He’s Calling It

At some point, Mike Wilson from MS will be right. He’s calling for a -10% decline in the US stock market before the election. If Citi is right, then Mike will be right. Citi says take your profits in high flying AI stocks, per BBG. You’ve got Rubner and Chronert also flagging red forecasts. But the market opened positive, and bond yields were up (and bond prices down) ahead of Fed Chairman Powell's semiannual economic testimony on Cap Hill. He’s dancing before the Senate Banking Committee today and the House Financial Services Committee tomorrow (Wed).

Powell said he needs “more good data” to be confident inflation is heading down to 2%. Well, when he looks at labor data, things are softening.

Where’s the risk? CTAs are long $130bn in eq at the 85% level, per GS, after buying $10bn in stocks last week. A big market dislocation is still the greatest convexity risk, yet look at the scenario table below…almost all paths lead downward.

BBG is calling a bubble on p/e. Because of massive amounts of money thrown at the industry by institutions seeking returns and loving the not-so-real valuation recs allowed. In North Amer, the industry is 10x the size over the last 2 decades, per BBG. Basically, when a lot of money chases deals, it pays a higher price, thus lowering returns. So, expect fewer realizations, longer hold periods, and lower returns. Zombie funds are real. Secondary markets are opaque. Liquidity is controlled by the p/e participants, but the investors’ cash flow needs are real.

Apollo noted that the correlation between the 10Y and the expectation for the Fed’s expected first cut is starting to diverge, perhaps reflecting that the fiscal outlook is driving long rates versus all the Fedspeak.

The headline index of the NFIB survey was up a bit. But small biz are having a hard time with high rates and tight credit conditions, so hiring and investing in cap ex are muted.

More consumers note their financial condition is worse y/y.

Piper upgraded its BoA rating to neutral from an underweight sell and raised its px target to $42 from $37. JPM and WF kick off earnings this Friday, so we should start to get the storyline going then…KeyBanc increased its px target on Nvidia from $130 to $180. We’ll have to wait until Aug to find out if that was a good move or not. KeyBanc slightly decreased its AMD px target to $220 but kept its overweight rating, citing mixed data from Asia channel checks. We also saw a px target increase for Marvell to $95 from $90 at KeyBanc, per optical networking strength. They report in Aug too. Piper Sandler came in with a big px target increase from $190 to $225 for Apple but maintained a neutral rating. Whereas BofA noted a 13% increase in App Store revenue for Apple's q. Wedbush sees "more signs of iPhone stabilization" in China and gave a NTM px target of $275 with a buy.

Novo’s stock fell post an analysis that found that Lilly’s drug drives better weight loss results, per Reuters.

BP noted weak refining margins and oil trading are pressuring 2Q24 profits in their latest trading update, per BBG.

DIS is launching a cruise ship for Japan, which will set sail out of Tokyo in fiscal 2028. Supposedly they will invest $60 billion in its parks and cruises over the next decade.

Investors are demanding >60bps more to hold French bonds over German bonds…even with the election behind us.