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The Democratic nomination process and presidential campaign should be pivotal drivers of market returns in 2020. In this note, we summarize key policy positions of the five candidates that we believe have the best chance of becoming the Democratic nominee. Overall, our sense is that Michael Bloomberg would be viewed most favorably by equity markets. With Elizabeth Warren recently softening her stance on ‘Medicare for All’, we now believe that a Bernie Sanders nomination would be viewed least favorably by investors.
Increasingly, over the past year, we’ve been focused on identifying potential short stock ideas/avoiding stock blow-ups. Our monthly short screens comprise the 13 most potent valuation, earnings quality, capital creation, capital allocation, and sentiment metrics we’ve found to be most useful in searching for ideas on which to complete additional fundamental analysis. These short screens represent the backbone of the investment process we use to dig deeper and identify the most compelling short ideas.
Last night (11/13/19), China’s National Bureau of Statistics reported that Industrial Production rose +4.7% YoY in October (vs. consensus looking for +5.4% YoY and down from +5.8% YoY in September), and that Retail Sales grew only +7.2% in October (vs. consensus looking for +7.8% and down from +7.8% in September).
As we discussed in Monday’s morning (11/11/19) weekly note, Own Banks from Now to Year End, we believe that the median S&P 1500 Bank could see its ROE expand from 10.2% to 11.2% in an upside scenario in which the U.S. and China reach a comprehensive trade agreement that results in rising global growth expectations and a steepening yield curve.
Unit labor costs measure how much output an economy receives relative to wages paid. This can be calculated by dividing (1) total labor compensation by real output; or, equivalently, (2) hourly compensation by productivity.
U.S. equity markets are up today on that back of headlines that the U.S. and China may rollback recently implemented tariffs in phases as part of an initial trade ‘mini-deal’. Longer-term bond yields are also rising on the news, including U.S., German, and French 10-year yields up by another +6bps to +8bps. Notably, the French 10-year yield is now in positive territory for the first time since mid-July.
Since President Trump signaled that the U.S. and China would continue negotiations on August 27th, trade tensions have started to thaw, and the global growth outlook has improved. Notably, we’ve seen some tangible signs that global trade volumes will begin to pick-up, including a dramatic rebound in the ISM Manufacturing New Export Orders component.
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