Daily Brief - What matters going forward?

TLDR: After the Labor Day drop, it’s fair to consider the weak September seasonality has mostly played out its hand. So what is likely going to drive markets going forward?

Politics might be less impactful than one imagines. Trump would bring a pro-business environment and would be probably more bullish on the margin, Harris on the flipside might spook the market especially on the taxation side. But in the end we’re not likely to see the Trump rally of 2016 because markets are considerably more stretched.

Monetary Policy will remain supportive. But this is our canary in the coal mine: when the first rate cuts seals the end of another hiking cycle, you know the Fed is seeing a slowdown.

Valuations are expensive - but not everywhere. Headline valuations remain a hindrance for the performance of stocks like NVDA, but the market is replete with considerably cheaper stocks, and sectors that have already priced in the slowdown, at least to a degree.

Positioning remains confused. Positioning remains mid-range with a bearish tilt, showcasing how the market is not really taking a position here either way.

In conclusion, this is a late-stage market offering patches of interesting value. Your eyes however should stay fixed on fixed income (bad wordplay, but hey that’s what you get today).

How to trade it

For allocators, long treasuries. If this sounds the same as last week, it’s because it is correct. Also, overwrite your equity longs, 5700 calls are probably a sell.

For traders, hold it. We don’t have clarity either way so we need the market to stretch one side or the other. However…selling a 5700 call remains a rational choice.

Market Movers: If a Democrat becomes President

History shows that the Nasdaq 100 index tends to be the best performing index in the week following a Democratic candidate winning the US election

Earnings Spotlight: Adobe reports tomorrow

Adobe (ADBE) is scheduled to release its Q3 Fiscal 2024 earnings on September 12, with Wall Street analysts anticipating a strong performance. The company is expected to report earnings of $4.53 per share, reflecting a 10.8% year-over-year increase, and revenue growth of 10% to $5.37 billion.

Analysts remain optimistic about Adobe's near-term prospects, particularly due to its advancements in AI-driven software, with its Firefly product seen as a key growth driver. However, Adobe faces challenges from rising competitors like Canva and OpenAI's DALL-E, which could impact its future growth trajectory.