Will There Be a Santa Rally or Will the Election Tank Stocks?

Will There Be a Santa Rally or Will the Election Tank Stocks?

Emails are trying to stir up fear by comparing the 2024 election with the 2000 election, saying that we’re going to have some kind of stock market meltdown after the results on Nov. 5, 2024. Here’s why 2024 could bring us a rally rather than a rout. 
 
Below are the topics we’ll cover.
 
Stocks are High 
Earnings are Strong in the Magnificent 7
Political Uncertainty 
Video Conference Tuesday, October 29 at 4 PM Pacific
 
And here is more information on each subject.
 
Stocks are High 
Stocks are almost as expensive today as they were at the highs in 2000. That is a concern. As you can see in the chart below, the only time in the last century when the CAPE price-earnings ratio was higher was in 2000. Today’s prices are even more elevated than the Great Depression!
 

 
Expensive equity prices are a negative for the Santa Rally because the good news is already priced in. However, that didn’t stop elated Tesla investors from pushing the share price up $40 today (10.24.2024), after the company reported better than expected results after the market close yesterday.
 
Earnings are Strong in the Magnificent 7
The Wall Street Rally of 2023 and 2024 is really all about the Magnificent 7 – Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla. These companies are responsible for the majority of the gains. In 2023, if you didn’t have large cap growth in your wealth plan, your returns might have been under 10%, rather than the spectacular total return of 26% in the S&P500. Without the doubling of the Magnificent 7 share prices, the S&P500 gains would have been under 10%.

Tesla just reported surprisingly strong earnings on October 23, 2024, with net income of $2.3 billion, up 16.9% year over year, despite having to lower prices on its vehicles. Tesla’s CFO warned that it will be difficult to continue the strong profitability performance in the fourth quarter. However, those results won’t be reported until January. Main Street investors will be banking on 3Q results continuing, unless they were listening to the earnings call. Institutional investors do listen to the earnings calls. However, they know that market optimism over earnings can get turned up with the holiday spirit. Consequently, the whales could wait until January to take their profits.
 
Apple is expected to report solid earnings on Halloween (after the markets close), too. The company continues to bedazzle consumers globally with its Apple Intelligence and iPhone products, which make up almost half (45.8%) of Apple’s revenues. According to IDC, Apple maintained its #2 spot in global smartphone shipments (by units).

5 of the remaining members of the Magnificent 7 will report results next week, while Nvidia’s results will be announced on Nov. 20, 2024. The year-over-year sales growth of these trillion-dollar companies is quite noteworthy, particularly given the outstanding profit margins. However, the stock prices are trading at an all-time high. Nvidia has exhibited a lot of volatility. (Learn more in my recent Nvidia blog. Click to access.) If you’d like an updated Magnificent 7 Stock Report Card, email [email protected].

October 23, 2024, was a particularly sour day for Boeing. Boeing reported a $6.2 billion loss for the third quarter. Workers also rejected the proposed labor contract. This puts the company perilously close to losing their investment grade credit rating. That is one of the reasons why the Dow dropped 410 points yesterday and is down another 270 points today.
 
FYI: We’ve been warning about Boeing for years. The company is just one of 30 corporations listed in the Dow Jones Industrial Average and is part of the reason why the DJIA has performed at half the speed of the technology-rich NASDAQ Composite Index for over a decade. Since many of us have DJIA funds in our retirement plans, it pays to know what we own NOW. When we wait for the headlines of a downgrade, it can be too late to protect our wealth.

We’ve been underweighting the Dow Jones Industrial Average for decades, while encouraging investors to make sure that they have their large caps diversified into both value and growth. In fact, we are going outside the U.S. for our large cap value fund due to the amount of credit risk in companies that tend to end up in the value funds. We can achieve almost double the yield with lower risk in another large country. Which country is that? Join us for our New Year, New You Financial Freedom Retreat Jan. 10-12, 2025, to learn that and much more. Register by Halloween for the best price and a complimentary private, prosperity coaching session (value $400).
 
The main difference separating 2024 from 2000 is the economy. Earnings tanked in 2000, with pronounced problems that were not limited to the Dot Com stocks. In 2024, earnings remained quite strong in technology and the Magnificent 7, and rather resilient in many other industries as well.
 
Political Uncertainty 
Equities can withstand political uncertainty if there is a reason to believe that the economy will perform well. We saw that in spades in 2021. The election was on Nov. 3, 2020. That was one of the most contentious elections in U.S. history, with challenges to the results finally culminating in an attack on the U.S. Capitol on January 6, 2021. Yet between Nov. 3, 2020, and January 6, 2021, the S&P500 scored 9% gains. 2021 went on to be one of the most outstanding post-election years ever, with total gains of 28.7%!
 
The Dot Com Recession was one of the worst in history – particularly for the technology-rich NASDAQ Composite Index, which lost -78% between the top of March 2000 and the bottom of Oct. 2022. It took 15 years to recover the losses. As you can see in the chart below, there wasn’t a Santa Rally in the 2000 Election Year.

The Dow Jones Industrial Average lost far more between March and the end of October 2000 than was lost after the election. The S&P500 did drop -8% in November 2000, but clawed almost half of that back by the end of Jan. 2001. The continuing bad news in telecoms and dot coms spooked investors again in February of 2001, when eToys filed for bankruptcy. The slide that started in March of 2000 and continued for the next two and a half years was caused by inflated valuations (something present today, too), some industries (like telecom and Enron) taking criminal liberties with financial engineering, an economic recession, and the false belief in a New Economy – that massive cash losses were immaterial compared with the potential earnings down the road. The slide was steady, but pronounced, particularly during a series of Unfortunate Events – such as the AOL-Time-Warner doomed merger (January 2000), telecom scandals, Dot Com bankruptcies, and the Enron fraud exposure (starting in March 2001 and culminating in a bankruptcy on Dec. 2, 2001), with 911 making the hole deeper. Ted Turner famously said he lost $8 billion in the AOL-Time Warner deal. While the 2000 election did have a prolonged question mark from Election Day through Dec. 12,2000, and, then as now, over half of the country wasn't happy about the outcome, it was the poor performance of the economy that caused the plunge in stocks during the Dot Com Recession.
 
LoudCloud’s share price dropped from $12 a share to $6 during its roadshow beginning in Sept. of 2000. The valuation slide began a few months prior, in June of 2000. (The market top was March 2000.). The LoudCloud IPO was considered to be a test of whether or not the extreme valuations in Dot Coms could hold up, particularly with companies that were burning through cash. Clearly, investors’ appetite for cash negative companies had changed. However, this was not the only corporate meltdown in 2000. 
 
Enron’s slide into bankruptcy began on March 5, 2001, when Fortune reporter Bethany McLean wrote in an article, “The company remains largely impenetrable to outsiders. How exactly does Enron make its money? Details are hard to come by… Analysts don’t seem to have a clue.” However, the red flags began in 2000, as did the omens for the telecom industry.
 
The telecom meltdown in 2000 was just as epic as the Dot Com bust. The problems were apparent in 2000, when the price of long distance dropped from 25 cents a minute to under 10 cents a minute. VOIP (Skype) was disrupting the marketplace. Some executives were cooking the books to keep investors interested. The inflated telecom share prices began sliding after the March 2000 highs, and the bankruptcies began in early 2001. By 2002, Global Crossing was belly-up and MCI Worldcom was the biggest bust in history for that time. (Lehman Bros. now has that distinction.) MCI Worldcom bondholders were paid 35.7 cents on the dollar in new MCI stocks and bonds.
 
Debt and leverage are massive problems in today’s Debt World. Wonder where the over-leveraged telecoms and Dot Coms of tomorrow are? Join us for our Bonds & What’s Safe Masterclass this Saturday, Oct. 26, 2024. Email [email protected] or call 310-430-2397 to learn more and register now.
 
Video Conference Tuesday, October 29 at 4 PM Pacific
It’s important to have the facts, instead of just reading emails. I was recently forwarded an email where the marketer had misrepresented the data, providing no context at all, to support the claim that the 2024 election was going to cause a stock market crash similar to the Dot Com crash. Marketers often use FUD (fear, uncertainty, doubt) to sale their wares. This can be very damaging to our wealth plan.

Join me live for our free video conference on this topic next Tuesday, October 29, 2024, at 4 PM Pacific. If you were already on our list, you will receive logon instructions automatically. If you would like to join us live, email [email protected] with Videocon in the subject line. You can watch it back at YouTube.com/NataliePace. Subscribe there to be sure to catch all our free videoconferences.
 
Bottom Line
Market timing rarely works. Having said that, we are currently overweighting 20% safe in our sample pie charts. However, this is due to inflated equity evaluations, overleverage, and an economic slowdown, more than political uncertainty. If the political turmoil is worse than January 6, 2021, then, of course it has the potential to greatly impact the stock market, largely because it may substantially reduce the ability of American business to thrive. However, there was a massive rally in 2021, after Jan. 6, 2021. Investors have more stomach for insurrection when the economics add up. We’ll get a peak at how well the 3Q 2024 economy did when the advance results are announced on Oct. 30 at 8:30 am ET. (I’ll have updates on my Instagram Broadcast channel. Be sure to subscribe.)
 

 
 

Join us for our Online New Year, New You Financial Freedom Retreat Jan. 10-12, 2025. Email [email protected] or call 310-430-2397 to learn more. Register by Halloween to receive the best price and a complimentary private, prosperity coaching session (value $400). Click for testimonials, pricing, hours & details.

Join us for our Restormel Royal Immersive Adventure Retreat. March 7-14, 2025. Email [email protected] to learn more. Click for testimonials, pricing, hours & details. There is very limited availability. Register now to ensure that you get the exact room you want. (There may not be an opportunity to register after Sept. 15, 2024.) This retreat includes an all-access pass to all of our online training for a full year for two, and three 50-minute private, prosperity coaching sessions. Much more affordable than you might think. Email [email protected] to learn more.

Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.