A daily market update from FS Insight — what you need to know ahead of opening bell

“That government is the strongest of which every man feels himself a part.” —Dwight Eisenhower

Overnight

Prison, death or victory – in the words of Brazil’s ex-president Bolsonaro, who faces a string of criminal investigations and has recently hidden out at the Hungarian embassy – the only three possible futures for himself (NYT)

Fires from 2023 smoldering under snow reveal Canada’s dangerous new reality (BBG)

Secure facilities available for short-term rental are cropping up in D.C. and other major cities (BBG)

There’s a growing black-market trade in Starlink terminals (BBG)

RFK Jr. names Nicole Shanahan, Bay Area lawyer, political novice, as running mate in presidential bid (WSJ)

SEC fines Arista co-founder $1 million over insider trading claims (WSJ)

After the U.S., E.U. stop paying, Arab nations balk at funding U.N. agency that aided Palestinian Arabs, took part in Oct. 7 atrocities (WSJ)

BYD net profit rises as it overtakes Tesla as top EV seller (WSJ)

China files WTO complaint against the U.S. over EV subsidies (WSJ)

Canada to tighten foreign investment rules in AI, space technology sectors (RT)

Assange extradition on hold until U.S. promises he won’t face death penalty (Semafor)

The Fed posted a record ~$114B loss in 2023 (RT)

Jamie Dimon lunches with Kamala Harris (FT)

Commercial banks buy Treasuries at fastest pace since Covid (YH)

BoE’s Mann says markets are pricing in too many rate cuts (RT)

Treasury yields continue to rise despite rate cut expectations (WSJ)

PIMCO favors U.K. gilts over US Treasuries amid inflationary pressure (FT)

The U.S. faces Liz Truss-style market shock as debt soars, warns CBO (FT)

Retail investors host meme stock party amid high rates (BBG)

EY dropped its appeal against German sanctions (FT)

Visa, Mastercard agreed to $30B settlement over US transaction fees (FT)

Moody’s placed Boeing on review for downgrade (RT)

Boeing’s largest union is seeking a board seat (FT)

Advisory firm ISS tells Disney shareholders to side with activist Nelson Peltz in proxy fight (CNBC)

Dell has now slashed ~6k jobs as part of broad cost cuts (RT)

The U.S. will investigate credit card rewards and BNPL companies (RT)

Apple will unveil AI strategy in June (BBG)

Latino entrepreneurship in the U.S. is rising at rapid pace (WSJ)

China sued U.S. over EV-subsidies, citing unfair competition (WSJ)

First news

• Ukraine makes an effort to bring more African countries to its side
• BlackRock’s Larry Fink pleads for the U.S. to provide for every citizen, and for every citizen to work longer
• Bananas and green onions conspire to break budgets, hearts, as prices for beloved, meaningful staples inevitably rise.

MARKET LEVELS

MORNING INSIGHT

Good morning!

There are 3 empirical reasons small-caps are set to outperform in 2024 by as much as 50%.

Russell 2K EPS growth +690bp is faster, yet trades at a 41% P/E discount.

The Feb Core PCE (Fri) likely to be below consensus = good.

Click HERE for more.

TECHNICAL

Healthcare is turning down on a relative basis – lowering to technical Neutral from Overweight –  outperformance will take time.

Unfortunately, Healthcare failed to follow through on the initial bounce off November, which successfully broke out above this sector’s seven-month downtrend vs. the S&P 500.

The January 2024 breakout proved short-lived, and Healthcare has now underperformed all other 10 sector’s Equal-weighted and Cap-weighted ETFs in the rolling one-month period ending 3/26/24, with returns of a negative -1.77% for XLV -0.03% , while the Equal-weighed Healthcare ETF RYH has been lower by -0.19% despite an Equal-weighted S&P 500 gain of +2.64% (through 3/26/24).

Relative charts of RYH to RSP -0.11%  have broken down from its minor bounce off November lows and looks premature to bottom out as Q1 nears its close.

Overall, we feel that a lesser weight is correct in Healthcare, technically speaking, until more evidence of this group bottoming out occurs.

June and July historically are quite positive for Healthcare seasonally speaking, so we anticipate that any absolute and/or relative weakness into late April and/or May might prove to be a better time to revisit this sector. At present, additional underperformance looks likely over the next month vs. the broader market.

Click HERE for more.

CRYPTO

• The FTX bankruptcy estate has agreed to sell approximately two-thirds of its Anthropic stake. Anthropic is an artificial intelligence startup with prominent backers like Amazon and Google. Amazon stated it would invest up to $4 billion in Anthropic, while Google agreed to invest over $2 billion in October. FTX made a $500 million investment in Anthropic in 2021, representing about 7.8% of the company. As of late 2023, their stake was worth about $1.4 billion. They are selling close to two-thirds of their stake for $884 million to 24 buyers. ATIC Third International Investment Co., a UAE sovereign wealth fund, is the largest buyer, who purchased $500 million worth of shares. Other investors included Jane Street and funds associated with Fidelity. The Anthropic sale is still subject to court approval but marks another significant step in repaying creditors. The FTX bankruptcy estate had about $6.4 billion in cash as of February and is expected to pay creditors back in full.
• SWIFT, the Society for Worldwide Interbank Financial Telecommunications, announced the findings of its second phase of an industry-wide sandbox testing of its interlinking CBDC solution. The second phase of experiments explored complex use cases such as atomic trade payments and simultaneous transfer of assets. The experiments included over 750 transactions across various networks. The positive results show that its connector can easily facilitate interbank transactions using CBDCs and other digital tokens while institutions leverage their existing infrastructure. Additionally, the findings showed that smart contracts and event-driven programming have the potential for facilitating 24/7 fully automated payments, reducing delays in global trade, enhancing counterparty trust, and lowering transaction costs. The lack of interoperability between tokenization platforms remains a barrier to growth, and SWIFT hopes to mitigate fragmentation across different networks and domiciles.

Click HERE for more.

FIRST NEWS

Sell Grain, Buy Support. Facing an existential battle as it fights to repel Russia’s brutal invasion, Ukraine is actively strengthening its ties with African nations. This strategic move involves ramping up its grain shipments program and significantly expanding its diplomatic presence across the continent.

At the heart of these efforts is President Volodymyr Zelenskyy’s planned first state visit to Africa in the coming months, underscoring Ukraine’s determination to foster closer relations with African countries, especially as its key ally, the United States, wavers in its support. In a tangible step, Ukraine plans to roughly double the number of its embassies in Africa by adding 10 to 12 more this year. This diplomatic expansion coincides with the broader push to deepen ties with African nations. Notably, South African Foreign Minister Naledi Pandor revealed during an event in Washington D.C. that Zelenskyy is expected to visit South Africa “in the next few months” to “strengthen and expand the engagement.”

The war in Ukraine has disrupted the global grain supply chain, leading to higher food prices and severe shortages in many African countries. Since late 2022, Ukraine has partnered with the World Food Programme to deliver grain to Ethiopia, Somalia, Kenya, Nigeria, and Sudan – nations hit hardest by the conflict-induced food crisis. According to Ukraine’s deputy agrarian minister, Markiyan Dmytrasevych, more than 200,000 tons of grain have been delivered to African countries so far, and the program is set to expand further, targeting Mozambique, Mauritania, Djibouti, the Democratic Republic of the Congo, and Malawi.

Ukraine’s concerted efforts to win over African nations reflect a growing recognition of the continent’s geopolitical significance. In a fractured world where the West’s dominance is waning, securing allies across various regions has become imperative. This urgency was underscored during the early months of the conflict when nearly half of the African countries abstained from a U.N. vote condemning Russia’s invasion, signaling a lack of universal condemnation of Moscow’s actions. Semafor

Making a Long Life Less of a Calamity. BlackRock CEO Larry Fink is calling for a coordinated effort between the government and the private sector to ensure Americans have sufficient funds for retirement. This call to action comes in his annual letter to investors, released on Tuesday. The urgency of this issue is underscored by the fact that it comes from the head of the world’s largest manager of retirement funds. While Fink’s company stands to benefit from more retirement savings, his concerns are valid and reflect a broader societal challenge.

The crux of the matter lies in America’s increasing life expectancy, which means retirees need more money to sustain themselves for longer periods. Fink notes that “building a secure, well-earned retirement is a much harder proposition than it was 30 years ago, and it’ll be a much harder proposition 30 years from now.”

The numbers paint a stark picture. In 1952, most Americans born 65 years earlier were already deceased, eliminating the need for retirement income. At that time, a 65-year-old man could expect to live another 13 years on average, while a woman could expect 15 more years. Today, those figures have increased to 17 years for men and 20 years for women. By 2059, when today’s 30-year-olds retire, these numbers will have risen by another two years.

This longevity trend has fueled anxiety among retirees about outliving their savings. Fink cites evidence that even those objectively well-prepared for retirement still harbor deep concerns about their financial security. To address this, BlackRock has introduced a new product called LifePath Paycheck, which Fink calls “a revolution in retirement” and which allows retired participants in BlackRock’s target-date funds to convert 30% of their fund into an annuity at any point, with a rare level of pricing transparency – at least for the annuity industry.

“As a society, we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years,” writes Fink, who seeks to ignite global awareness of the need to make retirement investing more automatic and baked into the system.

Fink highlights the shift from defined-benefit to defined-contribution plans, which has transitioned most people “from financial certainty to financial uncertainty” and warns that without collective action involving the government this shift toward uncertainty and worry will only intensify.

The solution? Fink advocates for government action to ensure that all Americans, regardless of their employment situation, can build a decent nest egg for retirement, pointing to Australia’s superannuation system as a potential model and noting that Australians “likely have more retirement savings per capita than any other country.” Fink also suggests that the U.S. retirement age should rise in line with life expectancy, as is the case in the Netherlands. The suggestion is surely a case of financial art imitating life, as it’s in line with the preferences of a growing cohort of U.S. workers, who, given the greater energy and presence of mind that come from living longer, healthier lives, are choosing to work, whether full- or part-time, into their seventies. Axios

The Price Also Rises. As an era comes to an end, traditionalists are up in arms. In a once-in-a-generation shift in the FMCG space, Trader Joe’s is raising the price of a single banana from 19 to 23 cents for the first time in twenty-plus years.

It’s a move that has sent shockwaves through the grocery world. The iconic fruit, which has long defied the grip of food inflation, has been hit with a 4-cent hike at the store—a more than 20% increase. Considering its reputation as an affordable, ubiquitous food (which comes in its own packaging, to boot) the change comes as a rude surprise, blindsiding many who see the banana – with its well-rounded nutritional profile, consisting of carbohydrates, sugars, fiber, potassium, and even some protein – to be a staple on the order of bread, milk, or eggs.

While the banana price hike may seem significant, it’s worth noting that, per government data, the average monthly price for a pound of bananas in the U.S. was 63 cents in February, just 3 cents higher than a decade ago. What’s more, bananas remain significantly cheaper than many other fruits, as the U.S. imports more bananas by volume than any other country, as reported by the FDA.

To soften the blow, Trader Joe’s has announced concomitant price drops on several other products. As it navigates changing market conditions and supply-chain dynamics, the discount grocer is balancing its pricing strategy by lowering costs on other popular items. Specifically, the company provided four examples of lower prices for raw almonds, romaine hearts, organic Tri-Color Bell Peppers, and green onions – at 99 cents, which the company called “our lowest price in at least a decade”. Speaking of green onions – South Korea, where green onions have such cult status that the nation voted to have a green-onion-flavored Kellogg’s cereal, has seen President Yoon Suk Yeol ordering extraordinary measures to bring ‘shopping basket inflation’ under control while the government appropriates 150 billion won to inject subsidies and increase supply through direct imports.

The focus on green onions as the poster food for consumer inflation materialized when Yoon visited a supermarket last week, picked up a bundle of green onions, and said, “I’d say 875 won ($0.65) is a reasonable price,” blithely unaware that the item was on sale and subject to heavy government subsidy. Opposition party members and consumer groups criticized Yoon for being out of touch, as green onions are normally sold for more than 4,000 won. In recent days, it was green onions (and apples) that South Koreans were rushing to major grocery stores and lining up to buy, as they were available at cheaper prices on government subsidies. Axios, Asahi, Yahoo News, Reuters