Global equities were mixed and US stocks looked poised to build on gains as traders and investors (two distinct groups of market participants, I remind you) await a Fed meeting that should be a nonevent.
10-year yields have generally declined on FOMC days this year, but as mentioned Tuesday afternoon, Jerome Powell has limited avenues down which he can drive to deliver a dovish surprise assuming the Fed doesn’t intend to roll out more explicit, outcome-based forward guidance or tweak the maturity profile of QE purchases.
“Absent a surprise change in policy, the most likely avenue for out-doving expectations comes via the SEP dots”, BMO’s rates team said, in a Tuesday note. “Back in June, the median Committee member foresaw unemployment at 9.3% at the end of the year — it was already at 8.4% in August”, they added, before noting that while “there is going to be a substantial improvement in the outlook for the labor market, the nuance is that this development won’t be reflected in the near-term path of policy as it would in a classic Taylor-rule framework”.
Read more: Amid Summer Stock Storm, A Dove Yawns
The S&P is coming off three days of gains, and the Nasdaq has found its footing again after plunging into a correction earlier this month. Yields have been stuck in a range and, you’re reminded, aren’t tracking anywhere near the kind of rebound you’d generally expect coming out of a recession.
A sustained rise in yields and any kind of durable shift away from the equity market’s obsession with secular growth and mega-cap tech will likely require a vaccine, which Donald Trump says could be ready within four weeks. But questions remain about the safety of a shot developed under an overtly politicized process and an extremely aggressive timeline.
For those concerned about market concentration in FAAMG, Goldman suggests Intuitive Surgical, Autodesk, ServiceNow, PayPal, Vertex Pharmaceuticals, and 16 other names, as possible alternatives, which, while not poised to supplant America’s tech titans, could nevertheless see their index rankings increase. The bank’s David Kostin reiterates the desirability of growth shares in a “lower forever” (my quotes) rates environment.
For what it’s worth, US stocks are approaching record levels of concentration in the MSCI ACWI, as global shares fail to keep up with the Kardashians, so to speak.
But there’s trouble in tech paradise, and not just because investors are worried about a top-heavy US equity market.
Facebook is facing an antitrust probe by the FTC, and Kim Kardashian is joining a collective effort to publicly shame the company for various failures. Together, these two unfortunate headlines could serve as a psychological drag on tech, if nothing else. The former underscores regulatory risk and the latter speaks to public furor over social media’s inability (or unwillingness) to police misinformation and hate speech.
“The protest, which will happen Wednesday, is part of the Stop Hate for Profit campaign, a coalition of civil rights groups, including the NAACP, Color of Change and the Anti-Defamation League, that led a monthlong advertising boycott against Facebook in July following the death of George Floyd in the custody of Minneapolis police”, NBC explains, on the way to reminding you that “more than 1,200 companies joined that boycott, including big brands such as Unilever, Verizon, Adidas, and Ford”.
“I love that I can connect directly with you through Instagram and Facebook, but I can’t sit by and stay silent while these platforms continue to allow the spreading of hate, propaganda, and misinformation – created by groups to sow division and split America apart – only to take steps after people are killed”, Kardashian said.
Such are the trials and tribulations of running a tech monopoly that’s complicit (wittingly or not) in all manner of shenanigans from international espionage to the proliferation of conspiracy theories to misleading political messages to vile xenophobia.
“Although Facebook down ticked on the news, the shares still gained Tuesday [as] investors clearly remembered that all of the corporate boycotts throughout the spring and summer left the social media giant unscathed, and they apparently are unfazed by Kardashian”, JonesTrading’s Mike O’Rourke said.
Meanwhile, the PBoC seems perfectly content with recent yuan strength, which the market is keen to take as risk-on signal. The daily fix was strengthened by the most in five months Wednesday, and the currency is tracking for its biggest quarterly gain ever.
Also on deck is Donald Trump’s final decision on what’s turned into a somewhat convoluted deal for TikTok.
As for the Fed, Rabobank delivered a sobering reminder ahead of the September FOMC. “We have written for many years, and again of late, that even with the best of intentions –which is being very generous– central banks are arguably part of the problem and not part of the solution”, the bank said. “Their actions exacerbate the socioeconomic and financial imbalances we see all around us”.