The AM Call: A Whole New World

• Last week’s market action was broadly positive, as equities rose and Treasury yields fell. Over the weekend, we got news that President-elect Trump has selected Scott Bessent for Treasury Secretary and, as of this writing, markets are cheering the pick. Prior to his nomination, Mr. Bessent had stated that he foresees a “global economic reordering” and wanted to be included in the process.
• In his first press interview following his nomination, Mr. Bessent commented that his top priority would be to ensure that Trump’s various tax cut pledges are enacted. As well, Mr. Bessent is seen as likely to be a moderate negotiator on tariffs, having previously stated that Trump proposed tariffs are a “negotiating position” that should be “phased in gradually.” Other top priorities are narrowing the budget deficit, maintaining dollar strength, and closer oversight of the Fed. We sense that it will be difficult to achieve all of these goals, as they appear to be mutually exclusive (lower taxes, moderate tariffs, and a smaller budget deficit, all at once?), but agree that Bessent for Treasury is a solid choice.   
• Equities recovered last week, following the previous week’s sell-off as Nvidia’s (NVDA) results came in better than expected, but not enough to re-ignite investor appetite for the shares. The rotation trade remains in effect as small caps surged while technology lagged. The equal-weighted S&P 500 strongly outperformed its traditional market capped weighted counterpart.

• Nvidia’s earnings showed demand for AI data center products remined strong as revenues came in 5.5% higher than expected at $35 bn, and up 94% on a YoY basis. However, forward sales guidance of $36.7-38.2 bn next quarter was below median consensus expectations with the top of the range only beating average estimates by 1%. As we have noted previously, Street expectations have been narrowing the gap with NVDA’s guidance upside, leading the magnitude of positive surprises to narrow in the past few quarters. For the year-to-date, financials, info tech, and communications are the leaders. Healthcare and materials are the laggards.

• In other earnings, Target (TGT) was the disappointment of the week, with EPS missing the mark by 20%, while Snowflake (SNOW) posted the best set of results as EPS came in 33% better than expected. In corporate news, MicroStrategy (MSTR) soared early in the week after disclosing an additional $4.6 bn purchase of Bitcoin, but later paired gains following a Citron research report that claimed share price valuation has significantly detached from the actual value of its cryptocurrency holdings. Starbucks (SBUX) was reported to be considering selling its Chinese operations as sales continue to disappoint in the region.
• Last week was a light one for macro data. S&P Global’s preliminary November composite PMI was 55.3, a full point better than estimated on strong growth in services PMI (57.0 vs. estimate of 55.0) Manufacturing remains in contraction, but our economy is largely service-based. Incoming data continues to support our thesis of continued growth with risks to the upside for inflation.

The Week Ahead

• It should be a relatively quiet week in the U.S. markets due to the Thanksgiving holiday. In terms of macro data, we are set to get an update on PCE, the Fed’s preferred inflation metric. PCE is expected to climb by 0.2% MoM and 2.3% YoY. Core PCE is estimated at 0.3% MoM and 2.8% YoY. Both the YoY estimates are slightly sequentially higher while the MoM numbers are steady.

• We also get an update on Personal Income and Spending for October.

• This week in equities, Agilent (A), Analog Devices (ADI), ZoomVideo (ZM), Best Buy (BBY), Dell Computers (DELL), HP Inc (HPQ), Crowdstrike (CRWD), AutoDesk (ADSK), Workday (WDAY) and Nutanix (NTNX) are among companies set to report.

Market Summary – Returns and Yields

For additional insights, be sure to check out last week’s blog post.

Definitions, sources, and disclaimers

This content is being published by Amerant Investments, Inc (Amerant Investments), a dually registered broker-dealer and investment adviser registered with the Securities and Exchange Commission (SEC) and member of FINRA/SIPC. Registration does not imply a certain level of skill, endorsement, or approval. Amerant Investments is an affiliate of Amerant Bank.

Definitions:

• Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
• GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
• The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
• Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
• The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
• The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
• Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
• Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
• The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
• The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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