Fed rate cuts are imminent...
Here's a quick recap of the FOMC minutes... ▪ Fed Minutes said risk to inflation goal had decreased. ▪ The FOMC minutes indicate a "likely" rate cut in September as most Fed members are leaning towards a rate cut at the next meeting—if the data stays positive. ▪ July Debates: SEVERAL PARTICIPANTS SAID RECENT PROGRESS ON INFLATION AND INCREASES IN THE UNEMPLOYMENT RATE PROVIDED A PLAUSIBLE CASE FOR A 25-BASIS-POINT RATE CUT AT JULY'S MEETING OR THAT THEY COULD HAVE SUPPORTED SUCH A MOVE. ▪ ⚠️ Rising Unemployment Risks: Fed believed the labor market is in a better place but payrolls were overstated (made sense given the 818k job revision today). The majority are concerned about increasing unemployment. 📉 Economic Growth Downgraded: The outlook for growth in the second half of 2024 has been revised downward. Fed believed consumer spending did start to weaken based on delinquencies going up ▪ 📊 Inflation Confidence: Recent reports have strengthened the Fed’s belief in managing inflation. ▪ 🕰️ Timing Matters: Delaying easing could significantly weaken the economy. => The first rate cut since 2020 likely coming next month. => S&P 500, Nasdaq close higher as Fed minutes lift investors’ hopes for a September rate cut!
Japanese Stocks have both fallen and risen more than 20% in the last month
Source: barchart
Short Volatility etf $SVIX Assets Under Management are surging
Aug 2024: $600M Q1 2024: $140M Q1 2023: $88M Q1 2022: $22m Source: Bloomberg, Lawrence McDonald
Nonfarm payroll growth revised down by 818,000 for the 12 months through March — or around 68,000 less each month – most since 2009
Before the report, the BLS’s initial payrolls figures indicated employers added 2.9mln total jobs in the period, or an avg of 242k per month. Now the monthly pace is more likely to be ~174k, still a healthy rate of hiring but a moderation from post-pandemic peak At the sector level, the biggest downward revision came in professional and business services, where job growth was 358,000 less than initially reported. => The labor market appears weaker than originally reported. This should allow the Fed to prepare markets for a cut at the September meeting. Source: Bloomberg, HolgerZ, CNBC
BlackRock’s support for shareholder proposals on environmental and social issues has hit a new low in the 2023-24 proxy season
Source: FT
Record Short Position in 10-Year Treasuries
A short squeeze ahead? Hedge Funds have now built the largest 10-Year Treasury Future Equivalents short position in history. Note that Asset managers (long-only) have the opposite as they have built record long positions. Source: Barchart
The U.S. economy is now almost entirely driven by the services sector
The services industry now accounts for ~72% of US GDP, up from ~60% in 1990. By comparison, in the 1950s, services reflected just 47% of the US economy. On the other hand, the manufacturing sector's share in US GDP has declined from ~27% in the 1950s to ~10% currently. Meanwhile, the ISM Manufacturing PMI index has shrunk in 20 of the last 21 months, marking 22 months without two consecutive readings of an expansion, the longest streak since the 1990s. Services are keeping the US economy alive. Source: The Kobeissi Letter, BofA
EBITDA is NOT Free Cash Flow
Source: Brian Feroldi
