The Sevens Report is a daily macroeconomic research publication that provides plain English analysis of stocks, bonds, commodities, currencies, geopolitics, and Federal Reserve behavior. It aims to be a one-stop shop for financial advisors and individual investors, offering insights at the start of each trading day.
Tom Essaye emphasizes growth because if economic growth falters, it could lead to a significant market downturn. He highlights that the Federal Reserve's rate cuts won't be enough to prevent a slowdown if growth weakens, making growth the primary focus for investors to avoid potential market declines.
Tom Essaye focuses on four key indicators: weekly jobless claims, the unemployment rate, ISM manufacturing PMI, and ISM services PMI. These metrics provide a clear picture of economic health, with jobless claims and unemployment signaling labor market strength, and ISM PMIs indicating expansion or contraction in manufacturing and services sectors.
Warning signs include weekly jobless claims consistently above 260,000, an unemployment rate rising above 4.5%, and ISM manufacturing and services PMIs dropping below 50 for multiple months. These indicators suggest weakening labor markets and economic contraction, which could lead to a market decline.
Tom Essaye believes the market is expensive, trading at nearly 22 times forward earnings, which is at the upper limit of reasonable valuations. However, he notes that the market's gains are supported by solid growth, Fed rate cuts, and strong earnings, making the high valuations mostly justified for now.
Tom Essaye believes the market has aggressively priced in a Trump victory, but the election remains extremely close, with key states like Pennsylvania and Wisconsin likely deciding the outcome. He expects short-term volatility around the election but doesn't foresee a substantial negative impact on markets in the medium or long term, given the likelihood of a divided government.
The Q3 2023 earnings season has been strong, with 83% of S&P 500 companies beating expectations, above the recent average of 79%. Sales have also been solid, with 63.4% of companies beating sales estimates. Earnings are pacing for 4% growth, potentially reaching 7%, and corporate leaders are showing increased optimism, signaling a reacceleration in earnings.
Boeing faces significant challenges, including resolving a strike, addressing quality and culture issues, and managing its growing debt. The company needs to focus on improving production quality, increasing plane deliveries, and restoring investor confidence. The new CEO has a tough task ahead to stabilize the company and regain market trust.
Tom Essaye is bullish on long-term bonds, believing the bond bear market post-pandemic is over and yields will trend lower. He argues that despite concerns about U.S. debt and deficits, the U.S. Treasury market remains the most liquid and attractive safe haven for global capital, making short-term worries about bond market risks overdone.
Tom Essaye finds foreign stock markets attractive, especially China, due to extreme stimulus measures by the People's Bank of China aimed at boosting the stock market. He suggests that Chinese stocks, represented by ETFs like FXI, could benefit from this stimulus. He also recommends diversifying into European markets, which outperformed the U.S. last quarter and could do so again.
Barron's Senior Managing Editor Lauren R. Rublin and Deputy Editor Ben Levisohn speak with Tom Essaye, Founder and President of Sevens Report about the outlook for financial markets, industry sectors, and individual stocks.