Amazon Drives Broad Line Retail +8% Friday, Bill Ackman’s 30 Year Treasury Short is Why Markets Need Arbitrage Leaders

MARKETS TODAY August 4^th, 2023 (Vica Partners)

Overnight/US Premarket,

Asian markets finished lower, Japan’s Nikkei 225 lost 3.84%, Hong Kong’s Hang Seng off 2.36% and China’s Shanghai Composite down 0.09%.

European markets finished higher, France’s CAC 40 gained 0.47%, London’s FTSE 100 up 0.47% and Germany’s DAX up 0.37%.  S&P futures opened trading at 0.27% above fair

Today US Markets finished lower, the S&P 500 lost 0.52%, DOW down 0.42% and the NASDAQ off 0.36%. 9 of 11 S&P 500 sectors declining: Consumer Discretionary +1.91% outperforms/ Information Technology -1.49% lags. On the upside, NYSE Fang+, S&P Banking ETF ^KRE, Credit Hedge ETF ^CDX , Trending Industries: Broadline Retail, Household Durables, Gold, Oil, Bloomberg Commodity Index.

In US economic news, Nonfarm payrolls lower and misses estimates. Private sector hiring up and unemployment rate slightly down with wages data slightly higher than expected.

Takeaways

• Economic data continues to support soft landing
• Amazon Drives Broad Line Retail +8%
• NYSE Fang+ up 0.62%
• 9 of 11 S&P 500 sectors declining: Consumer Discretionary +1.91% outperforms/ Information Technology -1.49% lags
• Trending Industries: Broadline Retail +8.00%, Household Durables +1.77%, Biotechnology +0.71%.
• Banking ETF ^KRE +0.39%
• Credit Hedge ETF ^CDX +0.58%
• Gold, Oil and Bloomberg Commodity Index gain
• Credit Agricole SA PK (CRARY), Kubota ADR (KUBTY) w/ solid earnings beat

Pro Tip: Understanding what Sectors perform well before, during and after a full economic cycle is key to staying ahead of the Markets.

 Sectors/ Commodities/ Treasuries  

Key Indexes (5d, 20d, 50d, 100d, 200d)

S&P Sectors

• 9 of 11 S&P 500 sectors declining: Consumer Discretionary +1.91% outperforms/ Information Technology -1.49% lags.
• Industries: Broadline Retail +8.00%, Household Durables +1.77%, Biotechnology +0.71%.
• YTD Leaders: Information Technology +41.70%, Communication Services +41.07%, Consumer Discretionary +31.94%.
• S&P 500 +17.25%

Factors

Not available today

US Treasuries

Earnings

Q2 ’23 Top Line Top Line

• Q1 ’23 Actual: 79% of companies beat analyst estimates by an average of 6.5%
• Q2 Forecast: S&P 500 EPS was expected to decline <7.2%>/ Fiscal year 2023 EPS flat YoY
• Q2 Actual (thru 7/28): a) 51% of S&P 500 companies reporting actual results, 80% of S&P 500 b) the blended earnings decline for the S&P 500 is -7.3%, c) for Q3 2023, 27 S&P 500 companies have issued negative EPS guidance and 18 S&P 500 companies have issued positive EPS guidance d) the forward 12-month P/E ratio for the S&P 500 is 19.4. This P/E ratio is above the 5-year average (18.6) and above the 10-year average (17.4).

Notable Earnings Today  

• +Beat: Dominion Energy (D), Credit Agricole SA PK (CRARY), Kubota ADR (KUBTY), Magna Intl (MGA), Corebridge Financial (CRBG), RB Global (RBA)
• – Miss: Enbridge (ENB), Itochu ADR (ITOCY), LyondellBasell Industries (LYB), AP Moeller-Maersk AS (AMKBY), Swiss Re (SSREY), Marubeni ADR (MARUY), TELUS (TU), Orix (IX), Nippon Steel ADR (NPSCY), PPL (PPL), Liberty Media Formula C (FWONK), Icahn Enterprises (IEP), XPO (XPO)

Economic Data

US

• US. nonfarm payrolls: period July, act 187,000, fc 200,000, prior rev 185,000
• US. unemployment rate: period July, act 3.5%, fc 3.6%, prior 3.6%
• US. hourly wages: period July, act 0.4%, fc 0.3%. prior 0.4%
• Hourly wages year over year: period YOY, act 4.4%, fc 4.2%. prior 4.4%

Vica Partner Guidance July ’23, (updated 8-04)

• Q3/4 highlighting, Industries: Interactive Media & Services, Household Durables, Broadline Retail, Consumer Finance, Automobiles, Construction & Engineering, Semiconductor & Semiconductor Equipment, Construction Materials, Specialized REITs, Gas Utilities. Other: Undervaluation for Chinese Mega Cap Tech. Japan equities still a better value than US. Look for continued strength in Mega and Large Cap Growth “the new defensives” Expect Energy Sector rally!
• Cautionary, Banks shortly may be overpricing. Current indicators are mixed. Credit default swap (CDS) to pick-up through Q4/Q1. >20 Year Treasuries price erosion.  
• Longer Term, NASDAQ 100^NDX/FANG+ ^NYFANG companies will continue to outperform “BIG allows you to invest at scale”. TOP Sector outperform includes AI and Semiconductor Equipment, Key Material like Lithium. Forward looking CAGR growth below:
• Company, we continue to emphasize business *quality and strength of balance sheet for all investments. * Strong support – NVIDIA (NVDA), Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Tesla (TSLA), Taiwan Semi (TSM), ASML Holding NV (ASML), Broadcom (AVGO).

• BIG Picture: Market bottoms are made on bad news and with deflationary signals the current market rally should come as no surprise. The combination of current Fed tightening, higher oil prices and a strong dollar should have given us a final bottom in ’23?

1. Our biggest concern with the current rally is that the Government is not as effective as Free Markets in managing capital. Stock repurchases are just another way to deploy Capital.  Consider that about 63% of the typical business cost is labor. I wholeheartedly trust the Free Market to better spend on CAPEX, R&D, and other.
2. As for Bonds as an alternative investment for Stocks, a >10-year bond should have a return that exceeds nominal GDP, assuming inflation remains above >3%.
3. The argument for Fed further tightening has its pundits. Raising rates to counter jobs (1.6 jobs available for every job seeker) in a rapidly changing economy will NOT moderate on demands.
4. The Fed would benefit by rethinking its 2% inflation target and adjusting to 3%. This would account for more accurate wages, energy transitions and more BIG tech market-based institutions. In addition, add more protection from deflation.

News

Company News/ Other

• Cloud Services Industry Shows Early Signs of a Comeback – Bloomberg
• Carl Icahn’s Firm Slashes Dividend in Half After Activist Pressure; Stock Slides 30% – WSJ
• Toyota, Chinese Partners Ink Deal to Set Up Robotaxi Venture – Bloomberg
• Stocks Have Had a Great Year. Cue the September Effect. – WSJ

Energy/ Materials

• World’s Biggest Offshore Wind Turbine to Rise Next Week in US – Bloomberg
• Why are OPEC+ supply cuts failing to boost oil prices? – Reuters

Central Banks/Inflation/Labor Market

• Fitch Downgrade Won’t Break Washington’s Tax, Spending Habits – WSJ
• Here’s What Economists Are Saying About the US Jobs Report – Bloomberg

Asia/ China 

• China’s digital yuan ‘at forefront globally’, former central bank governor Yi Gang says – South China Mornring Post
• Intel executive emphasises importance of Chinese market in areas such as 5G and EVs: local media report – South China Morning Post