Markets were relatively quiet yesterday ahead of several key economic statistics and speeches from Fed officials. The data coupled with Fed comments can outline monetary policy assumptions ahead of the December 18 Fed meeting.
Yesterday the top tier JOLTs job survey was stronger than expected. Available positions increased to 7.74 million from a revised 7.37 million reading in September.
The uptick many indicate demand for workers is stabilizing to around pre-pandemic levels. That is important for Fed officials who are trying to avoid any further weakening in the labor market as they attempt to gradually lower interest rates. September’s jobs openings unexpectedly “plunged.”
Changing topics, the South Korean President unexpectedly declared martial law which includes the ending of all political activities, strikes banned and the media to be controlled, because of political deadlock. Lawmakers subsequently unanimously voted to request the lifting of martial law. Martial law was lifted following extreme public pressure, and the President is now facing an almost inevitable impeachment.
Is this only noise or something of significance? This story replaced the headlines that France’s government is about to face a “no-confidence vote” as the far-right party is attempting to align with the far left to form a new government. I guess this falls under the guise that “in politics [war] you make some strange bed partners.”
The world has dramatically changed. Has this change been reflected in the markets?
Considerable attention has been focused on the possible risks in private equity (PE). According to JP Morgan, the number of private companies in the US backed by PE has grown from 1,900 to 11,200 over the last two decades.
Conversely the number of public companies has declined to about 4,300 from 8,090 in 1996.
Moreover, the public equity market is bifurcated and top heavy. Seven companies comprise about 35% of the S & P 500 that yield almost nothing. Ten years ago, the top seven comprised less than 10% of the benchmark. The PE for the S & P 500 is 22, a historically high multiple. Take out the Magnificent Seven, the PE is only 16, fairly middle of the road.
Fifteen years ago trading was dominated by people. Today trading is dominated by opaque high frequency trading outfits that utilize momentum and headlines to make investment decisions.
According to the WSJ a $10,000 investment in the S & P 500 in 1960 would have grown to $5.1 million in 2023 with reinvested dividends. That figure plummets to just $796,000 if dividends have been taken as cash.
The S & P 500 is yielding next to nothing. There is a dearth of public companies. Monies in the public markets are concentrated in a handful of greatly overvalued companies. Geopolitically the world has changed dramatically. Regulatory fiat has greatly hindered the formation of public companies.
There are several bulge bracket firms that are predicting the S & P 500 will be flat at best over the next ten years, partially predicated by the current environment.
No one knows the future, but the future appears opaquer given that yesterday no longer exists. Against this backdrop, one should continue to expect the unexpected to occur.
What will happen today?
Last night the foreign markets were mixed. London was down 0.22%, Paris up 0.55% and Frankfurt up 1.05%. China was down 0.42%, Japan up 0.07% and Hang Seng down 0.02%.
Equity markets should open about 0.5% higher ahead of remarks from FRB Chair Powell and positive earnings news in the tech sector. The 10-year is off 9/32 to yield 4.26%.
