Stock markets are likely to trade sideways until US employment data show clear signs of either weakening or strengthening, according to Bank of America Corp strategists.

The team led by Michael Hartnett said there’s several market factors at play to support both bullish and bearish narratives. While the optimists say technology and semiconductor stocks — including this year’s leader Nvidia Corp — have bounced off key technical levels, the pessimists warn that “nothing good happens” when bond yields and banking stocks decline at the same time.

A clear direction for jobs would “resolve the autumn ambiguity,” Hartnett wrote in a note, after non-farm payrolls climbed by 142,000 in August, lower than economists’ expectations. “Until then, risk rotates rather than rips or retreats.”

US stocks have whipsawed since mid-July as weak employment figures raised worries of a recession. That has also left investors guessing about the extent of possible interest-rate cuts from the Federal Reserve in the coming months.

Traders are now pricing in more than 100 basis points of reductions by the end of 2024, beginning with a quarter-point cut next week, according to swaps data.

After remaining bearish on stocks as the S&P 500 rallied last year, Hartnett has stated his preference for bonds in 2024.

The next jobs print from the Labor Department is due on Oct 4. For now, Hartnett said he remained bullish on bonds and gold. For equity investors, he recommended a barbell of resources stocks and bond-sensitive sectors such as real estate investment trusts.

Source: The edge markets

“Come in and talk to us?”

Source: Cointelegraph

Source: Reuters

25 or 50?

We’re too busy thinking about Federal Reserve policy and whether they’ll go 25bps or 50bps at the next FOMC meeting.

As I’ve noted in the past, I think they should have cut in July and I think they actually regret having not cut in July, so there’s a pretty reasonable argument that they should cut 50bps just to make up for the mistake. That’s what I would do if I were Supreme Leader of the Fed, and I’d frame it very specifically as a catch-up rather than an emergency, but I don’t think they’ll do that. I think they’ll go 25 bps. Let me explain why.

50 bps could cause some concern.

Yes, they could cut 50 bps and frame it like I did above where the Fed comes out and clearly says “we are cutting 50 bps due to the elongated meeting schedule and to catch up on recent economic slowness, however, we are NOT, we repeat, NOT cutting due to an emergency or extenuating circumstances.”

This wouldn’t go over well. It’s basically admitting that they made a mistake in July and that they’re now behind the curve. Which they are, but they can’t admit that without potentially causing some unnecessary worries.

So I don’t think they can do this, because pessimistic animal spirits could make investors believe that the Fed knows something evil lurks under the hood.

The economy is strong. Enough.

There’s no doubt that the labor market is softening. It has been for over a year, and I’ve explained in detail how the underlying data told that story despite what the headline story said. But even the headline data is softening materially.

That said, it’s not softening so much that the Fed needs to panic.Payroll report showed all the consistent under-the-hood weakness in temporary employment, long-term employment, etc., but the headline was at 140K - not great, but not terrible.

Hourly earnings were 4.1%, which is still high by historical standards. And broader economic data is still consistent with an expanding economy. So this isn’t a panicky environment, but it is one in which a 5.25% policy rate now looks excessively tight. So starting to ease the rate down makes a lot of sense.

Inflation is still a little bit sticky.

Last Wednesday’s CPI came in at 2.5% on the headline, well down from last month’s 2.9% and way off the highs of 9%. Disinflation has clearly won now. I’ve argued for 2 years now that disinflation was embedded and that the second wave of inflation was an overblown concern.

I don’t want to toot my own horn , but our inflation model has been pretty damn good over the entirety of the Covid inflation surge. Inflation’s been stickier than I expected at points (mainly because shelter’s been stickier than expected), but directionally, the model has been pretty bang on. And right now it’s still pointing to subdued inflation. That said, there’s enough stickiness remaining in the core readings that a slower pace of cuts makes sense.

So here’s the big conclusion. The Fed is right to start a rate cut cycle. They haven’t defeated inflation yet, but they’re damn close, and you don’t want to wait until there’s an emergency to have to cut. To use the analogy I hate, you don’t start landing the plane when you’re at the airport. You start easing it down well in advance.

At the same time, inflation is still high enough and sticky enough in certain areas that moving slowly makes sense. There’s no emergency on the horizon, and so, emergency 50 bps cuts aren’t necessary at this time. So I’d expect 25 bps at the next meeting and a high probability that this is the start of a march towards something below 4% in the coming year, so I hope you locked in those high rates or extended durations earlier this year when we said it was time to do so.

Source: SEEKINGALPHA

Institutional investors, which have traditionally made up private debt’s largest pool of money, are no longer a source of growth for the $1.7 trillion industry.

Money raised through funds targeted to institutional investors, including asset managers and pension funds, is expected to stay flat this year compared to last, according to data from PitchBook. With institutional interest plateauing, private credit investors have to hunt elsewhere for growth. These firms have turned to vehicles designed to appeal to retail investors and insurance companies, capital pools ripe for the taking.

Investment in traditional closed-end vehicles, also known as drawdown funds, has declined steadily since 2021 and is expected to stay flat, according to the PitchBook report, which looked at global private market fundraising in the second quarter of this year. With many central banks set to cut interest rates in the near future, the appeal of private debt, which is mostly floating-rate, has decreased, the report said.

Just 59 traditional funds focused on private debt closed in the first half of the year, down from 68 in the same period in 2023, according to PitchBook. Fundraising volume shrunk to $90.9 billion from $98.9 billion over the same period.

“You are starting to approach the limit of the traditional drawdown institutional end market,” Tim Clarke, one of the authors of the PitchBook report, said in an interview, adding a caveat that data around private credit is limited and can be unreliable, given the opacity of the product.

Some private credit firms are forming open-ended, evergreen vehicles, which provide more flexibility to retail investors. Investors can periodically withdraw or contribute new capital to evergreen funds.

A handful of the market’s largest players, including Apollo Global Management Inc., BlackRock Inc. and Goldman Sachs Group Inc.’s asset management division, are already looking to raise money from retail investors in the US. Goldman Sachs and Carlyle Group Inc. are also encroaching on the European market. Apollo is going one step further, breaking ground on a private credit-focused exchange-traded fund with State Street Corp.

Though insurance companies have become a well of capital for the private credit industry, some have moved away from participating in traditional drawdown funds. Some private credit funds have tapped insurer money by striking deals to manage their assets, like Blue Owl Capital Inc., which bought Kuvare Asset Management in July, taking control of $20 billion in assets under management. Other insurance firms are investing in private credit through separately managed accounts, special one-investor funds that offer lower fees and are touted as much more bespoke.

Non-traditional fund structures like evergreen vehicles also often have lower fees. Managers including KKR & Co. and Carlyle have even taken away the carry, a performance fee, on recent evergreen funds. There’s also considerable pressure for managers of business development companies, known as BDCs, to reduce fees.

Source: The edge markets