Today in the podcast, three big things you need to know:
• First, Congress reached a deal to avert a government shutdown, for now, but we aren’t convinced this is the end of the current period of equity market weakness, as our main sentiment indicator still has room to fall.
• Second, CFO economic confidence rose in the latest Duke survey despite heightened concerns about monetary policy.
• Third, Energy revisions trends continue to improve but are getting close to historical highs. That’s a negative data point for the broader market, but some of the other updates from our high-frequency indicators admittedly lend more support to US equities.
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Takeaway #1: The Government Shutdown Got Shut Down, But Before Investor Sentiment Got Hit Too Hard
• Congress managed to pass a 45-day funding measure over the weekend, avoiding a government shutdown for now.
• While this was a surprise, it was a rational one, as polling data had been highlighting that both Democrats and Republicans would get a fair amount of blame for a shutdown that the American voters did not want. While this is a positive development for the US equity market, we still aren’t convinced the recent period of weakness in stocks is completely done.
• This weekend’s agreement is a short-term measure and may just end up setting the stage for another Congressional showdown in November.
• Equity investors also still have several other issues to work through in the near term (strikes, student loan payments resuming, and rising bond yields, to name a few).
• Most importantly, net bullishness on the AAII survey, which has fallen sharply since mid August, still isn’t back down to levels that would indicate investor pessimism had gotten too extreme.
Moving on to Takeaway #2: C-Suite Economic Confidence Rose in The Latest Duke CFO Survey
• Looking beyond the shutdown, one data release that captured our attention last week was the quarterly Duke CFO survey, which was conducted August 21 to September 8.
• Ahead of 3Q23 earnings, the survey may provide a glimpse into C-suite thinking.
• The main thing that jumped out to us is that CFOs have become incrementally more optimistic about the economy, and a tiny bit more constructive on the outlooks for their own companies…
• …despite rising concerns about monetary policy.
from extremely low levels in:
• Interestingly, expectations for revenues and employment were both much stronger for 2024 than 2023.
hat CFOs are looking ahead to:
Wrapping up with… What Else Jumps Out on Our High-Frequency Indicators
• Energy EPS revisions trends continue to improve but are approaching past highs. We remain overweight the sector, but this tempers our enthusiasm.
• Trump has pulled ahead of Biden in betting markets. As noted last week, Trump has also taken the lead in polling.
• Inflows have nearly disappeared from China, Japan, and EM equity funds but remain positive for US equity funds, driven by Large Cap Passive funds.
• The companies that have talked the most about AI this year underperformed sharply in September but stabilized a bit at the end of the month.
• Utilities gave back all of the outperformance earned in early September in the final week of the month. While surging bond yields appear to have been the trigger, we had been concerned about weak EPS revisions and expensive valuations in the sector.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
