Fed raises interest rates above 1.5 percent, at which point markets will crash.
Another Day, Another High
Stocks continued their upward march yesterday, with all three averages closing at all-time highs… pushed up by reports that some 82 percent of companies have reported higher earnings which signal increased consumer demand.
Today it was more of the same with the Dow up 138 points, the S&P 500 gaining 0.37 percent and the tech-heavy Nasdaq Composite up 0.34 percent.
Yet, in all the business media coverage, not a word about the equities trading at near record level PE ratios, which essentially illustrates that stocks cost more than they are worth.
GOLD/SILVER With Gold closing today at $1,789 per ounce and silver at $23.57 per ounce, both precious metals are trapped in their months’ long trading range.
Tomorrow it is expected the Federal Reserve will announce the unwinding of its $120 billion monthly bond buying which they put in place to boost the economy at the start of the COVID War in 2020. Again, as forecast, following their winding down bond buying scheme, the Fed’s next step will be pushing interest rates higher to combat rising inflation.
These actions in turn will put negative pressure on the precious metals market. And, we maintain our forecast that gold and silver prices will decline when interest rates rise. However, both precious metals will sharply spike as the world sinks into Dragflation; negative economic growth and spiking inflation, as investors seek safe haven assets.
OIL: After hitting multi-year highs as fears that a global supply shortage would persist and strong demand in the United States would continue, last week Brent Crude was at a three year high, trading at $86.42 per barrel, West Texas Intermediate at $84.69 per barrel was nearing a seven year high.
Today, Brent Crude closed at $84.49 per barrel and WTI finished the day at $83.50 per barrel. Traders are waiting to hear what decisions will be made following Thursday’s OPEC+ meeting. Oil dropped below $85 a barrel on Tuesday, but remained close to a three-year high in choppy trade ahead of weekly U.S. supply reports expected to show a rise in crude inventories.
BITCOIN: After some ups and downs this past week, the bitcoin/crypto markets remain strong, with bitcoin trading around $63,000… nearly $800 higher than last week’s close.
We also maintain that a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent upon government regulations. However, that threat in the U.S. and Europe is lessening as more banks, businesses and investment funds are going crypto, thus, the upward crypto trends, especially bitcoin, will continue to gain momentum.
(For more on bitcoin and other cryptocurrencies, please see our “TRENDS IN CRYPTOS” section.)
EUROPEAN MARKET OVERVIEW
EUROPE STOCKS UP; NEW BOND SALE MAKES SLOW START
The pan-European Stoxx Europe 600 closed Monday up a fraction of a point after adding 0.1 percent Friday and 4.6 percent in October as the continent’s economic recovery gained momentum and grew faster in the month than either China’s or the U.S.’s (see related story in this issue).
The European Union opened a €9-billion bond offering with a seven-year maturity.
Analysts had expected investors to flock to the sale of the scarce bonds, in part because the European Central Bank is able to buy up to half the offering, guaranteeing investors a financial floor.
However, initial sales were slower than for a similar issue in June.
The bond sale is part of the EU’s plan to raise $1 trillion over the next five years to fund grants and loans to member states as they repair damage done by the COVID War’s economic shutdown.
EUROPE’S MARKET REGULATORS ISSUE DARK OUTLOOK
In a 110-page report released last week, the European Union’s European Securities and Markets Authority (ESMA) warned of “a prolonged period of risk to institutional and retail investors of further—possibly significant—market corrections and very high risks across” the Eurozone.
The bloated junk-bond market, rising inflation, and the popularity of “meme” or me-too investing, among other anxiety-makers, “raise questions about increased risk-taking behaviour and possible market exuberance”, ESMA said.
“Hence, concerns about the sustainability of current market valuations remain, and current trends need to show resilience over an extended period of time for a more positive assessment.”
Richard Bernstein, founder Richard Bernstein Advisors with $14.6 billion under management, agreed with the outlook and called the current equity climate “maybe the biggest bubble of my career” in a Financial Times interview.
His portfolio is focused away from trends and on conservative picks in energy, financial firms, industrial companies, and smaller-cap cyclical businesses, he said.
“Momentum strategies focused on the market’s bubble [themes] seem very risky to us,” he added.
ASIAN MARKET OVERVIEW
SHORTAGES, REAL ESTATE TROUBLES, SINK ASIAN STOCKS
China’s Shanghai Composite Index joined the Dow in rising Friday, gaining 0.8 percent on the day but shedding 0.8 percent for the month, beset by ongoing troubles in China’s property market and the country’s slowing overall economy.
The index continued its slide into November, shedding almost 3 percent on Monday.
Hong Kong’s Hang Seng index gained 3.3 percent in October, reflecting a greater international exposure and less reliance on mainland China’s economy, but slipped slightly as the new month began.
South Korea, with its significant reliance on manufacturing, saw its GDP contract 3.2 percent in October as materials shortages, especially of computer chips, and supply-line kinks and shipping port clogs continued without relief.