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October MMT Update: Positive News (But Priced In)

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How to Cut Through the Market Noise: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • October Market Multiple Table – Positive News But Priced In

U.S. futures are higher on dovish-leaning comments by the Fed’s Kugler overnight while global shares declined broadly in sympathy with a near-10% drop in Chinese shares after the latest government stimulus efforts disappointed.

Economically, German Industrial Production rose 2.9% vs. (E) 0.8% in August, helping easing EU growth worries while the NFIB Small Business Optimism Index rose to 91.5 but narrowly missed estimates of 91.7.

There are no notable economic reports today, however several Fed officials are scheduled to speak: Bostic (12:45 p.m. ET), Collins (4:00 p.m. ET), and Jefferson (7:30 p.m.). Based on the market’s positive reaction to Kugler’s comments in the pre-market, more dovish commentary has the potential to fuel a further relief rally today while a hawkish tone would likely weigh on stocks.

Finally, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and given the hawkish money flows in the wake of last week’s ISM data and September jobs report, weak demand at the auction could send yields to new highs and further pressure equity markets.

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The port strike could disrupt the data

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The port strike could disrupt the data: Tom Essaye Quoted in Forbes

Could Dock Worker Strike Spike Inflation? Experts Are Split.

Sevens Report analyst Tom Essaye wrote Tuesday to clients any strike-related inflation uptick is ultimately just a “temporary disruption” and shouldn’t impact the view of the broader inflation picture.

“The port strike could disrupt the data, essentially creating a smoke screen for the Fed when trying to stick the soft landing,” wrote Essaye.

Also, click here to view the full Forbes article published on October 1st, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Lastly, If you want research that comes with no long-term commitment, yet provides independent, value-added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

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Futures contracts tied to the index are telling a different story

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Futures contracts tied to the index are telling a different story: Tom Essaye Quoted in Market Watch

Why Wall Street’s ‘fear gauge’ could spike again around the election

But futures contracts tied to the index are telling a different story, and it’s one worth paying attention to, according to Tom Essaye, founder of Sevens Report Research.

The October VIX contract is trading at a premium to the November contract, an unusual development known to futures traders as “backwardation.” Typically, the VIX futures curve exhibits a smooth upward slope. But for most of this year, there has been a kink along this part of the curve.

According to Essaye, the inversion is notable not so much for its degree — the October contract was just 0.3 points above its September sibling as of early Thursday — but for its staying power. This segment of the curve has been in backwardation since the October contract started trading in February.

Also, click here to view the full MarketWatch article published on September 26th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

0DTE Options Primer (3 ETF Plays)

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0DTE Options Primer (3 ETF Plays): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • A Primer (and Potential Plays) on 0DTE Options
  • September Flash PMI Takeaways
  • Chart: The Rally in the “Rest of the Market” Is Losing Momentum

U.S. stock futures are tracking most global equity markets higher after the People’s Bank of China announced new stimulus measures to support economic growth overnight.

The PBOC cut a key policy interest rate, reduced bank reserve requirements, and injected more than $100B into the financial system sending Chinese stocks higher by 4%+.

Today, there are three economic reports to watch: Case-Shiller Home Price Index (E: 5.9%), FHFA House Price Index m/m (E: -0.1%), and Consumer Confidence (E: 103.0). After last week’s 50 bp rate cut from the Fed, investors are looking for stable and solid economic data so the risk to markets is underwhelming data this morning.

There is one Fed speaker today: Bowman at 9:00 a.m. ET and investors are increasingly hopeful the FOMC will cut rates by 50 bp again in November in order to pull off a soft landing so any pushback on that idea from Bowman could weigh on risk assets.

Finally, there is a 2-Yr Treasury Note auction at 1:00 p.m. ET. Strong demand (lower yields) will be supportive of a continued rally in stocks while a weak auction (higher yields) could also weigh on equity markets this afternoon.

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Understanding Why the Fed Cut 50 bps

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Understanding Why the Fed Cut 50 bps: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Understanding Why the Fed Cut 50 bps
  • Weekly Market Preview:  Can Momentum Keep Pushing Markets Higher?
  • Weekly Economic Cheat Sheet:  Focus Turns Back to Growth

Futures are slightly higher following a mostly quiet weekend of news and despite soft economic data overnight.

Economically, the EU flash PMIs were weaker than expected as manufacturing declined to 44.8 vs. (E) 45.7 while services nearly broke 50 (falling to 50.5 vs. (E) 52.3).

Geopolitically, Israeli strikes against Hezbollah continued but for now, markets are ignoring the escalation.

Today brings the two most important economic reports of the week vis the Flash Manufacturing PMI (E: 48.5) and Flash Services PMI (E: 55.3).  Numbers that meet or modestly exceed estimates should keep last week’s rally going while very disappointing readings will modestly increase growth concerns.

There are also several Fed speakers today including Bostic (8:00 a.m. ET), Goolsbee (10:15 a.m. ET) and Kashkari (1:00 p.m. ET).

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Markets are currently facing “tectonic risks”

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Markets are currently facing “tectonic risks”: Sevens Report Analysts Quoted in Investing.com

Markets are currently facing ‘tectonic risks’, strategists warn

The latest Sevens Report issued a warning, stating that markets are currently facing “tectonic risks” that could pose significant threats over time.

Sevens acknowledged a sense of disbelief among some investors who were surprised by the resilience of stocks, despite mounting political uncertainty and a clearly slowing economy.

According to Sevens, while there are visible warning signs—including rising unemployment, weak manufacturing data, and negative bank guidance—the overall news isn’t “bad enough yet to cause a sustainable decline in stocks.”

However, they pointed out that the macro risks are real, with political uncertainty (particularly around potential elections), economic ambiguity (whether there will be a soft or hard landing), and geopolitical tensions (including Russia/Ukraine and the situation in Taiwan) looming large.

However, “potential risks and anecdotal negatives, while all legitimate, and not yet enough to distract investors from positive factors in this market,” they wrote.

They believe factors such as the anticipation of Federal Reserve rate cuts, expected earnings growth, and sustained enthusiasm around artificial intelligence have been supporting the market.

The analysts stated that “the burden of proof remains with the bears” as these positive elements keep stocks buoyant for now.

However, the report emphasized that while markets could “grind higher” in the short term, with the potential for the S&P 500 to hit new highs, they remain exposed to “dramatic negative shocks” that could result in a significant 10%-20% decline.

“Bottom line, the risks currently facing this market (economic growth, earnings, geopolitics) are tectonic risks. They don’t present themselves all at once or in a flash, they evolve over time until they become sustainable and that’s when bear markets occur,” said Sevens.

Also, click here to view the full Investing.com article published on September 16th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Lastly, If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

How to Explain This Market To Clients (September Update)

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How to Explain This Market To Clients: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • How to Explain This Market To Clients (September Update)
  • Weekly Market Preview:  Two Key Central Bank Decisions (Fed on Wednesday, BOJ on Thursday)
  • Weekly Economic Cheat Sheet:  Important Growth Updates This Week

Futures are little changed despite more negative Chinese economic data as investors look ahead to the Fed decision on Wednesday.

August Chinese economic data disappointed as Industrial Production (4.5% vs. (E) 4.7% and Retail Sales (2.1% vs. (E) 2.7%) both missed estimates, raising more concerns about Chinese growth (and global growth more broadly).

Politically, there was another assassination attempt on Trump, although the event shouldn’t alter the current race.

This week will be both busy and important for this rally, but it starts slowly as the only notable number today is the September Empire Manufacturing Index (-4.1).  An in-line to slightly better than expected number would be the best-case scenario for markets today.

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September Market Multiple Table Chart

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September Market Multiple Table Chart: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • September Market Multiple Table Chart

Futures are slightly higher despite more underwhelming tech company guidance.

Adobe (ADBE) posted solid results but disappointing guidance (like many tech firms recently) and the stock is down 8% pre-market, but that’s not impacting the broader averages like other recent disappointing tech guidance.

Economically, Euro Zone Industrial Production slightly missed estimates although that’s not moving markets.

Today focus will be on inflation expectations in the University of Michigan Consumer Sentiment Index and expectations are:  1-Yr Inflation Expectations: 2.8%, 5-Yr. Inflation Expectations: 3.0%.  If we see better than expected numbers, that should further fuel the “dovish” rally that pushed stocks higher on Thursday.

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What CPI Means for Markets (Fed Further Behind Curve?)

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What CPI Means for Markets (Fed Further Behind Curve?): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • What CPI Means for Markets (Fed Further Behind Curve?)

Futures are modestly higher mostly on momentum from Wednesday’s impressive reversal and following encouraging Japanese inflation data.

Economically, the only notable number overnight was Japanese PPI and it rose 2.5% vs. (E) 2.8%. That may take some pressure off the BOJ to hike rates and also weigh on the yen and the Nikkei rose 3% in response.

Today the focus will remain on economic data and rate cuts via the ECB Rate Decision first (E: 25 bps cut) and later Jobless Claims (E: 230K) and PPI (E: 0.2% m/m, 1.8% y/y).  If data can meet expectations and the ECB cuts rates and signals more cuts coming, yesterday’s rally can (and likely will) continue.

There are also two notable earnings reports today via Kroger (KR $0.91) and Adobe (ADBE $4.53).  KR will give us insight into consumer spending (especially on essentials) while ADBE will be the latest tech company to post results (and the stronger the guidance, the better for the broader tech sector).

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This market remains vulnerable to negative shocks

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This market remains vulnerable to negative shocks: Sevens Report Analysts Quoted in Investing.com

S&P 500 could hit low 4,000s if ‘things get worse’: The Sevens Report

According to the latest Sevens Report Research note, the S&P 500 may face a significant drop into the low 4,000s in a worst-case scenario, if economic conditions deteriorate and key market assumptions falter.

The firm said in its latest note that recent market activity has shown that the S&P 500 is trading at a valuation that does not reflect current economic realities.

“This market remains vulnerable to negative shocks on growth, Fed rate cuts, inflation, and earnings,” the analysts explained, highlighting the risks the index faces.

Economic data, especially in the labor market, has shown a deterioration in recent months, which has led to rising concerns about a potential hard landing.

While the data still suggests a soft landing is more likely, the slowing economy does not justify the S&P 500’s current 21X multiple, according to Sevens.

“The economy is notably losing momentum, and that’s simply not an environment that warrants a 20X multiple,” Sevens stated.

Also, click here to view the full Investing.com article published on September 10th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Lastly, If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.