MARKETS TODAY August 18th, 2023 (Vica Partners)
Overnight/US Premarket, Asian markets finished lower, Hong Kong’s Hang Seng lost 2.07%, China’s Shanghai Composite down 1.00% and Japan’s Nikkei 225 off 0.55%. S&P futures opened trading at 0.58% below fair value.
European markets finished lower, Germany’s DAX down 0.65%, London’s FTSE 100 off 0.65% and France’s CAC 40 off 0.38%.
Today US Markets finished mixed, the DOW rose 0.07%, the S&P 500 down 0.01% and the NASDAQ lost 0.20%. 6 of 11 S&P 500 sectors advancing: Energy +0.94% outperforms/ Communication Services -0.98% lags. On the upside, Russell 2000 ^RUT, iShares Semiconductor ETF ^SOXX, Credit Hedge ETF ^CDX, Industries: Hotel & Resort REITs Construction & Engineering, Industrial REITs, Oil, and the Bloomberg Commodity Index.
In US economic news, none scheduled today.
Takeaways
- DOW manages to gain 0.07%
- 6 of 11 S&P 500 sectors advancing: Energy +0.94% outperforms/ Communication Services -0.98% lags
- Trending Industries: Hotel & Resort REITs +1.90%, Construction & Engineering +1.33%, Industrial REITs +1.06%
- Continued Growth to Value Factor shift
- iShares Semiconductor ETF ^SOXX +0.54%
- Credit Hedge ETF ^CDX +0.40%
- Oil and the Bloomberg Commodity Index rise
- Palo Alto Networks (PANW) with solid aftermarket earnings beat
Pro Tip: The 5-day average put/call ratio indicates when the ratio of puts to calls is rising, it is a sign that investors are growing cautious. A ratio above 1 is considered pessimistic.
Sectors/ Commodities/ Treasuries
Key Indexes (5d, 20d, 50d, 100d, 200d)
S&P Sectors
- 6 of 11 S&P 500 sectors advancing: Energy +0.94% outperforms/ Communication Services -0.98% lags.
- Trending “on the Day”: Hotel & Resort REITs +1.90%, Construction & Engineering +1.33%, Industrial REITs +1.06%
- *1 Month Leaders: Energy +7.40%, Health Care +1.29%, Communication Services -0.79%
- *YTD Leaders: Communication Services +38.59%, Information Technology +34.31%, Consumer Discretionary +28.08%
- *S&P 500 +13.83% *as of Aug-17-2023
Factors
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 (TBA)
Notable Earnings Today
- +Beat: Deere&Company (DE), Palo Alto Networks (PANW), Vipshop (VIPS), Buckle (BKE)
- – Miss: Estee Lauder (EL)
Economic Data
US
- none scheduled
Vica Partner Guidance August ’23, (updated 8-18)
- Q3+/4 highlighting: the Energy sector which is typical in a mature/ late business cycle. Trending Industries: Energy Equipment & Services, Oil, Gas & Consumable Fuels, Interactive Media & Services, Construction Materials, Media, Broadline Retail, Health Care Providers & Services, Containers & Packaging, select REITs, Ground Transportation, Communications Equipment, Machinery Biotechnology, Pharmaceuticals, Capital Markets, Construction & Engineering, Building Products and Machinery.
- Mid Term: Q4 sector shift to Utilities and Health Care. Expect continued Information Technology pullback especially in semiconductors. Specialized REITs have continued upside. Undervaluation for Chinese Mega Cap Tech. Japan equities still a better value than US.
- Cautionary: “hard shift” from Growth to Value. Industries: Independent Power and Renewable Electricity Producers, Automobiles, Automobile Components, Consumer Finance, Passenger Airlines, Hotel & Resort REITs. Materials on China deflation. 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 materials like Lithium and Uranium. Larger funds have started investing in real estate and builders anticipating ’25 cycle growth. Forward looking ’27 CAGR growth below:
- Company: we continue to emphasize longer term positions *quality and strength of balance sheet for all investments. * Strong Mega Cap longer support – NVIDIA (NVDA), Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Tesla (TSLA), Taiwan Semi (TSM), ASML Holding NV (ASML).
The Federal Reserve as of August 2023 was no longer predicting Recession: To quote Investor Jeremy Grantham “the Federal Reserve record on predicting recessionary cycles is guaranteed to be wrong!
So why don’t we support the soft-landing scenario…
- Vica forecasts that the US will have a Recession, starting as early as Q4 ’23 and deep into ’24: the combination to date of Fed tightening, surging oil prices, stock market overvaluations and a strong dollar will shortly give us our bottom.
- Market bottoms are made on bad news and with deflationary signals: economic reports are mixed and arguably too much focus placed on product prices and weekly jobs. Our biggest concerns are rising interest rates and the depressing slow-moving effect it has on the Real Estate market and revolving consumer debt.
- Current S&P 500 Sector Metrics support contraction: strong trends in the Energy sector indicate a Late Business cycle followed by defensives Health Care and Utilities that will shortly take the lead (see chart below).
- Look for a correction in excessive market asset valuations: the current shift Growth to Value stocks and Information Technology sector pullback is underway.
Pundits can all agree that the Fed has never called any recession in-kind.
Realignment is needed …
- The Federal Reserve has limited power in controlling inflation: old school economic principles are ineffective in a highly automated and expanding global economy. By simply raising rates to counter jobs (1.6 jobs available for every job seeker) will NOT moderate on demands.
- A 2% inflation target is not realistic today: perhaps a >3% base rate could help fund a) appropriated wages for skilled workers and training b) an executable and efficient energy transition c) improving operational efficiencies across the economy d) and most importantly protection from deflation!
News
Company News/ Other
- Amazon Restarts Shipping Unit That Competes With UPS and FedEx – WSJ
- GLP-1 Drugs Are Coming, and They Could Change Everything – Bloomberg
- How Big Tech Broke Smaller-Company Investing – WSJ
Energy/ Materials
- Bank of America’s $580 Million Renewable Tax Credit Deal Is One of Many – Bloomberg
- Plant-Based Plastics Gain Favor as Companies Pursue Sustainability Goals – WSJ
Real Estate
- China Evergrande Group Files Chapter 15 Bankruptcy in New York – Bloomberg
Central Banks/Inflation/Labor Market
- Economists Lift US Growth Forecasts, See Fed Higher for Longer – Bloomberg
- Jeremy Grantham Says Fed Is Kidding Itself on Avoiding a Recession – Bloomberg
Asia/ China
- China-led de-dollarisation gains traction among emerging economies ahead of Brics summit – South China Morning Post
