A 5 percent gain in nine days on the benchmark S&P 500 Index was met by profit-taking. Traders booked gains in Trump trades as some had second thoughts about continued upside. Who can blame them?

 

The conviction by many that happy days are here again (or will be by next year) sent markets through the roof in a frenzy of FOMO-generated trades. Technology took a back seat for a change as small-cap stocks soared on the belief that tariffs would force consumers to buy made-in-America products from American companies.

 

Smaller capitalization companies are distinctly American and are listed on the Russell 2,000 Index. Traders know that a good 40 percent of these companies make no money and bought them anyway. Hope springs eternal when it comes to the future economic prospects of the economy under a second Trump administration.

 

Semiconductors stocks which have led the markets higher for a long time did not participate. Poor earnings guidance from several big companies, plus fears that tariffs and China bashing could reduce prospects even further, triggered a wave of selling. Even Nvidia, the poster child of AI, felt some of this cold downside draft.

 

That may change next week, however, when the company is scheduled to report earnings.   Most analysts believe it will be another stellar quarter for this semiconductor darling. It had better deliver or things could get ugly in Stockville.

 

The precious metal and commodity areas have also seen a wave of selling as both the US dollar and interest rate yields have climbed just about every day since the election. That combination of higher rates and the dollar has historically acted like kryptonite to gold and silver.  You might say a strong dollar is the result of Trump's election, and you would be correct, but it may not be for the reason you think.

 

As I wrote last week, foreign countries are devaluing their currencies against the dollar as fast as possible. They are doing so in anticipation of across-the-board tariffs that Trump has promised to levy on their exports into the U.S. They do so to lessen the impact of this policy on their exports.

 

The cheaper their currency, the cheaper their imports will cost American buyers. So, when tariffs are tacked onto these rock-bottom prices, it will simply mean prices return to where they were before his election. No harm no foul.

 

Bond prices are falling, and yields are climbing higher as the dollar strengthens. Two reasons come to mind. Trump's stated policies (tariffs, immigration, spending) will be inflationary. Second, economic growth may be stronger as well. That combination of higher growth and inflation will typically mean that bond buyers demand more returns to stay with bonds when they could get higher returns in the stock market.

 

Both the Consumer Price Index and the Producer Price Index came in slightly hotter than the consensus estimates for last month. Readers may recall that was my forecast given a few weeks ago. I believe the next data points in December could also show higher inflation. It may be the reason Fed Chair Jerome Powell said Thursday that the central bank saw no need to hurry to cut rates further.

 

Of all the great gains among asset classes since the election, Bitcoin has been the big winner, in my opinion. It is the gold standard of the now dominant generation, the Millennials. As an alternative to the dollar and the political/economic system of their parents, it is the preferred currency of populism. As a first stop in its climb to new heights, my target is $98,700, which is not unique. Wall Street overall is forecasting $100,000 for bitcoin by the end of the year. It could go higher, and probably will if you believe in cryptocurrency and are willing to wait for further developments sometime next year. Bitcoin has come of age, as have its owners.

 

I noticed that there is a small but growing army of crypto bulls who are upping their price targets over the next two quarters. This always happens in parabolic moves like this.  What I have learned over the years is if you are making money rapidly and it seems so easy (as it does right now in crypto) that is the time to be most on guard for an abrupt reversal  If that happens, just remember that you could easily see $83,000-$80,000 on a pullback in the blink of an eye.

 

My advice is to beware what may be false narratives. The stories that are being spun about the impact of future policies on certain industries and sectors should be taken with an ocean full of salt. On Friday, for example, health-care stocks were decimated because Robert F. Kennedy Jr., who holds unorthodox views on healthcare, was appointed to head the Department of Health and Human Services. Earlier in the week, defense stocks were sold because of fears that the newly created Department of Government Efficiency will hurt the profitability of government contractors. Do not get caught up in this frenzy both good and bad.

 

As for the overall market, I counseled that election results could fuel both upside and downside. In other words — high volatility. We have experienced the upside and now we get to experience a little of the opposite. Over the next two weeks, we could see further declines. If so, I would put money to work on dips. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Investors appear to be "dancin' to the Jailhouse Rock" ever since the election of President-elect Donald Trump. Private prison stocks have roared back to life as the deportation of immigrants becomes a reality.

 

Day One, according to the Trump team, the new administration will launch its promised plan to deport millions of illegal immigrants. Criticisms that the cost of such an endeavor would bankrupt the country have gone largely unheeded. Trump has responded that he has "no choice" and "no price tag" when it comes to what the media terms as the largest deportation in U.S. history. 

 

Wall Street believes that the appointment of hardliner Tom Homan as Trump's "border czar," could mean expanded contracts on the back of increased US Immigration and Customers Enforcement (ICE) enforcement combined with partnerships with U.S. Marshals and the Federal Bureau of Prisons.

 

Some policy groups that specialize in immigration have predicted GDP could shrink by $1.1 trillion to $1.7 trillion but according to most voters that would be a small price to pay to rid the country of the estimated 11 million plus illegals in the country. As a result, with investors' belief that the sky's the limit in spending, it is no wonder that the shares of the two largest prison stocks, GEO Group and Core Civic, have gained more than 80 percent in a matter of days.

 

These companies own and operate a nationwide network of prisons, immigration detention centers, and correctional facilities under government contracts. The latest figures (2022) of those incarcerated were just under 91,000 U.S. residents and upwards of 55,000 migrants. That was during Trump's first four years.

 

Thanks to lobbying efforts by both firms, there exists a hand-in-glove connection between the industry and federal policy decisions. That was worth $1.05 billion in sales (43 percent of revenue) from ICE for the Geo Group in 2022.

 

Core Civic received $552.2 million from ICE during the same period equaling 30 percent of total revenue. Both companies have been working with the Trump transition team to expand their capacity. Pro-private prison government benefactors argue that these companies, structured to generate profit while operating like public institutions, reduce overcrowding throughout the penal system. They reduce costs and offer specialized management expertise as well.

 

On conference calls last week, the management of both companies used words such as "unprecedented opportunity" and, in the case of Damon Hininger, CEO of CoreCivic, "It feels like with this election this year, we're heading into an era that we really haven't seen, maybe once or twice in the company's history." That was music to the ears of traders and investors alike.

 

Building prisons, especially given the number of illegal immigrants targeted by the incoming Trump administration, will not be built overnight. A 500-bed facility in San Diego, for example, costs $118 million to build. And running a 1,000-bed prison can cost as much as $143 million a year. However, the plan is to deport illegals, not just throw them in jail where taxpayers will be required to foot the bill for their incarceration.

 

As such, behind the scenes, there is much discussion among planners of "soft-sided" detention facilities ( tents with jail cells in them) as an interim step. That could reduce costs considerably. How this could be accomplished and still provide basic humanitarian treatment is another discussion. Given the present mood of the country, many might not even care.

 

Before you decide to buy into this jailhouse rock as well, know that there was a similar mood of euphoria surrounding these stocks back in the early days of Trump's first term. At that time both companies' stocks traded at or near long-term highs. Today, however, despite their gains, they are still trading far below those 2017 gains.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Now that the election is over and a clear winner has emerged, it is time to take a closer look at how investors perceive the winners and losers in the weeks and months ahead. It appears that the economy was the top concern of voters and therefore Trump's future actions within the economy will be important.

 

In the last month, there was speculation on Wall Street that Donald Trump would win the presidency. Certain areas of the financial markets nicknamed the "Trump trade" started gaining momentum.

 

Certain sectors saw gains while others experienced losses. Investors base their decisions on the actions of his past presidency and his statements and promises while on the campaign trail. The changes he plans to make within the economy could be substantial if Congress supports his economic programs.

 

The key to implementing his many promises and translating his electoral mandate into policy will be the caliber of people he appoints to key positions. He will also need a red wave in the House to complement  the Republican majority he will now command in the U.S. Senate. The Trump Tax Plan expires next year, for example, so a red sweep would raise the chances that most of that program would be extended.

 

If so, the financial sector, especially regional banks, is one sector that would stand to benefit. The banking industry often complains that regulatory authorities are the bane of their existence. A decades-long increase in reporting requirements while abiding by hundreds of rules and regulations is time-consuming and expensive. It is doubly so for regional banks.

 

During his stump speeches, Trump has vowed to cut the corporate tax rate to 15 percent and eliminate 10 regulations for every new one. He also promised to overhaul key regulatory bodies and fire the head of the U.S. Securities and Exchange Commission. For bankers and investors alike, this would be a dream come true.

 

Another area that would benefit from a Trump win was the crypto industry. The crypto money that supported Trump surpassed all other corporate donations during the 2024 elections. Trump has promised to make America the leading nation in the global crypto industry and fire their implacable enemy, Gary Gensler, the head of the SEC.

 

Cyclical companies, especially those whose business is largely confined to the United States, and small-cap stocks are thought to be beneficiaries of Trump's upcoming tariff policies. Tariffs during his first administration were part of the daily diet of the financial markets. This time, his entire presidency, from an economic viewpoint, will revolve around his tariff policies. Tariffs will be different and more stringent.

 

However, there are other areas where tax cuts, deficit spending, tariffs, and possibly a change in how the Federal Reserve Bank conducts policy could have a negative impact on interest rates and in the inflation fight.

 

During his last tour of the Oval Office, Trump was an advocate of lower interest rates and higher spending. At the same time, he made clear his unhappiness with the leadership of the Fed members, starting with the chairman. The bond market remains convinced that he will do much the same in his second term. As such, the nation's debt and deficit will climb. That means higher long-term interest rates. The yield on the U.S. Ten-year, U.S. Treasury bond spiked higher by more than 3.6 percent to 4.44 percent on the election outcome.

 

China and most emerging markets also suffered as the prospect of crippling tariffs will slow their export growth to the U.S. Gold and other commodities also fell as bond yields spiked and the U.S. dollar gained almost 2 percent.

 

On a longer-term view, I wonder how Trump's promise of a draconian immigration policy, combined with tax cuts and increased spending and the impact on tariffs will affect the inflation rate. Fewer immigrants will mean higher wages for Americans, which will mean higher inflation. Tariffs will be inflationary, raising prices on a wide spectrum of goods and services as it did the last time.

 

Increased spending and supply chain issues propelled inflation to 9 percent over the last few years and lost the Democrats this election. Tariffs could cause supply chain issues once again, and we all know how government spending impacted inflation. However, markets are ignoring longer-term issues in favor of chasing the Trump trade higher, at least for now.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Tuesday's presidential elections and the Fed's decision on interest rates have traders rushing to hedge their portfolios or go to cash. It is a little late in the day to take such action.

 

Over the last few weeks, I have been warning readers that the days surrounding the election could prove to be volatile. That situation appears to be taking center stage as we close this week's trading. I also urged investors not to get caught up in the panic and I hope you listened.

 

We are no further along in predicting the election outcomes than last month. The only thing we do know is that the race is too tight to call, and the popular vote will not be a determining factor in the results. The Electoral College will call the shots, so it comes down to the individual states.

 

The consensus on Wall Street is that the U.S. Senate has a high probability of going Republican.  The House is a toss-up. What party gains the majority will depend on whoever wins the presidency. The betting markets have Trump's probability of winning at 63 percent. The polls say it is a dead heat.

 

We may not know who won the race by Tuesday night. It could even take a day or two before there is a definitive result. Congressional winners might take longer than that since some states like California and New York have been notoriously slow in counting ballots in years past. It is fair to assume a period of recounts and legal challenges.

 

That means there may be a period where the country (and markets) will be in limbo. You may remember the Busch-Gore election of 2000 where the election results were contested by Al Gore. It wasn't until Dec. 12, 2000, that the election was decided. The S&P 500 Index fell 8 percent during that month. 

 

Historically, investors have difficulty dealing with the unknown and this time should be no different. That could mean a couple more days if not more, of extreme volatility after the election.

 

On Thursday, the FOMC will announce its interest rate decision. The bond traders expect a 25-basis point reduction in the Fed funds rate. The odds, however, of another cut in December have come way down over the last month.

 

This week's deluge of data paints a picture of a strong economy with third-quarter GDP estimated to be 2.8 percent, slightly down from last quarter's 2.9 percent pace. The most recent update on inflation, the Personal Consumer Expenditures data rose 2.1 percent last month, which was within the range of estimates. But the Fed likes to look at the "core" PCE, which excludes food and energy. On that metric inflation is at the same level it was In August showing no improvement.

 

If you look at the inflation data in a different way, it may help you to understand why many voters are unhappy with the state of the economy.  When you divide the inflation rate into discretionary items (eating out, movies, concerts, trips, etc.) versus non-discretionary items (food, fuel, health care, insurance) there is a glaring disconnect between the two. The discretionary inflation rate is down to almost 1 percent growth, but non-discretionary is greater than 5 percent. It shows that lower-income voters, who can only afford the basics, are still getting walloped by inflation.  

 

The non-farm payroll report for October was a big surprise, adding just 12,000 jobs. However, the markets are discounting that number due to the labor disruptions caused by two hurricanes plus strikes at Boeing. In summary, the macroeconomic data reported this week should keep the Fed on track to cut interest rates by another quarter percent next week. As for their plans for future cuts, I expect the Fed will remain data dependent.

 

In the days ahead, financial market volatility should increase. Markets will move quickly on the events as they unfold. I would not be surprised to see a minus-1.9 percent down day, for example, followed by a plus-2 percent up day, followed by another down minus-1 percent day. That is because the short-term movements of the markets are largely in the hands of algorithmic computers, proprietary traders, and ODTE options traders.  

 

Elections, especially this election, will not only impact financial markets but will also affect most people personally.  I get that, but my advice is to stay on the sidelines as far as your portfolios are concerned. Historically, just remember that elections have little to no impact on the market's performance after a few weeks.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.