Global stocks and U.S. futures wobble on China growth fears

Underwhelming economic data out of China is dragging down global stocks, and U.S. Futures too are under pressure, with Nasdaq futures the worst of the bunch.

Again this week, we have a packed earnings calendar, plus housing and manufacturing data dumps. Last week, strong corporate results pushed the S&P 500 to its best week in months.

In crypto, Bitcoin is holding on to its impressive gains, flirting with a new all-time high.

In today’s essay, I take a close look at Goldman Sachs’s latest bullish call on stocks.

Let’s see what else is moving the markets.

Markets update

Asia

• We begin the week with markets weakness in Asia. The Hang Seng is off 0.5% in afternoon trading.
• Investors got a look at China’s latest GDP numbers, and don’t like what they see. Growth came in at 4.9%, below expectations, as the rocky energy and housing crunch drag on economic output.
• Squid Game, South Korea’s giant pop-culture export, is huge business for Netflix. The streaming service is valuing Season 1 as a $900 million hit, Bloomberg reports. Meanwhile, the series is portraying a negative light on the precarious finances of large swathes of the Korean population which are increasingly turning to get-rich-quick schemes, Coins2Day‘s Yvonne Lau reports.

Europe

• The European bourses were down with the Stoxx Europe 600 off nearly 0.5% in the first hour. Energy, utilities and banks were the outliers, all in the green.
• Europeans have socked away roughly $460 billion in savings since the start of the pandemic (for Americans, it’s $2.3 trillion)—and they’re keeping that savings mostly in the bank, a new analysis by Bloomberg shows. That may be good news for inflation hawks, but it’s not great for economic growth.
• Europe’s energy crunch is spreading, apparently. The Swiss governmentis sending out letters to the country’s biggest industrial consumers of electricity that they need to conserve energy wherever they can to ensure the country isn’t hit by rolling blackouts. In the U.K., economists are making similar warnings.

U.S.

• U.S. Futures  have been trading lower throughout the morning. That’s after all three major averages scored big gains last week. The S&P 500 climbed 1.8%, its best week since July.
• Here’s the way-too-early Q3 report card: So far, 41 S&P 500 companies had posted results, with 80% recording an EPS beat, according to a FactSheet press release sent to journos on Friday night.
• What’s on tap this week? We get data on industrial production (today) and existing home sales (Thursday). On the Q3 earnings calendar, we have Procter & Gamble tomorrow. After that, there’s Tesla (Wednesday) and PayPal on Thursday.

Elsewhere

• Gold is up, trading around $1,770/ounce.
• The dollar is a touch higher.
• Crude is cruising. Brent trades above $85/barrel.
• Bitcoin trades about where it was late on Friday, just below $62,000, up more than 10% in the past week.

***

TINA still rules

Last week, in this space, I wrote up a brief earnings preview that pointed to all kinds of headwinds facing equities ahead of Q3 earnings season. And, on cue, the first batch of company results—mainly the banks—came in above expectations. The S&P 500 then rallied to its best weekly performance in three months.

Goldman Sachs’ U.S. Equities chief David Kostin, for one, wasn’t surprised. Despite the September swoon and up-and-down October, Goldman is sticking with its 4,700 year-end target (+5.1% above Friday’s close.) Why so bullish?

Because there’s nothing else to buy—nothing other than stocks. If you can’t buy a car, why not buy auto stocks? If you can’t find a new sofa to your liking, why not sink that loose change into a homes-DIY ETF?

I’m being a little hyperbolic. Just a little.

According to Goldman, foreign and domestic investors are sitting on a mountain of cash assets, some $19 trillion worth. That’s up $4 trillion from pre-pandemic levels. “We expect some of this cash will shift into equities,” Kostin and his team write, adding, “the alternatives to equities appear unattractive.”

As a kind of thought-experiment, they run through various other assets, and conclude: cash? (Unattractive); Treasuries? (Unattractive); corporate bonds? (Unattractive; the yield on IG debt underperforms “a near-record 57% of S&P 500 stocks.”) In other words, stocks beat all other assets for returns.

Another enticing factor is stock-buybacks. 2021 will be a record year for authorized buybacks—in other words, boards have agreed to the purchases, but haven’t necessarily pulled the trigger. “The GS buyback desk expects executions in 4Q will total $3.8 billion per trading day, a 5% acceleration from 3Q.”

So, Goldman’s big takeaway: a big whale will be operating in the market through year-end, and into 2022. Typically, earnings growth is the biggest factor in pushing up share prices. But Goldman thinks “buyback growth will far outpace earnings growth next year,” and that’s a major tailwind for stocks.

***

Bernhard Warner
@BernhardWarner
[email protected]

As always, you can write to [email protected] or reply to this email with suggestions and feedback.

Today's read

The beginner portfolio: 13 stocks for the new investor—Coins2Day

The permanently temporary 2021 economy, in charts—Washington Post

Market candy

Quote of the day

My gut feeling is that while the risks are elevated, especially on the inflation side, the phrase ‘stagflation’ is being used too aggressively at the moment.

That's Jim Reid, head of thematic research at Deutsche Bank, who feels we're throwing around the S-word a bit too much. What is stagflation, and, more importantly, why are investors freaking out about it? Coins2Day's Christiaan Hetzner explains.