NEW: Section (above) added identifying Key Recommendations and Super Grannies
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Please click below to view yesterday’s Macro Minute (duration 2:27):
Equities have struggled in the past week. After the S&P 500 surged to 4,448 on June 16 (last Friday), equities have since fallen 2.2% in the past week. A period of consolidation is understandable, considering the equity markets have been surging in the 3 weeks previously.
- The obvious question for everyone is whether this 2% pullback represents a local top (or even a major top) or is this a shorter term pullback that needs to be bought. There are many willing to argue this is a top, possibly major top. Their reasons encompass the Fed is “set to hike more” and to “EPS estimates will fall in second half” to “its a bubble like 1999”
- Since March 2023, the “buy the dip” regime has been in place (we wrote about this on 5/18) and is based upon measuring how resilient equities are in the face of a sell-off. In summary terms, we measured whether stocks recover a 2% drawdown within the next 20 days. Since March, this has been the case, as stocks have recovered losses pretty quickly. And we generally view this pullback as a consolidation and equities will soon recover.
- There are several reasons we see this as a “buy the dip” type pullback, that likely gets some support in coming weeks. Foremost is some key economic data:
– 6/30 May PCE deflator
– 6/30 U Mich final inflation 1-yr
– 7/5 FOMC minutes
– 7/6 JOLTS
– 7/7 June Employment report - In our view, this will support our view that inflationary pressures are cooling (Case Shiller next week too), coupled with an employment market coming off a boil. To us, this looks increasingly like an economy slipping into an expansion, not sliding into a recession. And this makes early cycle/risk-on positioning more appropriate.
- Similarly, the IPO market is coming back to life. There have been several high profile IPOs this past week including CAVA. IPOs are a way for institutional investors to gain risk-on exposure, as they allocate and participate in new issuance. For June MTD (2 weeks), IPO issuance totaled $30 billion, which exceeds the $19 billion issued in all of June 2022. A return to the calendar is positive. In 2021, IPOs totaled $1.4T and were a mere $740 billion last year.
- Cash on the sidelines remains mountainous at $5.5 trillion. And as data from Pantheon Macro shows, the top 1% of households raised their cash balances by +52% since 2019. Wow. And the 80th to 99th percentile raised cash balances by +32%. This is staggering and shows how the public remains deeply skeptical.
- 2Q23 Earnings season is coming up and more strategists are noting that this looks like EPS growth ex-Energy could turn positive YoY. This is something we noted a few weeks ago. And as such, would be a positive development for risk-on
BOTTOM LINE: We see this pullback as buyable as positive catalysts are coming in the next week
The 2.5% pullback in the past few days is overdue, given the strength recently. But we do not view this as a local top and rather, we would be buyers of this pullback. We continue to favor a risk-on tilt and stick with Cyclicals.
- as the chart below highlights, staying cyclical has produced the best returns in the past month.
ECONOMIC CALENDAR: FOMC key in June
Key incoming data June
6/1 10am ET May ISM ManufacturingTame6/2 8:30am ET May Jobs reportTame6/5 10am ET May ISM ServicesTame6/7 Manheim Used Vehicle Value Index MayTame6/9 Atlanta Fed Wage Tracker AprilTame6/13 8:30am ET May CPITame6/14 8:30am ET May PPITame6/14 2pm ET April FOMC rates decisionTame6/16 10am ET U. Mich. May prelim 1-yr inflationTame- 6/27 Conference Board Consumer Confidence
- 6/30 8:30am ET May PCE
Key data from May
5/1 10am ET April ISM Manufacturing (PMIs turn up)Positive inflection5/2 10am ET Mar JOLTSSofter than consensus5/3 10am ET April ISM ServicesTame5/3 2pm Fed May FOMC rates decisionDovish5/5 8:30am ET April Jobs reportTame5/5 Manheim Used Vehicle Value Index AprilTame5/8 2pm ET April 2023 Senior Loan Officer Opinion SurveyBetter than feared5/10 8:30am ET April CPITame5/11 8:30am ET April PPITame5/12 10am ET U. Mich. April prelim 1-yr inflationTame5/12 Atlanta Fed Wage Tracker AprilTame5/24 2pm ET May FOMC minutesDovish5/26 8:30am ET PCE AprilTame5/26 10am ET U. Mich. April final 1-yr inflationTame5/31 10am ET JOLTS April job openings
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34 Granny Shot Ideas: We performed our quarterly rebalance on 4/26. Full stock list here –> Click here
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