Market Observations - Oct 17
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Factoid:?The longest tennis point lasted for 29 minutes and 643 shots!
Earnings season is underway, and this week is pretty busy with BAC, JNJ, PLD, LMT, and G.S. reporting earnings on Tuesday.
Semis: There is still an ongoing debate between specialists (more negative) and generalists (more positive). It feels like this earnings season is a key one as Bears have negative est revisions in sight (4Q/1Q more so than 3Q), while bulls believe most/every end market will be inflecting back in the 2H’24 / into 2025 (core server, smartphones, P.C.s, WFE, etc). China remains a wildcard for the sector (less policy and more demand durability, and, in turn, ‘competition’ from domestic producers). Key tone setters for the group will be TSM (after a couple of cuts this year, GIR models mid-20s y/y revs growth in’ 24), ASML (will any ’24 ‘clarity’ be a clearing event?), AMD (do bulls look through any near-term air-pocket?) & TXN (demand trends + markets’ willingness to buy analog guide downs?). Sentiment check - Most Loved: NVDA, M.U., AVGO, INTC (H.F.s) vs. Most Debated: Semi cap, AMD, MRVL, NXPI, ON vs. Most out of Favor: Smartphones and Analogs / MCUs.
Software:?Sentiment remains lukewarm across Software (more ‘trading’ than ‘investing’ going on out there). Medium to long-term stories are great (and SaaS vendors proved the operating leverage doubters wrong this past year). Yet, directional investors appear a bit apprehensive in the short-term, with concerns centered around risks of further Rates driven multiple compression and the potential that numbers for 2024 need to be reset again (e.g. conservative guides + macro). Finally, A.I. is not yet being viewed as a tailwind for the space as plenty of unknowns remain (seat counts vs price, platform shifts, budget allocations, timing, etc). Sentiment check - Most Loved: MSFT, ADBE, PANW, INTU, MDB vs. Most Debated: CRM, CRWD, DDOG, WDAY vs. Most out of Favor: PLTR, Z.M., DOCU, AI.
US Monday Market Wrap: Optimism Reigns Supreme!
Stocks closed higher Monday as investors awaited a deluge of corporate earnings to hit the tape and shrugged off higher treasury yields. The Dow gained over 300 points or 0.93%, its best day since September. The S&P added 1.06%, and the Nasdaq climbed 1.2%. NKE and TRV led the Dow higher, gaining over 2%. All eleven S&P sectors closed green. Consumer discretionary +1.62% led, and energy +0.67% lagged.
The U.S. 10y Treasury yield settled around 4.71%, up from 4.62% on Friday.
WTI oil took a pause, slipping 0.80% to $85.67.
The battle between labor and capital continued over the weekend. Healthcare giant Kaiser Permanente reached a tentative deal with unions to end worker strikes. Meanwhile, Ford executive chairman Bill Ford called on the United Auto Workers (UAW) union to “stop this now” as contract negotiations remain at a crossroads. And lastly, the Chevron Australia LNG unions have decided to stick with their strike plan despite talks progressing.
U.S. Treasury faces an “interesting” situation as rates rise.?The U.S. government’s fiscal outlook is souring because the recent rise in interest rates puts it on track to spend far more on interest payments than initially anticipated. In the current fiscal year, interest spending is on its way to surpassing $800 billion, with debt service spending forecasted to eclipse defense spending in 2025 and Medicare spending in 2026. More cautious forecasters say that if interest rates stay above economic growth rates for a sustained period, the country risks a “debt spiral.”
The markets remain on edge. The press reports that U.S. President Biden is planning an imminent trip to Israel while Iran warns of “multiple fronts” against Israel if the attacks on Gaza continue. The dollar, which was offered yesterday, is better bid today. Still, the capital markets are relatively quiet. Even the Swiss franc, which was the strongest G10 currency last week (~0.9%), is slightly heavier today. Among emerging market currencies, the Polish zloty continues to be underpinned by the weekend election results.
Gold is firm but within yesterday’s ranges and holding below $1933, which was approached at the end of last week.
Overnight Asia Pacific and European equities were lifted by the more than 1% rally of the S&P and NASDAQ yesterday. All the large bourses in Asia Pacific but Taiwan rallied earlier today, led by the Nikkei’s 1.2% gain. Europe’s SXXP is slightly firmer, constrained perhaps by the modest losses being recorded by the U.S. index futures. The rise in yields seen yesterday is continuing today. The 10-year JGB yield is up nearly 3bps, increasing closer to 0.80%. European benchmark yields are mostly 1-2 bps higher, but Italy’s 10-year yield is up nearly 4bps amid anxiety over its budget proposals. The 10-year Gilt yield is slightly softer following the weaker-than-expected employment report. The 10-year U.S. Treasury yield is up 4bps to almost 4.75%.
December WTI slipped briefly below yesterday’s low near $85 but has since recovered back to the opening area near $85.70.
Sentiment in Germany remains fragile. The economy contracted in Q4 22 and Q1 23. It was stagnant in Q2 23 and appears to have contracted in Q3 and likely contracts this quarter as well. The ZEW survey showed that the current assessment continued to deteriorate. It fell to -79.9 from -79.4. It is the weakest since June 2020. It has not risen since April. The expectations component bottomed in September 2022 near -62 and reached a high in February, slightly above 28. It has been negative since May and ticked up to a still negative -1.1 from -11.4 in September. While China is providing modest stimulus, and Japan is preparing a supplemental budget and has maintained a negative overnight target rate, it is more difficult to see where stimulus comes from for Germany.
Last week, the U.S. high-frequency reports were mostly about prices--PPI, CPI, and the University of Michigan’s consumer expectations. Today’s attention shifts back to the real sector with September retail sales, industrial production, and business inventories. After rising by 0.6% in August, the increase in retail sales is likely to be halved, and even this is flattered by auto sales and gasoline, without which a 0.1% gain is expected. The average monthly gain in the first eight months of the year was 0.4%, and, in Jan-Aug 2022, retail sales rose by an average of 0.9% a month. Excluding autos, gasoline, building materials, and food services, retail sales are expected to be flat after a 0.1% increase in August. That would make it the weakest since the 0.8% decline in March. Remember, these are nominal numbers. Real consumption rose by 0.1% in August, matching the least since March. A pullback in the U.S. consumer will likely see upward pressure on inventories initially. August business inventories are seen rising by 0.3%, which would not only be the most this year, but the rise would offset the small net decline through July. While this may aid Q3 growth, if the inventory growth is undesirable, as we suspect, it will be a drag later. Industrial output and manufacturing production are expected to have been flat in September, and if there is a surprise, it is more likely to be on the downside.
领英推荐
Late in the session, the August TIC data will be reported. Foreign investors have bought nearly a net $500b of U.S. stocks and bonds through July. This is down from $876b in the first seven months of 2022. However, recall that in the first Jan-July period in 2019, foreigners were net sellers of a small amount ($3.5b) of U.S. paper assets. That said, it does seem as if the demand for U.S. Treasuries has shifted. Foreign governments and the Federal Reserve are buying fewer U.S. government bonds. Hedge funds, asset managers (pension funds and mutual funds), and insurers appear to be more significant buyers of U.S. Treasuries. Central bank’s use of the Federal Reserve’s custody facilities boosted their (Treasury and Agency holdings by about $5.6b in August. The custody holdings increased from $3.32 trillion at the end of last year to $3.44 trillion at the end of August. What could possibly go wrong?
Crypto Market Rundown
Bitcoin had a volatile session after a few of the more known digital asset news outlets reported that the U.S. Securities and Exchange Commission (SEC) had approved BlackRock’s spot Bitcoin ETF application. However, it did not. BTC shot up from $27,960 to $29,390 (+5.1%) within five minutes of the "news" hitting screens. With no confirmation, BTC dropped below $27,850 in the next 30 minutes but regained the $28,000 mark in the next few hours.??BTC?is trading at?$28,223?on?Uphold Ascent.
The global crypto market cap is $1.09T, a 0.77% increase over the last day.
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Please note that Uphold and its affiliates do not provide investment, tax, or legal advice. This message is for informational purposes only and takes no account of particular personal or market circumstances, and should not be relied upon as investment, tax, or legal advice. For investment, tax, or legal advice and before taking any action you should consult your own advisors. Note that digital assets such as cryptocurrencies present unique risks for investors. Please see our disclaimer regarding risks specific to holding digital assets before investing.