RETAILING

U.S. Retail Sales Rebound Slows After Extra Jobless Aid Lapses

The value of overall sales increased 0.6% after a downwardly revised 0.9% increase the prior month, Commerce Department figures showed Wednesday. So-called control group sales, which exclude food services, car dealers, building-materials stores and gasoline stations, fell 0.1%, also missing estimates [with July revised 0.5% lower!]. The measure is often considered more reflective of underlying consumer demand.

The median estimate in a Bloomberg survey called for the overall measure to increase 1% from the prior month. (…)

From ING:

Levels of retail sales expenditure versus February

This leaves the total value of retail sales 1.9% above where they were pre-Covid, which is a fantastic outcome, but there have clearly been winners and losers as we have all been forced to adjust the way we can spend our money. Grocery remains the main beneficiary with sales more than 10% higher, while food service is down 16% and clothing is still 20% lower.

Moreover, the broader consumer spending picture is bleaker. Remember retail sales only make up around half of consumer spending with education, healthcare, travel and hotel stays also contributing to the total – areas that have been hit far harder by the pandemic. While we have been able to substitute some of our spending towards “things” (measured in retail sales) and away from “experiences”, it doesn’t fully make up the shortfall. High frequency data from www.tracktherecovery.org suggests that based on credit and debit card transactions total consumer spending remained down 7% as at the end of August.

Empire State Manufacturing Much Stronger than Expected in September

Economic activity in New York surprised market expectations in September with the Empire State General Business Conditions Index, jumping up to 17.0 from 3.7 in August and almost recouping all its lost ground in August. The Action Economics Forecast Survey had looked for a modest rise to 5.6. Of respondents, 39.8% reported increased business conditions in September, up from 33.6% in August, while 22.8% reported a decline, down from 29.8% in August. The overall measure is a diffusion index which is constructed by subtracting the percentage decrease from the percentage increase and measures the breadth of change in manufacturing activity across the state. [It does not measure the actual level of activity].

Haver Analytics calculates an ISM-Adjusted Index which mimics the construction of the purchasing managers’ index. This figure rose to 52.5 in September, comfortably above the 50 level which separates expansion from contraction, after having dipped to 49.8 in August.

The underlying indexes in the report uniformly strengthened in September. The new orders index rose to 7.1 from -1.7 in August. The shipments measure rebounded to 14.1 in September from 6.7 in August. Delivery times increased while unfilled orders and inventories continued to decline but at a slower pace than in August.

The employment indicators were also positive. The number of employees index rose to 2.6 in September, its best reading since February, from 2.4 in August. On an even more positive note, the average workweek index jumped up to 6.7 in September, its first positive reading in eight months, from -6.8 in August. (…)

Here’s the measure of the actual level of industrial activity:

• U.S. Industrial Production Points to Slowing Manufacturing Recovery

The Federal Reserve on Tuesday said industrial production—a measure of output at factories, mines and utilities—rose a seasonally adjusted 0.4% in August from July, following a revised 3.5% rise in July. Despite several months of advances, output remains far below its level before the coronavirus pandemic hit in the spring.

Economists surveyed by The Wall Street Journal had expected a 1% increase in August.

Industrial production is still 7.3% down from its level in February, the last month before factories shut down across the country to control the spread of the coronavirus.

Manufacturing, the biggest component of production, rose 1%, a slower pace than in June and July.

  

(Haver Analytics)

The actual indices, along with manufacturing employment, all swooshing:

(Financial Times)

• U.S. Removes Canada Aluminum Tariffs Amid Retaliation Threat

(…) The decision to reverse course in a matter of weeks comes in the shadow of President Donald Trump’s re-election efforts, in which major polls show him trailing Democratic nominee Joe Biden in key battleground states. The tariffs increased domestic aluminum prices amid a shortage of beverage cans in North America, heightening concerns that an increase in the raw material could fall on the shoulders of domestic brewers and soda companies, and eventually consumers. (…)

THE NY FED’S SEPTEMBER SERVICE BUSINESS LEADERS SURVEY

The survey’s headline service business activity index rose twelve points to -5.4, pointing to a slower pace of decline than in August. The business climate index rose eight points to -66.5, indicating that firms viewed the business climate as worse than normal, though to a somewhat lesser extent than last month. Employment levels continued to decline, though only modestly, and wages were higher. Input prices increased at the same pace as last month, while selling prices stabilized. Capital spending fell for a sixth consecutive month. Looking ahead, firms were just slightly optimistic about the six-month outlook, on net, and expected the business climate to remain worse than normal in the months ahead. (…)

Speaking of business leaders:

The business leaders were in strong agreement (95%) that more fiscal policy action is needed to help the U.S. economy. And a majority (54%) said they “strongly agree” that a federal COVID-19 strategy is critical to improve consumer confidence, which is trending downward. (PwC a survey via Fortune)

VIRUS UPDATE

Daily U.S. Coronavirus Tally Hits Highest Level in More Than One Month New coronavirus cases in the U.S. rose to 52,081 from about 34,000 a day earlier, as wildfires in some Western states and an approaching hurricane in the Southeast opened potential pathways for the virus to spread further.

Bizarre, but I was unable to verify this 52k jump headlined by the WSJ! All other media report a 35k increase yesterday and John Hopkins numbers confirm that.

• Health officials in South Korea have begun relaxing social-distancing measures that came into effect after an uptick in cases that began in mid-August. Starting next week, restaurants will be allowed to resume normal operations, and schools in the Seoul metropolitan area will be allowed to hold in-person classes. The daily tally of new cases in South Korea has remained below 200 for the past two weeks.
• Japan: The country on Wednesday reported 532 new cases, nearly doubling the previous day’s count, which was the lowest daily tally in about two months.
• Israel will close its schools on Thursday, a day earlier than planned, due to the significant increase in coronavirus infections, the prime minister’s office said. The government had planned to close schools from Friday to coincide with the start of a partial three-week countrywide lockdown. Over 5,500 cases were confirmed in the past day.
• The number of newly identified cases of COVID-19 has doubled over the past three months, with first Brazil and the US and then India bearing the brunt of new infections. Cases have been rising in Europe too (including in a number of countries that suffered severe outbreaks in the spring). Much more widespread testing means that identified levels of infection today cannot be compared with identified levels of infection through March and April. Nevertheless, the fact that the reproductive rate appears to have moved back above 1.0 in France, Spain and the UK, among other countries, is cause for some concern.

• Coronavirus vaccines will be ready for public use as early as November or December in China, a top scientist said, which would make the country one of the first in the world with an inoculation. Several vaccine candidates progressed very smoothly through the final stage of clinical trials, Wu Guizhen, chief bio-safety expert at China’s Disease Control and Prevention Center, said in an interview with state television on Tuesday.

Trump Claims Coronavirus Vaccine May Be Ready Within Four Weeks

(…) “The previous administration would have taken perhaps years to have a vaccine, because of the FDA and all the approvals,” Trump said on Tuesday. “We’re within weeks of getting it. You know, could be three weeks, four weeks.” (…)

Maybe we will eventually learn that he was talking about the Chinese vaccines referred to above…

Back to the ABC News interview:

“It would go away without the vaccine,” he told the host, George Stephanopoulos. “You’ll develop like a herd mentality, it’s going to be herd developed, and that’s going to happen. That will all happen.” (…)

Stephanopoulos noted that Fauci has disagreed that the virus will disappear on its own.

“But a lot of people do agree with me,” Trump said. “You look at Scott Atlas, you look at some of the other doctors, that are highly, from Stanford, look at some of the other doctors, they think maybe we could have done that from the beginning.”

The Washington Post has reported that Atlas, a neuroradiologist associated with Stanford University’s conservative Hoover Institution who advises Trump, has urged the president to pursue a herd immunity strategy. Atlas has previously denied that report.

From NPR on September 4: “In a statement to NPR, Atlas says that he has never told the president or the White House to pursue a herd immunity strategy.”

Herd immunity? Are you sure?

“Tens of thousands of Covid-19 patients are likely to have neurological impairments and possible permanent brain injuries, US researchers say. The list of complications now includes stroke, brain haemorrhage and memory loss, according to an article published on Tuesday in Nature. (…) “The neurological symptoms are only becoming more and more scary,” Alysson Muotri, a neuroscientist at the University of California, San Diego, in La Jolla told Nature.” (FT)

EQUITIES

JPMorgan Says $200 Billion May Flow Out of Stocks This Quarter

Pension and sovereign wealth funds are set to offload about $200 billion of equities as they rebalance their portfolios, posing a risk for global shares, according to JPMorgan Chase & Co.

This would be the most negative quarterly adjustment since the pandemic hit, strategists led by Nikolaos Panigirtzoglou said Tuesday. The overall figure stems from calculations spanning U.S. defined-benefit pension portfolios, Japan’s Government Pension Investment Fund and Norway’s oil fund.

“This negative rebalancing flow becomes even more problematic given this month’s sharp decline in equity market depth,” they wrote in a note.

Institutions tend to adjust portfolios each quarter to maintain their target asset allocation. A gauge of global stocks has climbed about 10% since the end of June, exceeding returns from fixed income and pointing to the need for some funds to adjust their investment mix back to preferred limits. (…)

A new ETF offering 4-per-cent retirement income is going to be big

The new Vanguard Retirement Income ETF Portfolio, which makes its debut on Wednesday, is designed to pay predictable amounts of monthly income to retirees. To underscore this purpose, the ticker symbol is VRIF. V is for Vanguard and RIF is a play on registered retirement income fund, which is where people have all, most or some of their retirement savings. (…)

VRIF attacks the problem by bundling eight Vanguard equity and bond funds (the stocks-bonds mix is 50-50) into a single package designed to pay monthly income targeting a real-world 4-per-cent yield. “That is what clients will get in their pocket, or bank account,” said Scott Johnston, head of product for the Americas at Vanguard.

Dividends and interest income will account for about 60 cents per $1 of income, with capital gains providing the other 40 cents. Basically, Vanguard will strategically sell holdings that have risen in price to top up dividends and interest. This approach highlights the fact that this is an ETF designed for generating income, not for growing your money. (…)

The management expense ratio for VRIF is projected to be 0.31 or 0.32 per cent (…).

In a 50-50 mix of stocks and bonds, the fund holds Canadian, U.S. and international stocks (including a minuscule 1 per cent weighting in emerging markets), plus bonds.

There are no preferred share, high yield bond or emerging market bond funds, or use of a covered call strategy, where financial instruments called derivatives are used to augment income. Mr. Johnston said these securities can add risk to a portfolio as well as higher levels of income. “What we have with VRIF is a simple, broadly diversified portfolio – that is it.” (…)

There’s nothing particularly exotic about VRIF’s total return approach to generating a payout targeting 4 per cent, but it does raise the question of what happens when there aren’t enough capital gains to augment dividends and bond interest. Vanguard says it would use a return of capital in such situations, which it expects to do (in other than negligible amounts) roughly one in every 10 years. (…)

So: SP500 dividend yield: 1.7%. Bond yields: from 0.13% to 1.4% on the curve, average 0.8%. 50:50 = average yield of 1.25% less mngt fee of 0.3% = 0.9% give or take. All you need is a 3.0% annual capital appreciation or 4% pretax. At current valuation levels?

(Kansas City Fed)

Snowflake Prices IPO at $120 a Share The price values the company, which offers businesses cloud-based data management, at more than $30 billion.

The price was driven above Snowflake’s target range of $100 to $110 by investors hungry for a piece of the fast-growing company, which offers businesses cloud-based data management.

The pricing gives Snowflake a valuation of roughly $33 billion. That is more than double the $12.4 billion valuation it reached in a private funding round earlier this year, a sign of the enthusiasm surrounding U.S.-listed IPOs in 2020. (…)

In its last fiscal year ended in January, Snowflake’s revenue grew 174% from the year before, according to a regulatory filing. Its net loss also grew during that period, and Snowflake remains unprofitable. (…)

Warren Buffett’s Berkshire Hathaway Inc. BRK.B -0.45% has agreed to make a concurrent $250 million investment in Snowflake, alongside current investor Salesforce Ventures LLC, Salesforce.com Inc.’s CRM 2.04% corporate investment arm, which has also pledged $250 million. (…)

In reality, the $100 to $110 range had already been boosted from $75 to $85 on Monday. From $80 to $120: +50%!

In the fiscal year that ended Jan. 31, Snowflake’s revenue soared 174% to $264.7 million YoY. In the sixth months that ended July 31, sales were $242 million, +133% YoY.

And in case you care, Snowflake lost $348.5 million in F2020 up from $178.0 million in F2019. Last 6 months to July 31, 2019, the loss was $177.2 million.

From FT Alphaville:

(…) A new report from Bernstein’s Toni Sacconaghi has taken a look at the Nasdaq (…) And how did those companies fare? Well, here’s the top 9 technology stocks in March 2000 by market cap, with a helpful tag as to whether they ever hit those valuations again:

Eek. Just 22 per cent of them ended up justifying their valuations! And those two — Microsoft and IBM — only did so 12 years later.

Bubble stock buyers, you’ve been warned.

Singapore to Pay Citizens for Keeping Healthy

Apple Inc. and the Singapore government have partnered on a two-year health initiative dubbed LumiHealth, which is built around tracking and rewarding user behavior through the Apple Watch gadget and an iPhone app. As part of the plan, Singapore residents will be able to earn as much as S$380 ($280) by completing goals and tasks set within the app. Goals can be accomplished by walking or doing other exercises like swimming or yoga, and the LumiHealth app will offer personalized coaching and reminders for health screenings and immunizations. (Bloomberg)

U.S. Coronavirus Death Toll Tops 170,000 The U.S. death toll from the coronavirus pandemic passed 170,000, while the number of new cases declined, reaching their lowest daily level since June 29.

The U.S. reported just over 42,000 new cases for Sunday, a sharp drop from Friday’s total of more than 64,000, according to data compiled by Johns Hopkins University. The nation’s total number of cases surpassed 5.4 million, about a quarter of the world-wide figure. (…)

Among people in the U.S. who died between their mid-40s and mid-70s since the pandemic began, the virus is responsible for about 9% of deaths. For Latino people who died in that age range, the virus has killed nearly 25%, according to a Wall Street Journal analysis of death-certificate data collected by federal authorities. (…)

A school in Georgia’s Cherokee School District announced it would halt in-person classes as the number of positive cases at the school rose to 25, with 500 students in quarantine.

In Illinois, Gov. J.B. Pritzker announced new restrictions for the southwestern region of the state next to St. Louis after the positivity rate for coronavirus there was above 8% for three consecutive days. (…)

New Zealand on Monday delayed a national election by about a month after an outbreak in Auckland put a third of voters into lockdown. (…) Neighboring Australia’s Victoria state recorded 282 new cases and 25 deaths, marking its deadliest day of the pandemic so far. (…)

India’s death toll passed 50,000 as coronavirus infections continue to surge. The country reported 57,981 new cases, bringing the total to 2.65 million, data from the Health Ministry showed. (…)

Europe’s average count of coronavirus-related deaths overtook Asia’s in early March, with Italy, Spain and the UK becoming the global hotspots. (…) There are concerns, however, that reported Covid-19 deaths are not capturing the true impact of coronavirus on mortality around the world. The FT has gathered and analysed data on excess mortality — the numbers of deaths over and above the historical average — across the globe, and has found that numbers of deaths in some countries are more than 50 per cent higher than usual. In many countries, these excess deaths exceed reported numbers of Covid-19 deaths by large margins. (…) London has seen overall deaths more than double, and New York City’s total death numbers since mid-March are more than four times the norm.

U.S. Retail Sales Post Firm Increase in July

The consumer continues to spend, following coronavirus shutdowns in the spring. Total retail sales, including food service establishments, increased 1.2% (2.7% y/y) during July following an 8.4% June rise, revised from 7.5%. A 1.8% gain had been expected in the Action Economics Forecast Survey. Retail sales excluding motor vehicles & parts improved 1.9% last month after strengthening 8.3% in June, revised from 7.3%. A 1.3% rise had been anticipated. In the retail control group, (which excludes autos, gas stations, building materials & food services), sales rose 1.4% (8.0% y/y) after improving 6.0% in June and 10.4% in May. Retail sales excluding restaurants improved 0.8% (5.8% y/y) after a 6.8% jump.

Sales of motor vehicle & parts dealerships eased 1.2% in July, in contrast to a 10.2% m/m rise in unit sales reported earlier this month. It followed a 9.1% June gain which came after a nearly one-half m/m May rise. Gasoline & service station sales improved 6.2% (-15.6% y/y), even though prices were fairly steady m/m. (…)

Eating out remained in vogue as restaurant and drinking establishment sales rose 5.0% last month (-18.9% y/y) after strengthening in each of the two prior months.

• For Consumer Spending, This May Be as Good as It Gets Having rebounded from sharp falls, consumer spending may be stuck where it is until the coronavirus is brought under control

The Commerce Department on Friday reported that overall retail sales rose by 1.2% in July from June. That was less than the 2.3% increase economists expected, but with June sales raised to 8.4% from an earlier reading of 7.5%, it amounts to a wash.

The broader message is that after plunging in March and April as the Covid-19 crisis took hold, and rebounding strongly in May and June, consumer spending hasn’t been doing much of anything lately. Indeed, an analysis conducted by nonpartisan research group Opportunity Insights of credit- and debit-card data collected by Affinity Solutions shows that since mid-June, spending by U.S. consumers has been basically flat. JPMorgan Chase credit and debit-card data analyzed by economists at the bank shows the same.

U.S. Industrial Production Continues Rebound in July

Industrial production increased 3.0% m/m (-8.2% y/y) in July following an upwardly revised 5.7% m/m gain in June (initially +5.4%) and a 0.9% m/m rise in May. Even with the three consecutive monthly increases, IP remains 8.4% below its pre-Covid February level. The July reading was spot on the 3.0% rise expected by the Action Economics Survey. (…)

NARRATIVES

This week’s “Thoughts From The Front Line”, John Mauldin’s weekly piece, introduces the K-shaped recovery from the current highly unusual “recession/depression”. Excerpts:

I am at a loss to find anything like it in world history. That is because we have never experienced an economic disaster—and that’s the correct phrase—like we are witnessing today.

Furthermore, the recovery—when it happens, and it will come—is going to be very uneven.

• Part of the economy will be in what can only be described as a depression for quite some time.

• Another part will recover, albeit a little slowly, but faster than the Great Recession.

• Other parts of the economy are going to take off like a rocket ship. (…)

Whether it’s K-shaped or some other to-be-determined letter, there are three economic takeaways:

1. This is going to change the way we live. We have already seen savings increase, not unlike our parents and grandparents during the Great Depression. It is going to change spending and saving habits. It is going to force businesses and entrepreneurs to adjust in ways that they never dreamed they would need to.

I think it is fair to say that many of us have looked at our lives and decided we don’t need quite as much “stuff” as we did before. (…) Each one of those choices represents a buying decision that impacts some entrepreneur who provided that product.

This crisis is simply the greatest demand destruction of our lifetimes. It will come back, but it is not going to come back to what it looked like in 2019. Our future economic buying decisions are going to be different.

Everything, I mean everything, is going to be repriced and thought through. You can’t take anything for granted. Inflation numbers and measures are going to be warped for at least a few years. (…)

I don’t think it is unreasonable to expect 10% unemployment, or something close to it, in the middle of 2021. That is going to affect prices up and down the housing value chain. (…)

There are thousands of scenarios playing out in thousands of industries all over the world. What they have in common is that…

Everything is going to be repriced.

That makes me very uncomfortable.

2. Inequality is not going to get better.(…) Those individuals who were part of the devastated service economy will still struggle for jobs, and they are in the lower income group already. The second part of the economy will be growing and pulling away from that first part. (…)

3. We have two major cycles coming into play at the same time in this decade. (…) It is always a time of great social unrest, and we are just at the beginning of the end. I expect the period between the middle of this decade and the end to be far more disruptive than where we are today.

Second, (…) George Friedman (…) predicts that the 2020s will bring dramatic upheaval and reshaping of government, foreign policy, economics, and culture.

A two-part/three-part economy, where the outcomes for significant portions of the population are dramatically different, is a recipe for the types of crises both of their books outline.

And just so I can pile on, just as we are in the middle of their crises, we get to experience The Great Reset. It is a toss-up whether we will have a $30 trillion national debt by New Year’s Day. We will be at $40 trillion by 2025. Plus massive corporate debt, multiple pension crises that will boggle the mind.

All of the debt MUST be “rationalized.” We have absolutely no idea how, because we don’t know who will be in charge or what the crisis will look like.

All while disruptive technologies are changing the very foundations of our society and job.

If this makes you depressed and confused as to what to do with your investments, a good antidote would be listening to Jean-Guy Desjardins’ ten minutes summary of his investment stance currently favoring equities. Jean-Guy Desjardins, CEO of Montreal-based Fiera Capital, a global investment firm managing $171 billion, is one of the top global asset mixers around. Jean-Guy’s top-down approach is focused on the economic cycle. His presentation runs between 25:40 and 35:15 within Fiera’s second quarter conference call. Some more comments are between 41:25 and 44:00.

In brief, Fiera puts a 65% probability on a medical solution to the pandemic by the end of 2020 or Q1’21. By then, the world will have developed a large 6% output gap that governments and central banks around the world will seek to close as quickly as possible through sustained stimulative fiscal and monetary policies, creating an “ideal environment of 3 to 5 years of highly visible and unchallenged global economic expansion” for equity investors.

I truly respect Jean-Guy’s views (full disclosure, we are friends and former business partners) but some important caveats need to be mentioned:

• Like most institutional investment managers, Fiera is playing a relative performance game. Fiera places a 65% probability that equities will outperform other asset classes in the foreseeable future.
• Fiera’s basic scenarios expect negative bond returns during the next 12 months.
• The most negative scenario (25% probability), no medical breakthrough and economic stagnation, implies equities losing more than 40% in the next 12 months against a best case of +5.0% (US Equities), +8.2% (Canadian) and +0.5% (Emerging).

Fiera’s move to overweight equities was made in early July, a nice prescient decision so far. The math of probability-weighted returns can reverse quickly in fast rising equity markets…unless one adjusts one’s expectations along with markets which Fiera had not done in early August. In effect, its August Matrix of Expected Returns now carries negative probability-weighted returns from equities. With -41% equity returns from a 25%-weighted economic stagnation scenario, you need expected returns above 14% from other scenarios to offset. In early August, Fiera’s best scenario called for +8.2% on Canadian equities and +5.0% on U.S. equities over the next 12 months.

This is a one-or-the-other situation, no in-between. We get a medical solution, or we don’t.

• RELATIVE GAME, ABSOLUTE GAIN

Institutional money managers are part of the so-called “smart money” group that many like to compare with the “dumb money” subset of individual investors often buying or selling at the worst of times. A significant number of institutional managers play the relative performance game in order to win mandates and grow assets. To simplify, assume managers can under/overweight two asset classes, U.S bonds and U.S equities.

At current levels of interest rates on 10Y Treasuries, annual income is 0.6% versus 1.8% on the S&P 500 Index, a not insignificant +120 bps relative advantage for equities from annual income streams. From that, economic/financial scenarios will tack on expected capital gains/losses. The Fed having often stated its reluctance to embrace negative rates, the range of sustained upside scenarios from bonds currently looks limited, even more so when considering the amount of government financing coming our way. While the potential losses from equities are significant, beliefs that the Fed has equity investors’ backs can tilt many managers playing the relative game toward equities, even at current extreme valuation levels.

If many managers move their equity exposure up playing their relative performance game, institutional demand for equities increases even if their own equity return expectations are not all that appealing. Smart money smartly playing a sometimes dumb game.

But probability-weighted expected returns can change rapidly, requiring managers to either adjust their scenarios or their asset mix.

TECHNICALS WATCH

It is thus interesting that the excellent Lowry’s Research, still overall positive on equity markets, just raised a reddish flag qualifying current equity demand as “sluggish” in the same note that says that “the first seemingly inconvenient truth is that Demand is broad-based” and that only new lows in its Selling Pressure Index “have buoyed the balance of Supply and Demand.” And as the S&P 500 “approaches its former highs accompanied by short-term overbought conditions, lackluster Demand could leave stocks vulnerable to a burst of Supply as investors reclaim lost capital.”

Could it be that shifts in institutional asset mix in favor of equities, often done using broad market instruments (helping market breadth), are not only halted but also are reconsidered in light of the recent gains which are upsetting probability-weighted returns and the risk/reward equation?

A key part of the relative performance game keeps a close eye on the calendar as the game resets every December 31st. If one’s mix has been good approaching September, one is often tempted to neutralize one’s mix to preserve the expected bounty (part of the smartness).

That may well explain what Lowry’s sees as “a lack of enthusiastic Demand”. With a poor demand backdrop, even a slight mix readjustments by smart money could bring enough supply to tilt Lowry’s rather fragile balance of Supply and Demand the wrong way.

Volume on the SPY has declined since June reaching levels in the last 2 weeks below February’s:

NDX volume has only slightly weakened since last Wednesday. Note that the NDX stands 18.3% above its 200dma (SPY: 9.1%).

Another fragile situation can be found in growth stocks. Unlike the 1998-2000 surge, the rise in growth vs value has been going on for nearly 15 years and supported by solid and generally profitable companies. However, the recent surge is reminiscent of the 1999 spike. Can we reasonably believe that the pandemic has boosted the relative rate of growth of “growth stocks” by 25% in 5 months?

The S&P 500 IT sector now trades at a historically high 24% premium P/E to non-IT stocks as Ed Yardeni illustrates:

Yet, revenues growth has been very similar since 2016 (charts from Morningstar/CPMS)…

…but S&P 500 earnings growth stalled in 2019 (oil prices, USA vs China) and dropped severely in 2020 due to the severe global lockdowns:

But a medical solution should bring a cyclical recovery in 2021. This is what analysts expect:

No medical solution? At 26x forward P/E, IT stocks appear as vulnerable as the whole market.

We’ve been here before as this reconstructed chart from Ned Davis shows:

Still, the 13/34–Week EMA Trend is still in a “cyclical bull” trend as CMG Wealth shows:

From Barron’s:

Scenario adjustments:

Goldman Boosts S&P 500 Target by 20%

David Kostin raised his forecast for the benchmark U.S. gauge to 3,600 from 3,000, joining the likes of Yardeni Research founder Ed Yardeni and RBC Capital Markets’ Lori Calvasina who’ve upped their forecasts in recent weeks. The rally has caught many investors by surprise, with the S&P 500 now sitting at 3,372.85 — 51% off its March lows — and threatening to eclipse its February closing record. Kostin cited Goldman’s above-consensus U.S. growth expectations keyed off positive news on the vaccine front.

“As the last few months have demonstrated, equity prices depend on not just the expected future stream of earnings but the rate at which those earnings are discounted to present value,” Kostin wrote in a note Friday. “Looking forward, a falling equity risk premium will outweigh a rise in bond yields, and combined with our above-consensus EPS forecast, will lift the S&P 500 Index to 3,600 by year-end.” (…)

Kostin said the U.S. election remains a significant risk to his prediction because of challenges in tabulating results in Covid-19 times, though “the largest risk to our forecast is the timing of a vaccine and path of recovery from the pandemic,” he said.

JPMorgan Chase & Co. strategists led by Mislav Matejka on Monday also reiterated their preference for U.S. equities, telling clients to stay bullish despite the strong gains and upcoming U.S. election risks.

Their key reasons? Analysts say that U.S. sectoral exposure to growth and defensive stocks will help it outperform other developed markets, and that American profit growth will likely beat that of Europe.

Saudi Wealth Fund Moves Billions From Blue Chips to ETFs

Saudi Arabia’s sovereign-wealth fund has sold shares valued at over $5.5 billion in several major multinational corporations just months after buying into them as the financial fallout from the coronavirus pandemic weighed on global stock-market prices.

At the same time, the roughly $300 billion Public Investment Fund chaired by the kingdom’s powerful Crown Prince Mohammed bin Salman, invested nearly $4.7 billion in exchange-traded funds focused on the real-estate, utilities and materials sectors, a U.S. filing showed. (…)

“This suggests that the PIF is taking a more opportunistic ‘trading’, rather than a traditional strategic ‘buy-and-hold’ approach of most other SWFs,” he said in an email. (…)

And also contributes to “market breadth”

Buffett’s Berkshire Hathaway Unloads Bank Stocks Investment firm drops its holdings in JPMorgan Chase, Wells Fargo, but adds to Bank of America

Berkshire’s holdings of Wells Fargo WFC 1.12% & Co. and JPMorgan Chase JPM 0.04% & Co. stock dropped by more than $3 billion apiece in the second quarter, according to regulatory filings made public Friday. The company also dissolved its stake in Goldman Sachs Group Inc., which was worth about $300 million at the end of the first quarter.

The conglomerate has simultaneously been adding to its ownership of Bank of America Corp. BAC 0.46% in recent weeks and now owns roughly 12% of the company, according to FactSet. (…)

Berkshire’s sales amount to a 26% drop in its shareholdings of Wells Fargo. His JPMorgan stake is down by 62%. He also sold shares of Bank of New York Mellon Corp., M&T Bank Corp., and PNC Financial Services Group Inc., among others.

The sale of Wells Fargo shares is particularly notable because it means Berkshire is no longer the biggest shareholder. Mr. Buffett first bought shares in 1989 and stood by Wells Fargo as its sales-practice scandal unfolded, sometimes receiving criticism for it. (…)

PANDENOMICS

Trump says looking at pressuring other Chinese companies after Bytedance U.S. President Donald Trump said on Saturday he could exert pressure on more Chinese companies such as technology giant Alibaba after he moved to ban TikTok.

Asked at a news conference whether there were other particular China-owned companies he was considering a ban on, such as Alibaba, Trump replied: “Well, we’re looking at other things, yes.”

MAGA: The number of Chinese companies in the Fortune Global 500 now exceeds that of the United States. Image: BofA Global Investment Strategy (via Isabel.net)

Biden Leads Trump, 50% to 41% in Poll President struggles to reach job approval that would make re-election more likely, while opponent draws soft support that could present turnout challenges

Less than three months before November’s election, 50% of registered voters nationally say they would vote for Mr. Biden if the election were held now, while 41% back Mr. Trump. That is essentially unchanged from Mr. Biden’s 11-point lead a month ago and is similar to his advantage much of this year.

Mr. Biden, however, is failing to generate widespread enthusiasm, the poll finds. For the past year he has been viewed more negatively than positively among the broader electorate—as has been the president—although Mr. Biden’s positive rating increased 5 percentage points between July and August to reach 39%.

“This poll is a warning for Democrats and the Biden team that there is still a lot of work to be done,” said Peter Hart, a Democratic pollster who worked on the survey with Bill McInturff, a Republican, and Jeff Horwitt, a Democrat.

In another sign of potential softness in the Democrats’ support, 58% of those who back Mr. Biden say their vote is more in opposition to Mr. Trump than in favor of their chosen candidate. By contrast, those planning to cast a ballot for Mr. Trump are more enthusiastic about their choice, with almost three-quarters saying their vote is more for him than against Mr. Biden.

“In one respect, Biden’s vote looks like Trump’s did in 2016: more a vote against their opponent than support for them,” Mr. Horwitt said. (…)

The president’s job approval rating is 44%, up 2 points from July, with 53% disapproving of his performance in office.

“That seems to me to be short of where he would need to be to win a re-election,” Mr. McInturff said. “It has to improve.” (…)

Mr. Trump won an Electoral College majority in 2016 with only 46% of the popular vote. (…)

A majority of 58% in the survey disapprove of his pandemic management. Some 53% say he didn’t take the threat seriously enough early on and still isn’t handling it well, up from 45% in April.

Six in 10 say the nation’s response to the virus outbreak has been unsuccessful. As summer makes a transition to fall, 49% of parents say they are comfortable with their children going back to in-person school, with an equal share saying they are uncomfortable. (…)

Mr. Trump is narrowly winning the male vote, while Mr. Biden holds a 21-point edge among women. (…) The former vice president holds advantages of 80 points among Black voters, 26 points among Hispanic voters and 7 points among those 65 or older, while Mr. Trump has a lead of 51 points among white, evangelical voters and 24 points among white voters without a four-year college degree. (…)

Interest in the election is running strong, with 79% of voters rating themselves at the highest levels of interest. That is 7 points higher than the survey recorded in October 2016, the month before Mr. Trump’s election. (…)

The poll shows a slight advantage for Democrats over Republicans, 47% to 42%, when voters are asked their preference for which party should control the next Congress. (…)

• Biden Doesn’t Repel Voters Like Clinton Did in 2016, and That’s a Problem for Trump Compared to Hillary Clinton, fewer voters have a ‘very unfavorable’ view of 2020’s presumptive Democratic nominee

Thirty-five percent of voters view Biden very unfavorably, compared with 43 percent who said the same of Hillary Clinton in August 2016. The starkest difference in views came among independents: 31 percent said they had a “very unfavorable” view of Biden, while 51 percent viewed Clinton very unfavorably around the same time four years ago. (…)

“While there is still plenty of time for Trump’s messaging to partially deflate Biden’s numbers, at this stage of the campaign Biden’s modest advantage – among an electorate with seemingly fewer and fewer persuadable voters each cycle – seems golden.”

A dramatic shift in sentiment about Biden would be a change from the 2016 race, where Morning Consult’s polling found that despite a volatile, exceptionally nasty campaign, views about both Trump and Clinton were essentially unchanged from August to Election Day. That precedent raises questions about just how much the Trump campaign can do to alter perceptions of the president’s well-known presumptive 2020 opponent before November. (…)