October 23, 2024 | Watch the VIX

MARKETS

S&P 500: Down -64 points to 5786, VIX: 19.63

Asia: Japan -0.80%, China +0.52%, Hong Kong +1.27%

Europe: Euro Stoxx 50 -0.18%, FTSE -0.47%, DAX -0.07%

FX: USD (DXY) up 0.35%, EUR down 0.24%, GBP down 0.27%, JPY down 1.31%, CNY down 0.04%

Energy: WTI Crude down 0.95% to $71.06, Brent down 1.07% to $75.20

Cross markets: Terminal rate unch at 4.83, Implied rate cuts 2-years from terminal down ~1bp at 141bp, 2/10 yield spread +18bp

Treasuries: 2-year yields up ~3bp at 4.065%, 10-year yields up ~4bp at 4.246%, 30-year yields up ~2bp at 4.521%

WHAT WE'RE THINKING

Snapshot: US equities are lower again this morning after the S&P 500 (SPX) managed to climb back to unchanged levels late yesterday. Consumer Discretionary underperforms with Quick Service Restaurants (QSRs) a major source of weakness after MCD announced an E. Coli breakout and SBUX negatively preannounced/pulled F’25 guidance. Travel/leisure names are weak after IHG (UK) missed on RevPAR growth and HLT noted slower macro trends, while Consumer Staples lag after case volumes at KO declined in Q3.??Trust banks extend recent gains after NTRS beat estimates on improved Net Interest Income (NII), while REITS and Utilities rebound from rate-induced underperformance. Capital goods stocks also rebound with investors buying the earnings-driven pullback in GE, PCAR and HWM.??Tech underperforms with semis weighed down by ARM’s decision to cancel QCOM’s license agreement, while Transports lag after ODFL cited economic headwinds for its Q3 EPS miss. Treasury yields are a touch higher with curve flattening. The Dollar Index?is higher again with yen weakness the big story in FX. Gold is lower on $/￥ following a six-day rally to an all-time high and WTI crude erases about half of yesterday’s gain.

• September Existing Home Sales posted a surprise decline to 14-year low, while the median home price increased +3% YoY. The Fed’s Beige Book will be released later today and Richmond President Barkin is the only Fed speaker on the calendar (also later).
• The US macro calendar picks up tomorrow with the release of weekly jobless claims, new home sales and flash PMIs. Friday brings durable goods orders and final University of Michigan consumer sentiment (includes inflation expectations).??
• The Bank of Canada accelerated its pace of easing with a 50bp rate cut announced at today’s meeting.??
• ECB headlines continue to sound dovish with some officials reportedly discussing a need to take policy rates below neutral.??
• CQ3 earnings season continues to ramp with day-one price action reflecting a very high bar amid crowded positioning.
• Earnings beats from APH, BKR, CNI, JBT, LAD, LRN, NTRS, PKG, T, TNL, TRU and TXN still manage to generate upside, while shares of VRT trade lower after an increase in order growth missed a high bar. Earnings-related disappointment include BA, BSX, CME, CSGP, ENPH, PRG, ROP, STX and TMO. Earnings highlights after the close include results from IBM, LRCX, LVS, MAT, NOW, ORLY, TMUS, TSLA, TYL, URI and WHR.

SPX: Crowded long positions have underperformed this earnings season, while crowded short positions have already rallied into the 95th percentile.??This leaves Hedge Funds with no easy near-term options other than to reduce leverage.??Notwithstanding a spike in implied equity volatility (VIX), we’d expect an SPX pullback to find support in the 5540-5650 range (-3.6% downside to the midpoint).??We keep a near-term bullish bias as long as the SPX can sustain closing levels above ~5540, but the index is overbought and due for a pullback with the current ~21.5x forward multiple leaving little room for error.??The SPX was able to earn its premium multiple during a prolonged period of subdued volatility.??Periods of elevated equity volatility (VIX >22) result in multiple compression as investors demand higher returns (risk premia) to compensate for the increased volatility. Bond market volatility (MOVE Index) is also approaching ‘elevated levels’ with further upside increasing the likelihood that it spills into equity markets. The VIX currently sits at 19.6.

FACT OF THE DAY

In 2011, twelve year old Erik Finman invested in Bitcoin at $12.? He later made a bet with his parents that if he turned 18 and was a millionaire, they wouldn’t force him to go to college.??Erik won the bet and didn’t go to college, where someone would have undoubtedly talked him out of posting the image below.

JSC IN THE MEDIA

American Express Earnings: Andrew discusses AXP as a relative safe haven and fully-valued stock, while shifting attention to the opportunity in regional banks. Watch Now

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Markets react as tensions rise in the Middle East: Andrew comments on recent events in the context of a market that is richly valued and therefore more sensitive to shocks of all kinds. Read on Reuters

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Fox Business News: Andrew joins Charles Payne on Making Money to discuss risks to the soft landing scenario and factors necessary to sustain the current bull market. Watch Video

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See more of JSC in the Media.

THIS DAY IN HISTORY

October 23, 1958: The Smurfs, a fictional race of blue dwarves by Peyo, make their premiere in the French weekly Spirou magazine. With over 100 characters with names based on adjectives emphasizing their characteristics, The Smurfs have been featured in multiple tv series, movies and video games. Papa Smurf, pictured below.

CATALYST CALENDAR

Tomorrow: 1) Eurozone flash PMIs for October; 2) US weekly jobless claims; 3) US flash PMIs for October; 4) US new home sales for September; 5) Japan Tokyo CPI for October and; 6) earnings before the open: AAL, BC, CARR, CBRE, CNX, CRS, DOW, FCNCA, HAS, HOG, HON, KDP, LEA, LH, LKQ, LUV, MSM, NDAQ, NOC, POOL, R, RS, SAH, SPGI, TPH, TSCO, TXT, UNP, UPS, VIRT, VLO, VLY. After the close: AJG, BYD, COF, DLR, DXCM, EW, HIG, KN, LHX, MHK, NOV, OLN, PFG, RMD, SKX, SSNC, TXRH, UHS, VRSN, WDC, WY. EU earnings: Anglo American, Barclays, BE Semiconductors, Hermes, London Stock Exchange.

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Friday: 1) Eurozone inflation expectations for September; 2) Eurozone M3 money supply for September; 3) Germany IFO survey for October; 4) US durable/capital goods for September; 5) Final Michigan sentiment report for October and; 6) earnings before the open: AN, AON, AVTR, B, CL, CNC, GNTX, HCA, POR, SAIA.?

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Saturday: China industrial profits for September.

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

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This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.