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.

There was a day when a man's love for his bride was measured by the clarity and size of a diamond ring. That notion is as outdated as believing that "artificial" or lab-grown diamonds are second-class stones.

 

Chances are that if you purchased a diamond this year, it may have been manufactured in a laboratory. Lab-grown diamonds account for roughly 46 percent of the U.S. diamond jewelry market. What is interesting is that while the quantity of diamonds sold is almost neck and neck with the natural market, as a percentage of revenue, lab-growns only account for 23 percent of sales.

 

There are two trends at work here. Natural diamonds are getting more expensive and as they do, lab-grown diamonds, which are much cheaper to manufacture have become increasingly popular.

 

Lab-grown diamonds are just as real as the diamonds dug up by miners in Africa or elsewhere. The difference is that the laboratory can make them perfect while mother nature will usually produce stones with several beautiful and even romantic flaws.

 

There are two methods of growing diamonds. In the chemical vapor deposition process,  a small diamond is placed in a chamber and exposed to carbon-rich gas and high temperatures. The gas ionizes and carbon particles stick to the diamond, eventually crystallizing into a diamond. An alternative process exposes a diamond seed to extremely high pressure and temperatures (like Mother Earth) and a metal catalyst helps convert pure carbon into a diamond.

 

Both methods create diamonds indistinguishable from the natural kind, at least to the naked eye. The growing period ranges from weeks to months and the final product is cut and polished into a gemstone. The result is a diamond that is considerably cheaper than the natural stone. The downside is that it is not as rare or unique.

 

For several years, the average cost of an engagement ring with a natural diamond was between $3,200-$3,600. However, between inflation and consumer taste, diamonds are getting larger in size and cost. The average size of a natural diamond engagement ring today is just under 2 carats, 50 percent larger than before lab-grown stones came on the market. Today, the average natural diamond ring is now selling for $6,628.

 

It is one of the main reasons that the lab-grown variety has become so much more popular. The price differential between the two types of diamonds is substantial. Four years ago, the average lab-grown diamond was about 1.2 carats and cost $3,887. This year, the average size is about 1.9 carats, just like the natural diamond, but the average price has fallen by about 30 percent to $2,657. 

 

Many aging Americans still prefer natural diamonds while younger generations are drawn to the lab-grown market. As someone who grew up believing the long-lasting marketing campaign that "diamonds are forever," I still lean toward that market despite the price differential. But I also know that many younger consumers have no idea what that means. 

 

Times have changed in other ways as well. Younger American men are now going ring shopping with their fiancees rather than with a sister or female friend. It turns out that today's bride-to-be is much more frugal in selecting rings. She prefers to save money in that department and use the money elsewhere. 

 

A young friend of mine, for example, just announced his engagement last week. His bride-to-be went shopping with him to select the ring. She settled on a black diamond ring, which is quite dramatic and different. Most black diamonds are superheated or irradiated to an almost black color. These stones do exist in their natural state but are extremely rare.

 

Natural diamond U.S. salespeople also like to remind younger shoppers that lab-grown diamonds have no resale value because they are so cheap to manufacture. It is one reason why so many overseas consumers of engagement rings continue to stick with natural diamonds. But that does not seem to faze the young-and-in-love, here at home.

 

The prices of natural diamonds have fallen by 6.4 percent this year, while the world's largest diamond producer, De Beers, has had its worst year in 20 years. Lab-grown diamond sales hit $12 billion in 2023, and volumes are expected to double from 9 million carats to over 19 million carats by 2030. And prices will get even cheaper.

 

This week, to stem the slide in sales, Signet Jewelers, which owns Kay, Zales, and the Jared chains, have just launched a marketing campaign with De Beers dubbed "Worth the Wait" to promote natural diamonds as "the ultimate symbols of love." Whether that will work in a country where no one waits for anything and equating money with love is unpopular remains to be seen.

 

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 are increasingly preoccupied with the general elections, which are less than three weeks away. That focus should increase as we go down to the wire, and as it does, so will volatility.  

 

It is getting harder to ignore the election contest. The media, both mainstream and social, spews out a continuous stream of political news. I finally shut down my X account this week because of it. Although difficult, my attention remains focused on the market and not the election.

 

This week, third-quarter earnings have kicked off, and results have been strong thus far. Of the 58 companies reporting thus far, 76 percent have beat estimates. Banks have surprised to the upside. Revenue growth has been tracking at plus-5 percent, within the 4 percent to 5 percent growth rate we have seen over the past eight quarters.

 

Why is that important? Many pros have been arguing that as inflation falls, so will corporate sales, insisting that much of the sales gains have been the result of price increases. That has not happened. As companies roll back prices, revenues continue to grow.

 

The debate on whether the Fed will continue to cut rates and by how much continues to rage among traders. I am firmly in the camp of no more than a 25-basis point cut when the Fed meets again on Nov. 5, just one day after the general elections. The Fed does not need to cut more than that given the strength of the economy and the rate of decline in inflation. However, there does appear to be a change in what the Fed can control in the interest rate arena.

 

Historically, the Fed controls short-term interest rates by raising or lowering the Fed fund's overnight interest rate. Normally, longer-term rates would follow suit in the same direction. But little is normal in today's debt markets. The public sector bond market (the bond vigilantes) has shown that they control the long end of the curve despite the Fed’s machinations. It explains why longer-term yields have risen ever since the Fed cut rates last month.

 

Long-term bond yields have plateaued after several straight weeks of rising. Bond players believe that the Ten-Year U.S. Treasury bond yielding around 4.09 percent may adequately discount both economic growth and the present state of inflation — at least for now. I say "now" because the election outcome may send yields soaring once again.

 

The long list of tax cuts, spending programs, tariffs, etc. made by both party's candidates would add many trillions of dollars to an already mountainous deficit. The non-partisan Committee for a Responsible Federal Budget estimates that Trump would add $7.5 trillion to the deficit, while Harris would add $3.5 trillion. At the same time, both parties are completely ignoring the $35.6 trillion in debt we owe right now. The U.S. now has a debt-to-GDP ratio of about 100 percent.

 

But while politicians of both persuasions continue to ignore that fact, the bond vigilantes do not, nor will foreign bond buyers. Their next move, whether to buy or sell bonds, will be determined by what happens on Nov. 5. The polls indicate a narrow win by one candidate and a mixed Congress.

 

If so, neither party will have enough votes to pass legislation that could add trillions of new dollars to the U.S. debt load. A sweep by either party, however, would change that equation and likely set off another spike in long-term interest rates. That, I believe, would be problematic for the stock market in 2025.

 

In the meantime, while the polls have both candidates at a dead heat, traders are taking their lead from the $2 billion presidential betting market. The Street believes the odds carry more weight since players are willing to bet their money on the outcome.  For example, this week, one of the election betting markets (Polymarket) has seen the odds of a Trump win rise to 58 percent-60 percent. Seven other betting markets show an average of 56.1 percent for Trump versus 43 percent for Harris. As such, many in the stock market are convinced that Trump will win.

 

Traders have responded by bidding up areas of the market that they think would do better under Trump. Inflation would be higher, say traders, so hard assets and precious metal stocks gained ground. Bitcoin and other cryptocurrencies climbed since Trump promised to make America a world leader in crypto. Small-cap stocks that are sensitive to lower interest rates, outperformed as well. Here, the idea is that Trump would likely pressure the Fed to keep reducing interest rates. That would also be good for financial stocks.

 

Balderdash, say I. At the racetrack, betting on the favored horse to win does not guarantee the winner. In the days ahead, one or the other candidate may say something stupid, or make a perceived breakthrough that changes the betting odds or the polls. If so, markets or sectors could reverse on a dime. Don't get sucked into playing that game.

 

On Wall Street, volatility is usually interpreted as meaning selling pressure, but that is not always the case. While markets are stretched, overextended, and expensive, they can remain so for longer than one would expect. One contrarian indicator I watch indicates that bullish sentiment among investors is at the highest level of the year.

 

In this environment, we could see sharp spikes higher as well as dramatic declines lower. Depending upon the election outcomes, 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.

There was a time when the upstart scruffy purveyors of cryptocurrencies were a mere stepchild of the financial community. Those days are gone as the crypto industry becomes a growing force in influencing election outcomes nationally.

 

In 2024, the crypto industry has accounted for about half of all corporate contributions to political action committees, according to consumer advocacy group, Public Citizen. The donations are being funneled into congressional candidates of both parties and the candidate for president who is deemed to be friendly to the cryptocurrency space.

 

That is a big leap from the historical practice of industries that side with one political party over another. Fairshake, the industry's dominant PAC, endorses candidates on both sides of the aisle and cares little for issues outside its sphere.

 

While many corporations are studiously avoiding this year's elections and keeping a low profile, blockchain companies have contributed 48 percent of the $250 million thus far in corporate donations on the federal level. And yet the crypto spending thus far has carefully avoided making crypto currencies an issue in the elections.

 

Instead, the spending has centered around rebuilding the sector's image after the black eye Sam Bankman-Fried gave crypto after the fall of his firm FTX. And that may prove to be an uphill battle. A recent Federal Reserve survey found that only 7 percent of Americans owned or used cryptocurrencies and yet 59 percent of them polled in swing states held a negative view of the currency.

 

The industry's goals are also a top priority of the spending. Unlike many industries that want less regulation from the government, the powers to be in crypto want the opposite. They want the passage of FIT21, a bill that establishes a framework that would switch the regulation of digital assets out from under Gary Gensler of the U.S. Securities and Exchange Commission to the Commodities Futures Trading Commissions.

 

Gensler, considered an enemy of the crypto community, was appointed by President Biden, and has often voiced his skepticism of crypto. One of the SEC's biggest targets was Coinbase, the largest crypto exchange, and Ripple, the company behind a stablecoin called XRP. As such, it is no wonder both firms have been leading the charge in the cryptos battle with regulators.

 

The crypto industry PACs are singling out those politicians who are anti-crypto and are actively running ads against their candidacy without mentioning crypto. For example, in Ohio, they are supporting Republican Bernie Moreno for the Senate to defeat Senator Sherrod Brown, the chairman of the Banking Committee who is a crypto critic.

 

The companies have made headway in their strategy. In July, Former President Donald Trump headlined a Bitcoin conference in Nashville where he endorsed cryptocurrencies and vowed to champion their cause. He said he wanted America to become the world's Bitcoin superpower and promised to fire Gensler on day one. A Trump PAC raised about $7.5 million in crypto donations since early June.

 

 Trump followed up his endorsement in September by unveiling a new cryptocurrency business, World Liberty Financial, with his children. This week his token sale for this new project had less than a stellar opening. Multiple and lengthy outages plagued the release all day Tuesday.

 

However, true to their goals crypto donations are also finding their way into Democrat campaign war chests. Ripple co-found Chris Larsen, for example, gave the Harris campaign $1.9 million. Others have contributed as well. It seems to be working. Recently, Vice President Kamala Harris announced she would back a crypto regulatory framework where investors would be protected.

 

Corporations are watching the crypto industries' battle to influence federal elections closely. Critics say it is a brazen attempt to force politicians to adopt a sector's chosen policies or say goodbye to their political chances. If it works, you can bet that others will begin to emulate similar strategies. 

 

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.

Mixed inflation data, higher unemployment claims, steeper bond yields, the unresolved Israeli counterstrike against Iran, and jitters over the election kept the equity averages volatile throughout the week. Despite those worries, the S&P 500 Index and the Dow hit record highs.

 

A bullish stock market often climbs a wall of worry. This week certainly qualified. Investors had to contend with a continued rise in yields on the benchmark Ten-Year U.S. Treasury and poor results of a government auction for that bond. The yield this week hit a high of 4.09 percent and has gone straight up ever since the Fed's 50 basis point cut in the Fed funds rate last month. If the Fed is cutting interest rates shouldn't bond yields go down, not up?

 

The answer revolves around bond market expectations. After last month's interest rate cut, the bet that the Fed would give us even more cuts in the months ahead rose substantially. Many traders concluded that the Fed would follow up that first cut with two more half-point cuts in the next two months, and as much as four more the following year. By the time the Fed announced its first cut, bond yields had already plunged, discounting this rosy scenario.

 

In the meantime, the economy has continued to strengthen by more than most economists have expected. This, I suspect, is a result of increased federal spending, which almost always occurs during a presidential election year. Growth is great, but a stronger GDP  reduces the need for more monetary stimulus.

 

And let's not forget the inflation fight. September's inflation report, the Consumer Price Index (CPI) fell from plus-2.5 percent to plus-2.4 percent, but core inflation (ex-energy and food) increased from plus-3.2 percent to plus-3.3 percent. The Producer Price Index (PPI), however, came in cooler. The two together equated to a big nothing burger as far as the markets were concerned.

 

However, bond traders are growing concerned that stronger economic growth and additional rate cuts could be a recipe for a revival in inflation. They point to oil prices, a key component of inflation, and a lift in commodity prices, which could keep inflation sticky in the months ahead.

 

The spike in the oil price is based on fears that Israel may hit Iranian oil production, while China's new stimulus program is responsible for the spike in commodities. I believe the rise in oil could easily reverse if the geopolitical situation in the Middle East abates but my crystal ball is exceptionally cloudy in that arena. China's growth, however,  may be a more lasting development depending on how successful the government's fiscal stimulus may be.

 

I don't believe one or two more data points between now and the November FOMC meeting will impact the Fed's decision. But I do believe traders got over their skis in anticipating a series of large interest rate cuts through next year. The Fed certainly did not indicate such a plan was on the table. One voting FOMC member of the Fed recently suggested that he would be happy to skip a rate cut at the next meeting.

 

The bond market is still betting that rates will be reduced in November by another 25 basis points although a 50-basis point cut is now off the table. I expect that this month was the trough in inflation progress. Over the next few months, inflation data may show an uptick. If so, expectations for more cuts will rapidly diminish.

 

Despite these worries, equities continued to plough ahead grinding higher and higher as the week progressed. The third quarter earnings season began on Friday with large bank earnings. Investors seemed pleased with the results. Expectations going into the season are that the rate of gain in earnings overall will be lower than last quarter but will bounce back in the fourth quarter.

 

The Chinese stock market, after a nine-day streak of gains, finally succumbed to profit-taking earlier this week. Global investors were disappointed that further fiscal stimulus programs have not been announced. I think this pullback is healthy. Additional gains are in store for that market,  in my opinion, after a short period of consolidation. I also believe that emerging markets are interesting and cheap versus U.S. stocks.

 

As for U.S. stocks, the averages are extended given the spate of new highs. We are also entering the second week of October with the elections less than a month away. The race is too tight to call. My greatest fear is that we may face a protracted period in which the winners are in doubt. I don't think the markets would take kindly to that environment. 

 

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.