Macro Insights: Santa came early this year

SEASONALITY: S&P 500 has rebounded 9% from October low. This begs the question if the seasonal Santa rally came early? Partly. We are near our 4,700 end year target, but with more for next year to 5,050. This ‘Halloween’ effect kicks off the seasonally strongest six months of the year, as investors position for the year ahead, and companies outline year ahead views. There is also a rotation to growth-sensitive sectors, with consumer discretionary, commodities, industrials and tech normally leading, and the May-October defensive leaders, such as consumer staples and healthcare, lagging.

SUPPORTS: Q3 earnings reassured, up 41% and 10% over forecast. Profit margins were near record. Lower virus cases are driving GDP. The Atlanta Fed GDP NOWCast is 8%. Inflation and interest rate forecasts have sharply shifted. The market already pricing rates to rise in June. Buybacks are tracking a record $220 billion, as company profits recover and with $7 trillion cash. New retail investors are firm, with record equity allocations.

OUTLOOK: Markets to navigate risks of the debt ceiling and Fed chair nomination, whilst stand-off between volatile fixed income and relaxed equities is ease. We see twice the consensus of 8% earnings growth next year, with over 4% GDP growth and firm margins. With valuations above long-term levels, on still-low bond yields and big tech.

TODAY: US retail sales in focus as enter the seasonally strong Christmas season. October growth seen +0.7% versus last month, and still seen up a huge +12% versus last year.

All data, figures & charts are valid as of 15/11/2021