Mon, September 30, 2024 | 7:50AM ET

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

Name: FS Insight
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Tom Lee, CFA ^AC

Head of Research

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 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 correlation to FXI 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, VECO, AMKR, FORM, UCTT
Electronic Equipment & Instruments: NSSC, DAKT
Semiconductors: PI, CRUS
Application Software: PLTR, APP, AGYS, SPNS, MSTR, AVPT
Interactive Media & Services: CARG
Movies & Entertainment: SPOT
Industrial Machinery & Supplies & Components: MLI, FLS

Top Stocks

Semiconductors: NVDA, TSM, AVGO, AMD, INTC
Footwear: NKE
Interactive Media & Services: META, GOOGL
Movies & Entertainment: DIS

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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:

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