The holiday season is here! My two kids and I will be headed from Baltimore to my hometown of Richmond, Virginia this afternoon. Yeah, I-95 traffic is no way to start the Thanksgiving holiday. But this is really important now: it will be the first Thanksgiving since my dad passed away.
Thanksgiving was always the big holiday for him. Every year he treated an unruly group of at least 20 friends and family to his fantastic cooking. Corned turkey, turducken, leg of lamb, rockfish — he always kept it interesting, and delicious.
So this year, we start a new tradition, with my brother and I taking over the cooking duties. He’s bringing a gigantic rib roast from the grass-fed cows in his town of Warwick, New York. My daughter will make oyster stuffing. With any luck, I may only have to roast some Brussels sprouts and assist with the rib roast.
And we will watch football. Even though he was a lifelong Redskins fan, my dad always banned the TV, because he didn’t want us to waste time on sports. He said Thanksgiving was a family holiday, and we should pay attention to each other. As much as I wanted to watch football, I never had a very good argument against this.
Yes, it will be bittersweet. But that somehow brings the things I’m grateful for into even sharper focus: my kids, my health, writing for Wealth Daily twice a week…
I’m serious about that last one. I love my work. The financial markets are a constant source of education and opportunity. You gotta stay nimble to constantly sort through new information and shifting sentiment. The rally we’ve gotten since the election is a perfect example…
Majority Rules?
Before the election, the consensus was that Trump would tank the markets and possibly send the U.S. into recession. It was routine to read that the market would sell off at least 5% as Trump destabilized pretty much everything.
Now, the jury’s still out on how the economy will perform. But the stock market has been on fire. This is the kind of thing that happens when everyone is caught looking the wrong way: you get a mad dash into certain sectors as a new narrative forms.
Just look at what’s been rallying. U.S. Steel (NYSE: X) has run from $21 to nearly $33 since the election. That’s nearly $2 billion in market cap, bringing the forward P/E to 54. 54!
Yes, the narrative is that infrastructure spending and a hardline on Chinese goods will mark a turn for U.S. Steel. Yet analysts continue to lower earnings estimates. I’m not going to tell you that this is all BS. Maybe things will get better for U.S. Steel and it can stop losing money. But I will tell you that people are buying U.S. Steel as a trade, not a long-term holding.
Sometimes stocks ramp higher just because they can, just because the narrative favors a move higher that has very little to do with fundamentals.
Look at both Tesla (NASDAQ: TSLA) and Facebook (NASDAQ: FB). There’s a reason they call them “story stocks”…
And I’m not telling you not to own these stocks — just know why they are valued how they are. One day, the narrative will change. And you’d better be ready for it…
Perhaps the most logical move of this entire rally has been the one from Bank of America (NYSE: BAC). Perpetually undervalued and vilified, the main change to the narrative is that breaking up the banks is now off the table. (Like that was ever going to happen anyway. It would be a huge mistake to break up the banks; they would be less competitive globally, less able to support economic growth, and maybe even less stable.)
But it’s not just a story for BofA. Interest rates are going to rise gradually, and that’s good for banks. And did you see the durable goods number today? Up 4.8% with a big jump in capital spending from corporations. These are both solid catalysts for banks. Even now — after a run from $17 to $20 — BofA trades at 0.83 times book value. JP Morgan (NYSE: JPM) trades at 1.23 times book.
My Wealth Advisory subscribers are up 137% on Bank of America, and I say there’s more to come…
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Gold, Oil, and the U.S. Dollar
It’s a bit ironic that gold is selling off just as the outlook for inflation is improving. Yeah, the strong dollar is helping push gold down. But it’s more than that. Remember when I said sometimes stocks rally just because they can? Well, what’s the story for gold right now? Basically there is no story. Investors are flocking to stocks, and there’s no compelling reason to buy gold.
As for the U.S. dollar, well, there are plenty of reasons to own dollars. Here’s a list of them: Europe, Japan, Mexico, China, Australia, Canada, Russia… and so on. Quite simply, the U.S. is the place to be, and the U.S. dollar reflects it.
The latest installment of “the most important OPEC meeting ever” is this weekend. I can’t wait to see how it plays out. Really. Will they cry wolf again, get everyone excited about a production cut, and then fail to deliver? I don’t know. I gotta think many OPEC countries are getting desperate. And I get the feeling that investors are getting tired of the drama.
If there’s no deal, I put the odds of a fistfight between the Venezuelan and Iranian oil ministers at 3:1. That is if, Venezuela can afford the plane ticket.
New Highs and Techs
The S&P 500 set a new record high at 2,202 this week. New highs usually lead to more highs. I bet we see 2,230–2,240 before any serious selling emerges. But what the heck, tech stocks, are you gonna join this party or what?
Big tech stocks have really underperformed during this rally. But again, check the narrative. There’s nothing new for tech stocks. But that will change when we get some more attention paid to the tax holiday for overseas cash. Trump is already floating the idea. Keep an eye on Apple and Cisco; they both have a lot of loot overseas. All they need is a good story, and it will be off to the races.
OK, that’s it from me this week. My kids and I are hitting the road for a few hours. I gotta load up on Starbucks iced coffee now (another stock that’s been left out but is breaking out right now and is also one of the better holiday trades).
Have a great and safe Thanksgiving, and I’ll talk to you next week.
Until next time,
Briton Ryle
@BritonRyle on Twitter
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
