The State of Markets: "S&P500: How Much More Upside?" & "When is Santa Coming to Town?"
The uptrend in US equities continued last week. On Monday, the rally was led by cyclically sensitive equities, with a number of key indices breaking out to new highs. That included the DJ Transports, the Russell 2000, and the equal weighted S&P500. Later in the week, the leadership switched back to ‘growth heavy’ parts of the market. Yesterday that included Nvidia (+2.1%) and other MAG7 stocks. With that, the S&P500 broke above its highs from early November (a key resistance level, see key chart below).
The key questions, therefore, are as follows: Is the up-trend ongoing? Or was last week a false breakout? Has the Santa rally started? If not, when will it start? & finally, is the market set to follow its typical December seasonal pattern with a ‘flat to down’ 1st half of the month & a strong second half? We outline our views on those issues in recent (& future) research (e.g. see the ‘Daily Risk Appetite’ & ‘Tactical Asset Allocation’ publications for full analysis – available HERE: https://www.longvieweconomics.com/individual-subscriber).
Next week’s US macro data will be watched closely and includes ISM manufacturing (Monday); job openings (Tuesday); ADP employment & ISM services (Wednesday); which is followed on Friday by nonfarm payrolls and a first estimate for Michigan sentiment. Elsewhere Powell is moderating a panel, and the Fed is due to release its Beige book (both on Wednesday). Please see below for a full list of key macro data and events.
Key chart: S&P500 futures candlestick shown with its 50-day moving average
Upcoming important data/events this week:
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Events: |
Speech by the Fed’s Powell in moderated discussion (Wed, 6:45pm); Fed publishes Beige Book (Wed, 7pm); speech by the ECB’s Lagarde in EU Parliament (Wed, 1:30pm). |
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Monday: |
Chinese Caixin manufacturing sector PMI (Nov, 1:45am); US ISM manufacturing (Nov, 3pm). |
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Tuesday: |
US JOLTS job openings (Oct, 3pm). |
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Wednesday: |
Chinese Caixin service sector PMI (Nov, 1:45am); US ADP employment change (Nov, 1:15pm); ISM services (Nov, 3pm). |
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Thursday: |
German factory orders (Oct, 7am); US Challenger job cuts (Nov, 12:30pm). |
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Friday: |
US nonfarm payrolls, hourly earnings & unemployment (Nov, 1:30pm); US Michigan sentiment (December first estimate, 3pm). |
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Key earnings: |
Salesforce Inc (Tues); Synopsys (Wed); Toronto Dominion Bank, Bank of Montreal, Canadian Imperial Bank (Thurs). |
Key Research
Global Asset Allocation (Strategic), 28th November 2024:
“Move NEUTRAL (from OW) High Yield Credit in Strategic Portfolio”
In September we moved OW US high yield (HY) credit. The rationale reflected our view that (i) the US corporate sector was in strong health; (ii) recession risk was low (relative to consensus thinking); and (iii) there was therefore room for further spread compression (i.e. as markets continued to price out recession risk). As such it was part of a broader increase in risk in the strategic portfolio.
In recent months spreads have tightened significantly. US HY spreads, for example, have tightened by 118bps since early August (i.e. from 428bps in early August to 310bps currently). Last week they reached as low as 299bps (i.e. their lowest since 2007, i.e. pre the GFC). European spreads have behaved in a similar way (narrowing to 378bps over Bunds, from 453bps in August, see fig 9).
Key North American macro data & events:
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Events: |
Speeches by the Fed’s Waller at Fed Framework conference (Mon, 8:15pm), Williams at the Queens Chamber of Commerce (Mon, 9:30pm), Kugler on the labour market (Tues, 5:35pm), Goolsbee at the Midwest Agriculture Conference (Tues, 8:45pm), Musalem on the US economy (Wed, 1:45pm), Powell in moderated discussion (Wed, 6:45pm), Bowman to Missouri Bankers Association (Fri, 2:15pm), Goolsbee in Fireside chat (Fri, 3:30pm), Hammack on the US economy (Fri, 5pm) & Daly in moderated conversation (Fri, 6pm); Fed publishes Beige Book (Wed, 7pm). |
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Monday: |
US S&P manufacturing sector PMI (November final estimate, 2:45pm); US construction spending (Oct, 3pm); US ISM manufacturing (Nov, 3pm). |
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Tuesday: |
US JOLTS job openings (Oct, 3pm). |
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Wednesday: |
US ADP employment change (Nov, 1:15pm); Canadian labour productivity (Q3, 1:30pm); Canadian S&P service sector PMI (Nov, 2:30pm); US S&P service sector PMI (November final estimate, 2:45pm); US durable goods orders (October final estimate, 3pm); ISM services (Nov, 3pm). |
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Thursday: |
US Challenger job cuts (Nov, 12:30pm); US trade balance (Oct, 1:30pm); US weekly jobless claims (1:30pm). |
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Friday: |
Canadian employment change (Nov, 1:30pm); US nonfarm payrolls, hourly earnings & unemployment (Nov, 1:30pm); US Michigan sentiment (December first estimate, 3pm); US total vehicle sales (Nov, 3pm); US consumer credit (Oct, 8pm). |
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Key earnings: |
Zscaler (Mon); Salesforce Inc, Marvell, Bank of Nova Scotia (Tues); Synopsys, National Bank of Canada (Wed); Kroger, Lululemon Athletica, Toronto Dominion Bank, Bank of Montreal, Canadian Imperial Bank (Thurs). |
Fig B: US ISM manufacturing (index)
Key European macro data & events
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Events: |
Speeches by the ECB’s Cipollone in Milan (Tues & Wed, 8am & 9am), Lagarde in EU Parliament (Wed, 1:30pm) & Nagel at ESM (Wed, 5:10pm); ISTAT publishes economic forecasts (Thurs, 10am). |
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Monday: |
HCOB manufacturing sector PMIs for Spain (8:15am), Italy (8:45am), France (8:50am), Germany (8:55am) & Eurozone (9am) – all November final estimates apart from Spain & Italy; Italian unemployment rate (Oct, 9am); Italian GDP (Q3 final estimate, 9am); Eurozone unemployment rate (Oct, 10am); Italian new car sales (Nov, 5pm). |
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Tuesday: |
Spanish unemployment change (Nov, 8am). |
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Wednesday: |
HCOB service sector PMIs for Spain (8:15am), Italy (8:45am), France (8:50am), Germany (8:55am) & Eurozone (9am) – all November final estimates apart from Spain & Italy; Eurozone PPI (Oct, 10am). |
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Thursday: |
German factory orders (Oct, 7am); French industrial & manufacturing production (Oct, 7:45am); Eurozone retail sales (Oct, 10am). |
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Friday: |
German industrial production (Oct, 7am); German imports/exports, and trade balance (Oct, 7am); Eurozone GDP (Q3 final estimate, 10am); Italian retail sales (Oct, 10am). |
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Key earnings: |
N/A |
Fig C: German industrial production (Y-o-Y %)
Key UK macro data & events
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Events: |
Speech by the Bank of England’s Greene at a Financial Times event (Thurs, 5pm). |
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Monday: |
Lloyds business barometer (Nov, 12:01am); Nationwide house prices (Nov, 7am); S&P manufacturing sector PMI (November final estimate, 9:30am). |
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Tuesday: |
BRC retail sales (Nov, 12:01am). |
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Wednesday: |
S&P service sector PMI (November final estimate, 9:30am). |
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Thursday: |
New car sales (Nov, 9am). |
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Friday: |
Halifax house prices (Nov, 7am). |
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Key earnings: |
N/A |
Fig D: UK Nationwide house prices (Y-o-Y %)
Key Asia-Pacific macro data & events
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Events: |
Speech by the RBA’s Jacobs to the Australian Securitisation conference (Mon, 2:25am); speech by the BOJ’s Nakamura in Hiroshima (Thurs, 1:30am). |
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Monday: |
Australian headline CPI (Nov, 12am); Japanese Jibun Bank manufacturing sector PMI (November final estimate, 12:30am); Australian ANZ-Indeed job advertisements (Nov, 12:30am); Australian building approvals, private sector housing, and retail sales (Oct, 12:30am); Chinese Caixin manufacturing sector PMI (Nov, 1:45am); Japanese money supply (Nov, 11:50pm). |
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Tuesday: |
Australian current account balance (Q3, 12:30am); Australian S&P service sector PMI (November final estimate, 10pm). |
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Wednesday: |
Japanese Jibun Bank service sector PMI (November final estimate, 12:30am); Australian GDP (Q3, 12:30am); Chinese Caixin service sector PMI (Nov, 1:45am). |
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Thursday: |
Australian household spending (Oct, 12:30am); Australian imports/exports, and trade balance (Oct, 12:30am); Japanese cash earnings (Oct, 11:30pm). |
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Friday: |
Japanese ESRI leading index (October first estimate, 5am). |
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Key earnings: |
N/A |
Fig E: Japanese ESRI leading indicator (index)
Last week:
Longview on Friday, 29th November 2024:
“Overweight & Nervous -> Complacency Abounds”
Global Asset Allocation Alert (Strategic), 28th November 2024:
“Move NEUTRAL (from OW) High Yield Credit in Strategic Portfolio”
Global Macro Report, 26th November 2024:
“UK Inflation: ‘Tending Down’ or ‘Sticky’?”
Prior week:
Longview on Friday, 22nd November 2024:
“The View from New York”
Monthly Global Asset Allocation No. 55, 21st November 2024:
“Trump & The Oil Price: Does The Coming New Energy Policy Matter?”
The SHORT VIEW (& market positioning), 19th November 2024:
“Copper: (near term) Bounce Likely”