Macro Charts of the Week

It’s that time again. Charts of the Week has arrived. We’ve got a lot of ground to cover across market positioning, valuations, interest rates, financial conditions, global trade, and more. Let’s dive in!

CTAs Could Become Marginal S&P 500 Buyers

These momentum trades could have about $60B of S&P 500 exposure to buy if there is a shift in momentum higher. That could add into beginning of month flows, where institutional buyers are allocating into equities and fixed income, as well as the passive flows from the put decay in the S&P 500 index. Meaning the beginning of October may be constructive for US equity markets.

Mega Caps vs Everything Else

Mega cap tech is up about 55% YTD vs the rest of the S&P 500 up just 4%, showing that this remains a rather narrow market.

Those same techs are pushing up the NTM (next twelve month) EPS of the broader S&P 500, as we can see without them forward earnings remain near their trough for the S&P 500 ex-tech, which may be one reason the rest of the market is underperforming.

Value vs Growth: Energy in Focus

Viewing the market through the lens of relative valuations, value appears to be attractive vs growth, but it’s all about where one allocates. We’re looking at energy, and particularly refiners as there may be opportunities to capitalize on both higher prices and tighter domestic refining capacity.

Commodities were the best performer in Q3, adding to our long high quality energy stocks on pullbacks thesis. REITs and US small caps were the worst performs, which makes sense given their sensitivity to rising interest rates — a theme that may not yet be over, but at the very least could take a breather short-term.

Interesting Income Increases

Speaking of interest rates, these interest income numbers are impressive. Apple alone made $980 million in interest income last quarter, followed by Alphabet at $820 million. Much of this income is because these companies have sizable treasury holdings, particularly within bills.

Finance, Manufacturing and Tech Create the Most Billionaires

Incredible wealth has been built in a number of industries, but finance, manufacturing and tech are the most prolific.

Global Trade Continues to Slow

China may have troughed, but exports continue to fall year-over-year.

Global trade is also slowing, and is now below its multi-year trend. There aren’t many signs of a soft landing out there.

Checking in on the US Labor Market

Unemployment is likely to rise, particularly over the next several quarters, in the US. Putting pressure on the broader economy.

We’ve already seen a meaningful decline in job openings, down over 3 million from their March 2022 peak.

Recession Risks are on the Rise

Often when a soft landing is the talk of the town, a recession is actually around the corner. Will this time be different? Time will tell, but I am skeptical.

Banks are continuing to to tighten credit conditions, which often leads to a recessionary environment.

This is also translating to tightening broader financial conditions.

As well as slowing Gross Domestic Income underperforming GDP, suggesting economic risks are on the rise.

So far debt has been used to extend this economic cycle, but with interest costs rising markedly, a positive fiscal impulse will be quite expensive.

Rates continue to surge higher, too, making borrowing even more expensive on the long-end. Many of these rates are at the highest levels in nearly two decades.

An S&P 500 Options Positioning Primer

4300 remains a key level to watch as it has remained formidable resistance for the broader market.

We also remain in negative gamma territory, which tends to increase price volatility.

This dynamic also increases the probability of the VIX seeing larger increases.

The US Stock Market is 42.5% of the Global Equity Market

The global equity market is enormous, with over $109 trillion allocated to it in 2023. The US stands out, with a larger share of market capitalization than the EU, China, Japan, Hong Kong and the UK combined.

As always I hope that you enjoyed this Charts of the Week.