Finance

The stock market is not the economy

Published

2 years ago

September 19, 2022

The U.S. economy is closely related to the U.S. stock market. But that relationship is not perfect in a number of ways.

An important way the two differ is international exposure.

According to FactSet, S&P 500 companies1 generate around 40% of revenue outside of the U.S.2 That means these companies are significantly dependent on the health of the international economies in which they operate. They employ abroad, source goods abroad, and sell abroad.

This is not to say the U.S. economy is totally decoupled from the rest of the world: Annual exports account for $3 trillion of the $25 trillion worth of U.S. GDP.

The S&P 500 is a global story. (Source: FactSet)

But when you think of the U.S. economy, you generally think about activity inside the borders of the U.S. This includes U.S. employment levels, U.S. manufacturing activity, U.S. services sector activity, etc. This, by the way, includes non-U.S. companies with footprints in the U.S. like Toyota, B.P., Samsung, and Nestle.

We’re discussing this now because of news from FedEx FDX -1.25%↓ , a U.S.-based S&P 500 company. From the company’s press release on Thursday (emphasis added):

First quarter results were adversely impacted by global volume softness that accelerated in the final weeks of the quarter. FedEx Express results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe, leading to a revenue shortfall in this segment of approximately $500 million relative to company forecasts. FedEx Ground revenue was approximately $300 million below company forecasts.

FedEx is one of the so-called “early reporters” — that is, companies whose quarters end a month earlier than most companies. The last two months of FedEx’s quarter overlaps with the first two months of most companies’ Q3. And so the company’s warning may serve as a leading indicator for the upcoming Q3 earnings season, which kicks off in mid-October.

As Asia struggles with COVID-related lockdowns and Europe wrestles with surging energy costs, companies with significant exposures in these regions may underperform those with greater dependence on the U.S., where the economy has been resilient.

There’s also the matter of the surging U.S. dollar, which is leading to the dollar value of revenue generated abroad shrinking for U.S.-based multinational companies. Morgan Stanley analysts recently estimated that every 1% increase in the dollar index represents a roughly 0.5% reduction in S&P 500 earnings per share.

While dollar strength may be good news for U.S. importers and American vacationers traveling abroad, it’s bad news for everyone else watching their own currencies lose purchasing power in the international markets.

All of this raises doubt about analysts’ current forecasts for earnings growth, which appear at risk of getting revised down further. This is a big deal because, as TKer readers know, earnings are the most important driver of stock prices over the long run.

For investors and traders, the key question is what’s priced into the markets. The strong dollar and economic weakness abroad are known stories that have weighed on markets for a while. So, while these are clear headwinds, it’s very possible to see markets climb as analysts factor in the deteriorating macro backdrop into their earnings forecasts.

More from TKer:

Reviewing the macro crosscurrents 🔀

There were a few notable datapoints from last week to consider:

🎈 Inflation is still high. The consumer price index climbed 0.1% month over month in August, unexpectedly accelerating from 0.0% in July. Economists had expected the metric to decline 0.1% amid falling energy prices. While energy prices indeed fell during the period (gasoline prices tumbled 10.6%), prices for food and shelter remained hot, rising 0.8% and 0.7%, respectively. Excluding food and energy prices — which tend to be more volatile in the short run — core CPI growth unexpectedly accelerated to 0.6% in August from 0.3% in July. On a year-over-year basis, CPI was up 8.3% (hotter than expected), and core CPI was up 6.3% (also hotter than expected).

Inflation is still high. (Source: BLS)

📉 Expectations for inflation are coming down. From the University of Michigan’s September Survey of Consumers: “With continued declines in energy prices, the median expected year-ahead inflation rate declined to 4.6%, the lowest reading since last September. At 2.8%, median long run inflation expectations fell below the 2.9-3.1% range for the first time since July 2021.“ The New York Fed’s August Survey of Consumer Expectations released Monday echoed this sentiment. The median expectation for inflation one year ahead was 5.7% in August, down from its June high of 6.8%. From the NY Fed: “Expectations about year-ahead price increases for gas also continued to decline, with households now expecting gas prices to be roughly unchanged a year from now.“

Expectations for inflation have improved. (Source: NY Fed)

🏪 Small businesses are cooling on prices. From the NFIB: “The net percent of owners raising average selling prices decreased 3 points from July to a net 53% seasonally adjusted.“

Plans for prices are coming down. (Source: NFIB)

💼 The labor market is strong. Even as the economy cools and hiring slows, employers seem to be holding on tight to their employees. Initial claims for unemployment insurance came in at 213,000 for the week ending September 10, down from 218,000 the week prior. While the number is up from its six-decade low of 166,000 in March, it remains near levels seen during periods of economic expansion.

Initial claims have lower. (Source: DOL)

💵 Small businesses are hiring. From Bank of America: “…small businesses continue to see strength in payroll payments. The three-month rolling average of payroll spend per client rose 11% year-over-year (YoY) in August, suggesting robust hiring and wage growth momentum. Restaurant and bar payroll payments may be moderating the most from recent highs, partly reflecting easing wage inflation in leisure & hospitality, but even here 18% YoY growth in August is reassuring.”

Small business wages are up. (Source: Bank of America)

🛍 Retail sales are holding up. In August, retail sales unexpectedly climbed by 0.3% month over month. Autos sales climbed 2.8% while gas station sales fell 4.2%. Excluding autos and gas, sales increased by 0.3%, which wasn’t as strong as the 0.5% gain expected. The report reflected strength in “doing stuff” — restaurant and bar sales were up 1.1% — and weakness in “buying stuff” — furniture sales were down 1.3%. Note: Retail sales figures are not adjusted for inflation. Real sales levels are lower.

Retail sales rose. (Source: @USCensusBureau)

⛓ Supply shortages are less of a problem. Business inventories increased by 0.6% month-over-month in July. This brought the inventory/sales ratio to 1.32.

Inventory levels are up. (Source: @USCensusBureau)

🛠 Manufacturing cools. Industrial production activity declined by 0.2% month over month in August.

Industrial production cools a bit. (Source: Federal Reserve)

🥶 Manufacturing looks to keep cooling. The Empire State Manufacturing Survey’s general business conditions index and the Philly Fed Manufacturing Business Outlook Survey’s current activity index both registered negative prints in September, suggesting manufacturing activity in the Mideast U.S. continued to contract.

Manufacturing activity continues to soften in the Mideast. (Source: Philly Fed)

undefined

Mortgage rates are up. (Source: Freddie Mac)

📉 Stocks tumbled last week with the S&P 500 falling 4.7% to close at 3,873.33. The index is now down 19.2% from its January 3 closing high of 4,796.56 and up 5.6% from its June 16 closing low of 3,666.77.

Putting it all together 🤔

Retail sales and manufacturing activity data confirm that the economy continues to cool. Meanwhile, inventory levels continue to rise, suggesting supply chains constraints continue to ease.

The strong labor market — marked by low layoff activity — continues to put money in consumers’ pockets, preventing the bottom from falling out of consumer spending. Unfortunately, the strong consumer is part of the reason why inflation has been high.

Indeed, while some price indicators have been easing, inflation remains troublingly high. And so financial markets remain volatile as the Fed increasingly tightens financial conditions in its effort to cool prices. As such, recession risks linger and analysts have been trimming their forecasts for earnings. For now, all of this makes for a conundrum for the stock market until we get “compelling evidence” that inflation is indeed under control.

This post was originally published on TKer.co

Crypto

Bitcoin’s Recovery – the Downturn Is Over

Published

5 months ago

July 16, 2024

The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.

Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.

In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.

“No Man’s Land”

Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.

Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.

While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.

Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.

First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.

“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.

A News-Driven Environment

Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.

Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.

Reports /Trainviral/

Crypto

Bitcoin ETFs Saw $300M in Daily Net Inflows

Published

5 months ago

July 16, 2024

BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.

The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.

None of the ETFs recorded outflows for the day.

Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan

According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.

Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.

A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.

What’s Next For Bitcoin?

Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.

But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.

Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.

“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”

Reports /Trainviral/

Crypto

LI.FI DeFi Platform Exploited, Over $8M Lost

Published

5 months ago

July 16, 2024

PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.

The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.

Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.

LI.FI Issues Warning After $8 Million Exploit

LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.

According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.

Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.

Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.

“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.

This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.

But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.

Recent Exploit Mirrors March 2022 Attack

Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.

The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.

“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.

Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.

LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.

Reports /Trainviral/