7th October Comments: Debt Ceiling, Ford (F) and General Motors (GM)

7 Oct 2021 _ 11:45 AM EDT

The majority of major market U.S. equity indices shrugged off a weak start to the weak, and also yesterday's early morning trading, and finished off yesterday in positive territory following news of a potential concession on the debt ceiling. Also lending a helping hand were reports President Biden and Chinese President Xi will hold an online virtual summit by the end of the year. The S&P 500 gained 0.4%, overcoming an early 1.3% decline, while the Nasdaq Composite Index finished the day 0.5% higher and the Dow closed up 0.3%. Lagging was the Russell 2000, which finished the day down 0.6%.

Equity indices across the globe moved higher this morning. Some of the catalysts for that move include reports the European Central Bank is studying a new bond-buying program to prevent market turmoil when emergency purchases get phased out next year and declines in oil prices after Russia offered to ease Europe's energy crisis. The latter follows a comment yesterday from U.S. Energy Secretary Jennifer Granholm at the FT Energy Transition Strategies Summit that raised the prospect of releasing crude oil from the government's strategic petroleum reserve. Granholm also didn't rule out a ban on crude exports, saying it was an additional tool that could calm markets and bring oil prices down. Also helping lift European equities this morning was the comment by ECB Governing Council member Yannis Stournaras that investors shouldn't expect premature interest-rate increases from the central bank.

Turning to the domestic markets, U.S. indices all move higher thanks to a prospective kick-the-can debt ceiling deal in Washington. Yesterday Senate Minority Leader Mitch McConnell offered a short-term suspension of the U.S. debt ceiling to prevent a national default, giving Democrats time to pass a more permanent solution before the end of the year. The White House is expected to defer to Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi to formally accept or reject the offer, with the White House Press Secretary sounding relatively unimpressed: "My understanding is that there has been no formal offer made, a press release is not a formal offer. And regardless, even the scant details that have been reported present a more complicated, more difficult option than the one that is quite obvious." You can read more about the politics here.

We would note the bout of debt ceiling uncertainty was only one of several items weighing on equities as the velocity of corporate earnings reports kicks up a notch or two next week. One of those items, the Fed's timing for bond purchase tapering, will be in focus tomorrow with the September Employment Report. The latest analysis by the St. Louis Fed of real-time employment data from Homebase implies an 818k plunge in employment for the Household survey. To be clear, this is not tomorrow's Payroll survey from the Bureau of Labor Statistics, but a level like this from the Household survey would historically imply an increase of around only 180k in payrolls while the consensus estimate for Friday's September number is at 488k vs. August's 235k. We mention this because, after the last FOMC meeting, Chair Powell said that if the payroll number is "decent", tapering would be possible. Bloomberg News has reported that based on its sources if the actual number comes in at 240k or lower any taper announcement in November will be off the table.

General Motors Investor Day and Ford Motor

We wrote about GM's first investor day here. During its Investor Day yesterday, General Motors (GM) announced it targets doubling its annual revenue and expanding its margins to 12%-14% by 2030. The company also targets its EV revenue will grow from about $10 billion in 2023 to ~$90 billion annually by 2030 as the company launches EVs in high volume segments. By the end of the decade, GM sees its Cruise revenue reaching $50 billion annually. By the end of the decade. GM also projects annual software and services revenue opportunities in the $20-$25 billion range from a projected 30 million connected vehicles by the end of the decade.

While we're not involved with GM shares, we see the above as confirmation for the EV aspect of the portfolio's position in Ford Motor (F). While we haven't heard any news from Ford specifically, Ford's shares have been moving up considerably. We've posted multiple times about the chart of Ford here, including how to trade around the position. Even though Ford is moving up big today, it has just broken out of resistance, so we will not do anything right here, and potentially will ride this position till the end of year.