No landing scenario gains traction

Geopolitical tensions in the Middle East, particularly between Israel and Iran, have sent oil prices soaring over 9% in the past week. This surge has been a boon for oil giants. In the corporate world, Pfizer shares jumped 3.2% after activist investor Starboard Value snapped up a $1 billion stake. Chevron is cashing in on its Canadian oil fields, selling them for $6.5 billion. Arcadium Lithium’s shares skyrocketed over 30% amid acquisition talks with Rio Tinto.

Investors are also keeping a keen eye on upcoming U.S. inflation data and speeches from Federal Reserve officials, which could shed light on the economic horizon. The third-quarter earnings season kicks off this week, with heavyweights like JPMorgan Chase, Wells Fargo, and BlackRock set to unveil their results. Despite the current uncertainties, Goldman Sachs has upped its S&P 500 year-end target to 6,000.

The US economy is showing no signs of weakness. Investors think that’s pretty good, as long as it doesn’t upset the Fed’s rate-cutting trajectory too much. Usually, after a rate hike cycle, the economy can either achieve a soft landing in the best of cases, or a hard landing when the economy goes awry. But this time, there’s even talk of “No Landing”. Over the past few months, prophets of all stripes have been arguing about how the US economy will slow down. Smoothly? Brutally? Catastrophically? In reverse? Forget it. The US economy may not land at all. At least, that’s what’s being whispered “in authoritative circles”, as they say.

The latest statistics published in the United States, particularly on the job market, have been so robust that they are not consistent with an economic slowdown. Hence the change in financial sentiment. Yes, the same ones who were threatening to hang themselves in August because the economy was going to collapse if the Fed didn’t lower rates at breakneck speed. In such a context, it’s hardly surprising that the convictions of Fed Funds futures traders are as firmly anchored as an elected official’s commitment to reducing the public deficit. A week ago, they thought the Fed would cut rates by 50 basis points in November. Since Friday, 97.4% believe it will only cut rates by 25 basis points. The remainder (2.6%) even believe that the central bank will do nothing at all.

It’s important, though, because American investors continue to hope that conditions for access to liquidity will improve. Lower rates would continue to anaesthetize the risks associated with the economic slowdown. Especially with the salvo of quarterly corporate results just getting underway, which will peak in the week leading up to the US presidential election. For the tech giants alone, most of the earnings reports will be published over 10 days, with Microsoft and Alphabet opening hostilities on October 22 and Apple closing on October 31. The election will take place on November 5.

If there is no economic slowdown in the US, the Fed is likely to ease policy by 25 basis points, as there is no urgency to move faster. Several US investment banks amended their projections in this direction over the weekend. In a way, they have gone back to their previous forecasts, before all the turmoil of August. For now, it’s a case of having your cake and eating it too: lower rates, benign inflation and economic growth. The bond market, which tends to be wiser, nevertheless warns that in this configuration, rates could fall less than the market has been modeling lately, to avoid overheating synonymous with the return of inflation. This is why the yield on US 10-year debt has risen to just under 4% in the last 72 hours, compared with 3.6% three weeks ago.

In other news, Donald Trump returned to Butler, where he had escaped an assassination attempt. Elon Musk was present, to confirm his allegiance according to his detractors. The former American president continued his strategy of punchlines a month before the elections. In particular, he threatened to impose 200% tariffs on vehicles imported from Mexico, having previously spoken of 100%. He also claimed that JPMorgan Chase boss Jamie Dimon supports him. But the bank politely denied this.

In the Asia-Pacific region, Japan continues its rebound, gaining over 2% to start the week. Hong Kong remains in good shape, gaining 1.6% as it awaits the reopening of mainland Chinese markets tomorrow after Golden Week. South Korea and Taiwan are doing well, with gains of over 1.5%. Australia is on the upswing (+0.7%). Only India is struggling to get back on track, with the NIFTY 50 down 0.9%. Europe is slightly up, with the STOXX Europe 600 inching up 0.1%. Wall Street futures are down by between 0.4% to 0.5%.

Economic highlights:

The dollar is worth EUR 0.9106 and GBP 0.7640. The ounce of gold is up to USD 2,659. Oil continues to rise, with North Sea Brent at USD 79.54 a barrel and US light crude WTI at USD 75.61. The yield on 10-year US debt is up to 3.99%. Bitcoin is worth USD 63,000.

In corporate news:

• Vista Outdoor has agreed to sell itself in two parts for $3.35 billion: Revelyst to Strategic Value Partners and Kinetic to the Czech CSG. The overall price represents USD 45 per share, compared with USD 43 for MNC’s offer.
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  Donald Trump claims that JPMorgan Chase boss Jamie Dimon is backing him, but the bank denies it.
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  Starboard buys a $1 billion position in Pfizer.
• Boeing launches a new round of negotiations on Monday after a three-week strike.
• Meta presents its generative video AI, Movie Gen.
• Kroger completes sale of specialty pharmacy business to Elevance Health.
• Regeneron CEO says weight-loss drugs could cause “more harm than good”.
• Wynn Resorts obtains first gaming license in the United Arab Emirates.

Analyst recommendations:

• Ally Financial Inc.: JP Morgan downgrades to neutral from overweight with a price target reduced from USD 46 to USD 40.
• American Express Company: JP Morgan downgrades to neutral from overweight with a target price raised from USD 268 to USD 286.
• Celanese Corporation: KeyBanc Capital Markets downgrades to sector weight from overweight.
• Coty Inc.: Jefferies upgrades to buy from hold with a target price raised from USD 11 to USD 12.
• Dupont De Nemours, Inc.: Barclays downgrades to underweight from equalweight with a price target reduced from USD 88 to USD 84.
• Elastic N.v.: Barclays upgrades to overweight from equalweight with a price target raised from USD 90 to USD 95.
• Exxon Mobil Corporation: Gerdes Energy Research LLC downgrades to neutral from buy with a target price reduced from USD 134 to USD 133.
• Garmin Ltd.: Morgan Stanley downgrades to underweight from equal weight with a price target reduced from USD 155 to USD 139.
• Humana Inc.: Jefferies downgrades to hold from buy with a price target reduced from USD 419 to USD 253.
• Lamb Weston Holdings, Inc.: JP Morgan downgrades to neutral from overweight with a price target raised from USD 63 to USD 68.
• Netflix, Inc.: Piper Sandler & Co upgrades to overweight from neutral with a price target raised from USD 650 to USD 800.
• The Sherwin-Williams Company: KeyBanc Capital Markets downgrades to sector weight from overweight.
• Dynatrace, Inc.: Barclays upgrades to overweight from equalweight with a price target raised from USD 52 to USD 64.
• Tyler Technologies, Inc.: Barclays upgrades to overweight from equalweight with a price target raised from USD 577 to USD 700.
• Western Alliance Bancorporation: Deutsche Bank upgrades to buy from hold with a target price raised from USD 83 to USD 101.
• Fair Isaac Corporation: Redburn Atlantic maintains a neutral recommendation with a price target raised from 1465 to USD 1845.
• Globe Life Inc.: Morgan Stanley maintains its market weight recommendation and raises the target price from 83 to USD 110.
• Reddit, Inc.: JP Morgan maintains its neutral recommendation and raises the target price from 59 to USD 77.
• Rocket Companies, Inc.: JP Morgan maintains its underweight recommendation and raises the target price from 15 to USD 19.
• Stellantis N.v.: Landesbank Baden-Wuerttemberg maintains its hold recommendation with a price target reduced from 16 to EUR 12.50.
• Transunion: Jefferies maintains its buy recommendation and raises the target price from USD 100 to USD 125.
• Experian Plc: Deutsche Bank upgrades to buy from hold with a target price raised from GBX 3500 to GBX 4750.
• Intertek Group Plc: Deutsche Bank upgrades to hold from sell with a price target raised from GBX 4100 to GBX 4800.
• Canadian National Railway Company: Wells Fargo upgrades to overweight from equalweight with a target price of USD 125.