Risk sentiment continues to improve

Thoughts of the Day

Investors expect the US Federal Reserve to maintain rates amid improving risk sentiment, waiting for clearer economic data. If inflation should continue to moderate towards the 2% target, the case for more hikes will weaken further. A potential decrease in inflation could weaken the case for further hikes. Those who are under-invested may be forced to chase stock performance to match benchmark success.

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Day Ahead

The US Nonfarm Payrolls is expected to show +188k jobs being added to the economy in October, down from +336k previously. The unemployment rate is expected to remain at 3.8%.

The Canadian employment change is expected to show +20k jobs being added to the economy in October, down from +63.8k previously. The unemployment rate is expected to rise to 5.6% from 5.5%.

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What Happened Yesterday

Market Movements as of New York Close 2 Nov 23
  • The Bank of England kept interest rates at 5.25% in its monetary policy decision with 6 out of 9 members opting to keep rates unchanged and 3 members voting for a +0.25% rate hike.The central bank also mentioned that monetary policy is likely to remain restrictive for an extended period in order to bring inflation back towards the 2% target.
  • The weekly jobless claims for the week ending on 28 Oct ticked higher to 217k (vs 210k expected) from 212k the week before (revised from 210k). Continuing claims for the week ending on rose to 1,818k (vs 1,800k expected) from 1,783k (revised from 1,790k).
  • The US Treasury Yield curve inversion widened to 0.31% as the US 2-year bond yield rose +0.03% to 4.98% while the US 10-year bond yield slipped -0.10% to 4.67%.
  • The US stock futures drifted higher through the Asian and London trading sessions with the S&P 500 up +0.83% before the New York session began.
  • The US stock market opened higher from Wednesday and rose through the session due to broader optimism in the US stock market. Consequently, the S&P 500 closed the day higher at +1.89% (high: +1.93%, low: +0.72%), the Dow increased +1.70% (high: +1.74%, low: +0.53%) while the Nasdaq spiked +1.74% (high: +1.81%, low: +0.87%).
  • [Earnings] Apple (NASDAQ: AAPL, +2.07% on the day, -3.38% in after market trading) EPS: $1.46 per share vs $1.39 per share expected, Revenue: $89.5 billion vs $89.28 billion expected. Apple shares fell after market trading hours as overall sales fell for the fourth quarter in a row.
  • The crypto market was weak despite the overall stronger risk sentiment in the stock market. Bitcoin and Ether were down -1.38% and -2.52% respectively.
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Headlines & Market Impact

BlackRock’s Rick Rieder: Don’t underestimate the resilience of the U.S. economy

Notable Snippet: “I call the U.S. economy, the polyurethane economy because it flexes, adjusts like a Tempur-Pedic bed. It can take some pretty significant shots, and it just rebounds,” Rieder told CNBC’s “ETF Edge” on Monday.

“We think real GDP will finish at 2½%. Next year, we think it’s going to be a percent and a half positive so moderating slower,” the firm’s Global Fixed Income chief investment officer explained. “But I think people underestimate” the U.S. economy.

He added that he “doesn’t understand the concept of a ‘landing’” and believes cycles are something we saw 20 years ago.

Rieder, who also oversees BlackRock’s Global Allocation team, thinks that people are still going to buy equities despite the current demand for Treasury bonds.

He noted that his thesis will hold as long as rates move lower in the second half of 2024.

“If you think the yield curve can normalise, you could create a decent tailwind for the equity market,” Rieder added.

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US regional banks shares surge after Bill Gross says they have hit bottom

Notable Snippet: Gross, a billionaire once known as the “Bond King” after founding fixed income giant PIMCO, said he was buying shares of Truist Financial, Citizens Financial Group, KeyCorp, and First Horizon. Shares of each company jumped by 6% or more, outpacing the 3.5% gain in the S&P 500 Banks index.

“Regional bank falling knife has hit bottom,” Gross wrote in a message on X, the platform formerly known as Twitter.

Gross wrote on Oct. 23 that he was “seriously considering regional banks again” but cautioned that “it hurts if done too early.” He followed up on Oct. 30 and said that some shares offered “extraordinary long term value.”

Along with regional bank shares, Gross wrote he expects the yield curve to turn positive over the next six months, making 2-year Treasuries more attractive than 10-year Treasuries. The yield curve has been inverted for more than a year, with short duration bonds yielding more than long-duration. Historically, yield curve inversions signal an upcoming recession, and tend to once again turn positive slightly before or at the moment of a recession.

What we think: This is a marked reversal from the banking crisis we saw earlier this year when regional banks were suffering as a result of the higher interest rates which weighed on the bond portfolio of numerous regional banks.

Apple lacks a clear path to growth this holiday season after four straight quarters of shrinkage

Notable Snippet: Apple indicated on Thursday that investors shouldn’t expect revenue growth in the December quarter, the busiest and most important time of the year for its business.

In its fiscal fourth-quarter earnings report on Thursday, Apple beat analyst expectations, and CEO Tim Cook said the iPhone 15 was performing better in its early days than the iPhone 14 last year at this time.

Still, revenue fell about 1% from a year ago to $89.5 billion, marking a fourth straight quarter of shrinkage. That’s the first time Apple has experienced such a stretch since before the iPhone was launched in 2007.

Commentary from CFO Luca Maestri on Thursday pointed to continued weakness in Apple’s Mac, iPad, and Wearables businesses, despite a relatively positive outlook for iPhone sales.

Apple doesn’t provide official hard number guidance and hasn’t since 2020. Instead, Maestri said revenue for the current quarter will be “similar” to where it was last year, suggesting the company faces some challenges during the all-important holiday season.

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Phan Vee Leung
CIO & Founder, TrackRecord