* Another day of divergences — lower volume and weaker breadth.

Volume

- NYSE volume 352M shares, 11% below its one-month average;

- NASDAQ volume 3.76B shares, 18% below its one-month average;

- VIX index: down 2.85% to 12.95

Breadth

S&P 500 Sector ETFs

Nasdaq 100 Heat Map

From Rosie:

The market is a mirror image of yesterday — with strong gains and weak breadth today.

I am surprised.

However, the one condition has been a lack of downside follow-through for the entire year.

S&P cash briefly went into the red and is now +9 handles.

I am back shorting August SPY/QQQ calls.

Rising delinquency rates "bear watching," said Federal Reserve Governor Lisa Cook, as she expects 12-month inflation will roughly move sideways for the rest of this year, with monthly data likely similar to the favorable readings during the second half of last year.

More from her speech: 

• It will be appropriate to reduce rates at some point; Progress on inflation has slowed, but expect disinflation trend to continue
• Current policy is well positioned to respond as needed to any changes in the economic outlook
• With significant progress on inflation and the labor market cooling gradually, at some point it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy; the timing of any such adjustment will depend on how economic data evolve and what they imply for the economic outlook and balance of risks.
• As the U.S. and global economy recovered from the pandemic, rebounding demand came up against still-constrained supply, and inflation rose to the highest level in many years. In the past two years, 12-month inflation in the PCE price index has fallen from a peak above 7% to 2.7% in April, and it likely moved a bit lower in May based on consumer and producer price data. However, after rapid disinflation in the second half of last year, progress has slowed this year. Her focus remains on making sure inflation is on a path to return sustainably to 2%; Thinks it is helpful to look at the underlying data.
• When excluding often-volatile food and energy costs, 12-month inflation in core goods prices is down from 7.6% in early 2022, returning to the trend of slightly negative inflation observed before the pandemic. The increased availability of computer chips and other material inputs led to a recovery in motor vehicle production and, along with restraint in aggregate demand, likely reduced supply–demand imbalances for durable goods, more generally.
• Her forecast is that three- and six-month inflation rates will continue to move lower on a bumpy path, as consumers' resistance to price increases is reflected in the inflation data. She expects 12-month inflation will roughly move sideways for the rest of this year, with monthly data likely similar to the favorable readings during the second half of last year. Beyond that, I see inflation slowing more sharply next year, with housing-services inflation declining to reflect the past slowing in rents on new leases, core goods inflation remaining slightly negative, and inflation in core services excluding housing easing over time.
• Data from the Federal Reserve Bank of Atlanta show that the wage-growth differential between job changers and stayers has narrowed. Wage growth reflected in postings from online job boards, such as Indeed, has returned to pre-pandemic levels. These measures tend to adjust quickly to changes in labor market conditions.
• Turning to the broader picture, the U.S. economy has rebounded robustly since the short but deep pandemic recession. Overall, gross domestic product (GDP) growth eased in the first quarter from the rate at the end of last year. However, much of the first-quarter weakness was in net exports and inventories, noisy components from which she does not take much signal, while growth in private domestic final purchases remained solid.
• Going forward, she expects economic growth to remain near the rate of potential growth, somewhat above 2%, which is boosted by the increase in the size of the labor force.

An MIT graduate, my old pal Abie is wise, direct and honest:

Apropos to my breadth divergence observation — from Sir Walter:

I covered my XLG short for a small loss and used the proceeds to short more XLF.

From Peter Bookvar: 

Home prices are now up 48% since February 2020, consumer confidence is mixed and the manufacturing recession continues

From February 2020, right before the Fed responded to COVID-19 with massive quantitative easing, including the purchases of mortgage-backed securities — along with a trip back to zero rates, which we know was followed by a dramatic cycle of rate hikes and also quantitative tightening — through April 2024 the S&P CoreLogic index measure of home prices is up 48%.

The Fed’s lucky that rents instead of home prices are used in CPI and PCE because rent of primary residence in the same time period (actually through May 2024, as we have data on that) is up "just" 23% instead. If home prices were used instead, CPI would have been double digits at its peak.

Their index in April rose 6.3% year over year, a slight downshift from 6.5% price growth in March. San Diego led the price gain, up 10.3% year over year, followed by New York at 9.4%, while Portland and Denver saw home price growth a touch below 2%.

Bottom line: We know the problem here as it’s clear that 48% home price rise combined with a more than doubling in mortgage rates has completely turned the U.S. housing market upside down and has made it very tough for a young, first-time buyer to buy a home. Many are renting instead.

The June Consumer Confidence index from the Conference Board fell a touch month over month to 100.4 from 101.3 and that was as expected. That figure, though, is the second lowest since October 2023 and remains well below the February 2020 figure of 132.6. The present situation component rose slightly but was offset by the drop in expectations. One-year inflation expectations fell one-tenth to 5.3% and compares with 5.3% in March and April, so it's holding steady around these levels.

The answers to the job market questions rose a bit. After falling by 1.4 points in May 2024, those saying jobs were plentiful rose 1.1 points, but this stat was at 45.4 points one year ago. Those that say jobs were hard to get fell by .2 points to 14.1 and compares with 12.6 one year ago. Those seeing "more jobs" in the coming six months fell .5 pt to 12.6 and that is just off the lowest level since December 2015. All of these numbers point to the slowing demand for workers.

Also of note, expectations for an increase in income fell 2.5 points month over month to 15.2, the lowest since February 2023.

Spending intentions were mixed as they were unchanged for buying a home, fell for buying a car and a major appliance.

The bottom line from the Conference Board: “Consumers expressed mixed feelings this month” and “No clear pattern emerged in terms of income groups.”

Demographically, the confidence drop occurred for those aged 35 to 54 and rose for those under and over that age category.

Finally, “Compared to May, consumers were less concerned about a forthcoming recession. However, consumers’ assessment of their Family’s Financial Situation was less positive.”

My bottom line: We know what is stressing out consumers, the cumulative rise in inflation over the past four years and we can add on top more nervousness about the labor market.

Lastly, the June Richmond manufacturing index fell by 10 points to -10, joining others in pointing to a continued manufacturing recession. New orders, backlogs and employment all remained negative. With respect to pricing, prices paid jumped to a five-month high while those received rose to a four-month high. Inventories fell month over month.

* The reverse of Monday...

Here we go again:

SPY +0.25%

QQQ +0.91

IWM -0.42%

RSP (equal weighted S&P) -0.69%

After doing more research on the name I sold my small (FIHL) long.

I basically broke even.

* The below weakness in breadth (a reversal from Monday) helps to explain why I am expanding my short exposure today

* No broadening....

- NYSE volume 119 million shares, 13% below its one-month average;

- NASDAQ volume 1.38 billion shares, 23% below its one-month average;

- VIX Index: down 0.60% to 13.25

Yesterday I observed that the rotation out of technology and into financials and energy was unlikely to be sustained and I sold out of my XOM, OXY and CVX longs (while I also added to XLF short):

Pressing My Shorts on the Rotation

I am pressing my shorts on the rotation out of tech and into energy and financials.

My view is that a sustainable move higher in today's market leaders is unlikely.

Position: Short XLF (M), XOM (S), CVX (S)

BY DOUG KASS JUN 24, 2024 1:02 PM EDT

and...

The Anti Broadite

I have sold the balance of my (CVX) $158.93 (+$3.65) and (XOM) $114.02 (+$3.25).

Position: None

BY DOUG KASS JUN 24, 2024 2:32 PM EDT

I continue to feel the same.

With S&P cash +9.50 I am adding to my "deep in the money" August SPY and QQQ short calls.

I have also converted this morning's (premarket) short of common in SPY and QQQ to short calls.

I added to my XLF short at $41.61.

I also am buying MSOS and constituents on today's modest dip.

As of 8:39 a.m.:

Note: Top 3 are all NVDA leveraged plays.

As of 8:56 a.m.:

Upside:

-RGS +122% (signs new $105M loan and $25M revolving credit facility to refinance existing debt)

-WVE +46% (announces Positive Results from Phase 1b/2a SELECT-HD Trial with First Clinical Demonstration of Allele-Selective Mutant Huntingtin Lowering in Huntington’s Disease)

-ENVX +19% (signs agreement to deliver high-performance batteries for mixed reality headset)

-NNE +13% (momentum following acquisition of novel annular linear induction pump (ALIP) intellectual property used in small nuclear reactor cooling and heat transfer from noted physicist, research engineer and project manager Carlos O. Maidana, PhD. of Maidana Research)

-BTBT +11% (announces finalized terms for contract expansion with major HPC customer)

-DJT +11% (positive momentum following recent weakness)

-ALLR +8.5% (Dual PARP/Tankyrase Inhibitor, Stenoparib, Continues to Show Extended Clinical Benefit in Advanced Ovarian Cancer)

-GPS +4.5% (TD Cowen Raised GPS to Buy from Hold, price target: $30)

-CPRI +3.8% (Wells Fargo Raised CPRI to Overweight from Equal Weight, price target: $43)

-NVDA +2.6% (slight bounce off recent weakness)

-AISP +2.0% (announces six-figure contract extension for existing agency customer within the Department of Justice)

-PLUG +2.0% (reaches 7.5 GW in global Basic Engineering and Design Package (BEDP) contracts since introducing the offer two years ago)

Downside:

-OGEN -21% (prices 1.1M shares at $1.00/shr)

-XAIR -21% (earnings, guidance)

-SEDG -18% (files to sell private offering of $300M of Convertible Senior Notes due 2029; affirms Q2 guidance)

-RIGL -15% (Board authorizes 1-for-10 reverse stock split, effective June 27th)

-POOL -10% (cuts guidance, outlook)

-OMI -7.2% (CFO has resigned at the company's request)

-SNX -7.2% (earnings, guidance)

-HAYW -7.0% (weak in sympathy with POOL)

-LESL -4.4% (weak in sympathy with POOL)

-SPR -3.3% (Boeing said to propose using stock to acquire the company)

-SWIM -3.1% (weak in sympathy with POOL)

-BIRK -3.0% (Holder L Catterton files to sell up to 14M shares)

From Peter Bookvar:

My first morning look but 'What were you thinking?'/POOL/Dovish and hawkish talk

There is no question that for the past month, the first quote I look at in the morning is Nvidia and not the US 10 yr yield in order to gauge what went on overnight and the tone in the morning. That will reverse back at some point but obviously not yet and now we can be entertained by watching NVDL too, the 2x Nvidia ETF. 

I will say this on Nvidia's valuation again. Only tell me its forecasted P/E ratio if you think that its 76% gross profit margin is sustainable. As it is clearly not, I'll continue to value it on a P/S basis. On that, it's trading at 24x the expected fiscal 2025 sales forecast and 36x the trailing 12 months sales figure. 

I'll include here the quote from Scott McNealy, the former CEO of Sun Microsystems, soon after the late 1990's bubble popped, which I'm sure you've seen but always a good reminder of valuation:

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?”

As my readers know, the countless retail/restaurant earnings calls over the past few months have reflected a two lane consumer highway where many are more focused on needs and less so on wants. We got another reminder again after the close last night (ht DK) that a portion of the consumer economy remains challenged and is prioritizing their spend. Pool Corp lowered guidance and said "Non-discretionary and recurring pool maintenance and repair demand is solid with company execution on track for continued organic share expansion; discretionary pool spending, however, continues to be hampered by the macroeconomic environment."

"The most recent pool permit data suggests persistently weak demand for new pool construction, and with the peak selling season almost complete, we now believe that new pool construction activity could be down 15% to 20% for the year with remodel activity down as much as 15%." 

And something we've now heard many times, "The discretionary components of our business, which are the most affected by general economic conditions, have been challenged by cautious consumer spending on big ticket items like swimming pools and outdoor living projects resulting in sales of building materials declining 11% for the year compared to the same period in 2023."

Again, this feels much more like a 1.5% type growth rate economy and not 3.0%. 

The Dallas Fed yesterday said its June regional manufacturing survey remained in contraction for a 26th straight month at -15.1 as expected. Similar to what was seen in the Philly survey, there was a pop in the inflation stats. Prices paid rose to the highest level since September, albeit modestly by 1.1 pts to 21.5 while prices received jumped by 10.3 pts to the most since February 2023. 

Here were some company comments of note:

Paper Mfr'g,

"We are really neutral at this time on our outlook."

Primary Metal Mfr'g,

"Our overall building and construction sales continue downward for the majority of our customers. Decreased housing starts, increased mortgage rates and overall housing costs are hampering this market. Our transportation market is off as well. Trailer orders are down, resulting in fewer being built."

Fabricated Metal Product Mfr'g,

"We are continuing to align production capacity to the lower order volumes projected for 2024."

"We have a good backlog, but owners have slowed down their approvals of projects and start dates for the projects we have purchase orders for."

Machinery Mfr'g,

"The summer doldrums are upon us! Orders are hard to come by, layoffs have been made, and the future really doesn't look that encouraging at the present. Our sales team is flipping every rock, our "creative" team is looking far and wide for new ideas, and our operations team is squeezing out every penny they can."

"We saw a small spurt of incoming work from long-time repeat customers, but overall it is still a very volatile work environment. We would like to hire but cannot: a) guarantee long-term employment and b) find skilled help."

"Business is slowing."

"Business remains sluggish at best. We see no signs of improvement and anticipate that there will be no major changes in economic activity before the election."

Computer & Electronic Product Mfr'g,

"We are seeing the expected cyclical bottom forming. Markets are still asynchronous."

"High interest rates are still playing a major role in the industrial capital equipment industry."

Transportation Equipment Mfr'g,

"While we still have a very large production backlog that is allowing us to continue to increase production and capacity utilization, our volume of new orders has slowed substantially, causing us to reevaluate longer-term plans."

Food Mfr'g,

"Markets are stabilizing, raw material costs have stopped increasing (seasonally), and demand for our products feels strong."

Prices Received

The dovish side of Fed voting member Mary Daly is reappearing in her comments yesterday. "At this point, inflation is not the only risk we face" she said. "So far, the labor market has adjusted slowly, and the unemployment rate has only edged up. But we are getting nearer to a point where that benign outcome could be less likely."

I've been leaning to think that in December we'd see their first rate cut but now believe it could very well be in September. That said by her and me, Fed Governor Michelle Bowman, who is proving to be a key hawk on the committee said today in London, "We are still not yet at the point where it is appropriate to lower the policy rate. Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy." I definitely peg her as one of the 'no cut in 2024' dots.

I do want to comment on non-voting member Austan Goolsbee from the Chicago Fed on something he said yesterday on CNBC with Steve Liesman. He said the Fed is around "Somewhat historic restrictiveness" and the spread between policy and inflation is the highest its been in decades. "When you want to be that restrictive is when there is danger with overheating." My issue with his comments is right now policy is not unusual with respect to where inflation is. What was unusual and dangerous was the monetary policy experiment with first 1% fed funds experiment via Greenspan (that drove the housing bubble), only to be followed by many years of zero rates and epic rounds of QE. Don't compare today's REAL RATE with that period because around 200-250 bps has been the 'normal' REAL RATE. In the 1990's, the average REAL RATE was 209 bps, the median REAL RATE was 238 bps.

The CPI yoy/Fed Funds Rate spread in the 1990's

Yen

JGB 10 yr Yield

* The suspense is intense...

7 a.m.: Fed Board Gov. Michelle W. Bowman (Voter) delivers a speech titled "Perspectives on U.S. Monetary Policy and Bank Capital Reform" at the Policy Exchange Event, London (Text available. Q&A from moderator. Webcast at https://www.youtube.com/@PolicyExchangeUK); 

Noon: Fed Board Gov. Lisa D. Cook (Voter) speaks before an Economic Club of New York luncheon (Webcast and text available. Q&A from moderator and audience); 

2:15 p.m.: Fed Board Gov. Michelle W. Bowman (Voter) gives keynote address at hybrid Midwest Cyber Workshop hosted by the Federal Reserve Banks of St. Louis, Chicago and Kansas City, Washington, DC (Text available. No Q&A. Video available at www.federalreserve.gov) https://www.chicagofed.org/events/2024/midwest-cyber-workshop

* Whither AI?

* Is Moore's Law over?

 A summary of key questions that should be asked about generative AI:

* Are hallucinations a feature or a bug? MIT Technology Review, where AI was invented, believes hallucinations are a feature and the problem is not solvable: "Why does AI hallucinate?"

* Is there anything intelligent about generative AI, or is it just a rapid regurgitation machine that needs human content to aggregate? At best, is it just a different form of search, that is full of hallucinations that really limit its value? Therefore it has little value without human-generated content. Here is one more example of many that shows it is not intelligent and cannot think. It just rapidly regurgitates. Change the riddle so it is different than what is already out there, it cannot solve for it, and this is not even complex: 

* Adding another question to the list, the article below is interesting, relative to Nvidia NVDA and AI, but also semis and technology more broadly. If we are finally at the point where advancements in semis are slowing, which I think they are, and massive improvements in processing power and efficiency (power consumption and heat) are necessary to keep evolving, are we stuck? For example, I find it interesting that NVDA’s new part that is coming to market soon (Blackwell) is not really defined by an improvement in its silicon architecture, for all intents and purposes, it is just two chips with more transistors that are linked together.

From "The Death of Moore's Law" (by Audrey Woods)

Moore’s Law was never meant to last forever. Transistors can only get so small and, eventually, the more permanent laws of physics get in the way. Already transistors can be measured on an atomic scale, with the smallest ones commercially available only 3 nanometers wide, barely wider than a strand of human DNA (2.5nm). While there’s still room to make them smaller (in 2021, IBM announced the successful creation of 2-nanometer chips), such progress has become prohibitively expensive and slow, putting reliable gains into question. And there’s still the physical limitation in that wires can’t be thinner than atoms, at least not with our current understanding of material physics.

If you ask MIT Professor Charles Leiserson, Moore’s Law has been over since at least 2016. In conversation with CSAIL Alliances, he points out that it took Intel five years to go from 14-nanometer technology (2014) to 10-nanometer technology (2019), rather than the two years Moore’s Law would predict. Although miniaturization is still happening, the Moore’s Law standard of doubling the components on a semiconductor chip every two years has been broken. The implications are far-reaching and, Professor Leiserson admits, concerning, especially with the recent frenzy around generative AI and large language models (LLMs). He says, “the only way to get more computing capacity today is to build bigger, more energy-consuming machines.

* Investment short POOL is trading -$35 (-10%) after lowering sales and EPS guidance after the close

* More signposts of a weakening U.S. consumer

"Want some?"... Doodie, Doodie - Don't touch it!

I want the entire pool, scrubbed, sterilized and disinfected!!"

- Caddyshack, Doodie Scene

Wells Fargo has reduced POOL's price target from $360 to $290 after the company lowered its guidance last night.

From late yesterday:

Everyone Out of the Pool!

One of our most recent investment shorts, (POOL) , just lowered 2024 EPS guidance from $13.19-$14.19 to $11.04-$11.44.

Here is the release.

POOL is one of our many consumer-related shorts, which we highlighted in The Consumer Is About To Roll Over.

Position: Short POOL (S)

DOUG KASS JUN 24, 2024 4:10 PM EDT

Wells Fargo keeps an overweight on DraftKings DKNG but lowers price target (from $54 to $53) and cites lower than expected 2Q EPS and cash flow estimates (based on higher promotional activity from new customer acquisition costs).

And I think it's gonna be all right

Yeah, the worst is over now

The mornin' sun is shinin' like a red rubber ball

- The Cyrkle, Red Rubber Ball 

In case you have missed it, I am a seller on nearly all rallies now.

In premarket trading:

* Re-established shorts in the common of SPY at $543.94 and QQQ at $476.24.

The story's in the past with nothin' to recall

I've got my life to live and I don't need you at all

The roller-coaster ride we took is nearly at an end

I bought my ticket with my tears, that's all I'm gonna spend

* State-wide adult use is gaining...

Pennsylvania Lawmakers Suggest Marijuana Legalization Could Advance Imminently, As Neighboring State Markets Add Urgency To Reform - Marijuana Moment

skabak

Why The Time To Invest In U.S. Cannabis Stocks Is Right Now

Benzinga

4:11 PM ET Jun-18-2024

The U.S. cannabis market presents a significantly skewed risk-reward opportunity, particularly within the realm of multi-state operators (MSOs). As explained by author Chris Ingrassia in Todd Harrison's "Cannabis Confidential" newsletter, the recent price actions have left many investors bewildered, especially in the wake of the proposed rescheduling of cannabis under the DEA's Controlled Substances Act from Schedule I to Schedule III.

U.S. MSOs: Evaluating The Investment Thesis

Why Add U.S. MSOs To Your Investment Portfolio?

Ingrassia goes over several key questions investors should ask themselves when evaluating U.S. MSOs. The first and foremost is whether these entities, despite the volatile price action, merit inclusion in an investable universe based on current investment criteria. Given the expansive growth potential, the answer leans towards yes.

Public sentiment towards cannabis has shifted dramatically, with 70% of Americans now in favor of legalization, a significant rise from approximately 45% in 2010. This growing acceptance is mirrored in the increasing number of states legalizing both medical and adult-use cannabis, fostering a rapidly expanding market. This shift is not only due to the plant's benefits but also the relatively low risks it poses.

Well-established U.S. MSOs, such as Green Thumb Industries (GTBIF.NaE) , Curaleaf (CURLF.NaE) , Trulieve (OTC:TCNNF), Verano (VRNOF.NaE) and Cresco (OTC:CRLBF) - all part of the AdvisorShares Pure US Cannabis ETF (MSOS.NaE) , exhibit robust operating efficiency and business resiliency, translating into repeat revenues and earnings stability. These companies are positioned for long-term growth, supported by a massive and growing total addressable market (TAM), Ingrassia says.

More on the consumer rolling over — from Liz Ann:

“The best inside information is on the tape. I would rather follow its indications than act on a tip from J.P. Morgan himself.”

- Richard Wyckoff

Bonus - here are some great links:

Christmas in July?

Semis Smoked!

Summertime for Semis

Playing Defense 

Field Hippos

In case you didn't notice:

The S&P Short Term Oscillator has moved back into overbought — with a reading of 0.40% vs. -1.85%.

And Wolf Street howls about the auto market's cyber challenge.

This is an important table for momentum-based short-term traders:

Wolf Street howls about the F-150.

From JPMorgan:

US: Stocks closed lower. Mag 7/Semis are the biggest laggards today: NVDA -6.7%, AMZN -1.9%, SOXX -2.9%. Excluding NVDA, the rest of the SPX was up +0.1% today. The underlying price actions were better than the index level: 9 out of 11 sectors or ~70% of SPX companies closed in green today. The pullback in Mega Cap Tech today was less tied to fundamental drivers or major macro headlines. That said, technical factors may play a bigger role in today’s price action. Over the weekend, Positioning Intelligence tells us that “Semis flows & positioning have rebounded sharply over the past month with a combined metric across HFs, ETFs, and Retail approaching peak levels—similar positioning peaks in Semis have coincided with a pause / modest reversal in outperformance.”

and...

Bonds sold off modestly over the past week amid somewhat softer economic data, as the previous flight-to-quality flow was partially unwound. US yields remain close to the lower end of their recent ranges and valuations in 5Y remain rich, so we keep tactical shorts in 5Y USTs. Euro area spreads have stabilized over the past week after the previous widening when the snap French election was called. We retain a bullish bias on duration and would look to add longs if 5-10Y German yields rise closer to 2.6%. The BoE kept rates on hold as expected, though the minutes had a dovish tilt in tone; we continue to expect a 25bp cut at the Aug and Nov meetings. In China, some additional scope for PBoC easing support keeps us bullish duration. In Credit, we raise our US HG YE spread forecast to 110bps, as slower GDP growth in 2H24 could lead to a continuation of the recent trend of declining yields, which is a negative for spreads. Leveraged loan credit metrics are showing signs of stabilizing, but a large gap exists between public and private company balance sheets. In FX, we believe the dollar smile still exists but with caveats, that it will be narrow and that the composition of USD strength will be different on either ends of the smile. We believe the recent pullback in commodities is just that—a pullback—and we continue to see a 10% appreciation in the broader BCOM Commodities index by year-end. The fundamental backdrop for Eurozone equities is improving, but political uncertainty needs to lift to see sustained outperformance.