The new payroll number crushes expectations … the ILA strike is over … keep valuation in mind as this bull keeps cruising … Luke Lango's EV/AV event Monday Wow! That’s about the only way to put it. Coming into this morning’s payroll report, the Dow Jones consensus forecast called for 150,000 new jobs. The actual number clocked in at an eyewatering 254,000. This pushed the overall unemployment rate down to 4.1% in September. For context, in August, it was 4.2%, which was down from 4.3% in July. The job strength bled into wages. Average hourly earnings rose 0.4% on the month and 4% from a year ago. Both figures topped respective estimates for gains of 0.3% and 3.8%. Now, this labor strength has four immediate knock-on effects… Recession risk: It’s hard for economic bears to continue staying downbeat. As our Editor-in-Chief Luis Hernandez has said repeatedly, it’s tough to have a recession when everyone has a job. Inflation resurgence risk: It’s possible, especially as wages increase. But while we should keep an eye on this, it’s not a major concern at the moment. Interest rate policy: Today’s data likely pushes the Fed into the “just quarter-point cuts” camp as we look toward the November and December FOMC meetings. Powell & Co. would likely see a 50 basis-point cut as unneeded in this environment, unnecessarily risking the inflation uptick we just highlighted. Treasury yields: The 10-year Treasury yield is surging this morning, up to 3.96% as I write. This is also a reaction to the likelihood that the Fed won’t be cutting as big. Bottom line: It was a strong jobs report that we can interpret as good news. And that good news gets better... Yesterday, the International Longshoremen's Association (ILA) reached a tentative deal to suspend its strike until January to negotiate a new contract. This avoids supply chain snarls, empty shelves at retailers during the Christmas shopping season, and potentially, upward pressure on inflation. From CBS News: The two sides have "reached a tentative agreement on wages and have agreed to extend the Master Contract until January 15, 2025, to return to the bargaining table to negotiate all other outstanding issues," the ILA and USMX said in joint statement Thursday evening announcing the agreement...
The deal involved a 61.5% wage increase over the next six years and includes language to protect workers from automation "and other issues that we need resolved." The gangbusters jobs report and the end of the ILA strike paves the way for more bullishness Let’s step back to get some perspective. This bull market is up roughly 60% since its bear-market low in October of 2022. That’s strong, even by historical bull standards. Research shop Ned Davis crunched the numbers, and if current gains hold through October 12, today’s bull will rank as the fourth strongest among 13 cyclical bulls that lasted at least two years. So, clearly, sentiment is bullish, but let me show you exactly how bullish… In the chart below, we’re looking at futures positioning by investors excluding market-makers. We just hit a net long position of roughly $290 billion. That’s the most on record.  Source: The Kobeissi Letter
For added perspective, since the beginning of the year, this net-long position has more than doubled. It’s also twice as high as during the previous tops from early-2018 and 2020. It’s not just futures traders. We’re just below an all-time-high in terms of Americans owning stocks. From Visual Capitalist: Currently, 62% of Americans own stocks, reaching a 20-year high.
Breaking it down further, 87% of upper-income Americans own stocks, followed by 65% of middle-income Americans, and 25% of lower-income individuals.
In the first quarter alone of 2024, the value of assets held in the stock market jumped by $3.8 trillion compared to the previous quarter. So, can the gains keep coming? Absolutely. And we should have exposure to this market to benefit from such an outcome. But let’s get some perspective on why we should pay attention to the old investment cliché of “dance while the music’s still playing but dance close to the door.” ADVERTISEMENT  This coming week Elon Musk is set to reveal his new AI product he calls “Robotaxi…” And tech legend Luke Lango believes it could help send shares of a little-known Elon supplier skyrocketing by as much as 20X. Which is why this coming Monday, October 7th at 10 am ET… He’s hosting a special strategy session to give you all the details on this little-known supplier. Click here to see the details and save your seat. | The missing variable in most bullish analysis Most of the analysis I’m reading suggesting a continuation of this bull market focuses on three requirements: inflation must remain low, the soft landing must be achieved, and earnings must come in strong. Now, we could poke some holes in these variables but let’s go a different route. Let’s assume that conditions remain favorable to the bull case. Even in that hypothetical, there’s one issue investors need to remember. The takeaway won’t be “get out of this market,” but it will suggest we maintain caution as we profit in this market… I’m talking about valuation. By now, you’ve likely seen a zillion charts and statistics about the S&P’s bullish returns after the start of a new rate-cutting cycle. While those statistics are accurate, their broad generality might provide a skewed impression of our exact situation today. What those average numbers don’t highlight explicitly is “starting valuation.” And that’s big – after all, a roaring bull will have far more room to run if it's beginning from a low valuation than a lofty valuation. Last year, the research shop Meeder Investments ran the numbers on S&P returns after rate cuts, focusing on the potential for a market pullback. In what should surprise no one, beginning valuation makes a huge difference: Valuations matter...
When the market had a decline of at least -20% after the Fed's first cut, the average S&P 500 trailing PE ratio was 18. On the other hand, when the S&P 500 had a decline of less than -10%, the average PE ratio was 11.4. As a reminder, the S&P’s current valuation isn’t 11.4… or 18… it’s 29.8. But that uses trailing earnings. With inflation falling and our economy still robust, that would suggest fertile territory for earnings growth, which would take pressure of the PE ratio. So, if we look at today’s PE valuation using forward-looking earnings estimates, what do we find? Today’s forward PE is 22. Yes, that’s lower than 29.8, but when viewed in the context of past forward PEs at the start of a rate-cutting cycle, it’s very high. From analyst Charles-Henry Monchau at Syz Group: Historically, fed rate cuts triggered market rallies led by valuation expansion. But this time, it seems that markets front-loaded the Fed by accumulating US stocks AHEAD of the Fed decision.
Bottom-line: Current market valuation is now on the high side vs. other instances in history when the Fed cut rates. This should limit the amplitude of the current bull. Below is a chart from analyst David Marlin dating back to 1964. The green bars show the starting forward PE when our economy avoided a recession in the 12 months after rate cuts began. The red bars show the starting forward PE when we subsequently fell into a recession. Today’s starting forward PE is higher than all of them.  Source: @Marlin_Capital
This doesn’t mean the market is going to crash. But it does suggest that we factor this into our return expectations. Remember: All things equal, the greater your price tag today, the smaller your return tomorrow. And we’re paying a lot today. Other valuation metrics tell us the same thing If we swap out earnings in exchange for revenues, we find a similar takeaway: expensive. Below, we look at the S&P’s price-to-sales ratio. We’re now just a shade under the highest price-to-sales ratio since 2000.  Source: Multpl.com
Then there’s the “Buffett Indicator” which is the ratio of the total U.S. stock market to U.S. GDP. According to Guru Focus, the Buffett Indicator suggests that the S&P is “significantly overvalued”: Based on the historical ratio of total market cap over GDP (currently at 196%), it is likely to return 0.2% a year from this level of valuation, including dividends. Next, looking at global valuations, the torrid run-up in U.S. stocks this year has resulted in foreign stocks being two standard deviations cheaper than U.S. equities.  Source: Mike Zaccardi
Then, circling back to our earlier statistics on near-record stock ownership amongst Americans, that’s also suggestive of overvaluation. Here’s analyst Stéphane Renevier from Finimize: A lot of things can influence short-term stock returns: interest rates, economic data, geopolitical stuff, investor sentiment – even weather. But for long-term returns, one factor rules them all: the proportion of assets that investors are parking in stocks.
This ratio has proven to be the most reliable predictor of stock returns over a ten-year horizon, outshining even heavyweight factors like valuations.
It says that when investors go big on stocks, their long-term returns tend to be below average...
Investor over-allocation to stocks has been the most precise warning signal of lost decades. A spike in allocations to stocks preceded both the lost decade of the 1970s and the early 2000s. As we showed earlier, we’re now just under the highest allocation to stocks ever. To be clear, these valuations mean nothing in the face of this raging bull market that wants to rip higher As far as your portfolio value is concerned, price trumps everything. And today, investors are gleefully pushing prices higher. Let’s benefit from that. So, mind your stop-losses… use wise position sizes… maintain a balanced portfolio of various assets that are non-correlated… and then stay in the market for as long as this party wants to rage… But have your exit plan ready to go if/when conditions sour. After all, valuation matters…eventually. ADVERTISEMENT  This coming week Elon Musk is set to reveal his NEW AI product he calls Robotaxi… Which he believes could create more than $9 trillion in value. To help you take advantage of this rare opportunity, this coming Monday at 10 am ET… Tech legend Luke Lango is hosting a special online strategy session to help you prepare. Click here to see the details and save your seat. | Now, while broad-market valuations point toward headwinds for the average stock, there's one corner of the market that's poised for an historic surge Autonomous and electric vehicle stocks. We’ve been profiling this sector this week. That’s because next Thursday, Tesla is holding its “We, Robot” event. It’s expected that the company will reveal its first dedicated robotaxi, tentatively called the "Cybercab." We believe this is going to revolutionize the auto industry and beyond. The economic/investment daisy chain is vast and loaded with opportunities. This coming Monday at 10 AM EST, our technology expert Luke Lango is holding a special event to detail some of those opportunities. Let’s briefly look at one. Yesterday, Luke provided some analysis and back-of-the-napkin numbers on the trucking industry: Companies like Aurora and Kodiak Robotics are set to debut driverless delivery trucks on Texas roads later this year...
Now, in the U.S., trucks transport about 75% of total freight value and 65% of total freight weight. This is an industry valued at ~$200 billion in America and ~$2 trillion globally...
Driver wages and benefits comprise about 40% of trucking companies' overall operating costs. Therefore, self-driving technology could reduce companies' expenses by about 40%. And that's just the beginning.
Another game-changer – extended hours of service. While safety regulations limit human truckers to about 11 hours of driving per day, autonomous trucks don't need to sleep. They can operate 24/7...
Ultimately, self-driving trucks could reduce logistics costs across the board. Let's say this revolutionary tech leads to 30% cost savings, conservatively. When you apply that to a $2 trillion global industry, it translates to potential savings of up to $600 billion.
That's not just a transformation. It's a seismic shift. This is just one example of the many investment opportunities arriving at our doorstep To hear more, and to fully understand what’s coming, join Luke this Monday at 10 AM EST. As I wrote earlier this week, I believe this will be one of the most important events our company puts on this year, giving investors an invaluable preview of what’s on the way technologically, and what it means financially. I’ll give Luke our final word: If self-driving cars are successful, AV stocks could (and should) soar over the coming years.
That's also why, next week – on Monday, Oct. 7 at 10 a.m. Eastern – I am hosting a special event to help prepare for this fast-approaching Autonomous Vehicle Revolution.
I'll detail all the recent groundbreaking developments in the autonomous vehicle industry, including how robotaxis are set to completely transform transportation, save millions of lives, and potentially put up to $30,000 a year in passive income in your pocket.
We'll also dive headlong into the highly anticipated Robotaxi launch that could unlock a staggering $9 trillion in value – bigger than all of Elon Musk's companies combined.
While Elon has been promising self-driving technology for years without success, I believe a tiny $3 company holds the key to unlocking his biggest, boldest promise. This upcoming Robotaxi event could send shares of this company skyrocketing, and I'll unveil my playbook of what I believe are some of the best AV tech supplier stocks to buy right now.
This is your chance to get ahead of the curve and potentially identify the next batch of superstar tech stocks before they explode.
Have a good evening, Jeff Remsburg | 
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