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.

Place your bets, ladies and gentlemen. The odds favor Trump right now, but anything can happen in the topsy-turvey world of online betting. That's right, presidents have now entered the list of what Americans can bet on alongside sports games, horse races, and blackjack.

 

Last month, a federal District Court judge ruled that betting on election outcomes was neither unlawful nor considered gaming. The Commodities Futures Trading Commission had fought against this outcome claiming that this kind of betting could undermine confidence in elections and adversely affect election integrity. The ruling made election markets legal for the first time in 100 years.

 

That set off a rush by various betting companies to begin offering odds on the Harris-Trump presidential contest. The market quickly ballooned to over $2 billion in bets and is still climbing. Kalshi, a startup company that had brought the suit and prevailed against the CFTC in court, enables users to place bets on real-world events. Rivals, PredictIT and Polymarket jumped in with both feet with Polymarket the clear winner thus far.

 

However, since Polymarket is a blockchain company, users are required to place bets with cryptocurrencies. The site also blocks American users. That was not an ideal set-up for many Americans.

 

This week, a U.S. retail broker, Robinhood Markets Inc., entered the fray. It saw an opportunity and began offering election betting for U.S. citizens. The stock popped 3 percent on the news. I expect similar announcements from other brokers in the future.

 

The instant success of this new betting arena can be partially explained by what is happening in the traditional U.S. polling industry. Over the past two elections, the polls have got it wrong. In this year's super tight race, the polls show a dead heat between the two candidates. Many traders started looking elsewhere to get a leg up on their political future and make a few bucks in the process.

 

They increasingly looked to the betting markets. Elon Musk, the Tesla CEO and a big backer of Donald Trump, argued recently that the betting market is "more accurate than polls, as actual money is on the line."  After all, it costs you nothing to answer a series of poll questions any way you like, but betting your hard-earned dollars on one candidate or another is a far more accurate indication of an election outcome, or so the reasoning goes.

 

Former President Trump's lead over Kamala Harris continues to widen at 67 percent versus 33.7 percent on the Polymarket site with elections just around the corner. Odds flipped in Trump's favor on Oct. 4 — a sharp reversal from September. A week later he was leading by more than 10 points.

 

As Trump's lead expanded in the betting markets, equity traders began to buy stocks that would benefit from a Trump win and sell those that wouldn't. As a result, equity indexes have been climbing higher, anticipating not only a Trump win but as his lead widened, a red sweep of Congress. 

 

But before you take a flyer and follow others in assuming Trump is the winner, take note. Prediction markets are not the stock market. They are small, with little volume, and the odds can easily be moved by a couple of big betters.

 

Polymarket has already identified at least a few big bettors. One of which pushed the odds above 60 percent with a $20 million bet on Oct. 18. This bettor appears to control four of the six largest Trump-voting accounts on Polymarket. Another player has spent $7.22 million on betting "yes" on Trump shares with an unrealized profit of $256,000.

 

Do not assume these big-money bettors are in their positions until election day. It is feasible that experienced bettors could take profits before or on election day. Professional gamblers might choose to bank gains on their Trump positions rather than risk losing everything on a Harris win.

 

They may not even be making bets on who they think will win the election. If the odds go haywire (as they have recently} the professionals will take the other side and bet on Harris instead.

 

Kalshi says there are 1.5 times more people betting on Trump than on Harris. There is no question that Trump voters are fiercely loyal. The demographics might also influence the odds. The betting markets are largely a male-dominated arena. Women gamble far less than men and may not be as enamored as their male counterparts with Trump. In addition, some believe Trump bettors may be younger and more comfortable buying and selling crypto. They may also have experience using online betting sites, while others do not.

 

What happens if the prediction markets get it wrong and Harris wins? Wall Street and the Trump bettors will lose money, but the Harris players who bet on the proverbial "longshot" could clean up. In any case, for a certain element of the population betting on presidents is probably just as exciting as seeing their horse come in or winning at the virtual craps table. As such, I suspect election betting is here to stay.

 

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.

Markets vacillate between betting on a GOP sweep and a Democrat victory with little justification for either outcome. Don't get caught up in the frenzy.

 

The betting markets have Trump winning but they have been wrong in the past and it is easy to tip the odds one way or the other with a couple of big bets. The polls are no help either because the results are all within a margin of error that makes them useless.

 

Only 36 percent of the S&P 500 have reported third-quarter earnings. So far, 79 percent of companies have beat earnings by a median of 6 percent. Sales results have also been strong with 58 percent beating estimates. The corporate results have provided strong support to the markets. 

 

The ongoing Trump trade has seen areas such as precious metals, Bitcoin, and financials outperform as traders bet on a comeback in inflation and deregulation. The expectation that tariffs, as well as massive spending and tax cuts, are just around the corner are fueling the gains in these areas.

 

Gold and silver and the miners that produce them are finally seeing some profit-taking after an enormous run higher. That is a good thing. I still think asset class has more to go in the months ahead. As for Bitcoin, I am a bull on cryptocurrencies and believe both candidates will encourage the expansion of this "digital gold" if elected.

 

Overseas markets reflect the same ups and downs as the U.S. China has given back some of its recent gains as investors doubt that the government stimulus measures announced last month are enough to pull the country out of its economic slowdown.  If there is going to be another leg of stimulus, it won't happen until after the U.S. elections, in my opinion.

 

Economic data continues to show a strong economy, which puts pressure on the Fed to stand pat rather than cut interest rates again. New home sales gained 4.1 percent. Business activity in the Chicago and Kansas City region was better than expected, while the nation's services sector continued to expand. Initial jobless claims also fell by 20,000 jobs.

 

The final week in October is laden with macroeconomic data points. Information on consumer confidence, JOLTS job data, GDP, new home sales, the core PCE, unemployment claims, job payroll numbers, and manufacturing PMI, to name just a few. Any and all of the above can move markets, but so far most of the macro data and earnings results present a Goldilocks environment for the financial markets. 

 

In this environment, we could see sharp spikes higher and dramatic declines lower. The S&P 500 Index is running up against strong resistance zones right now. In the short term, I would like to see the S&P 500 Index take out 5,900. If so, we could see another 100 points upside in that index.   

 

Depending upon the election outcomes and possible post-election controversy, the downside range could be as much as 5-7 percent. If the election outcome is called into question, the decline could be steeper. What to do? Nothing. Sit on your hands and watch but if the market falls, I would buy the dip.

 

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.