- The median drop is 13%, but it can be a lot worse.
Macroeconomics
Snippets on the big picture.
US Consumer
- A key chart – the driver of global demand growth.
S&P 500 Futures Financing
- The financing rate for equity exposure via futures has been very high.
- The S&P 500® financing spread can’t be directly observed, but it can be estimated by comparing the actual price of futures to the fair value implied by dividend forecasts, interest rates, and spot prices. Figure 1 plots one such estimate since 2012.
- Reasons here.
The setup
- Post historic 10% corrections, the setup is usually determined by whether there is a recession or not.
International Ownership of US Stocks
- Currently at a record.
Recession Arguments
- Great interview with BCA’s Chief Global Strategist Peter Berezin where he lays out his view for the economy and market.
- Peter is a bear (sees -30% drop in SPX) and has been calling for a recession since roughly the middle of last year.
USD and Import Pricing
- The US dollar has a very low pass-through effect to import prices for consumer goods.
- Interesting to think about in the context of tariff environment.
US Capex Plans
- Are turning up across all surveys.
Disasters
- The count and cost of climate and weather events over $1bn in damages keeps rising.
- Source.
Recessions Gone?
- Economic management has gotten good.
German Opinion Polls
- Elections are just around the corner.
- Source.
Housing Completions
- Surprisingly, housing completions increased sharply in 2024 to the highest since 2006.
- Source.
Entrepeneurial Activity Spike
- The post-COVID spike in new business formation at the time looked temporary.
- However, four years later, business formation, especially for high-propensity businesses (businesses that plan to expand and hire employees), has stayed at a new elevated level.
- Source.
UK Business Confidence
- “The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, fell to -65 in November 2024 from -52 in October and for the fourth month running.“
- Source.
Industries and Immigration
- Those making policy should probably consider this chart (from a 2017 survey).
- 29% of all workers in agriculture and 25% in construction are immigrants.
- Source.
How to Devalue the Dollar
- Donald Trump and the path of the USD are difficult to analyse, as conflicting forces are pushing in different directions.
- Ultimately if Trump wanted a weak dollar there are things he could do.
U.S. Fiscal Position
- U.S. fiscal deficit stands out vs. other advanced countries.
- Source.
Weak Demand?
- Despite a continued PMI below 50, mentions of weak demand on company conference calls (as of 17th October) are falling.
Rising Term Premium
- Despite the yield whipsaw last week, 10-year rates were starting to price in a term premium, likely due to worries about the US fiscal position under Trump.
- Source.
Globalization’s Resiliance is Partly Tax
- “Globalization has also persisted because the Trump-Ryan reforms to the U.S. corporate tax system, implemented through the Tax Cuts and Jobs Act (TCJA), did not end tax-related incentives for U.S. firms to offshore production and profits.“
- A reversal of the latter could be an issue for big pharma and semiconductor firms.
- China’s export-led growth strategy is the other, admittedly larger, driver.
- Blog post here and full paper here.
