The cup spilith over

The sense of optimism around the globe for stocks was very apparent as we look forward to the final quarter of the year. Anything Chinese-related, particularly luxury goods and miners, has had a good week in response to the Chinese authority’s stimulus measures. The CSI 300 is up over 10% this week. Yesterday, the latest raft of US economic data supported the market’s soft landing hopes. Jobless claims came in line with expectations, Durable Goods orders were flat against an expected decline, and the third and final estimate for Q2 US GDP was confirmed at 3%, according to the Bureau of Statistics. Jerome Powell’s optimistic view of the US economy, accompanying the Fed’s cut in interest rates, seems justified. Today will be the big day as we await the latest US inflation data, with hopes that the monthly Personal and Consumption Expenditure Index will reaffirm that higher inflation is in the rearview mirror. The market is anticipating the headline rate to fall to 2.3% in August from 2.5% the previous month. Falling inflation and a stable labour market are the Fed’s Nirvana, a perfect place of peace and happiness.

The month ahead will be dominated by the first Labour Party budget in 14 years and the US election, which has become a much tighter race than it apparently was. In addition, the third-quarter earnings season will begin in the coming weeks. According to FactSet, US earnings are expected to grow by just under 5% year over year in the third quarter. Should this be the case, it will be the fifth quarter of year-over-year earnings growth for the S&P 500. Earnings must be pretty strong to support a US stock market on 21x earnings.

Another interesting statistic from the FactSet report is that there are almost 12,000 analyst ratings on stocks; of that, almost 12000, around 600 of those ratings are advice to sell. Over 50% of the analyst ratings are buy, and the rest are hold. There is nothing new in this; historically, the street average for sell recommendations is around 6%. If anyone wanted one statistic to confirm the broker bias, this must be it.

September followed the pattern of August, with a poor start and a positive end. Not only are stocks in the US at all-time highs, but the global index ex the US is touching highs last hit in 2021. The one thing that is out of kilter with this bullish sentiment on risk assets is the continued demand for Gold as it hits another record high. Gold is considered a hedge against inflation, but inflation is supposed to be on the way down. We shall see what later today brings, as stocks in Europe look like they will open on another positive note .