Notice of Index Modifications: Ferrari ETPs

Аватар на автора

Author

Sandeep Rao

Date

Would Donald Trump's Second Term Cause Recession?

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

In the history of televised debates between U.S. presidential contenders since 1960, the recent one held between the incumbent President Joe Biden and the challenger former President Donald Trump stood leagues apart from the first ever televised debate that was held between Richard Nixon and John F. Kennedy. In the first, participants were fairly convivial with each other while in the most recent one, participants were abrasive and held back from talking/shouting over each other by moderators muting each participant’s microphone while the other was speaking. In the first, rebuttals were delivered with a modicum of calm and respect while in the latest, one contender called the other a “sucker” and “loser” with the “morals of an alley cat”1. Viewers of the first-ever televised debate were fairly split on who made the best points; in the latest, overall viewer (and analysts’) perception was that President Trump (born roughly one year after the end of World War II) sounded relatively much more coherent than President Biden (born roughly two years before the end of World War II) and little else by way of consensus.

During the course of this highly testy spectacle, President Biden asserted the conclusions made in an open letter signed by 16 Nobel-winning economists2 released two days prior to the debate thus: “…if Trump is re-elected, we’re likely to have a recession, and inflation is going to increasingly go up.”

The markers signifying a “recession” have been in place for some time. Market trajectories, meanwhile, are quite nuanced and not necessarily a prediction for a recession at first blush.

Market Outlook

Any notion that markets tank (or stay) during a recession could best be called a “misremembering”: while markets do tend to drop at some point during a recessionary period, there is also a bullish trend for a substantial period of time.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Even if it is argued that the “dot-com” bubble and the advent of tech stocks as a frontrunner for the U.S.’ equity universe fundamentally changed market behaviour and investor convictions, a trend that has generally persisted over a century has been that markets rapidly run high before tumbling and then picking up a bullish trend while a recession is still underway.

Standard Chartered Bank, in its recently released H2 2024 outlook, asserts that markets will remain mostly bullish till the end of the year. Of all major economic regions, overall U.S. equity valuations are deemed to be arguably justifiable on a forward-looking basis relative to return on equity. At a close second are Indian equities.

Source: Standard Chartered

The valuation story between these two countries, however, are markedly different: Indian indices have been rising on a year-on-year basis for over a quarter century, with economic policies in place for over a decade that prioritize domestic production to meet rising consumption by a growing populace rising above the poverty line on now-record levels. The rise of the U.S.’ S&P 500, on the other hand, could best be described as a flight of capital that has been increasing in volume.

Source: Leverage Shares analysis

As early as H2 2023, “tech” – which employs nowhere close to the number of U.S. residents as many other service and product-related occupations – already accounted for well over a quarter of total index composition. As of H1 2024, it was well over a third. Over the past several years, “tech” had become increasingly more relevant to U.S. market trajectory at a cost to nearly every other sector of the American economy, global-facing or otherwise. Arguably only two other sectors have largely held their own in a more-or-less resilient fashion: energy and financials.

Within financials, however, all is not well. As per the Federal Deposit Insurance Corporation’s (FDIC) Quarterly Banking Profile – which is published approximately 55 days after the end of each quarter – for Q1 2024, the number of banks in its “problem list” as well as assets held in them has grown by a little under twice in number and size respectively relative to the end of 2022.

Source: FDIC; Leverage Shares analysis

As of the end of Q1 2024, the FDIC listed a total of 4,577 banks in the U.S. After hiking rates 11 times through July, the Federal Reserve has yet to start cutting its “benchmark rate”, leaving hundreds of billions of dollars of unrealized losses on low-interest bonds and loans on banks’ balance sheets which, when combined with potential losses on commercial real estate facing increasingly higher non-occupancy levels, leaves the banking sector increasingly vulnerable. Across Q1 2024, consulting firm Klaros Group3 analyzed 4,000 U.S. banks to gauge this combinatorial risk factor to arrive at the conclusion that 282 of those surveyed are likely to be in dire need of capital.

Be it in choice of publicly-listed equity or consumer bank, “size” seems to matter more than ever. Top-of-the-line “tech” companies have grown in their ability to attract investor conviction, with big banks and globe-spanning energy firms remaining resilient for the past few years and even showing a slightly bullish trend in conviction across the past two weeks.

The “flight of capital” to these massive companies, with top-of-the-line “tech” companies in particular attracting conviction multiples larger than the rest of the batch in their sector/cluster, cannot reasonably be construed as a sign of the markets being healthy. As it stands, both equity and foreign exchange (FX) volatility have been lower in 2024 relative to average volatilities seen in previous years.

Source: Standard Chartered

Volatility is a key measure of market health in that it could either indicate a high level of price discovery in play from diverse pool of market participants or a sense of panic/resignation by a shrinking pool of investors. Overall, market participation trends with respect to equity choices hint more of the latter than the former and more of a “resignation” as opposed to “panic”.

It also bears noting that, regardless of underlying economic conditions, market trends tend to be bullish both immediately before and after a national election in the U.S.

Source: Standard Chartered

A “recession” is defined by the National Bureau of Economic Research (NBER) under very specific conditions, in which a softening labour market is a key requirement and is generally evidenced by the unemployment rate. There are early signs of a trend emerging here long before a second Trump presidential term has been determined.

Unemployment Trends

Given that economic health must factor in population participation, the unemployment rate is a key factor. In May 2024, the unemployment had risen nearly 11% relative to the same month in 2022 to reach 4%.

Source: Statista; Leverage Shares analysis

There’s a clear striation in the employment levels vis-à-vis the nature of occupation: professional and managerial workers have the lowest level of unemployment while labour-driven professions have the highest.

Source: Statista; Leverage Shares analysis

On the 5th of July, the U.S. Bureau of Labor Statistics (BLS) estimated June’s unemployment rate at a slight uptick to 4.1%4. This implies that unemployment rate has registered a resilient uptrend across Q2 2024.

The term “estimation” is entirely appropriate in this context. Rather than considering, say, the number of applicants filing for unemployment benefits versus those making 401k contributions, the filing of W2 tax forms by employers and so forth in a nation of more than 330 million people of which at least two-thirds are adults, the BLS calculates its metrics via a survey – a method in play since before World War II. The BLS currently samples 60,000 households across 2,000 pre-determined geographical areas, which translates to approximately 110,000 individuals.

Given the rise and rise of volatile “gig economy” jobs and the potential for disparate circumstances between survey respondents and other residents within said geometric area or representative population, it could be argued that – despite BLS’ assertions regarding the accuracy of its methods – the true extent of unemployment cannot be or isn’t currently being accurately depicted.

In Conclusion

To be fair to the 16 Nobel-winning economists, there is some merit in arguing that President Trump’s promise to cut taxes would be the wrong direction to go in a country wherein (as described in an earlier article5) around a trillion dollars of additional debt is being added every one hundred days. In a similar vein, cheap imports from China and other countries help prop up (and make affordable) sales in a country with the highest per capita consumption of nearly every major good and service. For President Trump to do so without lasting economic damage, it could be concluded that the way the U.S. government conducts itself (which is frequently a bipartisan consensus) and the way the citizen class consumes both need to change. This is necessarily an “evolution” rather than a “revolution”; the sooner it happens, perhaps the better.

While tax cuts might be a cause célèbre among his ostensible Republican colleagues on America’s “Political Right”, President Trump’s positions aren’t entirely orthodox. For instance, his promise to grant permanent residency to all foreign graduates of American universities is ostensibly a cause dear to his foes on the “Political Left”. Unlike many other countries, however, the United States government isn’t a monolith centered on the President’s decision-making; parliamentary consensus is a long and byzantine road. As it is, his “green cards for foreign graduates” proposal was immediately and roundly rejected by leading lights among his ostensible colleagues. Thus, regardless of promises, it might be somewhat early to prognosticate economic risk for the United States solely on President Trump returning to the White House. Instead, it bears remembering that the seeds for economic stress have long been planted and steadily growing for a number of years now regardless of who was sworn into the White House.


Footnotes:

  1. “Biden-Trump debate transcript”, CNN Politics, 28 June 2024
  2. “16 Nobel economists see a Trump inflation bomb”, Axios, 25 June 2024
  3. “Banks are in limbo without a crucial lifeline. Here’s where cracks may appear next”, CNBC, 19 March 2024
  4. “US labor market losing steam as unemployment rate climbs to 4.1%”, Reuters, 5 July 2024
  5. “U.S. Debt In 2024: A Major Crisis Is Brewing”, Leverage Shares, 19 March 2024

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Share this:

Related Products:

Related Products:

Related Articles

Inflation Rate Cools, Fed Rate Cut Likely
Inflation Rate Cools, Fed Rate Cut Likely
Inflation Rate Cools, Fed Rate Cut Likely

Required Information

Upcoming Webinar

Raj Sheth

Umer Suleman

16 July 2024
12.00 pm (GMT+1)

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.