Daily Brief - Why is the market rallying?

TLDR: The US economy has reported 11 months of sub-50 PMIs.

P/E is expensive at almost 22x forward, PMIs have been below 50 for 11 months (!), positioning is short, yet the market keeps making new highs.

What gives?

Two factors are combining to propel stock prices: easy policy and strong EPS. Until the latter turn, the market will still have the wind at its back.

A side note is warranted on the Iran situation: history has shown us for the last 15 years that markets have shrugged off geopolitical tensions. Aside from the turbulence we’re seeing now, it’s likely this resilience is here to stay.

How to trade it

For allocators, expensive equities have never been good for long-term returns. Go for long treasuries.

For traders, if you want to short the market, wait for our Peak Indicator to print red. If you want to go long, with VIX at 19 it will be hard to

Market Movers: When Manufacturing PMIs are below 50

Here are the top 3 and bottom 3 performing US sectors, according to their 1-month returns, based on previous instances when PMIs were below 50:

Top 3 sectors:

1. S&P Energy: 3.11%
2. S&P Materials: 2.97%
3. S&P Financials: 2.83%

Bottom 3 sectors:

1. S&P Utilities: 1.04%
2. S&P Health Care: -0.01%
3. S&P Consumer Staples: -0.49%

Earnings Spotlight: Nike woes continue amid leadership shift

Nike recently announced its earnings, revealing mixed results and providing insights into upcoming strategic shifts.

The company exceeded earnings expectations, reporting $0.70 per share versus the anticipated $0.52, but fell short on revenue, posting $11.59 billion against a forecasted $11.65 billion. Nike’s revenue dropped 10% from last year, while net income declined nearly 28%.

In light of these results and the upcoming CEO transition, Nike has withdrawn its full-year guidance and postponed its investor day, signaling strategic reassessment under incoming CEO Elliott Hill. The company expects revenue in the current quarter to drop by 8-10%, with gross margins falling 1.5 percentage points.

Shares fell 7% in extended trading after the news, reflecting concerns about the company's revenue trajectory and challenges with innovation and digital sales.