Global Macro Monitor

The U.S. stock market is surprisingly calm right now…A key reason: a growing divide between mainstream investors, who have largely been sitting out the 2023 stock rally, and the machines whose buying has been driving it…The market’s steady rise has puzzled analysts and portfolio managers as the S&P 500 has churned more than 9% higher this year (and the technology-focused Nasdaq Composite has risen 24%). One explanation: Quant funds, or those relying on computer models and automated trading, have been doubling down on equity markets as other investors have stepped back, citing high valuations and concerns about the likely course of the U.S. economy. – WSJ

College enrollment has declined by about 15% in the past decade, according to federal data. The reasons include the high cost of university education, colleges closing and uneven returns from getting a degree, as well as the hot job market. 

The college-enrollment rate has fallen for both men and women in recent years, but more so for men. Last year 66.1% of women who graduated from high school, ages 16 to 24, enrolled in college, nearly 10 percentage points higher than the rate for young men, which economists attribute to women enjoying greater financial returns from college. – WSJ

Money Points:

• The college enrollment rate for recent US high-school graduates, ages 16 to 24, declined to 62% last year from 66.2% in 2019.
• The rate topped out at 70.1% in 2009.
• The decline was steeper among men than women.
• The trend is driven by a strong labor market for less-educated workers.
• The shift is also being driven by a growing number of high-school graduates who are choosing to enter the workforce directly.
• Many employers are offering higher wages and benefits to attract workers.
• Some employers are also offering training programs and apprenticeships.
• The trend is being driven by a combination of factors, including rising tuition costs and student debt.
• Many students are also questioning the value of a college degree.
• Some students are choosing to pursue alternative forms of education, such as vocational training or online courses.
• The trend is expected to continue in the coming years.
• Some experts warn that the trend could have negative long-term consequences for the US economy.
• They argue that a highly educated workforce is essential for innovation and economic growth.

There are 11 emerging nations with dollar debt trading at a risk premium of at least 10 percentage points — a distressed level that signals the threat of default. 

Lebanon, Sri Lanka, Zambia and others have already tumbled into default, locking the economies out of international capital markets until a deal can be struck with creditors.  – Bloomberg

Money Points:

• A shakeup is brewing in the $1.6 trillion universe of emerging-market sovereign debt.
• Government defaults are rising to a record in the developing world.
• The debate is growing frantic over how to solve these debt crises.
• The International Monetary Fund (IMF) is pushing for a new global bankruptcy framework.
• The IMF’s proposal would allow countries to restructure their debts in an orderly way.
• The proposal has been met with resistance from some investors and governments.
• Some investors are concerned that the proposal would give too much power to debtor countries.
• Others worry that it would make it too easy for countries to default on their debts.
• The IMF argues that its proposal would help prevent future debt crises.
• The debate over how to solve sovereign debt crises is likely to continue for some time.
• Investors will need to be vigilant as they navigate this uncertain landscape.
• The stakes are high, as sovereign debt crises can have far-reaching economic consequences.

Good piece in the FT about the number of people taking the CPA exam in 2022 has dropped to its lowest level since the beginning of records for the modern exam in 2006. 

Money Points:

• Accounting firms in the US are being urged to revamp their business models to attract more young people after the numbers taking exams to enter the profession plunged to the lowest level in at least 17 years.
• The shortage of new entrants comes at the same time as a wave of baby boomer retirements and threatens to weaken firms’ ability to perform the accounting, tax and auditing work that companies and individual clients rely upon.
• The number of people taking CPA exams in 2022 was just over 67,000, down from 72,000 in 2021 and short of the institute’s forecast of 74,000.
• That was the lowest level since the beginning of records for the modern exam in 2006.
• The Institute of Management Accountants told the Financial Times that it had also seen a decline in candidates in the US last year that totalled 5 per cent.
• The pipeline of new candidates has thinned because university accounting courses have become less popular in the US.
• Graduates’ starting salaries can also be at least one-fifth higher in finance or technology, and those careers may not require such an expensive professional qualification.
• Wayne Berson, the head of BDO USA, told the FT earlier this month that his firm planned to double its overseas staff and shift more work offshore because of the shortage.
• The AICPA said it was increasing scholarships to help candidates and encouraging firms to offer competitive salaries.
• “You’ve got a generation that is looking for a shorter ROI,” said Mike Decker, AICPA vice-president.

Nope! 

Based on Warren Buffet’s favorite stock market valuation metric, the market remains very expensive.  

Note this is a mean-reverting chart — that is, the time series does not move from lower left to higher right as the total market capitalization as measured by the Wilshire 5000 is normalized by nominal GDP but will revert back to its mean valuation level.

Over the years, there have been various rationalizations as to why the market remained in the super-expensive zone for so long, such as globalization, low inflation, free money, China opening, offshoring, zero interest rates, and quantitative easing.

No mas, all gone.  Now, the market must stand alone and grow earnings, and earnings grow with the economy. 

Stay frosty, folks. 

The summer trading doldrums have arrived, and our current market analysis indicates that long-term investors lack conviction. As a result, traders are pushing the S&P lower in the morning and covering into the close, stifling market volatility — albeit deceptively. However, there are underlying concerns that suggest we shouldn’t be complacent.

The market also appears to be trading as if the leveraged and fast money set is net short. The S&P closed the week right at its 20-day moving average and held the 4098ish level twice, while the rejection at the Wednesday high of 4154.28 occurred at the key .50 fibo for this bear market at 4155.10. 

It’s a mug’s game trying to predict short-term market moves, but let us humor you going into the weekend. We suspect that next week, the recent market low at 4098.92 will break, and the S&P will test its 50-day moving average at 4057 soon, and very soon. If the 50-day moving average breaks, prepare for a summer vacation visiting the 200-day moving average at 3974.61.

On the upside, this week’s high and .50 fibo at 4155 is now the key resistance level to watch,   

Firm convictions held loosely.    

Stay frosty, folks.