Institutional Outlook On US Stocks Reaches New Low Point

Market

Prices as of 4 pm EST, 5/12/23

Macro

The Group of Seven summit takes place this week in Japan.

• The US and its allies are expected to issue a joint statement rejecting China's use of economic retaliation in policy disputes.

• While China likely won’t be mentioned by name, the statement will be directed at Beijing’s increasing use of economic coercion against countries to display its disapproval.

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Treasury Secretary Janet Yellen says the US will have to default on “some obligation” if the debt ceiling isn’t raised.

• By “some obligation”, she means Treasuries or Social Security payments.

• Yellen is set to update Congress on the proximity of such a scenario within the next 2 weeks.

• President Biden and House Speaker Kevin McCarthy will meet tomorrow to continue negotiations.

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US consumer sentiment tumbled to its lowest in 6 months in May.

• The drop was driven by concerns over the debt ceiling and its potential to trigger a recession.

• Long-term inflation expectations also rose to the highest level since 2011, with consumers expecting 3.2% inflation in 5 years.

• Meanwhile, deteriorating sentiment has done little to provoke a large reduction in equity exposure amongst investors.

Hi Mount Research

Stocks

Investors don’t seem to be fazed by the possibility of a US default.

• Even in the face of a rise in credit default swaps—which provide insurance against a default—the CBOE Volatility Index (VIX) isn’t budging.

• At around 17, the VIX remains at levels consistent with complacency.

• The scenario resembles that of the 2011 debt ceiling impasse which saw a similarly low VIX spike soon after the US received its first credit downgrade.

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Institutional pessimism towards US stocks has reached a new low point.

• Fund managers’ exposure to stocks relative to bonds has been reduced to the lowest levels since 2009.

• Over the past year, the cohort has yanked $333.9 billion out of US equities.

• Individual investors have similarly pulled $28 billion from stocks.

• Meanwhile, money markets have swelled to a record $5.3 trillion.

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Here’s a look at investor flows for the week ending May 10, courtesy of BofA and EPFR Global data:

• Tech stocks saw their largest inflow ($3.8 billion) since December 2021.

• Financials saw their biggest outflow ($2.1 billion) since May 2022.

• Inflows to cash are slowing ($13.8 billion) while those into Treasuries ($6.3 billion) were the largest in 6 weeks.

• US and EU equity funds saw $2.7 and $2.2 billion in outflows, respectively.

Energy

The G7 and EU are ramping up the pressure on Russia with the first sanctions on Moscow’s pipeline exports since the invasion of Ukraine.

• Gas imports on routes where Moscow has cut supplies will be banned, preventing exports to countries like Poland and Germany.

• The new measures are expected to be announced this week at the Japan summit.

• Meanwhile, gas futures in Europe are at levels not seen since June 2021.

Earnings

92% of the S&P 500 has reported Q1 earnings.

• 78% and 75% of companies have beaten analysts’ estimates on earnings and revenue, respectively.

• Both figures are better than their 1-, 5-, and 10-year averages.

• S&P sales and earnings growth total 4.3% and -2.9%, respectively.

Wisdom Tree

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What we’re watching today:

• Nu Holdings NU

• James Hardie Industries JHX

• XP Inc XP

• Catalent CTLT

• Monday.com MNDY

• Tower Semiconductor TSEM

• Rumble RUM

• TPG Inc TPG

Top Headlines

• Turkey: The Turkish presidential election is headed to a runoff as President Erdogan failed to secure an outright victory.

• IRS: The White House is exploring the creation of a free government-run alternative tax-prep option to TurboTax and H&R Block.

• Bear call: Morgan Stanley’s Mike Wilson sees the debt ceiling debate sparking sharp price swings in US stocks.

• CEO pay: Two out of three S&P 500 CEOs were compensated less last year than they were initially awarded.

• Chapter 11: Vice Media filed for bankruptcy after failing to find buyers for its assets.

• China boost: The recovery in China is boosting sales for many US companies operating in the country.

• EU forecasts: The European Commission lifted its inflation and growth predictions for this year and next.

• Pound bears: Hedge funds have become the most bearish on the British pound since 2021.

Week Ahead

• Monday: NY Empire State manufacturing, net long-term TIC flows

• Tuesday: Retail sales, industrial & manufacturing production, business inventories, NAHB housing market index

• Wednesday: Building permits, housing starts

• Thursday: Initial jobless claims, Philly Fed manufacturing, existing home sales, CB leading index

• Friday: Powell speech

Crypto

 

Prices as of 4 pm EST, 5/12/23

• DOJ scrutiny: The US Department of Justice is promising to crack down on digital platforms involved in illicit activities.

• Walk talk: Crypto firms are threatening to leave the US in response to the SEC’s crackdown on the industry.

• Eyeballs: Sam Altman (of OpenAI) is closing in on $100 million in funding for startup Worldcoin to create iris-scanning technology.

• Staking: Surging demand for staking ether has led to wait times of over a month for a 5% annualized yield.

• Stacking sats: The number of Bitcoin addresses holding 1 BTC or more has reached 1 million.

Deals

• Exit strategy: Tiger Global is looking to sell a significant portion of its private company holdings in the secondary market.

• Mining consolidation: Newcrest’s board has unanimously backed a $19 billion takeover by US mining giant Newmont.

• Pipeline megamerger: Oneok has agreed to acquire Magellan Midstream Partners for $14 billion.

• Sports betting: Fanatics will buy US operations from PointsBet for around $150 million.

• Content is king: Alibaba’s e-commerce division will make “huge” investments in its Taobao shopping app with a focus on content creation.

Meme Of The Day