• GRIT
  • Posts
  • Reverse clickbait

Reverse clickbait

Good Morning!

Over 86% of the S&P 500 year-to-date return has come from valuation expansion. The S&P 500 is now trading at 19x P/E (forward), the long-term average is 15.6 and at the end of 2022 it was below 17x.

Can this continue?

Prices as of 4 pm EST, 8/18/23

JPMorgan

🤔 The chart above has been making the social media rounds lately. It shows US household excess savings have been depleted. Combined with recent data revealing credit card debt reaching $1 trillion for the first time ever, the mainstream media has wasted no time in pumping out clickbait headlines. What they won't tell you, however, is that US household liquidity (i.e., cash and checkable deposits) is also near all-time highs, and that the same JPMorgan analysts responsible for this alarming chart also estimate that excess liquidity won't be drained until May 2024. Or that the delinquency rates on those credit cards are at pre-Covid levels. Or that household debt service ratios and debt as a percentage of disposable income are both also still below pre-pandemic levels. This is to say: take doomsday headlines regarding the US consumer with a healthy dose of salt.

🌏 Local governments in China are in a tough spot. You see, the lingering effects from Covid lockdowns and the current downturn in the country's property sector are denting government revenues which have led to weak finances and rising debt risks. On Friday, financial regulators called for more loans to local governments to support their recovery and help reduce those risks. Today, China's central bank lowered the rate on its one-year loan prime rate (the peg for household and corporate loans) for the second time in the last 3 months, albeit by less than expected. The five-year rate (which is closely tied to mortgages), meanwhile, was left unchanged despite expectations of a 15bps cut. Overall, the moves were underwhelming as far as fiscal support goes.

  • Monday: none

  • Tuesday: Redbook, existing home sales, Richmond Fed Manufacturing Index

  • Wednesday: S&P Global Flash PMIs, new home sales, EIA

  • Thursday: Durable goods, Chicago Fed NFCAI, jobless claims, Kansas City Fed Manufacturing Index, Jackson Hole

  • Friday: Michigan consumer sentiment, Fed Powell speech

Goldman Sachs

🐻 Hedge fund shorts are back. Led by short covering, July was one of the largest active de-grossing months in recent years for hedge funds. Since then, risk appetite has returned with gross trading activity increasing for 3 consecutive weeks as investors boost bearish bets. In fact, according to Goldman Sachs, last week hedge funds shorted US ETFs at the fastest pace since September 2022. Over the period, short sales outpaced longs by ~1.6 to 1.

Deutsche Bank

📉 Discretionary investors have been reducing exposure to equities. Over the past ~2 months, discretionary positioning has dropped from 1.5-year highs to underweight (41st percentile). Aggregate position (52nd) remains slightly above neutral thanks to stubbornly overweight systematic strategies (70th). Total net call volume, meanwhile, plunged over the past week with put volumes reaching their highest levels since March (banking crisis) while US equity funds saw $5.2 billion in outflows.

🛢️ China is drawing on record crude inventories. This comes as OPEC+ has tightened its grip on supply, driving prices higher. The cartel sees exports falling for the second straight month in August. Meanwhile, in the US, the oil rig count resumed its downward trend, falling to 520 from 525, the lowest since March 2022. With demand holding steady, tightening supply points to higher oil prices.

📊 Friday’s highlights:

DE John Deere: $10.20 EPS (vs. $8.22 expected) ✅, $15.8 billion in revenue (vs. $148.14 expected) ✅.

  • Production improved and backlogs declined as supply chain pressures eased.

  • The company expects dealer inventories for new and used equipment to be “below historic levels" by year-end, implying strong demand.

  • It also raised full-year guidance but concerns over a slowdown in sales ahead led to a sharp sell-off following the report.

👀 What we’re watching today:

  • BHP BHP Group

  • ZM Zoom Video

  • DSN Nordson

  • FN Fabrinet

  • LU Lufax

  • QFIN Qifu Technology

  • Hilary: Tropical Storm Hilary is the first tropical storm to hit Los Angeles in over 80 years.

  • El Niño: Extreme weather could cause significant disruptions to major shipping routes.

  • CRE bright spot: Despite inflation and interest-rate challenges, US retailers are on track to open 1,000 new stores this year.

  • Soft landing: Nearly 70% of National Association for Business Economics economists expect a soft landing.

  • Cybersecurity: Shares of Palo Alto jumped 12% following a strong earnings beat and raise.

  • AI ETFs: The performance of many AI-focused ETFs is lagging the S&P 500.

  • Trump skips debate: Donald Trump will not participate in the first GOP debate.

  • Car prices: The number of car models available for $20k or less has fallen from ~12 to just 1 over the last 5 years.

  • Blockbuster IPO: Arm Ltd is expected to reveal its IPO plans as soon as today.

  • CMA approval: The UK's competition regulator has approved Broadcom's $69 billion VMWare acquisition.

  • Hedge fund bid: A cast of Wall Street all-stars has made an offer for hedge fund Sculptor Capital.

  • LNG M&A: TotalEnergies is partnering with INPEX to buy 100% of the interest in a Timor Sea gas field.

  • Grocery-delivery IPO: Instacart is planning an initial public offering as soon as September.

The author, publisher or insiders of the publisher may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Sources:

  • https://www.zerohedge.com/markets/here-comes-next-squeeze-hedge-funds-short-etfs-fastest-pace-september-2022

  • https://twitter.com/dailychartbook/status/1693560639283708390?s=20

Grit is a publisher of financial information, not an investment advisor. Grit does not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient. Grit does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. INVESTORS SHOULD OBTAIN INDIVIDUAL INVESTMENT ADVICE BASED ON THEIR OWN CIRCUMSTANCES BEFORE MAKING AN INVESTMENT DECISION

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.

The author, publisher or insiders of the publisher may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and Grit undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

Grit does not accept any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any related social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

Please read: Terms of Use, Privacy Policy, Disclosure Policy and Disclaimer Policy

If you have any questions please contact us at [email protected]

Join the conversation

or to participate.