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Why Markets Are Resilient Despite Geopolitical Risks

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Why Markets Are Resilient Despite Geopolitical Risks: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Markets Are Resilient Despite Geopolitical Risks
  • Weekly Market Preview:  Will Powell Signal Rate Hikes Are Over?
  • Weekly Economic Cheat Sheet:  Can Economic Growth Stay Strong?

Futures are slightly higher as the weekend brought no major changes to the current macroeconomic set up.

Geo-politically, an invasion of Gaza by Israel remains imminent but so far the conflict hasn’t expanded regionally and oil is little changed as a result.

Economically, inflation in India declined –0.25% vs. (E) 0.50%, reinforcing that inflation is declining globally.

Today focus will be on the October Empire Manufacturing Survey (E: -5.0) and markets will want to see “Goldilocks” data that largely meets expectations combined with declines in the price indices.  We also get one Fed speaker today, Harker (10:30 a.m. ET & 4:30 p.m. ET), and one notable earnings report, SCHW ($0.75), but barring any major surprises they shouldn’t move markets.

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Market Multiple Levels Chart (October Edition)

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Market Multiple Levels Chart (October Edition): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Levels Chart (October Edition)

Futures are modestly lower following mixed economic data and as the Israel and Hamas war appeared set to escalate.

Economically, E.U. Industrial Production beat while Chinese CPI was flat y/y, increasing deflation concerns.

Israel warned more than one million residents to evacuate southern Gaza in the next 24 hours as it readies for a potential invasion and oil is rallying 3% as a result.

Earnings season starts today and there are several large banks that are reporting results.  In addition to the earnings, markets will want to hear positive commentary on consumer spending on the earnings calls.  Important reports today include:  JPM ($3.89), UNH ($ 6.33), BLK ($8.52), C ($1.26), WFC ($1.25).

Economically, the only notable report today is Consumer Sentiment (E: 67.5) and it would take a spike in inflation expectations for that to move markets.

Market Multiple Table - October Edition

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Market Multiple Table – October Edition

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Market Multiple Table – October Edition: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Table – October Edition
  • Why Didn’t a Hot PPI Report Weigh on Markets?

Futures are modestly higher on more reports of global disinflation combined with additional Chinese stimulus.

Japanese PPI rose less than expected (2.0% vs. (E) 2.5%). And, that added to the recent list of inflation data points that imply ongoing global disinflation.

China’s sovereign wealth fund bought shares in the nation’s largest banks, boosting Asian markets.

Today the focus will be on the CPI report and expectations are as follows: Headline CPI:  0.3% m/m, 3.6% y/y, Core CPI: 0.3% m/m, 4.1% y/y.  Bottom line, a CPI Report under expectations should pressure yields and fuel a continued rally in stocks while a hot CPI should lift yields and likely weigh on stocks.

Away from the CPI report we also get Jobless Claims (E: 209K) and have multiple Fed speakers: Bostic & Collins.

Market Multiple Table - October Edition

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The Health of the World’s Second-Largest Economy

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The Health of the World’s Second-Largest Economy: Tom Essaye Quoted in Barron’s

Asian Stocks Gain as Investors Get Fresh Hope of China Stimulus

Asian traders seemed to largely shake off the latest grim development from China’s distressed property sector. As Country Garden edged to the brink of default—stocks moved higher after a report that meaningful Chinese stimulus may be due.

“The news is alleviating some lingering concerns about the health of the world’s second-largest economy.” Said Tom Essaye, the founder of Sevens Report Research.

Also, click here to view the full Barron’s article published on October 10th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Upward Pressure in Treasury Yields

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Utilities, Staples and Healthcare

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Utilities, Staples and Healthcare: Tom Essaye Quoted in Morningstar

Defensive stocks have traded poorly this year, but this strategist says they are in a sweet spot | Morningstar

A ‘growth scare’ will push Treasury yields lower and increase demand for safe-haven assets in equities: Sevens Report Research

U.S. stocks in the underperforming defensive sectors may be due for a comeback in the coming months as fears of an economic slowdown will push Treasury yields lower and increase demand for safe-haven assets in equities, according to Sevens Report Research.

“I do believe that we will have an economic growth scare in the coming months. That doesn’t mean I’m saying we’ll have a recession, but I do believe we have a growth scare looming and as such, I will begin to ‘nibble’ on utilities, staples and healthcare on the long side starting today, and I’ll rotate out of cyclicals as they’ve benefitted from solid growth and higher rates,” said Tom Essaye, the founder and the president of Sevens Report Research, in a Tuesday note.

Also, click here to view the full Morningstar article published on October 10th, 2023. 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.

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Discussing the Latest Canada and US Jobs Data

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US Jobs Data: Tom Essaye Interviewed on BNN Bloomberg

Ultimately the path of inflation will hold the answer on rate hikes, over jobs data: Chief economist

Jimmy Jean, chief economist and strategist at Desjardins, Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, and Tom Essaye, president of Sevens Report Research, join BNN Bloomberg to discuss the latest Canada and US jobs data, and whether the central banks might hike again.

Also, click here to view the full BNN Bloomberg video interview published on October 9th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Discuss the Latest Canada and US Jobs Data

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Tom Essaye, Highlights The Significance of The Job Data

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Significance of The Job Data: Tom Essaye Quoted in Investing.com

Wall Street’s Anticipation: Payrolls Data to Influence Fed’s November Decision?

Amid concerns about how upcoming data may impact interest rates, U.S. equities leaned towards a lower close as the S&P 500 fluctuated above a crucial support point. A potential boost in Friday’s monthly non-farm payrolls could lead to increased yields and a further stock decline.

Tom Essaye, highlighted the significance of the job data, suggesting it could greatly influence the S&P 500’s trajectory. 

Also, click here to view the full Investing.com article published on October 5th, 2023. 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.

Is There an Opportunity in Defensive Sectors?

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Is There an Opportunity in Defensive Sectors? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Have Defensive Sectors Traded So Poorly and Is There an Opportunity There?
  • Chart: 10-Yr Treasury Note Futures Imply Potential Reversal Lower in Benchmark Yields

U.S. stock futures are tracking global equity markets higher this morning. As investors welcome a sizeable drop in bond yields and new stimulus plans by China.

Bloomberg reported overnight that China may issue 1T yuan in debt to be used for infrastructure projects in order to help the economy meet the government’s annual growth targets. The news is alleviating some lingering concerns about the health of the world’s second-largest economy.

There are no economic reports today which will leave the market focused on more Fed speakers: Bostic, Waller, Kashkari, and Daly, and the subsequent reaction from bond markets.

Additionally, the Treasury will hold auctions for 3 and 6-month Bills at 11:30 a.m. ET and 3-Yr Notes at 1:00 p.m. ET that could impact yields.

Bottom line, the rise in Treasury futures (implying lower yields) yesterday when bond markets were closed for Columbus Day was a major factor supporting the rally in stocks, and how yields move today as fixed income markets open for the week will likely dictate the price action in stocks.

Is There an Opportunity in Defensive Sectors?

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Why Did Stocks Rally After the Jobs Report?

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Why Did Stocks Rally After the Jobs Report? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Did Stocks Rally After the Jobs Report?
  • What to Make of This Market (Updated Near and Medium-Term Outlook)
  • Weekly Economic Cheat Sheet:  Inflation in Focus This Week (CPI Thursday is Very Important)
  • Weekly Market Preview:  Will Rising Oil Prices Become Another Headwind?

Futures are moderately lower on rising geo-political tensions following the Hamas attack on Israel over the weekend.

The human tragedy and geo-political implications aside, from a market standpoint the attack matters because rising geo-political tensions mean higher oil prices (up 3% currently) and the higher oil goes, the stronger the additional headwind on stocks and bonds.

Today there are no notable economic reports but there are several Fed speakers, including Logan, Barr, and Jefferson, although they shouldn’t move markets.  So, oil will likely be the driver of asset prices today and the higher oil goes, the stronger the headwind on stocks.

Why Did Stocks Rally After the Jobs Report?

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An Important Jobs Day

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An Important Jobs Day: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • An Important Jobs Day (Jobs Report Preview – Abbreviated Version)

Futures are modestly higher following better than expected economic data overnight and on positioning ahead of today’s important jobs report.

Japanese Household Spending (3.9% vs. (E) 0.6%) and German Manufacturers’ Orders (3.9% vs. (E) 2.1%) both beat estimates. This points to some resilience in the global economy.

Today focus will be on the jobs report and expectations are as follows:  Job Adds: 160K, UE Rate: 3.7%, Wage Growth: 0.3% m/m & 4.3% y/y.  For markets, a job adds figure modestly below expectations with an increase in unemployment and drop in wages should push Treasury yields lower and spur a strong rebound in stocks.

Conversely, if we see a job adds number close to or above 250k, a decline in unemployment or rise in wages, expect higher Treasury yields and lower stock prices.

Outside of the jobs report today we also get Consumer Credit (E: $11.5B) and one Fed speaker, Waller (12:00 p.m. ET), but they shouldn’t move markets.

An Important Jobs Day

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