Today’s economic landscape presented a mixed bag of indicators, with both ‘soft’ data from the Philadelphia Federal Reserve and NAHB reporting improvements, while ‘hard’ data such as retail sales and initial jobless claims saw notable upticks. However, a significant downturn in manufacturing production cast a shadow over the overall optimism. Bloomberg reports that despite the poor manufacturing performance, the prevailing sentiment was reinforced by the ‘no landing’ narrative, suggesting the economy could avoid a significant downturn. This improvement in sentiment has led investors to adjust their rate-cut expectations, leaning towards a more hawkish stance.
The evolving economic context also aligns with the current “Trump Trade” narrative, which has gained traction recently. According to Goldman Sachs’ Chloe Garber, there’s a 60/40 probability in markets that a Republican sweep is on the horizon. This development is critical as there is potential for a modest upside toward 65/35 odds, contingent on unfavorable polling for Vice President Kamala Harris. Garber noted that this optimistic trade could persist until the election, although its momentum isn’t backed by a significant revision in earnings, which have been slightly negative since late July. This dynamic suggests that while stocks may rally in light of political sentiment, upcoming earnings reports for the third quarter could challenge this narrative.
In terms of market performance, small caps underperformed today, diverging from the broader market’s positive trajectory. Major indices closed largely unchanged, with the S&P 500 and Nasdaq showing slight gains, while the Dow Jones achieved another record closing high. Interestingly, the Nasdaq’s relative outperformance coincided with a key support level compared to the Russell 2000, indicating a potential upcoming shift in the market dynamics. As observed, the increasing expectations of a ‘Red Sweep’ have propelled yields higher across the board, with the long-end of the curve (30-year bonds) seeing a notable 10 basis points rise this session.
Meanwhile, the dollar index has continued its upward momentum, climbing for 12 out of the last 14 trading days. This increase is particularly striking given the concurrent rally in gold prices, which reached new record highs just below $2700. The unusual correlation between the surging dollar and gold has raised eyebrows, as traditionally these assets tend to move inversely. Bitcoin, on the other hand, experienced a slight dip after surpassing the $68,000 mark earlier, hinting at volatility within the cryptocurrency markets.
Oil prices have remained largely stagnant, with West Texas Intermediate (WTI) sticking to a narrow trading range of $70-71 for the second consecutive day. This lack of movement in oil prices could hint at stability or a waiting game among investors as they potentially anticipate future shifts in demand or supply factors. Furthermore, the stock market’s aggressive pricing surrounding a potential ‘Trump victory’ indicates a significant sentiment shift, which may not always align with underlying economic conditions.
Despite the noisy predictions in the market, there is a perspective that the stocks associated with these political narratives may be influenced by market manipulation amid their lower liquidity. The framing of market sentiment suggests a broader influence beyond individual traders or ‘whales,’ hinting at a more complex interaction between political landscapes and stock performances. As we navigate through these developments, the focus will remain on how these narratives unfold in correlation with economic indicators and the forthcoming earnings season.