House Party

Enough House races were called in favor of Republican party candidates to clinch a majority in that chamber of the U.S. legislature. The exact number is not yet a certainty, but the fact that the Republicans will retain at least 218 of the chamber's 435 seats all but is. This comes after the Republican party had successfully flipped control of the Senate and the Presidency in last week's election, giving that party something that they have not often enjoyed in recent years: unified one-party control over the Executive, Legislative, and Judicial branches of the U.S. government.

How meaningful is this? For one, this means that Louisiana's Mike Johnson very likely will retain his position of Speaker and, two, if the party can stay unified, that line-up would very likely allow the incoming Trump administration to advance policy initiatives and quickly fill positions requiring both presidential nomination and Senate confirmation. A simple majority of senators is all that is needed to fill most positions. Some of the incoming president's picks could be seen as politically controversial. For the process to slow down, there would have to be internal Republican dissent over these picks.

Perhaps most importantly, from an economic perspective, the unified legislature will have to address and extend the 2017 tax cuts which would otherwise be expiring. One would think that this extension would pass rather quickly, at least at some point during the first half of 2025, making use of a budget reconciliation bill. That would require the House and the Senate to both agree to a budget resolution, spinning off separate bills covering key items such as taxes, expenses and/or the debt ceiling that could then be passed with simple Senate majorities, rendering the filibuster and the Senate's usual requirement for 60 votes for passage useless. This and the likely coming of a pro-business, deregulatory agenda, will likely be a net positive for equity markets supportive of corporate earnings growth.

October Consumer Price Index

The news is old at this point. Almost 24 hours ago, the Bureau of Labor Statistics released the agency's data for October consumer-level inflation. Everything hit the tape as expected. On a month-over-month basis, the headline print landed at growth of 0.2% for a fourth straight month, while core inflation printed at growth of 0.3% for a third straight month. On a year-over-year basis, headline inflation accelerated from 2.4% growth in September to 2.6%, while core inflation crossed the tape at growth of 3.3% for a second straight month after having printed at growth of 3.2% for two straight months.

This is exactly what I had been warning readers about, that headline inflation had bottomed in September and would start to accelerate again gradually from there. Just a reminder, Hedgeye Macro Pro, a service that I pay for to be right about these things, was spot-on accurate on this reading and saw this year-over-year increase coming well ahead of almost everyone else I track. Mind you, this was with energy commodities such as gasoline and fuel oil dragging on prices. Apparel and medical care commodities also put downward pressure on consumer level pricing. What got hot? Electricity prices soared. Shelter, especially rent, remained a thorn in consumers' sides. Used vehicle prices accelerated again sharply and prices for transportation services continued to rise.

Just as a heads up, the Cleveland Fed's Nowcasting model now sees headline November CPI at growth of 2.71%, while my pals over at Hedgeye see November above 2.8%. Regardless of source and trusting those who have been correct more often than others, November looks to be hotter than October, which was hotter than September. An additional problem is the stickiness of core inflation. While the Fed's quarterly projections have core inflation continuing to slow consistently into 2026, of late, this is not what we consumers are seeing. Consumer level pricing very likely continues to accelerate through year end 2024, and into Q1 2025.

Is the potential for a Trump administration trade agenda that includes a broad slate of increased tariffs inflationary? In theory, yes. This depends on a lot, though. It depends on how much of these threats are negotiatory in nature, putting pressure on trading partners to reduce their tariffs. Remember, a certain level or protectionism does indeed preserve to a point, middle class standards of living. This depends on what that does to dollar valuations. A stronger dollar is deflationary and will draw capital into this country. Oh, and lastly, the future path for inflation will rely upon how effective the new Department of Government Efficiency is at finding budgetary savings. The more fat or largess that can be cut from the federal budget, the better and we all know how fat and inefficient the government is.

Markets

Sloppy day on Wednesday. Exactly what I called for, though. A little more sideways action separating the post-election "Trump Bump" from what comes next. Should we see a next leg of that recent rally on increased trading volume, then, we'll have confirmation of the upward trajectory experienced across equity markets. Should the opposite happen, then we'll know that the move has failed and we're back to what we were doing.

Treasuries took the CPI data in stride. The yield for the U.S. Ten Year Note inched one basis point higher on Wednesday to 4.45%. The U.S. Two Year Note found a bid, however, and that yield dropped eight basis points to 4.28%. On these moves, the spread between those two yields moved up to 17 basis points, while the all-important 10 Year / 3 Month yield spread has moved all the way up to -3 basis points, nearly "un-inverting."

The U.S. Dollar Index moved all the way up to the 107 level, which is what The Street Pro's Carley Garner gave you all for free in our quarterly round table fairly recently when that index was still hanging around 104. On this dollar strength, gold has taken a serious beating that Bitcoin has been completely immune to.

On the equity side, the S&P 500 gained just 0.07% for the session after having been much higher. The Nasdaq Composite gave up 0.26%, also after having been much higher. The Dow Transports actually had a nice day, gaining 0.89% as Avis Budget (CAR) ran 6.48%. Beyond that, though, it does get messy. Smaller caps went back to underperforming. The Russell 2000, S&P 600, and S&P 400 surrendered 0.94%, 0.82% and 0.53% respectively.

Wednesday's Breadth

This is a total mess. Eight of the 11 S&P sector SPDR exchange-traded funds moved higher, led by Consumer Discretionaries XLY, up 0.85%. Technology XLK was the laggard at -0.35%, which does not tell the story. The Dow Jones US Software Index was up 0.47%, led by Shopify SHOP, which was up 5.66%. But the Philadelphia Semiconductor Index gave up a full 2% led lower by Skyworks SWKS. That stock took a 4.435 beating. Micron MU also surrendered 4.02%.

Losers beat winners by a 3-to-2 margin across NYSE-listings and by about 2 to 1 across Nasdaq-listings. This is weird, though. While losers beat winners decisively across both exchanges, advancing volume took a 44.5% share across composite NYSE-listed trade on reduced day over day aggregate trade. That sounds like simple basing or consolidating type action, which is what we are looking for.

But advancing volume took an impressive 60.6% share of composite Nasdaq-listed activity on aggregate trade that increased 23.1% day over day. On a day that losers easily beat winners and both the Nasdaq Composite and Nasdaq 100 closed in the red. What's the signal there? Chaos? Algorithms cannibalizing each other? maybe all of the above. This, though, does not serve investors well who are trying to make decisions, nor does it serve the purity of what we used to call price discovery.

The Fed

According to futures markets trading in Chicago, there remains an 82% probability for a quarter-percentage-point rate cut on Dec. 18, and the terminal rate is still at 3.75% to 4% to be reached by July. On that. We'll get October producer price index this morning and then a dose of Fed Chair Jerome Powell later this afternoon, who will speak from Dallas. Last we heard from Powell; he was acting the "tough guy" when asked hypothetical questions by the financial media about his relationship with the incoming president after the Nov. 7 policy decision.

Advanced Micro Devices Job Cuts

These cuts, 4% of the AMD workforce are being made in the sales and marketing parts of the firm connected to consumer PCs and gaming. There are no cuts planned, as far as we know for the more AI-focused parts of the firm. Unfortunate as it is, this is a net positive for the firm. I am not long anything close to what I once was in this name, but long I remain.

Economics (All Times Eastern)

08:30 - Initial Jobless Claims (Weekly): Expecting 222K, Last 221K.

08:30 - Continuing Claims (Weekly): Last 1.892M.

08:30 - PPI (Oct): Expecting 0.2% m/m, Last 0.0% m/m.

08:30 - Core PPI (Oct): Expecting 0.3% m/m, Last 0.2% m/m.

08:30 - PPI (Oct): Expecting 2.3% y/y, Last 1.8% y/y.

08:30 - Core PPI (Oct): Expecting 2.9% y/y, Last 2.8% y/y.

10:30 - Natural Gas Inventories (Weekly): Last +69B cf.

11:00 - Oil Inventories (Weekly): Last +2.149M.

11:00 - Gasoline Stocks (Weekly): Last +412K.

The Fed (All Times Eastern)

07:00 - Speaker: Reserve Board Gov. Adriana Kugler.

10:15 - Speaker: Richmond Fed Pres. Tom Barkin. 

3:00 p.m. - Speaker: Federal Reserve Chair Jerome Powell.

4:15 - Speaker: New York Fed Pres. John Williams.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: AAP (.53), DIS (1.11)

After the Close: AMAT (2.19)

At the time of publication, Guilfoyle was long AMD equity.