Weekly Update: Stocks Follow Election Year Patterns

Here’s the latest on the market and our stocks. [TradeSmith Investment Report logo] [TradeSmith Investment Report logo] October 24, 2024 [Homepage]( / [Portfolio]( / [Special Reports]( Stocks Follow Election Year Patterns The second half of October usually kickstarts an end-of-year rally in stocks. Interestingly enough, that changes in years when we elect a president. During election years, stocks tend to be down in the second half of the month, and that’s exactly what we’re seeing now. Our stocks dipped 1.5% on average the past week. There are always specific headlines, like right now there’s a lot of talk about 10-year Treasury yields creeping up, lifting interest rates. There’s also talk that earnings are more sluggish than analysts expected, but we’re only about one-third of the way through the reporting season, so any conclusions are premature. It may not be in the financial headlines as much, but election-year seasonality is also a part of it. Data shows we should expect late October weakness during election years, so it’s not much of a surprise – especially considering that September was better than usual. I researched all of the elections going back to 1992, and I have good news. Big Money is highly predictable in election years. It’s a much better investing roadmap than following the headlines and polls. This is the money that moves. It accounts for 70% to 90% of daily trading volume. When we know what the biggest investors on the planet are doing, we can make much smarter investing decisions. Investing pros hate uncertainty, so they typically unload some stocks ahead of the election to cautiously lower risk – real or perceived. But that money comes flowing back in after the election, or as soon as uncertainty has passed, whichever comes first. In this highly charged campaign, it’s important to note that this pattern held whether a Republican or Democrat won. Data clearly shows the biggest catalysts for stocks are not the election results. Some stocks and sectors will do better than others depending on who ultimately occupies the White House. And yes, we’ll find those stocks. But more importantly, lower interest rates strongly correlate to higher stock prices. Plus, lower rates make it cheaper for companies to finance growth, which means growing earnings, sales, and share prices. Lower rates also mean that record $6.5 trillion sitting in money market accounts won’t earn as much as it was. The 5% honeymoon period is over, and that return will continue decreasing as the Federal Reserve continues lowering rates. Investors – including Big Money – will be forced to seek better returns elsewhere, and stocks remain the absolute best game in town. I am extremely confident that Big Money will follow its established pattern and ultimately flow into stocks. We may get bumped around a little bit in the coming weeks, but the end of the year – and beyond – could be a real heater. We’ll continue positioning ourselves to make the most of what’s to come and continue growing our portfolio. A Busy and Mostly Good Week for Earnings PulteGroup (PHM) started our flurry of earnings reports with solid third-quarter results that beat expectations and showed continuing growth. The homebuilder increased earnings per share increased by 16% to $3.35, nicely ahead of the consensus estimate for $3.18. Sales grew 12% to $4.48 billion, also beating analysts’ expectations. Even so, shares slid 8% on the news. New home orders were similar to last year’s third quarter, though the number of closings increased 12%. The average selling price dipped slightly from the second quarter, and gross margin dipped slightly from last year. CEO Ryan Marshall said the Federal Reserve’s move to lower interest rates is a “powerful tool” in making homes more affordable. He also said Pulte is in good position for record earnings this year. PHM still posts a strong 70.7 Quantum Score, with solid fundamentals and technicals. We’re up 16%, and shares remain in a strong uptrend, even with the post-earnings dip. Our data, combined with lower interest rates and the ongoing shortage of homes, indicates higher prices ahead. Old Dominion Freight Line (ODFL) edged expectations by a penny with earnings of $1.43 a share. That’s 9% lower than the same quarter a year ago, but was expected. Sales of $1.47 billion came in just below estimates for $1.49 billion. Shipping metrics were mixed. The number of less-than-truckload (LTL) tons shipped per day fell 4.8%, but revenue per hundredweight increased 4.6%. That indicates some pricing strength, which is a good sign amid lingering softness in trucking. ODFL’s market share remained strong. Through the softness, Old Dominion has kept returning capital to shareholders. The company has repurchased $824.8 million in shares through the first three quarters, and it continues to pay a small dividend. Shares fell 5% yesterday after the report, and we are now down 3.5% in the portfolio. ODFL has bounced around this year as the anticipated rebound in trucking is taking longer to unfold. ODFL’s Quantum Score has fallen to 55.2 because of recent price action, but the fundamentals are strong despite the industry slowdown with a 75 score. That’s why we continue own the stock. Boston Scientific (BSX) reported strong results yesterday morning – a double beat and raise – but any rally in shares was kept in check when the company announced enrollment for a clinical trial is being paused. Earnings at the med tech company jumped 26% to 63 cents per share, topping estimates for 59 cents. Sales increased 19.4% to $4.21 billion, solidly ahead of analysts’ forecasts for $4.04 billion. Both cardiovascular sales and medical-surgical sales beat expectations as well. Even better, management lifted its outlook for the full year. Earnings are now expected to be $2.45 to $2.47 per share, all of which is above previous guidance for $2.38 to $2.42 and ahead of current estimates for $2.41. Same with sales, which are now expected to grow 16.5% versus estimates for 14.4% growth. It was a really strong report. The downside was the announcement that Boston Scientific is pausing enrollment in a trial of its Farapulse PSA system to treat atrial fibrillation. The system is already approved for abnormal heart rhythm and tumors. This is one of BSX’s key areas, so the announcement did not go unnoticed. Still, this is a great company that we just added in September. We’re up 4% since then amid the recent pullback, but with its 81 Quantum Score supported by equally strong fundamentals and technicals, BSX remains positioned for higher prices. Also important, Big Money is active in this stock right now. My Quantum Edge system has picked up 8 buy signals (green bars below) just since we added it Sept. 6. Source: MAPsignals.com Service Now (NOW) also beat expectations in its report Wednesday afternoon. The software maker’s earnings surged 27% to $3.76 per share, topping estimates for $3.45. Sales grew 22% to $2.8 billion, which also exceeded estimates. Subscription revenue, which customers pay for the ongoing use of NOW’s software, also came in better than expected, growing 23% to $2.72 billion. Management also raised guidance, now expecting subscription revenue in the current quarter between $2.875 billion and $2.880 billion, which is above the consensus estimate for $2.855 billion. The company also raised its forecast for full-year subscription revenue. That’s all good stuff – the kind of report we expect from companies that meet our strict criteria. Shares gained 5.5% today to hit new all-time highs and boost our total return to 43% in 11 months. NOW’s Quantum Score sits at 79.3, and growth should continue as businesses look to the company’s AI products to manage IT services and other applications. In fact, ServiceNow just introduced AI agents to manage tasks, and these automated agents will be available in November. S&P Global Inc. (SPGI) followed suit with a strong showing this morning before the open. Quarterly revenue grew 16% to hit a record $3.575 billion, ahead of expectations for $3.43 billion. Margins increased, driving 21% earnings growth to $3.89 per share, easily topping estimates for $3.43. Management expects to accelerate share buybacks to the tune of $1.3 billion in the coming weeks. That’s always a positive for shareholders. Management also raised full-year guidance, lifting earnings expectations from between $14.35 and $14.60 per share to between $15.10 and $15.30 per share. The midpoint would represent 21% growth. Shares slipped about 3.5% today, despite the solid report. Shares have been on a powerful run since June but have come off their highs in the market’s recent weakness. We’re up 30% overall, so continue to hold for now. We’re just getting started. At least five more companies will report next week, including Linde (LIN), D.R. Horton (DHI), Advanced Micro Devices (AMD), Arch Capital Group (ACGL), and Chubb (CB). I’ll update you again next week, and I will be in touch right away if we need to make any moves. I’m eyeing potential new opportunities, and we also may lock in some of our many profits soon. Talk soon, [Jason Bodner signature] [Jason Bodner signature] Jason Bodner Editor, TradeSmith Investment Report ©2024 TradeSmith, LLC. All Rights Reserved. 1125 N. Charles Street, Baltimore, MD 21201 To unsubscribe or change your email preferences, please [click here](. [Terms of Use]( | [Privacy Policy](