14 Oct 14th October 2024
Weekly Index Movement
| S&P500 | +1.1% |
| Nasdaq | +1.2% |
| Aussie All Ords | +0.9% |
Stocks closed out the week at all-time highs as the seemingly unbeatable momentum of the US equity market over the past year continued.
It is becoming increasingly harder to find something different to say each week. The story remains the same.
We have the two biggest world economies stimulating growth. The US has lowered interest rates with a still strong economy, solid labour market and expanding company profits. The Chinese have announced stimulus packages to try and kickstart their failing economy. The amount at the moment has been deemed insufficient but they won’t stop there. They will do more if it needs it. Could be a good time to buy Australian miners.
All of which means stocks will continue to grind higher.
The only slight fly in the ointment might be inflation. The Mid-East conflict has spiked oil to the mid-seventies a barrel but this isn’t enough at the moment to cause a problem.
In the US, the September CPI report had headline inflation at 2.4% year-over-year. Inflation hasn’t reduced for 3 months now. But the trend is still clearly down for this metric. The good news is the market has adjusted to a Fed that doesn’t aggressively lower rates. This is much more realistic and all but ensures the bull market continues.
Hurricane Milton smashed through Florida causing some impressive damage. But Hurricanes are common enough not to impact the stock market. They are saying the damage bill is in excess of $100billion. That will lead to slightly more inflation pressure, but again, in the scheme of the US economy, it isn’t enough to be concerned about.
The last point to make is that we are getting close to election day on November 5. Betting agencies can’t split them. Neither can I really. Both seem atrocious choices. If Trump gets in he is threatening 60% import taxes on Chinese made goods and 10% on everything else. If it is Kamala then they will get higher taxes.
The conventional wisdom is that Republicans are better for the stock market but, over the last 6 Presidential election cycles, Democrats have delivered far stronger returns.
Stocks have delivered 1,603% total returns for Dems since 1988 versus 157% for Republicans
But those who stayed invested regardless of who was in power…… they got a return of 4,276%. Just another reminder to stay invested for the long term and not to worry who gets elected in November.
The banks kicked off earnings season on Friday and all 5 smashed it. Analysts have cut their forecasts more than normal going into this season, which makes it easy for companies to then exceed those forecasts. All 5 companies jumped 5%+ on the news.
Expect more of the same over the next six weeks.
Lastly this week – Tesla
I’m not a Musk fanboy and so will never buy his stock. And here is my reasoning why.
Ford trades on a PE of 11 and GM on a PE of 5
BYD, the Chinese electric car maker trades on a PE of 23
Telsa trades on a PE of 61.
The question is – what is Tesla? If you consider it to be a car manufacturer then it is 6 times overvalued. You could say, no you cannot compare to Ford because it makes electric cars. Well, in that case it is 3 times overvalued as BYD does exactly that.
Why is it so overpriced? Because of Musk’s hopes and dreams of automated driving and robots. Both of which are a long, long, way off.
After delaying his robotaxi announcement by a couple of months he gave the presentation last week which was basically him saying that one day he would like to make a robotaxi and then he told people an idea for a business they could run, they could buy a fleet of them and let them drive around and the owner would be their “shepherd”.
What he really said was “we are nowhere even close to a real robotaxi, but hey, here are some drawings of what it could look like one day”.
Quite why anyone would buy Tesla because maybe one day Musk will deliver on his dreams is beyond me. He is not the only one trying to solve automated driving. Amazon and Google are at it too.
There is nothing unique about Tesla. It is a company with declining sales and market share, that is way overpriced, spending money on a dream that is a decade away from fruition. If ever.
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.