Here’s why we see no reason to curb our enthusiasm for stocks heading into December
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Don’t listen to the bears: The incredible rally in stocks this month isn’t over yet. Despite a slight pullback Monday, the major averages bounced back Tuesday and are looking to lock in their fifth consecutive winning week. The Dow and S & P 500 are on track to finish November — ending with Thursday’s close — 7% and 8.4% higher, respectively. The tech-heavy Nasdaq is pacing for a nearly 11% return for the month. November has certainly been living up to its reputation as the strongest month of the year back to 1950 — crushing its average S & P 500 gain of 1.7%, according to the Stock Traders Almanac. .SPX ALL mountain Long term look at the S & P 500 index We don’t see any reason to curb our enthusiasm for stocks heading into the final month of 2023. In fact, we see several positive catalysts for the market— in addition to December’s track record as the third-best month of the year for the S & P 500 since 1950 with an average increase of 1.4%, according to the Stock Traders Almanac. December also includes the potential for a Santa rally in the last five trading days of the year and the first two trading days of the new year. Let’s start with three important trends that we’re seeing right now. Interest rates, which the Federal Reserve has been hiking since March 2022 to bring down inflation, appear to have peaked. This is important because higher policy rates, and the resulting increase in bond yields, have been a drag on stocks as they serve to reduce the present value of future earnings. While off their 16-year highs but still elevated, higher-yielding bonds also provide competition to stocks for income-oriented investors. Energy prices seem to be stabilizing. After a surge in late September to over $93 per barrel, the price of oil has been leveling off in the $70 to $80 per barrel range. This is good news for stocks because energy represents a nearly unavoidable expense for consumers and a major input cost for companies. Third-quarter earnings have largely come in better than Wall Street’s expectations. With nearly all S & P 500 companies reporting results as of Nov. 17 (the last update from FactSet), 82% beat estimates on earnings while 62% beat on sales. In the portfolio, Foot Locker (FL) and Salesforce (CRM) will issue their quarters on Wednesday. To be sure, stocks could take a pause or even pull back in the next week or two. The S & P 500 is bumping up against the highs of the year last reached in July, and the S & P Oscillator came into the week very overbought, a factor prompting us to book some profits and raise some cash. On Monday, we sold 175 shares of Alphabet (GOOGL) and 60 shares of Meta Platforms (META). However, the winds still seem to be blowing in the bulls’ favor. Take the start of the holiday shopping season. Early readings show that Black Friday sales were up versus the last year’s levels. Though that growth doesn’t reflect the impact of inflation, neither do quarterly sales results when companies report earnings. The results are supportive of continued gains into 2024. E-commerce spending was the major driver of growth, up 7.5% according to Adobe Analytics, or 8.5% according to Mastercard spending pulse. For Cyber Monday, Adobe reported that sales were up 9.6% to a record $12.4 billion, which exceeded estimates. For all of Cyber Week, the five-day period from Thanksgiving through Monday, Adobe reported that online sales were up 7.8% versus the year-ago period, also ahead of expectations. That’s good news for Club name Amazon (AMZN), the biggest online retailer, which reported that the period of Nov. 17 to Cyber Monday marked its “biggest ever” holiday shopping event compared to the same 11-day stretch last year. Shoppers also appear to be focused on discounts and incentives. To us, that reads positively for the best discount retailer around, Club holding TJX Companies (TJX). We highlighted both of these names previously and think the data supports that view. The two most important economic releases we get on a monthly basis will also help shape investor sentiment in the final weeks of the year. October’s personal spending and income report is out on Thursday. While the headline numbers are informative, the data includes the more important personal consumption expenditures (PCE) price index. Core PCE, which strips out food and energy prices, is the Fed’s preferred way of measuring how well its fight against inflation is going. Friday brings the November nonfarm payrolls report. While a barometer for overall economic health, the jobs data also contains a wage inflation component that Wall Street watches closely. Bottom line In other words, we don’t see much for the bears to latch onto. All the data continues to support a soft landing scenario — or even a no landing. We’re bullish on 2024, too, especially as we see areas outside of the mega caps starting to contribute. What does this all mean for investment strategy? It stays the same. We are focused on finding and sticking with a diverse set of best-in-class, profitable, cash-generating businesses at good valuations. We will trim winners as needed to raise cash and right-size positions. We will also cut losers when opportunities arise. The goal is to constantly upgrade the portfolio, which means ensuring that we aren’t funding losers with winners. Diversification didn’t work so well in 2023, as just a handful of big stocks led the rally. But it’s a discipline we are sticking with because it’s the best way to ensure that you stay in the game and make money over many years. We are well-positioned for whatever comes next. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A person dressed as Santa Claus waves to guests before taking part in the opening bell ceremony to celebrate the 97th Macy’s Thanksgiving Day Parade at the New York Stock Exchange (NYSE) in New York City, U.S., November 22, 2023.
Brendan Mcdermid | Reuters
Don’t listen to the bears: The incredible rally in stocks this month isn’t over yet.
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