Are we inching closer to the elusive “soft landing”? An increasing share of global fund managers sees it as the most likely outcome over the next 12 months:

Market

Prices as of 4 pm EST, 7/18/23

Macro

Here are some highlights from BofA’s latest Global Fund Manager Survey:

• Investors still expect global growth to weaken in the next 12 months.

• But only 48% predict a recession by the end of Q1 2024.

• In fact, most (68%) see a soft landing as the most likely outcome over the next year.

• Sentiment, however, is still stubbornly low.

• Investors expect the Fed’s first cut will come in Q2 2024.

June’s retail sales report revealed mixed signals about consumer strength.

• Headline sales missed expectations, rising by 0.2% (vs. 0.5% expected) MoM to 1.5% YoY (vs. 1.6% expected).

• On the other hand, spending on the core/control group–which excludes food, autos, gas, and building materials and is used to calculate GDP–jumped by 0.6%.

• Overall, consumer spending softened but flashed resilience in June amid higher prices and borrowing costs.

Homebuilder confidence rose for the 7th consecutive month in July.

• The NAHB Housing Market Index is at its highest since June 2022.

• With record-low inventories boosting demand, why wouldn’t it be?

• According to Redfin, the total number of homes for sale dropped 15% YoY in June to an all-time low (chart).

• At the same time, home prices may have bottomed: June’s median sale price decline was the smallest of the past 5 months (chart) and homes are beginning to sell above their list prices.

Redfin

Stocks

Microsoft (NASDAQ:MSFT) shares reached fresh all-time highs after the company announced new generative AI subscriptions for Microsoft 365.

• The (not cheap) $30-a-month add-on includes AI tools that work with Teams, Word, and Excel.

• Separately, Microsoft also announced a new partnership with Meta (NASDAQ:META).

• As Meta’s preferred partner for Llama 2, Microsoft will make the AI language model software available (for a price) to its Azure customers.

Let’s turn back up on BofA’s Global Fund Manager Survey for some more insights:

• There’s a massive divergence in sentiment between institutional and retail investors (chart).

• Equity allocation increased in July but remains net 24% underweight.

• Bond allocation has been overweight in 7 of the last 8 months and remained so in July despite ticking down.

• Investors are the most underweight commodities since May 2020.

• Over the last month, they rotated out of healthcare, Japan, bonds, and tech, and into the US, insurance, staples, EM, and equities.

• Global profit expectations are the most optimistic since February 2022.

Bank of America

Energy

According to a new International Energy Agency (IEA) report, global power demand is poised to grow just under 2% this year.

• That’s below the 5-year pre-pandemic average of 2.4%.

• In 2024, however, growth is expected to jump to 3.3% as global economies rebound.

• The agency predicts that next year—for the first time ever—renewable sources will account for more than 1/3 of the total global power supply:

IEA

Earnings

Yesterday’s highlights:

Bank of America (NYSE:BAC): $0.88 EPS (vs. $0.84 expected), $25.33 billion in sales (vs. $25.05B expected).

• A 14% jump in net interest income (in-line) drove an 11% gain in total revenue.

• The bank expects net interest income to expand by 8% for the year.

“We continue to see a healthy U.S. economy that is growing at a slower pace, with a resilient job market.”

– CEO Brian Moynihan

Morgan Stanley (NYSE:MS): $1.24 EPS (vs. $1.15 expected), $13.46 billion in sales (vs. $13.08B expected).

• The bank’s wealth management business posted record revenue, beating estimates with 16% growth fueled by higher interest income.

• As with others across the industry, its investment banking division disappointed.

“While we may not be quite at the end of rate increases, I believe we are very, very close to it.”

– CEO James Gorman

What we’re watching today:

• Tesla (NASDAQ:TSLA)

• ASML Holding N.V. (NASDAQ:ASML)

• Netflix (NASDAQ:NFLX)

• International Business Machines (NYSE:IBM)

• Goldman Sachs (NYSE:GS)

• Elevance Health (NYSE:ELV)

• US Bancorp (NYSE:USB)

• Crown Castle (NYSE:CCI)

• Las Vegas Sands (NYSE:LVS)

• Kinder Morgan (NYSE:KMI)

• Baker Hughes (NASDAQ:BKR)

• Halliburton (NYSE:HAL)

• Discover Financial (NYSE:DFS)

• Equifax (NYSE:EFX)

• Nasdaq (NASDAQ:NDAQ)

• M&T Bank (NYSE:MTB)

• Steel Dynamics (NASDAQ:STLD)

• United Airlines (NASDAQ:UAL)

• Northern Trust (NASDAQ:NTRS)

• Citizens Financial (NYSE:CFG)

• Rexford Industrial Realty (NYSE:REXR)

• First Horizon (NYSE:FHN)

Top Headlines

• UK CPI: Inflation in the UK fell more than expected in June, dropping to 7.9%.

• Stock ban: Two Senators will introduce legislation banning federal executive branch members and lawmakers from owning single stocks.

• Regional banks: Slowing credit growth and deteriorating credit conditions are in the outlook for US regional banks, according to Apollo.

• USD weakness: SocGen expects the USD will return to its December 2020 lows.

• Slowing returns: Bernstein strategists predict US equities will show an annualized total return of 4% over the next decade.

• Teamsters strike: The Teamsters union is threatening to strike against trucking company Yellow.

• Pharma suit: Johnson & Johnson joins Merck, Bristol Meyers, and others in suing the US government over the new drug price controls law.

• PSA: Jim Cramer does not see a recession on the horizon.

Crypto

Prices as of 4 pm EST, 7/18/23

• XRP demand: Open interest in XRP futures hit a new YTD record high after climbing above $1.1 billion.

• Polygon 2.0 roadmap: Polygon (CRYPTO: MATIC) will create a new governance framework aimed at decentralizing control.

• Crypto flows: Inflows into digital asset investment products over the last 4 weeks were the highest since Q4 2021.

• French license: SG Force, a Societe Generale division, is the first company to receive a crypto license in France.

• Crypto nominee: Presidential hopeful RFK Jr. says he would exempt Bitcoin (CRYPTO: BTC) profits from capital gains tax.

Deals

• Merger rules: The Biden administration is proposing tougher antitrust merger guidelines aimed at private equity and tech.

• UK OK: Broadcom’s $69 billion acquisition of VMWare has received provisional clearance in the UK.

• Crowdfunding nightmare: Investors who contributed $63 million for real estate deals through CrowdStreet have watched their funds disappear.

• Beauty IPO: Oddity Tech raised $424 million in its IPO after pricing shares above the marketed range.

• PE admin: Private equity firm THL will acquire a majority stake in Standish Management for ~$1.6 billion.

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