Move over tech stocks. This emerging sector is now fueling the equities rally

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Good morning. Global stocks and U.S. futures are starting the week on strong footing with plenty of green on the screens from Tokyo to London. Solid Chinese economic data and a new stimulus deadline are supporting the risk-on mood. Meanwhile, looking back over the past month, we analyze the big run by consumer discretionary stocks.

Let’s see where investors are putting their money.

Markets update

Asia

  • The major Asia indexes are mostly higher in afternoon trading with the Nikkei up 1.2%.
  • China’s 3Q GDP grew 4.9%, slightly off economists’ expectations. But the strong pick-up in retail sales bodes well for a steady economic recovery.
  • Time to ditch quarantine? That’s what IATA thinks. The world’s airline trade body is pushing for an alternative to the 14-day quarantine, likening it to “closing your borders.”

Europe

  • The European bourses are trading higher out of the gates with Stoxx Europe 600 up nearly 0.5% despite concerns over Brexit, COVID and recession.
  • Europe’s economy is careening towards a double-dip recession as the autumn wave of COVID cases continue to swell.
  • Meanwhile, finance jobs in London are vanishing fast.

U.S.

  • U.S. futures are in the green this morning, and ticking higher. That’s after the Nasdaq closed down on Friday, capping a volatile week.
  • House Speaker Nancy Pelosi set tomorrow as the final deadline of getting a stimulus deal done. Investors cheered the news, lifting U.S. futures overnight.
  • It’s official. The U.S. deficit topped $3.1 trillion in the fiscal year ending Sept. 30. We knew it would be a record, but the numbers are still eye-watering. It’s more than double the previous record of $1.4 trillion in 2009. Meanwhile, America’s debt-to-GDP ratio is on pace to top 100% this year.
  • The big earning calls on deck this week include: Netflix, Tesla, Coca-Cola, AT&T and Procter & Gamble.

Elsewhere

  • Gold is up, trading around $1,915/ounce.
  • The dollar is flat.
  • Crude is down ahead of today’s big OPEC+ meeting, with Brent trading above $42.50/barrel.

***

Big returns

Tech stocks have taken a bit of a breather in recent days with the Nasdaq finishing down over four straight sessions. Even still, the index closed in positive territory for the week, speaking to investors’ unflinching faith in the mega-cap tech stocks.

Zooming out over the past month, tech stocks have had one of their best stretches of the year, with the Nasdaq 100 up 9% since mid-September. It’s a run that few Wall Street pros had predicted.

That said, this rally doesn’t entirely resemble the one we saw in August. While growth stocks are flying again, there’s been a pullback in gold and Treasurys. And consumer discretionary stocks, led by Nike, have really taken off in the past month.

As this morning’s chart, courtesy of Goldman Sachs shows, the consumer discretionary category has leaped over gold and Russell 1000 Growth to become the third-best performing segment of 2020.

That more sectors are contributing to this bull run is a positive sign of a more broad-based recovery, or, at least, investors’ faith in a broad-based recovery.

And the big losers? Those names haven’t changed. Financial stocks have performed slightly better in the past month, but they’re still down 17% on the year (vs. -18% a month ago). Meanwhile, energy stocks continue to fall (now down 47% YTD) even as crude oil prices stabilize.

If you want to find bears in this market, you’ll find them there.

***

Postscript

Last night, we gathered around the TV to catch Prime Minister Giuseppe Conte’s national COVID address. A lot of Italian businesses had been fretting the government would impose new restrictions along the lines of the French. In the end, we dodged the worst—no blanket curfews, no school closures and no shut down of gyms and restaurants.

Conte gave local mayors the option to dial back these activities where needed. Italians may see certain piazzas close at 9 p.m. to keep large crowds from gathering. But that just means la dolce vita will be limitata, not eliminata.

Italy without its famed la dolce vita social life is just not the same country. But it looks safe for now, we all hope, as the government opts for a softer touch this time around.

It marks a big difference from seven months ago when the country was overwhelmed by the deadly first wave of coronaviruses cases. Public health officials these days say the latest outbreak is not an alarming one as the number of hospitalizations and deaths, a lagging indicator, are still under control.

And, as Franco Locatelli, a chief public health advisor to the government, said yesterday on Italian television, a big percentage of the new “positive” COVID cases are of the milder, asymptomatic variety. “I’m neither panicked nor alarmed,” he added.

Locatelli is Italy’s answer to Anthony Fauci. I interviewed him recently just as cases started to spike in Italy. He told me then that the case load would get worse, but that this time the country was far better prepared.

As I wrote in the article, Italian politics can seem like a zoo sometimes, but during the COVID outbreak government officials have looked clear-eyed and coordinated. There have been no rambling endorsements of untested COVID cures like hydroxychloroquine or embarrassing U-turns.

“Let me put it this way,” Locatelli told me, “some decisions taken by other countries would not have been taken in Italy.”

Italy, this time around is getting a lot more attention for what it’s doing right. There’s a strong partnership between politicians and the scientific advisors. And the public trust remains solid.

This autumn surge feels very different.

***

Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
[email protected]

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