Two comments are guaranteed to send shivers down the spine of any Wall Street veteran. They are:

–this time is different, and

–politics makes a difference.

Yes, every time is different to some degree, but mostly in minor ways. By and large, next time will be pretty much the same. Also, when someone leads off with politics/possible government action as a way of analyzing stocks, that makes it clear that they really don’t have much relevant skill or information.

With those caveats, I have to say that I’m worried about the damage the US economy might incur during a second Trump term.

How so?

Yes, Trump did lower the corporate tax rate to a level in line with the rest of the world, to stop domestic companies’ migration of operations abroad.

On the other hand,

—he tried to overthrow the government after he lost the election in 2022. No guarantees a second try wouldn’t happen, either

—his response to the pandemic was denial. There’s no consensus I can see about how many unnecessary deaths this panicky non-response caused in the US, but I think it’s safe to say that the number is more than all the deaths in combat of American servicepeople since the end of WWII

–then there are the top secret documents Trump took with him when he left the White House. My concern is not that Trump pocketed them, but that the government came looking to get them back and that Trump denied he had them/hid them. To me, the search implies that important intelligence sources have been compromised and Washington was trying to find the leaks that caused this, to prevent further damage. The hiding suggests that the documents were in fact shown/sold to foreign countries. Add to that Trump’s recently having his party prevent ammunition shipments to Ukraine, opening the door for Russia to seize territory there, and the look is not one that makes me confident that the country’s welfare is Trump’s highest priority.

—

guessing jobs added/lost, economy-wide each month

The labor force in the US is about 150 million workers. Of that, somewhere around 3 million each month leave their jobs and another 3 million or so start new work. The difference between the last two, which amounted +272,000 jobs in May, is what the jobs report announces. It’s accurate to +/- 100,000 jobs–and that’s after two subsequent monthly adjustments for late-arriving reports from companies that participate in the government survey.

In other words, in my view, as an equity investor this is one of the last numbers you’d care to bet the farm on.

jobs and bonds

Stocks, bonds and cash are the three main categories of liquid investment. For the latter two, the interest rate is crucial, since it’s the main determinant of price (with credit quality playing a supporting role).

For stocks, not so much. Stocks, bonds and cash are the three main liquid investment categories, with the fixed income market much bigger than the stock market. So, yes, the price of bonds (a function of interest rates and credit quality) does have an influence on the price of stocks. And if we thought rates would shoot through the roof from here, that would be a big negative for both stocks and bonds. But that’s not the case now.

where we are now

As I see it, we’re at a near-term high point for rates (all bets are off if Trump is reelected). This is also the consensus view. For bonds, the crucial questions are: when, how quickly and by how much will the Fed lower the Fed Funds rate. For stocks, in contrast, this would likely be a nice tailwind, whenever it happens. But the crucial issue, especially today, for stock market investors is where the hot spots of earnings growth will be–something brokerage house strategists seem to be ignoring. Maybe it’s because they’re bond experts, not stockpickers.

Although it may sound odd, the intense focus of Wall Street strategists on bonds (the much bigger market for them) at the expense of trying to figure out what corporate earnings growth is likely to be, is good for us as individual stock market investors. It increases the chances that we can uncover information that Wall Street hasn’t.

The consensus

This doesn’t mean HOOD won’t continue to be an outperformer. It does mean, though, in my view–that further gains will most likely be driven by earnings growth rather than asset value.

My original argument for HOOD at around $12 a share was that the firm had book value of $8 a share or so (where it remains today) at a time when smaller discount brokers had been acquired by financial conglomerates for around 2.5x book. So an acquirer might be willing to pay $20, maybe a little more, for it, based on HOOD’s brand name and market positioning, even though operations were, in my view, a little on the sleazy side. In addition, catalysts for change had begun to appear. HOOD had (finally) hired a seasoned brokerage professional to get operations more in line with regulatory requirements as well as to expand HOOD’s scope. HOOD’s biggest attraction, in my mind, both then and now, is that it has a solid grip on the younger investor audience, a highly-prized segment that traditional brokers have had very little success in wooing.

HOOD is at $22.83 as I’m writing this. That puts it very close to 3x book. So the “value,” or you-can’t-fall-off-the-floor, phase seems to me to be in the rear view mirror now. That isn’t to say HOOD won’t continue to be a good stock. Rather, further gains have to come from trading and asset-gathering operations.

Personally, I’m on the fence. On the negative side, I haven’t done enough work to understand HOOD as a going concern. On the positive (for HOOD, anyway), I think that were a Trump victory to become increasingly likely as November approaches, that could easily trigger substantial capital flight from the US through crypto.

I’ve just updated my Keeping Score page for May. All IT, all the time, with the charge led by AI.