US EARLY MORNING: US equity index futures start a key week with slight gains

US PRE-MARKETS: US equity futures are trading with slight gains. Treasury trade was closed overnight amid holidays in Japan, yields are currently wider by a couple of basis points, with the belly underperforming. Crude futures continue to tick higher, with many desks noting the potential inflationary implications, particularly in a week with a large number of major central banks set to make policy announcements. The Dollar index is trading flat. The session ahead is quiet, though the week ahead is very busy (See Week Ahead, below). There has been some incrementally positive news on the US-China front, with national security adviser Jake Sullivan attending a previously undisclosed meeting with China's Foreign Minister Wang Yi in Malta, part of efforts to improve strained US-China relations; the meeting addressed economic and security concerns, including Ukraine, export controls, and tensions around Taiwan, with discussions said to be candid, substantive and constructive. Reports suggested that the meeting might pave the way for a meeting between US President Biden and China President Xi Jinping in the autumn.

MS ON STOCKS: Morgan Stanley equity strategist Michael Wilson notes that uncertainty about the current economic cycle is high, with investors in Europe and the US grappling with uncertainty about where the economy is heading, which is typical of late-cycle environments. Wilson says the question is whether the rest of the year will see the continuation of mega-cap growth stocks leading the market, or if there will be a shift to areas that have underperformed so far, such as value and small/mid-cap stocks. In the absence of clear data on the remaining duration of the business cycle, the market is expected to trade in a "late cycle" manner, where holding a combination of defensive growth stocks -- including select growth stories and traditional defensive sectors like Healthcare and Consumer Staples -- along with late-cycle cyclicals like Industrials and Energy, is the recommended play, according to Wilson. Energy, in particular, is recommended within the cyclicals category; historically, the sector tends to outperform late in the economic cycle, supported by commodity strength, while the recent strong oil demand, significant production cuts, and stable crude prices contribute to its attractiveness. Wilson also finds the sector's valuation appealing, with strong free cash flow generation and low net debt-to-EBITDA relative to historical levels, and earnings revisions have also picked up, while positioning remains relatively light, making it an attractive option within the cyclicals sector.

GS ON IPOS: Goldman Sachs writes that, after a two-year drought, the US IPO market has re-opened in dramatic fashion. "Our IPO Issuance Barometer has been at a level consistent with the typical frequency of IPOs since June, suggesting a more normalised IPO backdrop going forward," the bank writes. Its analysis of nearly 5,000 IPOs over the last 25 years shows that 40%+ annualised sales growth through year 3 and positive net income by the 8th quarterly earnings report are associated with outperformance; it says that 67% of IPOs meeting these characteristics outperformed the Russell 3000 over 3yrs with the typical company outperforming by 22ppts. GS says investors must consider valuations, as firms with high Price/Sales multiples at IPO rarely outperform.














18 Sep 2023 - 09:30- Research Sheet- Source: Newsquawk

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