🔬Elections & Stocks
Plus: Amazon joins the double trillion club; the dollar is flying; and much more!
"Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years"
- Warren Buffett
“Jesus, if this guy owned a funeral parlor nobody would die!”
- Gordon Gekko
Decent up day for the big US markets with the S&P 500 +0.2% and Nasdaq +0.5%.
Only 3 of 11 sectors closed higher but when those three sectors (Con. Discretionary: +2.0%; Tech: +0.4%; Comm. Services: +0.1%) represent 51.6% of the market then you can see why it’s up.
New Home Sales for May came in a bit light (619k vs. Wall Street estimate for 648k) and was 11.3% below April’s tally.
Notable companies:
Rivian (RIVN) [+23.2%] Volkswagen to invest $5B by 2026, starting with $1B, aiming for joint venture on next-gen EV tech.
Tesla (TSLA) [+4.8%] Initiated buy at Stifel; cited Model 3/Y revamps, global supply chain, strong margins, cost advantages.
Amazon (AMZN) [+3.9%] BofA positive on logistics efficiency; FedEx noted e-commerce strength; Amazon to launch discount shopping site shipping from China.
Street Stories
As I mentally prepare myself for yet another election to fully deluge the media cycle, I thought I’d take a quick look at how the stock market does during election years. Here we go! Whoooosh.
To start, get ready for a bit more volatility than usual. In election years, volatility through September doesn’t really spike, but there are massive increases typically in October, November and December.
Next, election years haven’t been particularly kind to investors: the average return for the S&P over the last 11 election years has been a paltry 5.8% versus the 11.8% the S&P has banged out in non-election years since 1979.
However, to be fair, 2008 - which had very little to do with the election (read: Financial Crisis) - is something of an outlier and really pulled the data downward. Excluding ‘08, this average is a more respectable 10.2%. That said, most of the fallout from the DotCom bubble and the ‘Everything Bubble’ popping in 2022 happened in non-election years, so 🤷♂️.
Moreover, since the 1980 election, the market has only declined in two election years; the above mentioned 2008 and 2000 - also not really the fault of the election (re: DotCom bubble burst).
However, election years have tended to not really be huge years for outperformance. For example, in only 3 election years (27% of the time) did the S&P finish the years up 15% or more. For non-election years this figure is 44%.
Basically, election years tend to be positive but rarely knockouts.
Next, it might be worth noting that while the average increase in the market during election years is 5.8%, the S&P is currently up 14.6%. In fact, we are currently having the best election year so far (going back until 1979 that is).
On the sector front, the underperformance in election years is pretty broad-based. Utilities is the only sector that has actually outperformed in election years versus non-election years. Although, I would add the caveat that S&P only started mapping out sector data at the end of 1994, so this isn’t a particularly robust data set.
Tech has been the worst performer relative to non-election years; underperforming by 18.4%. Although I would add that 2000 was a particularly bad year for Tech stemming from the DotCom bubble, so this is perhaps a bit unfair.
To wrap this up, election years aren’t great for stocks but excluding the DotCom meltdown (2000) and Great Financial Crisis (2008) they have held in ok. At this moment, I think investors have bigger things to fret over (the Fed, a stock market with narrow breadth, couple of shooting wars, etc.)
Amazon Hits Double Trillion Club
Amazon reached a $2 trillion market capitalization for the first time yesterday, joining only 4 other companies to breach this valuation benchmark due to an AI-driven tech rally.
The company almost got there in 2021 and it took a while to get their groove back.
Jeff Bezos, alias Johnny Kisses, Amazon’s founder and chairman, saw his net worth increase by nearly $6 billion to $209 billion, making him the world's second-richest person after Elon Musk. He’s having a pretty nifty year too, seeing his wealth increase by $35 billion since the end of 2023.
Can’t wait till I get money so I can get cool…
Dollar Gaining Strength
The US Dollar has been building momentum in recent weeks.
When the war in Ukraine kicked off in 2022, there was a massive flight to quality but excluding that period the US Dollar Index (DXY) is approaching its highest levels in decades. The rally is mostly attributable to higher for longer US interest rates, while the rest of the developed world begins cutting theirs.
Joke Of The Day
Question: How do you define optimism?
Answer: An investment banker who irons five shirts on a Sunday.
Hot Headlines
CNBC / Morgan Stanley to roll out OpenAI-powered assistant to its financial advisors. The assistant, called Debrief, keeps detailed logs of advisors’ meetings and is expected to save thousands of hours of labor for the bank’s financial advisors.
SKY / Meta is planning to use your Facebook and Instagram posts to train AI - and not everyone can opt out. Zuck doing something evil? Shocker.
CNBC / Nvidia CEO Jensen Huang addresses rising competition at first shareholder meeting since historic stock surge. Huang said on Wednesday that the company’s advantage in artificial intelligence chips was due to a bet it made more than 10 years ago, centering on billions of dollars in AI investment and a team of thousands of engineers.
Bloomberg / Boeing faces whistleblower claims of lapses on some 787 jets. At this point, half the company is now a whistleblower.
CNBC / YouTube's dominance keeps growing as Nielsen says it had ~10% of all viewership on connected and traditional TVs in the US in May (Netflix’s was 7.6%).
CNBC / Google is testing facial recognition technology for campus security, starting at site near Seattle. The company said the software is “to help prevent unauthorized individuals” at its Kirkland, Washington facility.
Trivia
Today’s trivia is on Investing 101.
The ‘Black–Scholes’ model is used to value what type of securities?
A) Options
B) Mortgage bonds
C) Equity shares
D) Government bonds'The Glass-Steagall Act' was a law that:
A) Regulated the glass industry
B) Aims to limit financial institutions from becoming ‘too big to fail’
C) Established reporting standards for investment firms
D) Separated commercial banking from investment bankingIn accounting, 'GAAP' stands for:
A) Global Accounting and Auditing Principles
B) Generally Accepted Accounting Principles
C) General Assessment of Assets and Property
D) Governmental Audit and Approval Procedures
(answers at bottom)
Market Movers
Winners!
Rivian (RIVN) [+23.2%] Volkswagen to invest $5B by 2026, starting with $1B, aiming for joint venture on next-gen EV tech.
Tecnoglass (TGLS) [+22.5%] Board to review strategic alternatives with external advisors; FY24 guidance reaffirmed.
Whirlpool Corp. (WHR) [+16.6%] Reuters reported Bosch may offer; sources say it's uncertain.
FedEx (FDX) [+15.5%] Fiscal Q4 operating income and EPS exceeded expectations; FY25 guide positive; potential Freight spin boosts valuation.
Grindr (GRND) [+15.3%] Raised FY24 revenue forecast; reiterated EBITDA margin guidance; projected 20-25% annual revenue growth through 2027.
Vista Outdoor (VSTO) [+9.1%] MNC Capital upped all-cash offer to $42.00/share, ~24% premium.
Barnes Group (B) [+7.6%] Bloomberg reported exploration of strategic options, including potential sale.
Tesla (TSLA) [+4.8%] Initiated buy at Stifel; cited Model 3/Y revamps, global supply chain, strong margins, cost advantages.
Amazon.com (AMZN) [+3.9%] BofA positive on logistics efficiency; FedEx noted e-commerce strength; Amazon to launch discount shopping site shipping from China.
Six Flags Entertainment (SIX) [+3.6%] Announced regulatory conditions met for proposed merger with FUN.
Losers!
Aptiv plc (APTV) [-7.9%] Downgraded to underweight from neutral at Piper Sandler; Rivian-Volkswagen joint venture signals less reliance on third-party suppliers.
Paychex (PAYX) [-6.1%] FQ4 EPS and revenue beat; Services segment in line, but Management Solutions, PEO, and Insurance Services light; operating income missed; FY25 EPS guidance midpoint ahead, but revenue growth midpoint light.
SolarEdge Technologies (SEDG) [-5.3%] Announced pricing of $300M of 2.25% convertible senior notes due 2029.
General Mills (GIS) [-4.6%] FQ4 earnings and margins slightly better, but revenue missed; larger-than-expected organic growth decline; weak NA Retail and Pet segments; FY25 EPS guidance below expectations; next-Q results expected to be impacted by brand-building investments.
Market Update
Trivia Answers
A) Black-Scholes is used to value Options.
D) Glass-Steagall separated commercial banking from investment banking.
B) GAAP stands for Generally Accepted Accounting Principles. It’s the accounting compliance standard used in the US and governed by the Financial Accounting Standards Board (FASB).
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Great piece! I knew election years were better on average, but the distributions of returns in election years vs non election years surprised me a bit.