The market is up this morning, with a bounce after yesterday’s beating. What goes down must come up? Also, some better headlines out of China overnight, unless you’re the Chairman of Evergrande. Defensive has been the name of the game for most of Aug and Sep, predominantly due to the higher-er for longer-er Fed theme. Plus tax loss harvesting, seasonality, and changes in systematic positioning before the drawdown.
The Oct 1 gov shutdown is right around the corner, with rival stopgap measures in the House and Senate unlikely to pass in the other chamber. Private contracts and federal workers would not be paid, and Americans would continue to wonder why Congress fails to function so often. A prolonged shutdown would dampen growth and reduce confidence levels, driving down the likelihood of a fall Fed hike as members wait for data to understand the impact. So, expect the MOVE index to move with any scenario outside of the done-deal unlikely possibility. They estimate there would be $1.9bn a day in lost and delayed revenue, driving a reduction in quarterly GDP growth down by -0.2% each week, per BBG.
High food prices are altering consumer behavior, especially for those who used to rely on SNAP, the gov assistance program which ended about 6 mo ago. Half of SNAP participants are eating less, roughly 30% visit food pantries, and 30% rely on their network for meals and groceries, according to Propel.
Evergrande’s Chairman was placed under Chinese police control, which is similar to residential surveillance. Thus, it looks like their criminal justice system is taking over.
For the SEC probe, the employee tasked with reading the WhatsApp and other side communications from the top 10 folks at Citadel and Point72 has to determine if they mattered for business purposes. Their job also includes analyzing emojis. You have to imagine there is some juicy, funny stuff in there. Whether or not it mattered is another story. But Citadel is fighting back, arguing that it shouldn’t be held to the same standards as brokers who already started paying their fines and changing their compliance.
For the first time since Jun 2021, UST term premium (how much bond investors are comp’d for holding long-term debt) turned positive. That’s because there has been steep increases in longer-dated maturity yields in the past week, and investors are believing that rates could be higher for longer. Bloomberg has the story.
Why do small caps suffer in higher rate environments? They have weaker balance sheets (and often less consistent cash flows to support the weaker balance sheets), as explained by the FT.
4Q23 earnings for Costco beat. Strong gas kept revenues solid as well. The stock is up. In negative retail news, Target is shutting down a number of stores because of organized retail theft. The NYPost estimates that retailers lost -$112bn in organized crime wave generating unprecedented levels of theft. Maybe stores have to become huge and put human sentries near the front, ala Costco.
If you’re in the market for a new car and can be patient, EV maker Fisker rallied after its production update and a bullish analyst report, per Reuters. Its Ocean Extreme version looks awesome and fun, with long range, a solar roof, CA mode, and a taco tray.
Around 84% of the S&P are in their blackout period, which should end around the 20th of Oct. Corporate buybacks may fuel stock appreciation in the 4Q.
Someone did the math over at Citi. They note that housing prices are appreciating too rapidly to translate into 2% inflation.
Housing is still too expensive for many.
