Cars 17% of Core CPI, thus Nov Manheim Used Vehicle Index sort of matters (Friday 9am ET). Fundamental support for equities strengthened this week. Array ( [cookie] => d9ef53-0fba33-4d3ee2-dda904-f9868c [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

We discuss: The fundamental case strengthened for an equity rally into YE as inflationary pressures eased, leading to lower interest rates, weaker dollar and dovish changes in Fed futures.  Manheim Used Vehicle Index could move markets Friday, as autos collectively represent 17% of Core CPI basket

Please click below to watch our Macro Minute (Duration: 7:30).

The strength in equities has continued in November, supported by incoming economic data showing a sharp slowing in inflation pressures (CPI, PPI, import prices, etc), driving a sharp downturn in interest rates and dovish shifts in Fed fund futures. These are the “right” reasons, in our view, and the S&P 500 is up +2% this week and up +18% YTD. Our base case remains S&P 500 to gain an additional 5% to reach 4,750-4,800 by year-end.

• We have done many conference calls, zooms, presentations, one-on-one meetings and dinners in the past few weeks. And the over-arching takeaway, in my view, is the persistent skepticism of investors towards the equities gains this year.
• One can easily see this skepticism in the data. For instance, S&P Global noted (link here) that in October, retail investors sold US stocks at the fastest pace in 2023 and the highest pace in 2.5 years. To me, that really speaks to the capitulation event that reached its maximum levels on 10/27 of this year. And we know that when investors capitulate, this allows stocks more headroom to rise even if the incoming data does not seem as supportive.
• As for why investors are skeptical, it seems to me that it comes to a late-cycle view:
  – those skeptical believe the US economy is late-cycle
  – thus, a recession in the near investment horizon is a certainty
  – and if one has this view, then, little can dissuade that, unless growth accelerates
  – EPS, by the way, is accelerating as 3Q23 EPS grew 11% ex-Energy,
  – the fastest pace in 2 years
• Several sellside strategists have published their 2024 outlooks (3 of them). None are constructive:
  – 2 of 3 see S&P 500 with zero % upside
  – 1 of 3 sees 4% upside
  – 3 of 3 see EPS decline in 2024 vs 2023
• Even our survey of Fundstrat and FSinsight clients show that 51% of respondents (>1,000 responses) see only 5% to 10% upside in 2024.
• Since 1900 (123 years), calendar equity returns are distributed as follows:
  – S&P 500 between 0 to +5%: 11%
  – S&P 500 -5% to +5%: 17%
  – S&P 500 greater than +10%: 51%
• The point we are making is that flat S&P 500 is the least likely outcome with only a 1 in 10 chance of happening. Yet, that is the expectation of the sell-side and also of investors. To me, that is why 2024 will be a very decisive year. We will publish our outlook on December 7th. So stay tuned!
• On Friday, Manheim Used Vehicle Index November mid-month will be reported. This could be “market moving” if vehicle prices fall sharply. In fact, I think investors underestimate how important used cars actually matter to CPI:
  – Used cars weight of Core CPI: 5%
  – Total cars (new, insurance, leasing) 17%
  – After housing (42%), the single largest category
• As we have written multiple times, the key to getting core CPI back to CPI 2% literally comes down to housing and cars. No other category actually matters. We can quantify this:
  – Core CPI is 4% versus long-term trend of 2.4%: +1.64%
  – Contribution of Housing vs long-term trend: +1.56%
  – Contribution of Cars vs long-term trend: +0.18%
  – The entire excess Core CPI is due to these categories

BOTTOM LINE: YEAR-END RALLY THESIS INTACT… BABY RALLY INTACT…FACERIPPER

The equity rally strengthened this week, supported by the sharp move in interest rates and by cooling inflationary pressures. And this is supportive of our YE rally thesis.

• We like FAANG/Technology into YE
• We also like Industrials
• We see signs of market breadth expansion, thus, also favoring small-caps

Key incoming data November

• 11/01 9:45am ET S&P Global PMI October Final Tame 
• 11/01 10am ET JOLTS Job Openings September Mixed
• 11/01 10am ET October ISM Manufacturing Tame
• 11/01 10am ET Treasury 4Q23 Quarterly Refunding Press Conference Tame
• 11/01 2pm ET FOMC Rate Decision Dovish
• 11/02 8:30am ET: 3Q23 Nonfarm Productivity Tame
• 11/03 8:30am ET October Jobs Report Tame
• 11/03 10am ET October ISM Services Mixed
• 11/07 9am ET Manheim Used Vehicle Index October Final Tame
• 11/10 10am ET U. Mich. November prelim Sentiment and Inflation Expectation Hot
• 11/14 8:30am ET October CPI Tame
• 11/15 8:30am ET October PPI Tame
• 11/15 8:30am ET November Empire Manufacturing Survey  Resilient
• 11/15 8:30am ET October Retail Sales Data Resilient
• 11/16 8:30am ET November New York Fed Business Activity Survey Tame
• 11/16 8:30am ET November Philly Fed Business Outlook Survey Tame
• 11/16 10am ET November NAHB Housing Market Index  Tame
• 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 Manufacturing Tame
•  10/3 10am ET JOLTS Job Openings August Hot
•  10/4 10am ET September ISM Services Tame
•  10/6 8:30am ET September Jobs Report Mixed
•  10/6 9am ET Manheim Used Vehicle Index September Final Tame
• 10/10 11am NY Fed Inflation Expectations Mixed
•  10/11 8:30am ET September PPI Mixed
•  10/11 2pm ET Sep FOMC Meeting Minutes Tame
•  10/12 8:30am ET September CPI Mixed
•  10/13 10am ET U. Mich. September prelim 1-yr inflation Mixed
•  10/16 8:30am ET October Empire Manufacturing Survey Tame
•  10/17 8:30am ET October New York Fed Business Activity Survey Tame
• 10/17 8:30am ET September Retail Sales Data Hot
•  10/17 9am ET Manheim October Mid-Month Used Vehicle Value Index Tame
•  10/17 10am ET October NAHB Housing Market Index Tame
• 10/18 8:30am ET September Housing Starts Tame
• 10/18 2pm ET Fed releases Beige Book Tame
•  10/19 8:30am ET October Philly Fed Business Outlook Survey Tame
• 10/19 10am ET Existing Home Sales Tame
• 10/19 12pm ET Fed (including Powell) at Economic Club of New York
•  10/24 9:45am ET S&P Global PMI October Prelim Tame
•  10/26 8:30am ET 3Q 2023 GDP Advance Strong
•  10/27 8:30am ET September PCE Tame
•  10/27 10am ET Oct F UMich Sentiment and Inflation expectation Tame
•  10/30 10:30am ET Dallas Fed September Manufacturing Activity Survey Tame
• 10/31 8:30am ET 3Q23 Employment Cost Index Mixed
•  10/31 9am ET August S&P CoreLogic CS home price Mixed
•  10/31 10am ET October Conference Board Consumer Confidence Tame

Key incoming data September

•  9/1 8:30am ET August Jobs Report Tame
•  9/1 10am ET August ISM Manufacturing Tame
•  9/6 10am ET August ISM Services Mixed
•  9/6 2pm ET Fed releases Beige Book Tame
•  9/8 9am ET Manheim Used Vehicle Index August Final Tame
•  9/8 2Q23 Fed Flow of Funds Report Tame
•   9/13 8:30am ET August CPI Mixed
•  9/14 8:30am ET August PPI Tame
•  9/15 8:30am ET September Empire Manufacturing Survey Tame
•  9/15 10am ET U. Mich. September prelim 1-yr inflation Tame
•  9/18 8:30am ET September New York Fed Business Activity Survey Tame
•  9/18 10am ET September NAHB Housing Market Index Tame
•  9/19 9am ET Manheim September Mid-Month Used Vehicle Value Index Mixed
•  9/20 2pm ET September FOMC rates decision Market saw Hawkish
•  9/21 8:30am ET September Philly Fed Business Outlook Survey Mixed
•  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 Manufacturing Tame
• 8/1 10am ET JOLTS Job Openings Jun Tame
• 8/2 8:15am ADP National Employment Report Hot
• 8/3 10am ET July ISM Services Tame
• 8/4 8:30am ET July Jobs report Tame
• 8/7 11am ET Manheim Used Vehicle Index July Final Tame
• 8/10 8:30am ET July CPI Tame
• 8/11 8:30am ET July PPI Tame
• 8/11 10am ET U. Mich. July prelim 1-yr inflation Tame
• 8/11 Atlanta Fed Wage Tracker July Tame
• 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 Survey Positive
• 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 Survey Tame
• 8/29 9am ET June S&P CoreLogic CS home price Tame
• 8/29 10am ET Aug Conference Board Consumer Confidence Tame
• 8/29 10 am ET Jul JOLTS Tame
• 8/31 8:30am ET July PCE Tame

Key incoming data July

• 7/3 10am ET June ISM Manufacturing Tame
• 7/6 8:15am ADP National Employment Report Hot
• 7/6 10am ET June ISM Services Tame
• 7/6 10 am ET May JOLTS Tame
• 7/7 8:30am ET June Jobs report Mixed
• 7/10 11am ET Manheim Used Vehicle Index June Final Tame
• 7/12 8:30am ET June CPI Tame
• 7/13 8:30am ET June PPI Tame
• 7/13 Atlanta Fed Wage Tracker June Tame
• 7/14 10am ET U. Mich. June prelim 1-yr inflation Mixed
• 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 Index in-line
• 7/18 Manheim July Mid-Month Used Vehicle Value Index Tame
• 7/25 9am ET May S&P CoreLogic CS home price Tame
• 7/25 10am ET July Conference Board Consumer Confidence Tame
• 7/26 2pm ET July FOMC rates decision Tame
• 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 Manufacturing Tame
• 6/2 8:30am ET May Jobs report Tame
• 6/5 10am ET May ISM Services Tame
• 6/7 Manheim Used Vehicle Value Index May Tame
• 6/9 Atlanta Fed Wage Tracker April Tame
• 6/13 8:30am ET May CPI Tame
• 6/14 8:30am ET May PPI Tame
• 6/14 2pm ET April FOMC rates decision Tame
• 6/16 10am ET U. Mich. May prelim 1-yr inflation Tame
• 6/27 9am ET April S&P CoreLogic CS home price Tame
• 6/27 10am ET June Conference Board Consumer Confidence Tame
• 6/30 8:30am ET May PCE Tame
• 6/30 10am ET June Final U Mich 1-yr inflation Tame

Key data from May

• 5/1 10am ET April ISM Manufacturing (PMIs turn up) Positive inflection
• 5/2 10am ET Mar JOLTS Softer than consensus
• 5/3 10am ET April ISM Services Tame
• 5/3 2pm Fed May FOMC rates decision Dovish
• 5/5 8:30am ET April Jobs report Tame
• 5/5 Manheim Used Vehicle Value Index April Tame
• 5/8 2pm ET April 2023 Senior Loan Officer Opinion Survey Better than feared
• 5/10 8:30am ET April CPI Tame
• 5/11 8:30am ET April PPI Tame
• 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 minutes Dovish
• 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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