Stay Positive

Happy Friday,

A good week for TPWIM’s Fall Risk Asset Rally thesis in terms of performance & underpinnings.

Feels like one of those times when good news = good news and bad news = good news (for risk assets) as it brings forward more policy response. So where is the bad news? ….Status quo.

There was forward progress on Brexit (more over the weekend) while US-China trade awaits the mid-Nov APEC Summit. Trump wants the photo op signing while Chinese fear a Trump walkout - both sides need a W so expect a signing in Chile. 

Our principal theme: A Lower for Longer Global Growth Path, was validated by the IMF this week when it noted it expects “no improvement” in the growth profiles over the coming 5 years of the Big Four: the US, China, EU, and India > low growth is a feature, not a bug.

US politics continues to bubble along with growing concerns over an Elizabeth Warren presidency. Too early IMO but will note two points. First, Dems would need a sweep to fully unleash what Wall St worries about. Secondly, and more importantly, most of the sectors in her line of fire are unloved and cheap relative to history. The 30% SPY declines being bandied about seem way out of line.

Pay attn to the USD & the FX market: after a sleepy period the USD is bumping up against important levels across both DM FX (109 level in $/Yen) and EM FX (broke below 200-day support vs MXN @ 19.26). With the back up in long-duration UST many late buyers (post mid-August) are now under water on unhedged positions while seasonality argues for higher rates, suggesting a possible accelerant here.

USD rollover would stimulate a shift into non-US equity where Japan is enjoying a stealth rally & the Euro Stoxx 50 looks to be breaking out of a long term downtrend vs US equity.

Fun EPS point: bottoms up 12 M forward SPY price targets suggest a 3300 SPY next October according to Factset.

Stay positive my friends!

Jay and Jamie