Important macro week ahead and ultimately supportive of dovish Fed. We continue to see higher upside for small-caps into YE.

VIDEO: A very heavy macro week ahead including ISM, JOLTS, VP debates, Fed speeches, and jobs report.  All of this we expect to be dovish and supportive of equities.

Please click below to view our Macro Minute (duration: 5:03).

We are about the enter the final quarter of 2024. And to us, the most important takeaway is this is an incredibly strong and resilient equity market, with S&P 500 gaining 8 of the 9 months of 2024. And equities even managed to perform well during the challenging 8 week from August to election day (still 36 days away). And there remain 3 favorable structural drivers for equities, supporting the “buy the dip.”

• This coming week is a heavy macro week, with a lot of data points on:
  – labor markets (JOLTS, claims, jobs report),
  – corporate profits (ISM services and manufacturing)
  – and 2024 election (VP debate).
  – So there is a lot to watch this week
• The key macro events this week are:
  – 9/30 Mon 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey    -11e
  – 9/30 Mon 1:55 PM ET: Fed’s Powell Speaks at NABE
  – 10/1 Tue 9:45 AM ET: Sep F S&P Global Manufacturing PMI    47.0e
  – 10/1 Tue 10:00 AM ET: Sep ISM Manufacturing PMI    47.6e
  – 10/1 Tue 10:00 AM ET: Aug JOLTS Job Openings    7693ke
  – 10/1 Tue 9:00 PM ET: CBS News US Vice Presidential Debate
  – 10/3 Thu 9:45 AM ET: Sep F S&P Global Services PMI
  – 10/3 Thu 10:00 AM ET: Sep ISM Services PMI    51.5e
  – 10/3 Thu 10:00 AM ET: Aug F Durable Goods Orders
  – 10/4 Fri 8:30 AM ET: Sep Non-farm Payrolls    146ke

• Of these, the most important is Sept jobs report coming out Friday. Labor markets have been softening for the past year and a half:
  – 2022 monthly payrolls >300k per month
  – 2023 monthly payrolls ~250k per month
  – last 5 months avg 135k per month
• Fed Chair Powell recently repeatedly noted that he is “mentally adjusting” jobs reports for revisions and this has averaged -91k per month. So the US avg recently is more like 45k per month, which is close to “stall speed” for labor markets.
• Thus, the Sept jobs report is overall dovish from a Fed perspective. If the jobs report is stronger than 146k consensus, this would be welcome as this puts distance to the “stall speed” and if this jobs report is soft, then the Fed is even more dovish, which is good for stocks.
• Tom Block, Head of Policy Strategy, has noted that VP Presidential debates are not really consequential. As voters care more about the Presidential candidates. But given the paucity of debates (likely 1 prez debate) and limited dual public appearances, perhaps voters will care more about this particular debate.
• Looking forward, there remain 3 positive structural drivers for stocks supportive of higher prices:
  – Fed launches easing cycle + “no landing”
  – China PBOC “bazooka” = positive inflection
  – Post-election and cash on sidelines dynamics
• The main thing to remember is when the Fed cut and the US economy is not in recession (like today):
  – S&P 500 up 3M later 7 of 7 times
  – S&P 500 up 6M later 7 of 7 times
  – this is bullish
• Regarding China, our take is to “respect the breakout” as Mark Newton, Head of Technical Strategy, flagged early last week that FXI 7.40%  has broken a multi-year downtrend. Given the “bazooka” level policy measures taken by the China central bank, we believe the risk/reward has now shifted favorably for investors.
• As we highlight below, China has massively underperformed the US on a 3-yr and 10-yr basis. Thus, there is a lot of room for upside if these new measures gain traction:
  – 3-yr underperformance -34% (was worse)
  – 10-yr underperformance -77%
• The cash on the slidelines continues to grow. Total money market balances surged to $6.4T last week, up a near record $130 billion. This balance was $4.2T when the Fed began its “war on inflation” and we continue to see this as a source of firepower. Hence, constructive.
• Finally, this all favors small-caps versus large into year-end. We have written about it exhaustively, so please review our past notes. But the China rally similarly benefits small-caps mainly as this is evidence of risk on. And our data shows the Russell 2000 IWM -0.03%  correlation to FXI 7.40%  is second only to Consumer Discretionary.

BOTTOM LINE: 19 SMID Granny Shots and 9 Large-cap stocks positively leveraged to China upside

We highlight 19 SMID Granny Shots and 9 Large-cap stocks positively leveraged to an upside move in FXI. The following methodology is used:

• Stock is a SMID Granny Shot and/or Top 40 largest stock held
• Operates within the top 20 GICS most positively correlated to China

The following are the stocks:

SMID Grannies

• Semiconductor Materials & Equipment: ACLS -1.15% , VECO 0.93% , AMKR 2.03% , FORM 0.75% , UCTT 5.42%
• Electronic Equipment & Instruments: NSSC 0.34% , DAKT -1.58%
• Semiconductors: PI 0.60% , CRUS 1.69%
• Application Software: PLTR 2.90% , APP 0.54% , AGYS -1.03% , SPNS 0.14% , MSTR 1.24% , AVPT 0.61%
• Interactive Media & Services: CARG -1.21%
• Movies & Entertainment: SPOT -0.17%
• Industrial Machinery & Supplies & Components: MLI -1.06% , FLS 1.95%

Top Stocks

• Semiconductors: NVDA 2.08% , TSM 2.69% , AVGO 1.90% , AMD 0.03% , INTC -0.84%
• Footwear: NKE -6.63%
• Interactive Media & Services: META -0.48% , GOOGL -0.55%
• Movies & Entertainment: DIS 0.12%

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42 SMID Granny Shot Ideas: We performed our quarterly rebalance on 7/16. Full stock list here -> Click here

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Key incoming data October:

• 10/1 9:45 AM ET: Sep F S&P Global Manufacturing PMI
• 10/1 10:00 AM ET: Sep ISM Manufacturing PMI
• 10/1 10:00 AM ET: Aug JOLTS Job Openings
• 10/3 9:45 AM ET: Sep F S&P Global Services PMI
• 10/3 10:00 AM ET: Sep ISM Services PMI
• 10/3 10:00 AM ET: Aug F Durable Goods Orders
• 10/4 8:30 AM ET: Sep Non-Farm Payrolls
• 10/7 9:00 AM ET: Aug F Manheim Used Vehicle Index
• 10/8 6:00 AM ET: Sep Small Business Optimism Survey
• 10/8 8:30 AM ET: Aug Trade Balance
• 10/9 2:00 PM ET: Sep 18 FOMC Meeting Minutes
• 10/10 8:30 AM ET: Sep CPI
• 10/11 8:30 AM ET: Sep PPI
• 10/11 10:00 AM ET: Oct P U. Mich. Sentiment and Inflation Expectation
• 10/14 11:00 AM ET: Sep NY Fed 1yr Inf Exp
• 10/15 8:30 AM ET: Oct Empire Manufacturing Survey
• 10/17 8:30 AM ET: Sep Retail Sales Data
• 10/17 8:30 AM ET: Oct Philly Fed Business Outlook
• 10/17 9:00 AM ET: Sep M Manheim Used Vehicle Index
• 10/17 10:00 AM ET: Oct NAHB Housing Market Index
• 10/17 4:00 PM ET: Aug Net TIC Flows
• 10/23 10:00 AM ET: Sep Existing Home Sales
• 10/23 2:00 PM ET: Oct Fed Releases Beige Book
• 10/24 8:30 AM ET: Sep Chicago Fed Nat Activity Index
• 10/24 9:45 AM ET: Oct P S&P Global Manufacturing PMI
• 10/24 9:45 AM ET: Oct P S&P Global Services PMI
• 10/24 10:00 AM ET: Sep New Home Sales
• 10/25 10:00 AM ET: Oct F U. Mich. Sentiment and Inflation Expectation
• 10/25 10:00 AM ET: Aug F Durable Goods Orders
• 10/28 10:30 AM ET: Oct Dallas Fed Manuf. Activity Survey
• 10/29 9:00 AM ET: Aug S&P CoreLogic CS home price
• 10/29 10:00 AM ET: Oct Conference Board Consumer Confidence
• 10/29 10:00 AM ET: Sep JOLTS Job Openings
• 10/30 8:30 AM ET: 3Q A 2024 GDP
• 10/30 10:00 AM ET: 3Q24 Treasury Quarterly Refunding Press Conference
• 10/31 8:30 AM ET: Sep PCE Deflator
• 10/31 8:30 AM ET: 3Q  Employment Cost Index

Key incoming data September:

• 9/3 9:45 AM ET: Aug F S&P Global Manufacturing PMI Tame
• 9/3 10:00 AM ET: Aug ISM Manufacturing PMI Tame
• 9/4 8:30 AM ET: Jul Trade Balance Tame
• 9/4 10:00 AM ET: Jul JOLTS Job Openings Tame
• 9/4 10:00 AM ET: Jul F Durable Goods Orders Tame
• 9/4 2:00 PM ET:  Fed Releases Beige Book Tame
• 9/5 8:30 AM ET: 2Q F Non-Farm Productivity Tame
• 9/5 8:30 AM ET: 2Q F Unit Labor Costs Tame
• 9/5 9:45 AM ET: Aug F S&P Global Services PMI Tame
• 9/5 10:00 AM ET: Aug ISM Services PMI Tame
• 9/6 8:30 AM ET: Aug Non-Farm Payrolls Tame
• 9/9 9:00 AM ET: Aug F Manheim Used vehicle index Mixed
• 9/9 11:00 AM ET: Aug NY Fed 1yr Inf Exp Tame
• 9/10 6:00 AM ET: Aug Small Business Optimism Survey Tame
• 9/11 8:30 AM ET: Aug CPI Tame
• 9/12 8:30 AM ET: Aug PPI Tame
• 9/13 10:00 AM ET: Sep P U. Mich. Sentiment and Inflation Expectation Tame
• 9/16 8:30 AM ET: Sep Empire Manufacturing Survey Tame
• 9/17 8:30 AM ET: Aug Retail Sales Data Tame
• 9/17 9:00 AM ET: Sep M Manheim Used vehicle index Tame
• 9/17 10:00 AM ET: Sep NAHB Housing Market Index Tame
• 9/18 2:00 PM ET: Sep FOMC Decision Dovish
• 9/18 4:00 PM ET: Jul Net TIC Flows Tame
• 9/19 8:30 AM ET: Sep Philly Fed Business Outlook Tame
• 9/19 10:00 AM ET: Aug Existing Home Sales Tame
• 9/23 8:30 AM ET: Aug Chicago Fed Nat Activity Index Tame
• 9/23 9:45 AM ET: Sep P S&P Global Manufacturing PMI Tame
• 9/23 9:45 AM ET: Sep P S&P Global Services PMI Tame
• 9/24 9:00 AM ET: Jul S&P CoreLogic CS home price Tame
• 9/24 10:00 AM ET: Sep Conference Board Consumer Confidence Tame
• 9/25 10:00 AM ET: Aug New Home Sales Tame
• 9/26 8:30 AM ET: 2Q T 2024 GDP Tame
• 9/26 10:00 AM ET: Aug P Durable Goods Orders Tame
• 9/27 8:30 AM ET: Aug PCE Deflator Tame
• 9/27 10:00 AM ET: Sep F U. Mich. Sentiment and Inflation Expectation Tame
• 9/30 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: