OVERVIEW:
2. Current macro-economic backdrop and areas we currently favor…
3. The FDA’s approval of Guardant Health’s Shield™ liquid biopsy test marks a significant advancement in colorectal cancer screening.
4. World Watch (Japan, Germany, Bangladesh, and global economic snapshot)
5. Quant & Technical Corner – A selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment. (UMCSENT, CFNAI, LEI, M2V etc.)
1. The recent global stock market selloff has been the highlight of the week.
In the US, the delayed effects of the Federal Reserve’s tightening monetary policies are starting to provide more evidence that these policies are working. Inflation has slowed, mainly due to lowered energy prices. Core inflation has also softened and will likely continue to do so in the coming months, in my opinion. Weakness in housing dataas well as the nation’s ISM manufacturing data, indicates economic weakness. We have only had two positive ISM manufacturing dat
a months in the past 20 months. March 2024 and April 2023’s ISM data were slightly above 50, while all other months were below, going back to November 2022. Both unemployment claims and payroll data indicate a softening jobs market. Money supply growth has also slowed to approximately 2.1%, compared to the normal average of 6.1%.
In such a scenario, the government can stimulate the economy by increasing the money supply through the following actions:
- The Federal Reserve buying bonds,
- Lowering the discount rate and interest rates,
- Reducing reserve requirements for financial institutions, and
- Performing quantitative easing by directly purchasing long-term securities (e.g., mortgage-backed securities, MBS).
Despite evidence of economic slowdown and a stock market selloff, Mohammed El-Erian believes an Emergency Fed rate cut would be a mistake. Click onto picture below to access video. REF: Bloomberg
Tom Lee, Fundstrat Global Advisors managing partner and head of research, joins CNBC to discuss the latest market trends, what to make of the latest market sell-off, impact on the Fed’s interest rate decision, and more.
2.Current Macro-Economic Backdrop
Ed Yardeni believes the recent selloff starting from Friday was a result of the “carry trade” unwinding.
A “carry trade” is a financial strategy in which an investor borrows money at a low interest rate from one country and invests it in assets that offer a higher return in another country. The goal of this strategy is to profit from the difference between the borrowing cost and the investment return. Traders have used such carry trades by borrowing Japanese yen to buy higher-yielding assets. Ed also indicated that this global market selloff has more to do with technical factors rather than fundamental reasons (fear of recession). Ed believes our economy is still strong and the chances of a financial crisis forming as a result are low. Click onto picture below to access video. REF: Bloomberg
Tom Lee, Fundstrat Global Advisors managing partner and head of research, joins CNBC to discuss the latest market trends, what to make of the latest market sell-off, impact on the Fed’s interest rate decision, and more. “If interest rate is falling, and the consumers are still in good shape, this looks like a Growth Scare…” Click onto picture below to access video. REF: CNBC
With the current macro-economic backdrop, below are areas we currently favor:
- Fixed Income – Short-term (Low-Beta)
- Fixed Income – Adding Duration, preferred stocks & High Yield as Opportunistic Allocation (Low-Beta)
- Businesses that contribute to and benefit from AI & Automation (Market-Risk)
- Mid Cap Stocks, Small Cap Stocks & European Stocks (Market-Risk)
- Copper / Gold (Market-Risk)
- Industrials (Market-Risk)
- Clean Energy / Solar (Market-Risk)
- Healthcare & Biotechnology (Market-Risk)
3. The FDA’s approval of Guardant Health’s Shield™ liquid biopsy test marks a significant advancement in colorectal cancer screening.
The Shield test, which is the first blood-based screening test approved by the FDA for colorectal cancer, is designed for adults aged 45 and older who are at average risk. This approval is based on the results of the ECLIPSE study, which involved over 20,000 patients and demonstrated 83% sensitivity for detecting colorectal cancer with 90% specificity for advanced neoplasia.
Nemo Marjanovic, PhD, of ARK Invest, emphasizes that this approval could transform cancer screening by offering a more convenient and less invasive alternative to traditional methods like colonoscopies and stool-based tests. The Shield test requires only a simple blood draw during a routine healthcare visit, making it more accessible and appealing, especially for individuals who might otherwise avoid screening due to the discomfort and inconvenience associated with existing methods. Click onto pictures below to access videos. REF: ARK-DISRUPT, KTSM9News, CBS
4. World Watch
4 A. Masakazu Takeda has managed the Hennessy Japan fund for 18 years.
Despite the “Carry Trade” unwinding and a global stock sell off, Takeda remains bullish on Japanese equities. According to Takeda, Japanese companies are increasingly adopting policies that align with international standards, including greater accountability and growth incentives. Takeda attributes the recent sharp decline in Japanese markets to the Bank of Japan’s interest rate hikes and currency fluctuations but suggests that the situation is not as severe as the selloff implies. “We should not lose sight of the fact that the Japanese yen continues to be the only major currency with negative real interest rates,” he says, adding that it is unlikely the yen will strengthen against the U.S. dollar as it did in 1995 and 2011. Click onto picture below to access video from Hennessy’s Viewpoints. REF: BARRON’S
4B. German factory orders experienced a significant rebound in June 2024, increasing by 3.9% from the previous month.
This improvement was driven primarily by a notable rise in the automotive industry, which saw orders surge by 9.3%. The capital goods sector also saw a s
ubstantial increase, with orders up 9.2%. However, intermediate goods and consumer goods sectors experienced declines of 1.5% and 7.1%, respectively. The rise in overall manufacturing orders was largely attributed to domestic orders, which increased by 9.1%, while foreign orders grew by only 0.4%. This rebound came after five consecutive months of declining orders, indicating a positive shift in the German manufacturing sector’s short-term outlook. REF: Bloomberg
4C. Prime Minister Sheikh Hasina of Bangladesh resigned and fled the country following weeks of escalating protests and violent clashes.
The immediate cause of the unrest was opposition to the civil service quota system, which many felt unfairly favored loyalists of Hasina’s ruling party, the Awami League. These protests quickly evolved into a broader anti-government movement, fueled by discontent with Hasina’s increasingly autocratic governance, allegations of corruption, and economic difficulties.
The protests were marked by violent confrontations between demonstrators and security forces, leading to numerous deaths and injuries. The government’s initial attempts to suppress the protests, including shutting down the internet and deploying the military, only intensified public anger. The situation further deteriorated when the Supreme Court ruled against reintroducing job quotas, a decision that failed to appease the protesters. Facing mounting pressure and unable to restore order, Hasina ultimately resigned and fled to India, where she sought refuge. In response, the Bangladeshi military announced the formation of an interim government to restore stability. Click onto picture below to access video. REF: WSJ
4D. Below is an updated snapshot of the current global state of economy according to TradingEconomics as of 8/5/2024. REF: TradingEconomics
- The unemployment rate in the United States rose to 4.3% in July of 2024 from 4.1% in the previous month, the highest since October of 2021, and above market expectations that it would remain at 4.1%.
- The Bank of England lowered its Bank Rate by 25bps to 5% in its August meeting, aligning with expectations of a small majority of the market, but noted that it will move cautiously in loosening monetary policy further until officials are more certain that inflation will remain subdued.
- Italy’s unemployment rate unexpectedly went up to 7% in June 2024 from an upwardly revised 6.9% in the previous month, above market estimates of 6.8% and pointing to a cooldown in the labor market.
- The Mexican unemployment rate rose to 2.8% on a non-seasonally adjusted basis during June of 2024, slightly above the 2.7% observed in the corresponding period of the previous year, and surpassing market expectations of 2.6%.
5. Quant & Technical Corner
Below is a selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment.
5A. Most recent read on the Fear & Greed Index with data as of 8/5/2024 – 8:59 PM-ET is 19 (Extreme Fear).
Last week’s data was 46 (Neutral) (1-100). CNNMoney’s Fear & Greed index looks at 7 indicators (Stock Price Momentum, Stock Price Strength, Stock Price Breadth, Put and Call Options, Junk Bond Demand, Market Volatility, and Safe Haven Demand). Keep in mind this is a contrarian indicator! REF: Fear&Greed via CNNMoney
5B. St. Louis Fed Financial Stress Index’s
(STLFSI4) most recent read is at –0.5959 as of August 1, 2024. A big spike up from previous readings reflecting the recent turmoil in the banking sector. Previous week’s data was -0.7775. This weekly index is not seasonally adjusted. The STLFSI4 measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together. REF: St. Louis Fed
5C. University of Michigan, University of Michigan: Consumer Sentiment for June [UMCSENT] at 68.2 (last month’s data at 69.1), retrieved from FRED, Federal Reserve Bank of St. Louis, July 26, 2024.
Back in June 2022, Consumer Sentiment hit a low point going back to April 1980. REF: UofM
5D. The Chicago Fed National Activity Index (CFNAI) decreased to +0.05 in June from +0.23 in May.
Three of the four broad categories of indicators used to construct the index decreased from May, and three categories made negative contributions in June. The index’s three-month moving average, CFNAI-MA3, increased to –0.01 in June from –0.08 in May. REF: ChicagoFed, June’s Report
