Investors catch TikTok mania as global markets climb

U.S. futures are higher, following Asia's lead.

Good morning, Bull Sheeters. Strong U.S. manufacturing data and gains in tech stocks on Monday are lifting the global markets today.

Let’s check in on the action.

Markets update

Asia

• The major Asia indexes are in the green with Japan’s Nikkei up 1.7%.
• President Trump says TikTok will have to shut down its U.S. operations by Sept. 15 if it doesn’t find a buyer. But he laid down an unusual condition: he wants the U.S. Treasury to get “a substantial” cut from any such deal. Is that how free-market capitalism works?
• Don’t be fooled, says UBS economist Paul Donovan. Paying the government is called—wait for it—a tax. “The random nature of the tax,” he says, “applied almost at whim, adds a risk premium to doing business in the U.S.“
• Meanwhile, Chinese state media is not happy its beloved TikTok could be be sold to an American tech giant. It’s like “forcibly taking the child out of [TikTok owner] ByteDance’s arms,” one editorial screamed.

Europe

• The European bourses were broadly higher with the benchmark Stoxx Europe 600 up 0.7% at the open, before falling.
• Shares in BP were up 2% at the open after the energy giant reported a better-than-expected $6.7 billion second quarter loss, and that it would halve its dividend.
• EasyJet shares were up 2.8% after the budget airline said it’s seeing brisk air-passenger demand. An impressive 84% of seats were full in July. The news is lifting airline stocks this morning.

U.S.

• U.S. futures point to another strong open. That’s after all three indexes started the month in the green.
• Microsoft‘s shares popped more than 5.6% on Monday as investors got excited about the potential for a Big Tech M&A deal.
• Investor exuberance over TikTok is doing a good job of distracting away from the impasse in Washington over a stimulus deal. After all, that’s what TikTok is good for: a nice distraction.
• U.S. factory data came in above expectations yesterday showing U.S. manufacturing has been surprisingly resilient in the early stages of the pandemic.

Elsewhere

• Gold is up again, hovering around $2,000.
• The dollar is down.
• Energy stocks are trading higher in Europe this morning, but that’s not helping crude. Brent and WTI are in the red.

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Near-perfect indicator

Wall Street loves esoteric data points, particularly ones that reveal something about investor sentiment. One such indicator is BofA Global Research’s Sell-Side Indicator.

The Sell-Side Indicator is one of five inputs BofA uses to calculate its year-end S&P 500 target. And right now the Sell-Side Indicator is flashing green. By the way, BofA sees the benchmark index climbing roughly another 10% to 3,638 over the next 12 months. So, there’s plenty of legs left in this rally, its equities analysts say.

In fact, the Sell-Side Indicator says equities could climb even higher than 10%. “Historically, when the Sell-Side Indicator has been this low or lower, total returns over the subsequent 12 months have been positive 94% of the time, with median 12-month returns of +20%,” the BofA analysts write.

That’s great news. But what in the blazes is this Sell-Side Indicator?

It’s a gauge that’s contrarian in nature. It measures sentiment from sell-side analysts that tip off when the market is about to go up or down. When the Sell-Side Indicator number drops below a certain level, it usually—and by “usually,” they mean 94% of the time—indicates investors are about to pour into equities and the indexes are set to take off. That 94% track record is why it’s often called a near-perfect indicator.

And this is one of those moments when the indicator is heralding a bullish view on equities. BofA sees this as an opportune time to load up on stocks and hold off on bonds. Why’s that?

“Equity income,” they say, is pretty cheap, “especially relative to bonds. The yield of the S&P 500 is near a 70-yr record multiple of bond yields, and we believe that the bulk of dividend cuts are behind us.”

Not everyone shares this level of bullishness about equities. My inbox is full of warnings from markets pros about a pending lull triggered by cyclical headwinds—namely, traditionally low volumes in August and, further on, Election Day jitters—and worrying COVID data.

So far, the markets of 2020 have told us that the more bullish indicators are the ones that get it right the majority of the time. Yesterday was further proof of that.

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Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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