"I don't tolerate fools but then they don't tolerate me, so I am spiky." ~ Dame Maggie Smith (December 28, 1934 - September 27, 2024)

Good evening,

The S&P 500 closed at all-time highs three out of five days this week, as the impact of the Federal Reserve's September 18 rate-cut decision spread to China. The Chinese government, along with the People's Bank of China (PBOC), took what Fundstrat Head of Research Tom Lee described as "drastic positive action." This included, among other things, an CNY 800 billion (USD $114 billion) lending facility to help fund stock buybacks and institutional stock purchases; mortgage-rate cuts; and a cut in the reserve requirement ratio. 

This stimulatory blitz helped buoy stock indices around the world – not just in the U.S. Unsurprisingly, Chinese stocks had a banner week, with the CSI 300 index up 15.7%, its best weekly gain since 2008. Hong Kong's Hang Seng index rose 13% this week. For broader China (FXI), the upside breakout is something Lee suggests taking advantage of. "China’s market was hardest hit by the Fed's recent war on inflation," he noted, with China's stock market to underperform the S&P 50 by 66% during this period. We see this in our Chart of the Week:

For those who remain hesitant about investing in U.S. due to the uncertainty around the coming Presidential election, "the regional bet on China might make sense," Lee suggested. Given the large volumes of cash still on the sidelines, "China’s equity might be perceived as better aligned with taking advantage of Fed easing while also benefiting from the direct actions taken by China’s government." Among the industries the Fundstrat team has found to be positively correlated to China are those in the Commodities, Industrials, and Consumer sectors.

Head of Technical Strategy Mark Newton was similarly sanguine about the week's China-related developments. He began by pointing out that these moves took place just ahead of a key holiday: October 1, 2024 will mark the 75th anniversary of the Communist Party taking power in China. "That's probably not a coincidence, in my view. It would not be surprising for Chinese authorities to try to do whatever they can to try to drum up financial support for economic development and maintain an upbeat mood," he suggested.

For investors, Newton recalled that, "We've seen a lot of false starts in Chinese stocks. It tried to gap up in the spring and that obviously failed." In contrast, "China's surge this week has huge technical importance when you look at a larger area. We saw a pretty major breakout on an intermediate-term basis that makes the prospects of a rally a little bit more likely, in my view." 

"I would also argue that's actually a very good sign for the global economy, regardless of China's issues – and  yes, there are a lot of issues. But just seeing the stock market really start to surge, it just gives me a real sense of confidence that maybe the stock market can lead the economy, and maybe raise at least the perception of Chinese demand."

Regarding U.S. markets, Newton said, "we have managed to yet again climb back above all these prior highs in the last few days. To me, that signals that markets can push ever higher. A lot of that gels with some of the cycle-based forecasts that say that markets probably rise into mid-October."

"On a weekly basis, you do see the start of what could be an issue with regards to momentum just slowly tailing off. It hasn't followed this move to new highs – what technical analysts call negative momentum divergence. That is what often happens before markets start to consolidate. But a lot of what we're seeing now is just due to the extent of the selloff into August, in my view. We just really see no evidence of price weakness."

"So, what more can bulls ask for?" Newton asked rhetorically before listing out some of the reasoning behind his somewhat calm outlook: "We've had a 50-basis point cut from the Fed. We've had crude declining about $20 in the last four months. GDP came in on Thursday in line, in very good shape. Jobless claims don't seem to be giving me any cause to worry.  And largely Technology has roared back, particularly semiconductors."

Despite election-related uncertainty from a still-tight race, Lee is similarly constructive when looking out until the end of the year. He reminds us that the S&P 500 is on track to close up for the month of September despite having fallen 4% in the first week of the month. "To me, that is a sign of a strong market," he said, particularly when considering that if September does turn out to be positive for stocks, that would mean that the S&P 500 has been up for eight of nine months so far in 2024. 

Elsewhere

Core PCE came in below consensus expectations, 0.1% MoM versus 0.2% expected. The Fed's preferred inflation indicator showed inflation continuing to cool. Afterward, the probabilities of another 50 bp cut after the next FOMC meeting on November 6, as implied by Fed Funds futures trading, rose slightly while the odds of a 25 bp cut declined.

Hurricane Helene smashed into Florida Thursday evening, making landfall as a Category 4 storm with sustained winds of up to 140 mph. At least 41 fatalities have been reported as of Friday afternoon, and around 4 million customers were without power in Florida, Georgia, and South Carolina. The storm has proceeded north to Georgia and is projected to also endanger the Carolinas, Tennessee, Kentucky, and Virginia. 

Smartmatic and Newsmax settled a defamation lawsuit over false 2020 election claims just before the trial was set to begin. Terms were not disclosed. Smartmatic previously settled a similar defamation lawsuit against One America News (OAN) and has a pending lawsuit against Fox News over similar allegations. Newsmax faces a similar lawsuit filed by Dominion Voting Systems. At issue were reports that falsely claimed Smartmatic helped to rig the election in favor of President Joe Biden. 

Members of the International Longshoremen’s Association are set to go on strike at East Coast and Gulf Coast ports, with their existing contract set to expire on Tuesday (October 1). The U.S. Maritime Alliance, negotiating on behalf of port operators from Maine to Texas (including the Port of New York and New Jersey), has accused the union of refusing to come to the negotiating table. A strike could cause a major supply-chain disruption, though shipping experts believe the consumer effects would likely not be felt until after the winter holiday season. The primary issues of contention involve compensation increases and union demands for protection against job losses due to the increasing use of automation.

Former Defense Minister Shigeru Ishiba is slated to become Japan's next Prime Minister following his ascension as the new leader of the country's ruling Liberal Democratic Party (LDP). Ishiba's priorities will likely include reviving a stagnant economy amidst a weak yen and rising food prices; revamping Japan's security alliance with the U.S.; and cleaning up a corruption scandal swirling around his own party.

The Department of Justice filed an antitrust lawsuit against Visa, accusing of monopolistic practices in the debit-card market. Prosecutors claim Visa unfairly maintained dominance in the market for debit-card transactions by paying off rivals and threatening merchants who work with competitors with higher fees. Visa said it intends to contest the charges.

Boeing and the International Association of Machinists and Aerospace Workers remain in negotiations to end a strike that began on September 13 and has already cost the aerospace giant an estimated $1.4 billion it can ill-afford. Workers had walked off the job after overwhelmingly rejecting a tentative deal negotiated by their union leaders, and they refused to vote on a subsequent offer this week that included a 30-percent pay increase and a $6,000 contract ratification bonus.

And finally: The Unicode Consortium has approved eight new emojis for smartphone users. Among them are an "exhausted" emoji featuring a face with bags under its eyes and one depicting the flag of Sark, one of the English Channel Islands near Normandy, France.