A poll of 150 investors by Reuters shows that folks have mixed views. Some think equities can squeeze higher past all-time-highs. Some think we’re in for a correction in the next 3 mo. With vol low, rate expectations reset to higher for longer, and decent corporate earnings—we agree that fundamentals don’t warrant rate cuts by the Fed, and be careful what you wish for. GS is now expecting a rate cut in June….but imagine how bad the economy would have to be versus now for that to happen? Are you listening to the Fed? They keep warning you of the risks of easing prematurely, per Bloomberg. Yesterday you heard hawkish calls from Waller, Jefferson, Cook, and Kashkari.
The US gov introduced its largest 1-day sanctions package against Russia since its initial invasion of Ukraine 2 yrs ago. More than 500 people and entities are targeted, coming on the heels of Navalny’s death/murder. US tech will be restricted to 90 new co’s. But guess what isn’t in the mix? Oil. Nobody wants crude to surge, especially politicians in an election year. Anyway, China, India, [you fill in the blank] haven’t cared in the past anyway, basically just getting a blue light special on energy when we create restrictions. The country’s GDP is increasing, but it’s because they’ve increase military spending by 70%, so you can imagine how the everyday person and their gov services are being affected.
That’s the answer to the question: how long can this trend last? Per the BofA chart below: the US consumer is getting paid, yet global manufacturing is weak (below 50 for the PMI). Either US consumers will drag them up, or if the consumer weakens, we’ll see PMIs drop further. We expect the trend to muddle for a bit here, but it can’t last for long.
Per BTIG, even with NVDA’s +14% relative move, the 42 SPY members reporting this week through Thurs generated an ave -1.55% relative reaction since reporting. Put NVDA in the mix, and you get -1.9%. Only 67% of SPY reporters beat consensus Q4 EPS, below the typical 75-80% rate. They note that of the 18 SPY co’s introducing full-year 2024 guidance this week, only 4 provided an outlook where the midpoint earnings expectation was above the prior Street expectations. BBG writes that only 73% of the S&P members advanced, despite yesterday’s 2%+ pop—the lowest participation for a gain like that since the 2020 election. Breadth isn’t like back in Nov.
The Housing Affordability Index recently hit the lowest level on record last week. Folks are staying put, and with rates up in the last 3 weeks, existing home supply down, labor strong, etc. Well, you get the picture. This is not changing soon.
Reddit is looking to go public, and its filings show a smaller loss last year, with revenue up +21%, per Reuters. But some wonder if they, like many private co’s, are prettying up as much as possible before hitting the roadshow. Lots of complaints about Reddit going downhill. They signed a licensing deal, but the power is in the users for that to work long term. Certainly they have benefitted from X’s self-inflicted challenges, but will that keep the party going?
42Macro notes that worsening deflation in the Chinese property market will mean more front-loaded policy support and increased liquidity.
Everyone knows that longer duration assets make money when rates decline. BofA is projecting that $500bn will get invested into high grade corporate debt this year. Barclays is talking about $600bn to risk assets. We certainly understand that could be the case…even if rates stay paused for longer than expected, because eventually (1H25?) the economy will feel more pressure, rates will decline, and investors will make money. But there’s the risk of being too early. What if all this AI spending that fuels NVDA makes the Fed (gulp) hike in a few quarters? We don’t think that is the case, but this would become the biggest pain trade since 2022, when it was supposed to be the year of fixed income (but wasn’t). You’d be better off clipping high short-term rates and being patient.
BTIG estimates that SPX options are pricing in a +/- 3.3% move for Nov’s election day. That figure hasn’t moved much over the past month, so folks aren’t focused much on that….yet.
