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Great market expectations for the Tuesday after a long holiday weekend in summer are destined for disappointment. Apart from the hazy, lazy effect, China rate moves that fell short of hopes aren’t helping the mood, as investors wait for Fed Chairman Jerome Powell to appear on Capitol Hill later this week.
The latest bearish remarks from Morgan Stanley’s Mike Wilson are in and he is doubling down on all his grimness. He sees a market flipping from fear to greed and says the increased participation of stocks in the S&P 500’s push higher isn’t enough to support the index at these levels.
One point Wilson makes is that investors are rushing into stocks just as fiscal support, helping to hold up consumer spending, fades. The bank’s rates strategists estimate that has amounted to $1 trillion in aid over the past 12 months — measures including the Inflation Reduction Act and those student-loan repayment moratorium.
That brings us to our call of the day from a team of Barclays analysts, led by Adrienne Yih who see about an impending $15.8 billion monthly hit to U.S. spending, as the average student loan holder faces a monthly payment of about $390 starting this fall.
“For most, this will be the first time making payments since the early days of the pandemic in March 2020. We regard the incremental ‘essential’ nature of the debt payments as likely to reduce discretionary spending by an approximately equal amount,” said Yih and the team.
In short, that will amount to a roughly 8% headwind to monthly personal income, hitting 16% of the U.S. population and adding pressure on consumer discretionary and apparel stocks, they say.
The Barclays analysts say their monthly estimate is on the conservative side, given it only takes into account federal student debt, which is 87.2% of total student debt.
As for the stocks, the analysts advise looking out for those with a consumer base that “skews toward higher income, higher education, and in the 18- to 34-year-old cohort.”
The greatest risk will hit the first bucket — recently graduated, newly employed individuals — who will likely be spending less at names like American Eagle Outfitters Urban Outfitters Figs and Victoria’s Secret
In the second bucket, they see some risks to higher income, aspirational luxury retailers selling to that cohort, with stocks including Capri Holding Tapestry Canada Goose Nordstrom Lululemon and Ulta Beauty all at risk.
The least risk is seen for those retailers with a customer base that targets lower income or lower educational levels, or are potentially older shoppers. Those stocks include National Vision Burlington Stores Ross Stores Old Navy at Gap and TJX
The markets
Stock futures are tilting south, bond yields are steady, and oil prices are lower . Hong Kong stocks led Asia lower as China lending rate cuts disappointed some.
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The buzz
China cut benchmark loan rates for the first time since August 2022. Goldman Sachs, which has downgraded China growth, noted some had expected bigger moves. China ADRs like Xpeng and Nio are down about 5% each.
Alibaba has shaken up its leadership, with Daniel Zhang stepping down as chairman and chief executive, but staying on to lead the cloud business, which is expected to be spun off. The stock is down over 2%.
FedEx results are due Tuesday and could indicate whether consumers are buying more stuff.
Warren Buffett’s Berkshire Hathaway has again boosted stakes in five Japanese trading companies — Mitsubishi Mitsui Itochu Marubeni and Sumitomo — to more than 8.5% each
Novo Nordisk’s hit Wegovy weight-loss drug is set for sales of over $4 billion this year in the U.S. alone, says Citigroup.
Housing starts for May are due at 8:30 a.m., with New York President John Williams speaking at 11:45 a.m. The big spotlight this week will fall on Powell’s two-day testimony on Capitol Hill that starts Wednesday.
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The chart
Another group of Barclays analysts, led by Venu Krishna looked at narrow leadership of the year-to-date S&P 500 rally via the so-called “leadership gap” —the spread between S&P 500 returns and returns without contribution of the top 10 stocks.
Over the last three decades, leadership has only been as narrow as it is today in 2000 and 2020, and both times, the top 10 stocks driving the rally retraced against the broader market in the short term, they note. That leadership gap has widened to more than 7%, and since the mid-1990s that has only happened in 2020 and 2020.
The tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.
| Ticker | Security name |
| Tesla | |
| GameStop | |
| Nvidia | |
| Nio | |
| Manchester United | |
| Mullen Automotive | |
| Apple | |
| Palantir | |
| Virgin Galactic | |
| AMC Entertainment |
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