October 20, 2024

QuickTakes

Market Musings

Apple's stock price hit a new record high today on a report that sales of this year's iPhone models had started strongly. Shares of the tech giant climbed 3.9%, closing at $262.24 and helping the company surpass Microsoft to become the second largest in the US by market capitalization (chart). Only Nvidia is larger. That helped to lift the S&P 500 by 1.1%. The recent sharp drop in the index on October 10 in response to President Donald Trump's threat to impose an additional 100% tariff on China and the October 16 decline on regional bank worries have been almost completely reversed. The S&P 500 is only 0.3% below its October 8 record high.

Last Thursday's concerns about more cockroaches in the credit markets have been overcome by strong Q3 earnings reports from the big banks, falling oil prices, and expectations of another Fed rate cut on October 29. A growing glut of oil and fear of a global economic slowdown have pushed US West Texas Intermediate crude prices to their lowest point since fuel markets were rebounding from the Covid crash (chart). That will help push headline consumer inflation rates down and boost consumers' purchasing power.

There is a positive correlation between the crude oil price and the 10-year US Treasury bond yield (chart). If the oil price continues to fall and the Fed eases on October 29, the yield is likely to fall below 4.00% possibly down to 3.75%.

Apple helped boost the price ratio of the MAGS to the XMAGS ETFs today (chart). This ratio seems to have stabilized since late September, suggesting the leadership of the bull market may be broadening from the Magnificent-7 to include more of the Impressive-493.

For those who are looking for signs of speculative excesses, the ratio of the Russell 2000 to the S&P 600 SmallCaps is worth tracking since the former includes many more unprofitable companies than the latter (chart). The ratio has been soaring recently.

The S&P 500's rally is supported by record forward earnings per share, as we've been observing in recent months. In addition, the 3-month percent changes in both forward revenues and earnings remain very strong (chart).

Meanwhile, the price of gold continues to soar to new record highs. It has recently blasted through our year-end target of $4000 per ounce (chart). It may also get us to our 2026 target of $5000 ahead of schedule. We are still aiming for 10,000 prints for both the S&P 500 index and the price of gold by the end of the Roaring 2020s.

Gold remains very cheap relative to bitcoin (chart). They are both impossible to value since neither generates any income (i.e., interest, dividends, or earnings). They are both traded globally on a 24x7 basis. The bitcoin supply is said to be limited by the software program that created it. But bitcoins can be easily divided into fractional shares. We've characterized gold as physical bitcoin because it doesn't face encryption-hacking risk as does bitcoin.

Contact us by email or call 480-664-1333.

Copyright (c) Yardeni Research, Inc. Please read complete copyright and hedge clause.