Bespoke’s Morning Lineup – 9/27/24 – China Keeps Going
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“For those who believe, no proof is necessary. For those who disbelieve, no amount of proof is sufficient.” – Ignatius de Loyola
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The quote above sums up the state of US politics heading into the election which is now over a month away. Those supporting either candidate have already dug in their heels, and if you think you can convince someone to change to your side, it will not happen. No matter what you or the candidate says or does between now and then in hopes to sway an opinion isn’t going to work. Despite that, hundreds of millions of dollars (and collective hours) will be spent between now and November 5th. It’s hard to believe anyone hasn’t already made up their mind.
There’s not much going on in US markets this morning. Equity futures have a modestly negative bias, crude oil is slightly higher, gold is slightly lower, and Treasury yields are modestly lower. It’s been a busy morning for economic data, though, with Personal Income, Personal Spending, Wholesale Inventories, and Core PCE all being released at 8:30. Michigan Sentiment will then hit the tape at 10 AM. Regarding the 8:30 data, Personal Income and Personal Spending both came in weaker than expected, but the PCE data was pretty much right in line with expectations. In reaction to the data, equity futures have ticked slightly higher.
Outside of the US, the monster rally in China continued overnight with the Shanghai Composite rallying close to 3% capping off a weekly gain of over 12% and gains every day this week. The positive tone flowed over into Asia as well as the Nikkei was up 2.3%.
Futures may be looking at modest losses to close out the week, but that comes after the S&P 500, on a market cap and equal-weighted basis (charts below) hit an all-time high yesterday. Regarding the equal weight index, the ETF that tracks it has been in a steady uptrend for over two months and heads into this weekend right at the upper end of that channel. The market cap-weighted index was slower making a new high and isn’t in the same uptrend as the equal-weight index, but it looks like it has made a convincing breakout above the July highs.
For the S&P 500’s breakout to keep up its momentum, it doesn’t necessarily need to see leadership from the megacaps, but they have to perform in line with the rest of the market, which they haven’t done in the last couple of months. As shown in the charts below, the only one of the trillion-dollar stocks that have been making new highs is Meta (META). As shown in the charts below, the other five have a ways to go before they even start approaching their prior highs.
The Closer – Annual GDP Revisions, Claims, 7y – 9/26/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we kick off with a dive into the latest annual revisions to GDP (pages 1 – 3) in addition to the latest claims data. We finish by recapping the 7-year note auction (page 4).
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Investing and Politics
The countdown to Election Day continues to tick down. Politics, understandably, can rile up investors’ nerves, so be sure to check out our Investing and Politics report containing eleven simple slides summarizing the impact (or lack thereof) of DC on financial markets.
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CFO Political Concerns & 40 Days Away
Yesterday, Duke University in partnership with the Atlanta and Richmond Federal Reserve Banks published their CFO Survey results for the third quarter. We discussed the bulk of the findings of the survey in last night’s Closer, including the chart below showing what CFOs reported to be their most pressing concerns. As shown, monetary policy continues to be the most common concern among CFOs albeit that share was the lowest in a year as rate cuts have begun. Sales/Demand was the next most common response having picked up from only 8% the previous quarter to 9.6% in Q3. Meanwhile, labor quality/availability as a concern has fallen steadily down to the lowest level in at least a year at 9.5%. Conversely, the share of respondents saying health of the economy is the most pressing concern more than doubled to 8.7% of responses.
There are not always the same reasons reported quarter to quarter, and Q3 featured a new and timely reason: Political Climate/Election. Any political tensions in the US aside, this reason did rank low, accounting for only 3.8% of responses which is roughly equal with the share reporting non-labor costs and regulation as the biggest problems.
In addition to adding politics to the most pressing concern question, the survey featured a couple of election-specific special questions. In response to the question “Has uncertainty related to the upcoming U.S. Presidential and Congressional elections led your firm to do any of the following to your investment plans?”, roughly two-thirds of firms reported that there has been no change. In other words, a vast majority of firms are pressing ahead with investment plans regardless of the election outcome. As we discussed in our Investing and Politics slides (which is worth checking out given the upcoming election), most of the time, politics is less impactful on business than we may initially think.
With that said, we would be remiss to not mention there are another 36.7% that reported they would either cancel, postpone, delay, or scale down investment plans on account of the election (note: respondents could select more than one option; percentages do not sum to 100). The survey additionally asked what CFO’s most important policy topic is for the election. Predictably, regulatory policy ranked as the highest followed by monetary policy. Fiscal policy and taxes were the next two issues to also account for more than half of responses.
Checking in on the election, today marks 40 days until Americans take to the polls. Using data from ElectionBettingOdds.com which shows aggregate betting market odds for the outcome of the election, Harris is narrowly favored with a 51.5% chance to Trump’s 47.5% chance. Whereas over the summer the election was looking like it could be a landslide for Trump with his odds closing in on a 70% chance of winning, since Biden dropped out with Harris as the replacement, Democrats have seen their odds improve considerably. Over the past couple of months, there has been a decent amount of back and forth in betting markets’ favoritism and in the past several days those odds are again narrowing. As shown in the second chart below, the odds at 40 days until the election are now the narrowest yet for the comparable point in time versus the 2016 and 2020 elections. While the race is close currently, we would note that on the day before Election Day in 2016 and 2020, the odds widened out massively with Democrats heavily favored each time. Ultimately, those odds proved right once (2020) and wrong once (2016). That means while betting markets can be a gauge on what will happen in November, the findings are far from a sure thing.
The Bespoke 50 Growth Stocks — 9/26/24
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. There were 8 changes to the list this week.
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The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated monthly on Thursdays unless otherwise noted. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning after publication. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.
Chart of the Day – Micron (MU) Surges On Earnings
Bespoke’s Morning Lineup – 9/26/24 – China Pulls Out More Stops
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“We can no longer afford to be second best. I want people all over the world to look to the United States again” – John F Kennedy
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equity futures surged overnight with the Nasdaq indicated to be up nearly 1.5% while the S&P 500 is poised to open higher by 0.75%. The only major catalyst in the US was a strong earnings report from Micron (MU) which surged over 16% after reporting an earnings triple play. The big news once again came out of China where the government said that it would undertake the necessary spending necessary to meet this year’s growth targets. That was also accompanied by reports that the government was prepared to pump $150 bln into the country’s largest banks. All of this news pushed stocks in the country firmly higher for the third straight day of 1%+ gains, and the impact has dispersed out to the rest of the global equity market.
In Europe, stocks have piggybacked on the overnight gains out of China, and the STOXX 600 has rallied over 1%.
Here in the US this morning, it’s a busy day for economic data with revised GDP, Personal Consumption, Core PCE, Durable Goods, and jobless claims all at 8:30. The most notable of these in our view was initial jobless claims, which once again confirmed that the surge earlier this summer may have been more seasonal than anything else. The only other report on the calendar is Pending Home Sales at 10 AM. If all this economic data isn’t enough, there are a ton of Fed speakers scheduled to speak, so many in fact that we couldn’t even fit them all on page one.
After another strong night for Chinese stocks, the Shanghai Composite has now rallied over 9% in the last three trading days with a bulk of the gains coming on Tuesday and today, even as Wednesday’s gain was a not-so-modest 1.2%. As shown in the chart below, the current run ranks as the strongest since July 2020, and before that August 2015. During the financial crisis, there were multiple occurrences, and then before that, there were a handful of occurrences in the years after China entered the WTO at the end of 2001.
The chart below shows each time the Shanghai Composite rallied over 9% in three days with no occurrences in the prior three months. Besides the current period, there were only six other occurrences, and the two that stand out most came right in the middle of major bear markets.
The Closer – Meta, Bankruptcies, CFO Survey – 9/25/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a look into Meta’s new product and news from OpenAI (page 1). WE then dive into business bankruptcies, distressed bonds, the difference between traditional and whole business securitization (pages 2 and 3). We then review today’s CFO survey data (page 4), new home sales (page 5), 5-year note auction (page 6), and EIA data (page 7).
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Chart of the Day – Markets Increasingly Eye Economic Data
Bespoke’s Morning Lineup – 9/25/24 – Gold Glitters
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“I putt like I did when I was a kid. When you’re a kid, you’re not scared of anything.” – Arnold Palmer
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s a quiet morning in the markets so far as US equity futures are flat to modestly lower while US treasuries are modestly higher as they’ve steadily risen since the Fed cut rates last week. The only economic report remaining on the calendar this morning is New Home Sales, but weekly mortgage applications were released earlier today, and while overall applications were up 11% for the week, nearly all of it was related to refinancing activity which was up 20% compared to a gain of just 1% for purchase applications.
While 10-year yields seemingly rising every day since the Fed cut rates last week, gold is on pace for its sixth straight day of gains and its fifth straight record closing high. Gold surged earlier in the year before trading in a sideways range from April through July. Still, as summer wound down and the current easing cycle became more of a certainty, investors have been piling into the world’s oldest inflation hedge.
Looking at gold from a longer-term perspective, all-time highs in the price of gold have been relatively rare. Since 1976, it has closed at a record high on just 2% of all trading days, and they were generally concentrated into three periods. The first was in the late 1970s to early 1980. Then gold went another quarter century with no record highs. It wasn’t until the financial crisis and the Fed instituted its zero-interest rate policy that gold broke out above its 1980 peak, and those new highs continued until late 2011. During Covid, gold briefly hit another all-time high but traded in a sideways range again through the end of 2023. This year, though, the pace of new highs has been coming in heavy with 36 – or about an average of once a week. Put another way, with 36 new closing highs this year, 14% of all the record closing highs in the price of gold have occurred this year.
Of the 36 record closing highs in the price of gold this year, six have occurred this September (through 9/24), and that has helped to move September into second place for the month with the largest number of new closing all-time highs. That’s nearly the opposite of the S&P 500 where September has been the month with the fewest record closing highs. The only month with more is August, but with just four trading days left this month, August’s lead is safe for this year.
