VIDEO: There is a lot of macro data released Friday. We believe odds favor Nov jobs report stronger than expected and this might trigger from “good news is bad news for stocks” but we would buy that dip
Please click below to view our Macro Minute (duration: 4:22).
We are positive on equities into year-end, meaning we expect a December rally pushing the S&P 500 to 6,300. But as we noted earlier this week, we believe there is a “zone of hesitation” where markets want some clarity on macro data before embracing “risk on.”
- The 3 most significant macro events in the coming weeks are:
– 12/6 Nov jobs report –> hopefully, a strong # can be “seen thru”
– 12/11 Nov CPI –> could be “hotter” than expected
– 12/18 Dec FOMC meeting - Once we are through this gauntlet, we expect typical seasonals to support stocks into YE. And we see the S&P 500 reaching 6,300 by the end of 2024.
- The natural pushback is whether “hawkish” developments quash the stock rally. Hawkish such as:
– strong jobs
– hot CPI
– Fed backpedaling on cuts - The reason for this is that we expect the Fed to remain dovish, that is, the Fed is in a cutting cycle. And in fact, slowing down the number of cuts is positive:
– first, Fed needs to get to “Neutral”
– current Fed funds 4.75%
– the Neutral rate is 2.50% to 3.00%
– thus, Fed still need 6 to 8 cuts (25bp each)
– Fewer cuts in 2025 = longer cutting cycle - In other words, fewer cuts in 2025 is actually lengthening the time the Fed is dovish and therefore the “Fed put” remains in play. This is why we expect stocks to rally, plus, we have the other reasons for stocks to rally in December.
- These factors are:
– Seasonally Dec strong – 83% probability
– Interest rates declined pre-election levels
– Sentiment cautious = contrarian positive
– Fed “put” + Trump “put” = “buy any dip”
– Near-term uncertainty = “buy any dip” - As for the seasonality argument. Since 1950, here are probabilities of an “up” December:
– since 1950 (n=74)
– when S&P 500 up >10% first half (n=23)
– December higher 83% of time, median +2.9%
– if ALSO election year, 100% of time, median +3.4%
– implies S&P 500 6,250, close enough to 6,300
- The macro on Friday is as follows:
– 12/6 Fri 8:30 AM ET: Nov Non-farm Payrolls 218ke
– 12/6 Fri 9:00 AM ET: Nov F Manheim Used Vehicle Index
– 12/6 Fri 10:00 AM ET: Dec P U. Mich. 1yr Inf Exp 2.7%e - And as for Fed speak:
– 12/6 Fri 9:15 AM ET: Bowman (voting) Speaks to Missouri Bankers Association
– 12/6 Fri 10:30 AM ET: Goolsbee Participates in Fireside Chat
– 12/6 Fri 12:00 PM ET: Hammack (voting) Speaks on the US Economy
– 12/6 Fri 1:00 PM ET: Daly (voting) Speaks in Moderated Conversation
Bottom line: Stay on target into year-end
We see stocks rallying into year-end, with the possibility of a “zone of hesitation” near-term. But we would urge investors to buy this dip. That said, we see more upside for other groups. This holds whether looking at 2016, or whether thinking of a dovish Fed. The drivers are:
- de-regulation
- drop in cost of capital for businesses
- general “animal spirits” given Republican White House and Senate
This favors the following groups:
- Small-caps: IWM -0.53% IJR 0.34%
- Cyclicals: XLF 0.25% KRE 1.55% XLI -0.12%
- Bitcoin: BTC MSTR -3.73% SMLR -5.24%
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Key incoming data December:
12/2 9:45 AM ET: Nov F S&P Global Manufacturing PMITame12/2 10:00 AM ET: Nov ISM Manufacturing PMITame12/3 10:00 AM ET: Oct JOLTS Job OpeningsTame- 12
/4 9:45 AM ET: Nov F S&P Global Services PMITame 12/4 10:00 AM ET: Nov ISM Services PMITame12/4 10:00 AM ET: Oct F Durable Goods OrdersTame- 1
2/4 2:00 PM ET: Fed Releases Beige BookDovish - 1
2/5 8:30 AM ET: Oct Trade BalanceTame - 12/6 8:30 AM ET: Nov Non-Farm Payrolls
- 12/6 9:00 AM ET: Nov F Manheim Used vehicle index
- 12/6 10:00 AM ET: Dec P U. Mich. Sentiment and Inflation Expectation
- 12/9 11:00 AM ET: Nov NY Fed 1yr Inf Exp
- 12/10 6:00 AM ET: Nov Small Business Optimism Survey
- 12/10 8:30 AM ET: 3Q F Non-Farm Productivity
- 12/10 8:30 AM ET: 3Q F Unit Labor Costs
- 12/11 8:30 AM ET: Nov CPI
- 12/12 8:30 AM ET: Nov PPI
- 12/16 8:30 AM ET: Dec Empire Manufacturing Survey
- 12/17 8:30 AM ET: Nov Retail Sales Data
- 12/17 9:00 AM ET: Dec P Manheim Used vehicle index
- 12/17 10:00 AM ET: Dec NAHB Housing Market Index
- 12/18 2:00 PM ET: Dec FOMC Decision
- 12/19 8:30 AM ET: 3Q T 2024 GDP
- 12/19 8:30 AM ET: Dec Philly Fed Business Outlook
- 12/19 10:00 AM ET: Nov Existing Home Sales
- 12/19 4:00 PM ET: Oct Net TIC Flows
- 12/20 8:30 AM ET: Nov PCE Deflator
- 12/20 10:00 AM ET: Dec F U. Mich. Sentiment and Inflation Expectation
- 12/23 8:30 AM ET: Nov Chicago Fed Nat Activity Index
- 12/23 10:00 AM ET: Dec Conference Board Consumer Confidence
- 12/24 10:00 AM ET: Nov New Home Sales
- 12/24 10:00 AM ET: Nov P Durable Goods Orders
- 12/30 10:30 AM ET: Dec Dallas Fed Manuf. Activity Survey
- 12/31 9:00 AM ET: Oct S&P CoreLogic CS home price
Economic Data Performance Tracker 2024:
Economic Data Performance Tracker 2023:
