Cars 17% of Core CPI, thus Nov Manheim Used Vehicle Index sort of matters (Friday 9am ET). Fundamental support for equities strengthened this week.

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 FinalTame 
• 11/01 10am ET JOLTS Job Openings SeptemberMixed
• 11/01 10am ET October ISM ManufacturingTame
• 11/01 10am ET Treasury 4Q23 Quarterly Refunding Press ConferenceTame
• 11/01 2pm ET FOMC Rate DecisionDovish
• 11/02 8:30am ET: 3Q23 Nonfarm ProductivityTame
• 11/03 8:30am ET October Jobs Report Tame
• 11/03 10am ET October ISM ServicesMixed
• 11/07 9am ET Manheim Used Vehicle Index October FinalTame
• 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 DataResilient
• 11/16 8:30am ET November New York Fed Business Activity SurveyTame
• 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 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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