VIX cooling + Spec futures flipping = incremental signs selling exhausted. Still key macro week

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We discuss: We discuss how several headwinds are left behind as Oct comes to a close. And the key to watch in Nov is the relationship between stocks and bonds.

Please click below to view our Macro Minute (Duration: 5:46).

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The S&P 500 gained >2% in the past two trading sessions, enough so that the losses for October are -2.2% (better than the -5%-ish loss seen at the start of the week.) For most of October, and for much of the past few weeks, stocks often weakened into the close. But in the past two days, stocks strengthened through the day. Have investors de-risked enough for selling to dry up? Possibly.

• A few overhangs are also removed with October:
  – tax loss selling for stocks and bonds (first time really ever)
  – VIX seasonal peak (below)
  – Stocks often bottom in October
• On tax loss selling, the BofA trading desk has a great chart showing stocks likely to see “tax loss selling” fell -8% in October, far worse than the broader market. But keep this in mind, these same stocks could bounce sharply in the final two months as the selling abates.
• Spot VIX closed at 18 (where it was 2 weeks ago) but VIX is also exiting the seasonal high point. And likely drifts lower in November and December. And historically, lower VIX is associated with generally rising stock prices. This is another positive for Nov/Dec.
• A tweet by @Bespokeinvest caught my eye. They noted that speculative positioning on S&P 500 flipped net long for the first time in 70 weeks. That is the longest ever period of speculators being net short S&P 500 futures. And to me a sign selling might have exhausted itself.
• According to analysis by our data science team, led by “tireless Ken,” in the 15 instances where speculative positioning was short >10 weeks (n=15), the win-ratio for S&P 500:
  – next 6M and 12M
  – win-ratio: 78%/89% and % gain: +3.6%/12.3%
  – 2 exceptions:
  – 1/15/2008 (47 weeks) -35% next 12M
  – 1/4/2011 (18 weeks) +0% next 12M
• So the flip to longs arguably is generally constructive for stocks in the intermediate term.
• But stocks may primarily take their cues from the bond market in the near-term. This is evident in the past 2 months where stocks and TLT -0.28% essentially moved in lockstep. And this was also true of equities from Jan to Mar 2023. We think there is a chance that stocks and bonds could diverge. Meaning:
  – bonds flat, stocks rally
  – bonds fall, stocks rally
  – if investors start to see 10-yr yields at 5% as either unsustainable or over-priced
• Earlier this week, we highlighted the research by Goldman Sachs Fixed Income team which showed that fair value of the US-10yr, using 3 methodologies, averages 3.76%. That would imply the 10-yr yield is +110bp too high. And if this indeed is correct, it could be the reason equities can outperform bonds into YE.
• Additionally, there is a lot of macro data this week (as highlighted multiple times) and on Wednesday we get 4 critical data points:
  – Sept JOLTS
  – Oct ISM Manufacturing
  – Treasury quarterly refunding plan
  – Nov FOMC rate decision

BOTTOM LINE: Nov 1 Wed is a packed macro day

So, quite a lot happening on 11/1 Wednesday. And it happens to be the first trading day of the month, with the tax-loss harvesting behind as well. So, despite the -2% loss for equities in October, we believe stocks will rally in November and December.

• Our top OW remains FAANG/Technology as these stocks have the best visibility

10-YR FAIR VALUE = 3.76%

Key incoming data November

• 11/01 9:45am ET S&P Global PMI October Final
• 11/01 10am ET JOLTS Job Openings September
• 11/01 10am ET October ISM Manufacturing
• 11/01 10am ET Treasury 4Q23 Quarterly Refunding Press Conference
• 11/01 2pm ET FOMC Rate Decision
• 11/02 8:30am ET: 3Q23 Nonfarm Productivity
• 11/03 8:30am ET October Jobs Report
• 11/03 10am ET October ISM Services
• 11/07 9am ET Manheim Used Vehicle Index October Final
• 11/10 10am ET U. Mich. November prelim Sentiment and Inflation Expectation
• 11/14 8:30am ET October CPI
• 11/15 8:30am ET October PPI
• 11/15 8:30am ET November Empire Manufacturing Survey
• 11/15 8:30am ET October Retail Sales Data
• 11/16 8:30am ET November New York Fed Business Activity Survey
• 11/16 8:30am ET November Philly Fed Business Outlook Survey
• 11/16 10am ET November NAHB Housing Market Index
• 11/17 9am ET Manheim Used Vehicle Index November Mid-Month
• 11/21 2pm ET Nov FOMC Meeting Minutes
• 11/22 10am ET: U. Mich. November final Sentiment and Inflation Expectation
• 11/24 9:45am ET S&P Global PMI November Prelim
• 11/27 10:30am ET Dallas Fed November Manufacturing Activity Survey
• 11/28 9am ET November S&P CoreLogic CS home price
• 11/28 10am ET November Conference Board Consumer Confidence
• 11/29 8:30am ET 3QS 2023 GDP
• 11/29 2pm ET Fed Releases Beige Book
• 11/30 8:30am ET October PCE

Key incoming data October

• 10/2 10am ET September ISM ManufacturingTame
• 10/3 10am ET JOLTS Job Openings AugustHot
• 10/4 10am ET September ISM ServicesTame
• 10/6 8:30am ET September Jobs ReportMixed
• 10/6 9am ET Manheim Used Vehicle Index September FinalTame
• 10/10 11am NY Fed Inflation ExpectationsMixed
• 10/11 8:30am ET September PPIMixed
• 10/11 2pm ET Sep FOMC Meeting MinutesTame
• 10/12 8:30am ET September CPIMixed
• 10/13 10am ET U. Mich. September prelim 1-yr inflationMixed
• 10/16 8:30am ET October Empire Manufacturing SurveyTame
• 10/17 8:30am ET October New York Fed Business Activity SurveyTame
• 10/17 8:30am ET September Retail Sales DataHot
• 10/17 9am ET Manheim October Mid-Month Used Vehicle Value IndexTame
• 10/17 10am ET October NAHB Housing Market IndexTame
• 10/18 8:30am ET September Housing StartsTame
• 10/18 2pm ET Fed releases Beige BookTame
• 10/19 8:30am ET October Philly Fed Business Outlook SurveyTame
• 10/19 10am ET Existing Home SalesTame
• 10/19 12pm ET Fed (including Powell) at Economic Club of New York
• 10/24 9:45am ET S&P Global PMI October PrelimTame
• 10/26 8:30am ET 3Q 2023 GDP AdvanceStrong
• 10/27 8:30am ET September PCETame
• 10/27 10am ET Oct F UMich Sentiment and Inflation expectationTame
• 10/30 10:30am ET Dallas Fed September Manufacturing Activity SurveyTame
• 10/31 8:30am ET 3Q23 Employment Cost IndexMixed
• 10/31 9am ET August S&P CoreLogic CS home priceMixed
• 10/31 10am ET October Conference Board Consumer ConfidenceTame

Key incoming data September

• 9/1 8:30am ET August Jobs ReportTame
• 9/1 10am ET August ISM ManufacturingTame
• 9/6 10am ET August ISM ServicesMixed
• 9/6 2pm ET Fed releases Beige BookTame
• 9/8 9am ET Manheim Used Vehicle Index August FinalTame
• 9/8 2Q23 Fed Flow of Funds ReportTame
• 9/13 8:30am ET August CPIMixed
• 9/14 8:30am ET August PPITame
• 9/15 8:30am ET September Empire Manufacturing SurveyTame
• 9/15 10am ET U. Mich. September prelim 1-yr inflationTame
• 9/18 8:30am ET September New York Fed Business Activity SurveyTame
• 9/18 10am ET September NAHB Housing Market IndexTame
• 9/19 9am ET Manheim September Mid-Month Used Vehicle Value IndexMixed
• 9/20 2pm ET September FOMC rates decisionMarket saw Hawkish
• 9/21 8:30am ET September Philly Fed Business Outlook SurveyMixed
• 9/22 9:45am ET S&P Global PMI September Prelim
• 9/25 10:30am ET Dallas Fed September Manufacturing Activity Survey
• 9/26 9am ET July S&P CoreLogic CS home price
• 9/26 10am ET September Conference Board Consumer Confidence

Key incoming data August

• 8/1 10am ET July ISM ManufacturingTame
• 8/1 10am ET JOLTS Job Openings JunTame
• 8/2 8:15am ADP National Employment ReportHot
• 8/3 10am ET July ISM ServicesTame
• 8/4 8:30am ET July Jobs reportTame
• 8/7 11am ET Manheim Used Vehicle Index July FinalTame
• 8/10 8:30am ET July CPITame
• 8/11 8:30am ET July PPITame
• 8/11 10am ET U. Mich. July prelim 1-yr inflation Tame
• 8/11 Atlanta Fed Wage Tracker JulyTame
• 8/15 8:30am ET Aug Empire Manufacturing SurveyMixed
• 8/15 10am ET Aug NAHB Housing Market IndexTame
• 8/16 8:30am ET Aug New York Fed Business Activity SurveyNeutral
• 8/16 2pm ET FOMC MinutesMixed
• 8/17 8:30am ET Aug Philly Fed Business Outlook SurveyPositive
• 8/17 Manheim Aug Mid-Month Used Vehicle Value IndexTame
• 8/23 9:45am ET S&P Global PMI Aug PrelimWeak
• 8/25 10am ET Aug Final U Mich 1-yr inflationMixed
• 8/28 10:30am ET Dallas Fed Aug Manufacturing Activity SurveyTame
• 8/29 9am ET June S&P CoreLogic CS home priceTame
• 8/29 10am ET Aug Conference Board Consumer ConfidenceTame
• 8/29 10 am ET Jul JOLTSTame
• 8/31 8:30am ET July PCETame

Key incoming data July

• 7/3 10am ET June ISM ManufacturingTame
• 7/6 8:15am ADP National Employment Report Hot
• 7/6 10am ET June ISM ServicesTame
• 7/6 10 am ET May JOLTSTame
• 7/7 8:30am ET June Jobs reportMixed
• 7/10 11am ET Manheim Used Vehicle Index June FinalTame
• 7/12 8:30am ET June CPITame
• 7/13 8:30am ET June PPITame
• 7/13 Atlanta Fed Wage Tracker JuneTame
• 7/14 10am ET U. Mich. June prelim 1-yr inflationMixed
• 7/17 8:30am July Empire Manufacturing Survey
• 7/18 8:30am July New York Fed Business Activity Survey
• 7/18 10am July NAHB Housing Market Indexin-line
• 7/18 Manheim July Mid-Month Used Vehicle Value IndexTame
• 7/25 9am ET May S&P CoreLogic CS home priceTame
• 7/25 10am ET July Conference Board Consumer ConfidenceTame
• 7/26 2pm ET July FOMC rates decisionTame
• 7/28 8:30am ET June PCE Tame
• 7/28 8:30am ET 2Q ECI Employment Cost Index Tame
• 7/28 10am ET July Final U Mich 1-yr inflation Tame

Key data from June

• 6/1 10am ET May ISM ManufacturingTame
• 6/2 8:30am ET May Jobs reportTame
• 6/5 10am ET May ISM ServicesTame
• 6/7 Manheim Used Vehicle Value Index MayTame
• 6/9 Atlanta Fed Wage Tracker AprilTame
• 6/13 8:30am ET May CPITame
• 6/14 8:30am ET May PPITame
• 6/14 2pm ET April FOMC rates decisionTame
• 6/16 10am ET U. Mich. May prelim 1-yr inflationTame
• 6/27 9am ET April S&P CoreLogic CS home priceTame
• 6/27 10am ET June Conference Board Consumer ConfidenceTame
• 6/30 8:30am ET May PCETame
• 6/30 10am ET June Final U Mich 1-yr inflationTame

Key data from May

• 5/1 10am ET April ISM Manufacturing (PMIs turn up)Positive inflection
• 5/2 10am ET Mar JOLTSSofter than consensus
• 5/3 10am ET April ISM ServicesTame
• 5/3 2pm Fed May FOMC rates decisionDovish
• 5/5 8:30am ET April Jobs reportTame
• 5/5 Manheim Used Vehicle Value Index AprilTame
• 5/8 2pm ET April 2023 Senior Loan Officer Opinion SurveyBetter than feared
• 5/10 8:30am ET April CPITame
• 5/11 8:30am ET April PPITame
• 5/12 10am ET U. Mich. April prelim 1-yr inflation Tame
• 5/12 Atlanta Fed Wage Tracker April Tame
• 5/24 2pm ET May FOMC minutesDovish
• 5/26 8:30am ET PCE April Tame
• 5/26 10am ET U. Mich. April final 1-yr inflation Tame
• 5/31 10am ET JOLTS April job openings

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