By Peter Tchir of Academy Securities

There are three main reasons why I don’t have a lot of “new” things to say:

The Chinese stimulus (which was “officially unveiled” on Saturday) was vague and continues to be at the smaller end of expectations. As discussed in China Stimulus Simplified, we expect this to be an iterative process. They will add/tweak to try to accomplish their goals – which are primarily to drive domestic consumption of domestic brands. We think the somewhat predictable sell-off on Tuesday after the Chinese market ended a weeklong holiday offered a buying opportunity for Chinese stocks and that the trade is just getting underway (despite a 35% increase in FXI since September 18th).

Last weekend’s T-Report focused on the three topics in the title - War, Inflation, and the Neutral Rate.

We’ve discussed the war in the Middle East a lot at Academy, and the Risk of Further Escalation Webinar from early October is still highly relevant.

But my focus is on trying to get some attention back on inflation. We wrote about it again on Thursday (post-CPI) in More on Inflation. Rates have been moving in our direction, with the 10-year at 4.1% (it is getting more difficult to remain bearish on rates here) and rate cut expectations have been hammered down to levels where we can almost get on board (have to go out to July before 5 cuts are priced in and the “terminal rate” seems to “only” get down to 3.26% in early 2026).

We are hearing more and more about the neutral rate, or terminal rate (I view them as somewhat interchangeable), as the Fed’s policy discussion shifts from starting to cut to how many cuts. 3.5%, which is my view of the bottom end of the range for the neutral rate, seemed almost preposterous a couple of weeks ago, but is now being mentioned by some important Fed speakers as being in their view of possible ranges!

It is getting more difficult to ignore the election as we are less than a month away, but I will manage to do it for this report. It is close, but “gridlock” still seems to be the base case and that is really what the markets are looking for. But, as we get more data from polls and betting markets, we can start realistically assessing what policies are pure campaign fantasy, versus things that have a chance of getting implemented (Schoolhouse Rock’s Today I Am Still Just a Bill is playing in the background as I type this section).

It is very difficult to remain bearish on Treasuries here. 4% seemed high as a target on 10s and 4.2% seemed off the radar screen not too long ago. While it seems treacherous to be bearish here, there are a few things that are making it very hard to turn bullish:

At best, I can maybe get to “neutral” on rates but think that when push comes to shove, higher yields are likely going to be the pain trade (which means we will probably get it).

Still extremely comfortable with credit. Will pound the table at the front end of the curve for higher quality credits. Anyone who is able should be heavily overweight credit versus Treasuries/T-Bills. At the back end, private credit and the need for banks to grow NIM will mean competition for lending to companies up and down the credit spectrum, which will help corporate bond spreads do well.

Equities. Another 1% up week for the major indices, with just a touch of weakness on Monday and some other intraday/overnight weakness that wound up being bought as the week closed out. I really like energy, China, and am eyeing small caps and value as the Russell 2000 did a little better than the S&P 500 and Nasdaq 100. Semiconductors did great, while utilities did poorly (more due to rates than questions about data center energy use, but those two sectors have been strange bedfellows this year). Banks have been doing well, but maybe it is time to bet heavily on CRE again?

Enjoy the holiday and thanks for all the time and support that you provide Academy Securities. And while it could be seen as a cop-out not to produce much new this weekend, I believe that it would be time well spent reviewing (or reading for the first time) the 3 reports highlighted in today’s T-Report!