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Writer's pictureMarc Bentin

Election Week

BentinPartner Weekly



Stocks dropped for a second week, showing signs of short-term exhaustion on subdued earnings report, stubborn inflation, rising bond yields and as investors started to trim exposure ahead of US Presidential elections this week.

Stocks printed a fresh all time high on Tuesday but reversed those latest gains with sharp losses on Wednesday and Thursday.

 

Two Mag 7 earnings reports and guidance were not deemed not to be magnificent and drove Microsoft and Meta lower by respectively -6% and -4.1%, driving the broader market into a pullback of more than 2.5% for the Nasdaq on Wednesday.

 

On the earnings front, GOOG reported better than expected results and gapped higher on Wednesday, only to trim those gains later in the week as the tech sector was dragged down by AMD shedding 10%, also on softer guidance, and following the bomb shell that EY dropped its relationship with SMCI…causing its share price to crater 30% on the news and then by another 20% later in the week. Somehow INTC bucked the trend and reported better than expected results and guidance driving the stock 7% higher.

 

AMZN and AAPL came on Friday with AMZN closing 5% higher on operating income improving 56% yoy beating previous guidance. AAPL however was not so lucky and softer sales with the company also expecting lower single digit increase yoy got the share price lower by 5% on the week.

 

Rising yields were another catalyst for lower stocks in response to a lower jobless claims number (that said, the 4 w average jobless claims,  considered  as a more reliable gauge of job health rose to the highest since November 2021), a strong advanced Q3 GDP report at 2.8% and signs of a stubborn inflation as core PCE YoY came out at 2.7% (2.6% expected) while consumer confidence also came out strong for October.

Jobs data were more mixed with the ADP private survey showing a higher than expected 230k job creation in October (and upwards revision for September). But the JOLTS job opening report and subsequently Friday’s NFP report came significantly weaker than expected with nearly no jobs creation being reported (+12k) but the number’s importance was downplayed due to weather related conditions. The ISM manufacturing came in weaker than expected on Friday further into contraction mode at 46.5 (vs. 47.2 last and 47.5 expected), the lowest reading for the year.

 

While stocks attempted to recover on Friday, and despite mostly weaker than expected economic data, US 10Y US yields adding 10bps to 4.38% or the highest on the week cut the stock market recovery short in its tracks.

 

In geopolitics, things seemed to quieten down after J. Biden said he did not expect further tit for tat escalation from Iran, following Israel’s attack last week which did not affect Iranian oil or nuclear facilities, allowing oil to drop. However, late in the week, Iran said it would retaliate as the attack killed four soldiers. If anything, the Middle East conflict seems geared to aggravate as Iran’s response could be stronger than the 180 ballistic missiles fired on October 1st, according to Iran’s military sources (which could also serve domestic purposes with tough talk).

 

This week is going to be eventful with the outcome of the US elections to be known on Wednesday (hopefully so, as the race is promised to be tight with both camps readying to contest the results amidst wide ranging allegations of fraud).

Whoever wins this election will not reduce the deficit, won’t be able top stop wars in 48 hours, or pursue a meaningfully different economic agenda. What is really at stake with these elections is what will happen to free speech after them which is the cornerstone of democracy on which everything genuinely “democratic” can be built.  My gut feeling is also that we are closer to a Trump victory than polls and mainstream media are suggesting over the week end (and which seems to be driving the dollar and other so-called Trump trades down this morning).

 

The Fed will announce its decision to cut rates most likely by another 25bps (in line with Fed watch expectations) on Wednesday following a 50bps cut in September.


 

 

Over the past week, the S&P500 dropped -1,4% (20,1% YTD) while the Nasdaq100 dropped -1,6% (19,0% YTD). The US small cap index gained 0,0% (9,1% YTD). AAPL sold off by -3,7% (15,8%).

The Equally Weighed SP500 dropped -1,0% (11,8% YTD), outperforming the S&P500 by +0,4%. The median SP500 YTD return closed the week at 12,0%.

Cboe Volatility Index rallied 7,6% (75,7% YTD) to 21,88.

The Eurostoxx50 dropped -1,2% (10,9%), outperforming the S&P500 by 0,2%.

Diversified EM equities (VWO) dropped -1,0% (13,3%), underperforming the S&P500 by0,4%.

 

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,1% (8,2%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,1% (1,4%).

 

10Y US Treasuries underperformed with yields rising 14bps (50bps, Z-score 2,0) to 4,38%. 10Y Bunds climbed 11bps (38bps, Z-score 2,0) to 2,41%. 10Y Italian BTPs underperformed rising 17bps (-2bps) to 3,68%, underperforming Bunds by 6bps.

US High Yield (HY) Average Spread over Treasuries dropped -10bps (-48bps, Z-score -2,1) to 2,75%. US Investment Grade Average OAS climbed 0bps (-14bps) to 0,91%.

In European credit markets, EUR 5Y Senior Financial Spread climbed 1bps (-3bps) to 0,65%.

 

Gold dropped -0,4% (32,6%) while Silver sold off by -3,6% (36,5%). Major Gold Mines (GDX) sold off by -4,1% (28,5%).

 

Goldman Sachs Commodity Index sold off by -2,0% (1,4%). WTI Crude sold off by -3,2% (-3,0%).

 

 

Overnight in Asia…

 

  • S&P500 +12 points; Nikkei +1.2%; CSI300 +0.7%

  • Berkshire cash pile reached USD325.2bn in Q3, a record, as W. Buffett continued to refrain from major acquisitions while trimming exposure to AAPL at the end of the quarter to USD69.9bn (from USD84bn at the end of Q2).  Berkshire also declined to buy back its own stock for the first time since it changed its policy in 2018.

  • Infighting within Germany’s three-party coalition escalated on Sunday as top officials dismissed Finance Minister Christian Lindner’s latest economic proposals. Lindner, leader of the free market-leaning FDP, issued a position paper on Friday calling for tax cuts and a slower approach to emissions reductions. The suggestions quickly met with derision from leading members of his Social Democratic and Green coalition partners, Bloomberg reported. The latest clash comes ahead of pivotal budget talks and adds to speculation about the future of the coalition, Bloomberg also reported.


 

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