My List of 12 Items Investors Should Watch Today
We’re going to cover a lot of ground today from the Israeli election results, to the Fed, to big-tech and artificial intelligence. Here’s my list of what to watch for potentially economic and market moving events:
Israeli elections still counting. Let’s start with the elections in Israel that show so far no clear winner as Prime Minister Benjamin Netanyahu and Gadi Eisenkot both appear to lack a majority in parliament. Will Netanyahu hold a slight early lead? Even so, it’s not likely to be enough to form a majority, but will it be enough that he could be given a mandate to try and form a coalition government? This is important, as we see Netanyahu as more “all-in” than other potential leaders to taking additional steps to destroy Iran’s military (and nuclear capabilities) and possibly even trying to force regime change.
U.S. posture in the Middle East on the military front to increase as we move toward (and past) the U.S. elections. Sanctions and the blockade are taking their toll on the Iranian economy. Will another military campaign (or the threat of one) be enough to get a “real” deal? It seems plausible, which is one reason why I think the Fed should be on hold.
Monday’s report: The SOX index had “dutifully” bounced off its 200-day moving average. Domestic earnings helped and SK Hynix (up close to 8% as I type) is also helping. We have major U.S. announcements. The earnings, always seem to help, then doubt creeps back in (about the profit potential, about the costs, etc.), so this bounce seems well within the norm. Anthropic (future ticker, ANT) is out their with its initial public offering, which so far also seems to be supporting the market.
Of all things though, Meta ($META), has played potentially the biggest role. The company decided to tap equity and convert markets, taking pressure off of the credit markets. On the day of the announcement (I think it was just Monday morning, which seems like a long time ago), the stock even responded positively, which is encouraging. It has faded a bit since then, but if equities can take some of the pressure off of the credit market for the financing, and the dilution doesn’t have a major impact on equities, we could be in the midst of an interesting plot twist.
Fed? No hike today. There really is little reason to hike today: The market is giving the Fed a pass (not pricing in a hike). As a contrarian, I do like the idea that it would be “interesting” if not “epic” for Kevin Warsh’s Fed to hike when the market says no. I don’t think we’ve seen a Fed willing to go against the market in a long time. There is an appeal to that. It would also put “forward guidance” to rest, as the main reason we are not pricing in a hike, is due to forward guidance from some Fed speakers. I appreciate the “beauty” of a hike, but don’t think they will.
Thirty-year Treasury yields are back to where they were in early September. You could argue that the market likes what the Fed is messaging, so don’t rock the boat.
Credit spreads, especially for the compute spend names, have widened. Maybe we can put this in the category of “the market is doing some of the Fed’s work.” The juxtaposition between saying lower 30-year Treasury yields is a good sign, and wider credit spreads doing the Fed’s work, is a bit awkward, but what the heck, let’s run with it.
Inflation remains a concern, but… We argue that the Fed wants to see where things are heading, that some recent inflation expectation measures have improved (or at least been stable) and finally, I think most importantly, we argue energy costs are a big driver and they are a function of war, not Fed policy. While peace deals seem unlikely, it seems to make sense to wait to see if anything happens in the next few weeks in Russia/Ukraine and with Iran. Yes, oil prices, but more specifically diesel, will remain elevated for months even after a deal, but the Fed should be willing to look past that. Maybe this is a bit weak, but think it makes sense.
Housing data continues to be soft, with the National Association of Home Builders coming in very weak. Committing to big expenditures (like a home) requires a degree of confidence in the stability of your job and income (as well as rates and cost). Little sign of strength here, and is something the Fed could point to, as a reason to hold off on rate hikes.
Three hikes between now and next September is too many. I don’t think we see the three hikes currently priced in. Will Warsh do anything to try and get the market to see that today? I doubt it, but my expectation is that there is a better chance of fewer rather than more rate hikes being priced in by the end of the day.
Big Beautiful Bill benefits (and costs to the government) were front loaded. As we head into the new year, will we see a touch less growth, and an improvement on the deficit as some of the biggest growth oriented portions of the bill run off (or get smaller)? Probably not part of today’s discussion, but maybe it should be?
My favorite Fed subject – alternative data sources — probably won’t come up, but one can only hope It would be fun if Warsh surprised markets, but I doubt he will (unless the surprise is he somehow comes out less hawkish than last meeting).
As we get through tech earnings it will be really interesting to see if the “how are we going to fund it” narrative changes meaningfully, on the back of Meta’s lead.
