Afghanistan fallout continues, China’s second-busiest port reopens, and Democrats reach a deal with themselves.
Exodus
The Biden administration is asking aid organizations to be ready to resettle as many as 50,000 Afghan refugees as the U.S. accelerates flights out of Kabul ahead of next week’s deadline for evacuations. While President Joe Biden is still resisting efforts to extend the deadline beyond Aug. 31, he has ordered his national security team to come up with contingency measures should a delay be needed. Meanwhile, China is trying to establish closer ties with the Taliban as the country has an eye on what could be up to $1 trillion of mineral deposits and possibly the world’s largest lithium reserves.
Port reopens
There was some relief for stressed shipping routes with the announcement that the Meishan terminal at China’s second busiest port has reopened. It will likely take a while for congestion to ease with container rates across the Pacific remaining very elevated. Speaking of elevated, the number of people hospitalized with Covid in the U.S. remains very high, with mask mandates ahead of school reopenings increasingly becoming a hot-button issue. The National Rifle Association cancelled its annual meeting.
Resolution
House Speaker Nancy Pelosi struck a deal with moderate Democrats that allows lawmakers to move forward with Biden’s $4.1 trillion economic plans. With one of the roadblocks to a massive increase in federal spending cleared, attention today will be on the Treasury auctions, including the sale of $61 billion of five-year notes with recent operations showing some of the largest foreign demand in more than a decade.
Markets quiet
The lack of any major driver ahead of Friday’s Jackson Hole speech by Federal Reserve Chair Jerome Powell means global equities are generally quiet. Overnight the MSCI Asia Pacific Index added 0.2% while Japan’s Topix index closed 0.1% higher. In Europe the Stoxx 600 Index had gained 0.1% by 5:50 a.m. Eastern Time. S&P 500 futures pointed to a slight move into the green at the open, the 10-year Treasury yield was at 1.297%, oil slipped and gold was lower.
Coming up...
Durable and capital goods orders for July are at 8:30 a.m. The crude oil inventory report at 10:30 a.m. is expected to show another drop in stockpiles. The Treasury sales are at 1:00 p.m. Snowflake Inc., salesforce.com Inc., and Dick's Sporting Goods Inc. are among the companies reporting results.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Justina’s interested in this morning
A topic that offers endless fodder for market debates is active managers’ performance, in part because those in the industry worry about their jobs while those not in it like to dunk on others. And there’s enough cyclicality to take stock of performance from time to time. Take this year: The first quarter has been great for active management. This quarter, not so much.
Equity hedge-fund performance has been largely sideways since July after a strong first-half, both HFR and Eurekahedge benchmarks show. Just 33% of large-cap mutual funds have beat their benchmarks this quarter so far, a drop from 57% in the first period, according to a Goldman Sachs note this week.
Both Goldman and Bernstein strategists attribute this to the narrower dispersion. Emerging from the pandemic, the gap in returns between the winners and losers was historically wide, which means there were many dislocations for stock pickers to benefit from. Naturally, after the broad equity recovery earlier, those spreads are now tighter.
It’s by now almost conventional wisdom that most active managers underperform. But is there anything structurally different going on? One theory often debated pre-pandemic was that whether it’s because of the growth in passive investing or Big Tech’s dominance in contemporary society, the concentration of equity gains in these megacaps has made life even harder for active managers.
There have been some hopes this might change when U.S. fiscal policy or other factors reverse secular stagnation and hence the low-rate era, but that’s still far from consensus.
The even bleaker view is active management is inherently futile. Stock-market returns are so skewed toward the winners that it is a statistical challenge for stock pickers to choose just the right names compared with a broad index.
So sometimes active managers do better, sometimes they do worse. But overall, it’s a tough game to play.
Follow Bloomberg's Justina Lee on Twitter at @justinaknope
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