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

“Never put passion before principle. Even if win, you lose.” — Mr. Miyagi, The Karate Kid

Overnight

Gunman who planned to attack Israeli consulate in Munich on the anniversary of the 1972 Olympic massacre exchanges fire with German police, shot dead FT

U.S. economy added 142,000 jobs in August FT

OPEC delays production increases for two months FT

Shift in U.S. bond yields leaves investors guessing about economic outlook FT

Goldman Sachs believes Kamala Harris’ corporate-tax plan could cut S&P 500 earnings by 5% MW

Cleveland-Cliffs open to buying U.S. Steel assets if Nippon deal sinks WSJ

The Japanese yen could still pose ‘a very big risk’ to global markets MW

Broadcom boosts AI revenue outlook, but stock falls after mixed earnings MW

Pandemic darling Moderna needs a reality check WSJ

Ghana’s bondholders back $13 billion restructure exchange offer BBG

U.S., Britain, and Brussels sign agreement on AI standards FT

AI, growing data risks expand the role of Chief Privacy Officer WSJ

Buyout shops go from boom to bust to… meh WSJ

Nvidia and other investors back Applied Digital with $160 million in funding WSJ

China detains AstraZeneca employees over alleged transport of unapproved drug WSJ

JPMorgan ditches call to buy Chinese stocks, citing ‘Tariff War 2.0’ risk RT

Bank of America shared nonpublic information with investors in India, whistleblower says WSJ

Larry Ellison will control Paramount after deal, filing says BBG

Albertsons CEO spars with FTC over grocery chain’s future without Kroger deal WSJ

How local governments got hooked on one company’s janky software BBG

Three former Wirecard executives found personally liable for €140mn FT

New Mountain merger to create $3 billion medical payments firm BBG

BNY seeks growth in investment services with managed account deal FT

Red Lobster gets court approval for bankruptcy sale WSJ

Disney’s investor relations head leaves role WSJ

Robby Starbuck – the activist pushing U.S. companies to ditch their DEI vows FT

Ford, Coors Light and other brands retreat from a gay-rights index WSJ

Gen-AI revisited, by Goldman Sachs FT

AI startup hopes contrast with pullback in hype for listed stocks FT

Transportation Department probes four biggest airline loyalty programs WSJ

Flooding is getting worse – and fewer homeowners have insurance WSJ

Why the U.S. can’t launch a green Marshall Plan FT

Western intelligence agencies warn of Russian military spy unit behind cyber hacks FT

Unilever agrees to sale of Russia business to Arnest FT

Vladimir Putin’s flagship Arctic gas project struggles to lure customers FT

Pernod Ricard ditches Paris Saint-Germain deal after Marseille backlash FT

The casino close to home bets big on go-karts and water parks WSJ

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

A local peak in the VIX likely at hand = near-term rally likely post-Aug jobs. Even if caution is warranted over the next 8 weeks into election day, there is no fundamental reason for stocks to trade so poorly the first 3 trading days of September. It is for this reason that we believe stocks could be making a local bottom on the August jobs report (today) and potentially rally into the mid-Sept. Fed FOMC rate decision.

Click HERE for more.

TECHNICAL

Nothing changed technically given Thursday’s minor drawdown, and SPX successfully held above the key 5442-5463 area that was thought to be support for a pullback. As mentioned yesterday, “Only if 5383 is broken would we begin to harbor worries about a larger correction.”

Treasury yields and the U.S. Dollar began to turn back down again after Thursday’s ADP report, but it’s important to mention that despite Equity losses on Thursday, Technology managed to hold up in fairly resilient fashion. This directly follows yesterday’s relative signal for Tech (in last night’s report) that lows might be in after a difficult couple of weeks.

While Financials and Healthcare both lost ground on Thursday (the 2^nd and 3^rd largest constituents within SPX) it remains difficult to get too negative on SPX, given a lack of any technical damage.

Click HERE for more.

CRYPTO

In our latest video, we discuss the increasing near-term risks as demonstrated by the disconnect between real yields and bitcoin, and by a rising MOVE index. We also talk about why we remain optimistic heading into Q4. Last but not least, we discuss the latest Core Strategy rebalance.

Click HERE for more.

First News

‘On Your Own’ Dept. U.K. regulators are set to dramatically scale back the maximum losses that banks are forced to cover in fraud cases. An earlier plan would have compelled banks and payments companies to reimburse victims up to £415,000 of losses; the FT revealed that this will be slashed to just £85,000. In 2023, Britons lost £459.7mn to authorized push payment (APP) fraud, where someone is tricked into sending money from their bank account to a fraudster posing as a genuine payee. The lower threshold of £85,000 would bring the maximum sum protected in line with the financial-services compensation scheme, which protects depositors if a bank goes under (stateside, each depositor is covered up to $250,000 by FDIC deposit insurance; APP fraud in the U.S. is projected to go from up from $1.94 billion in 2022 to in excess of $3.03 billion in 2027). FT, PD

Single Market, Many Questions. Thirty years on from the establishment of the single market, it is harder than it should be for European investors to invest in another E.U. country – due to vested national interests and the resultant tangle of competing rules and protocols for securities trading across Europe, resulting in turn in lack of ambition, inertia that carpets the field of opportunity, and giant, Gallic-type shrugs all around. A spiral of missed chances cuts across every asset class, allowing the U.S. a free run at global dominance in stocks – but it also hampers the less sexy world of corporate bonds. True, Europe has built a thriving green bond market; and large companies have an easier time raising money; but it is not yet serving investors nearly as well as it could.

It’s a chicken-egg scenario: investor interest is paltry for a product that is cooped up within limitations – denied scale because the investor demand is simply not there. No single answer can address all the cross-border tax, insolvency, and legal issues at once, yet there must be a way out, even if it’s inspired by dreaded New World-type innovation. The latest IMF data suggests that Europe is roughly a decade behind the U.S. in the scale of lending by private equity firms and other specialists, and so one possibility would be – rather than laboriously fixing what’s there, embracing the private-lending revolution that’s already swept across the U.S – whether gleefully or gingerly; but giving it a chance. Yes, this would set off stern alarms among those who fear that private markets obscure potentially systemic risks. Still, unless Europe can find the political will to make an all-access bond market a reality, it risks handing over the keys to more opaque forms of lending. FT

The Eternal Question. Imagine a world where companies excelling in ethics also dominate the stock market. Intriguingly, this may be possible. Data in the chart below suggests that investing rooted in ethical considerations can yield impressive returns when adjusted for risk, particularly when employing a long/short strategy that bets against the lowest-ranked companies.

Since 2018, Just Capital has been conducting extensive surveys, polling tens of thousands of Americans to understand what qualities they most value in a company. Using these criteria, they’ve been ranking the largest U.S. corporations annually.

Unlike traditional ESG rankings, these place different emphases on different factors. For instance, climate-change mitigation carries the relatively small weight of 2.2%, while fair worker compensation and overall worker treatment are given much higher priorities at 17.7% and 42% respectively.

One noteworthy facet of Just Capital’s findings is the surprising lack of a partisan divide in the responses. CEO Martin Whittaker refers to the top-ranking issues as ‘kitchen table’ concerns, such as job creation and fair customer treatment, which resonate equally with Republicans and Democrats.

While public opinion tends to evolve gradually, the rankings themselves are more susceptible to rapid change, the fluctuations stemming from developments at the company level, where businesses can improve their performance in specific areas or better measure and report practices to investors.

For 2024, the top-rated companies, per Just Capital (JC), are Hewlett-Packard Enterprise, Bank of America, Accenture, Intel, and Citigroup. The presence of companies like Marathon Petroleum and Duke Energy in the top 10% drives home the fact that this isn’t strictly an environmentally-focused index. JC doesn’t publicize a list of its lowest-rated companies, but it does disclose whether any given company falls within the bottom 10% overall. Some companies in this lower tier include TKO (wrestling), Nexstar Media, Mister Car Wash, Planet Fitness, and both Dollar Tree and Dollar General.

An investment strategy focusing on the top 94 companies, representing the top 10% of the 937 ranked companies, would yield impressive results. If you had invested equally across these top-performing companies, rebalancing annually based on the latest scores, your investment would have grown by 131% between early 2018 and end of June 2024. Interestingly, the 131% return from the top-rated companies slightly outperformed the S&P 500’s 128% total return over the same period, despite the latter being boosted by megacap technology stocks. The bottom 10% of companies, using the same equal-weighting approach, yielded a mere 47% return.

It’s true that both strategies generally move in tandem with the broader market, suggesting that a long/short strategy – investing in top-rated companies and shorting bottom-rated ones – could potentially generate attractive risk-adjusted returns. JC has a product based on this strategy in the works, and will likely emphasize the short potential, as, per its CEO, “Companies that treat their workers badly are a slam dunk for a short strategy.” Axios