US midterm elections dominate macro focus + Two retail downgrades from Macquarie

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

Note: Due to the change in clocks stateside, US markets now close at 8am AEDT.

MARKETS WRAP

S&P 500 TECHNICALS

MIDTERM ELECTIONS PREVIEW

All the main polls from the US broadcasters and print media suggest we could see a Republican wave today. FiveThirtyEight, a polling aggregation website, has the Republicans with an 83% chance of taking control of the House of Representatives away from the Democrats. Then again, we know what happened with ultra-confident polling (2016, anyone?)

The bigger problem, however, is in the US Senate where Republicans are defending a majority of the 35 seats up for grabs. But it's not going to be easy for the Democrats either, given the Senate is in a 50-50 deadlock at the moment. We'll find out how that shifts come later today.

Finally, several US states will vote for governors today but none may be more important than Ron DeSantis of Florida. Should he win a big mandate, he may use that as a reason to start a 2024 presidential run. 

For markets, US CPI on Friday morning (AEDT) will probably end up being a more important risk event. Especially when history tells us the outcome of a midterm election has generally had little impact on stocks thereafter:

For a wrap of everything you need to know and how it will affect your money, you can also check out this wire penned by my colleague David Thornton:

Macro

US Midterms: Why gridlock in Washington is good news for Wall Street

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THE CHARTS

Let me cast your mind back to 2020 when BTD became the newest in a long slew of overrated acronyms on social media. As we all now know, BTD stands for buy the dip and that's what I have for you today. Specifically, a chart that our managing editor (and my co-writer on this report) Chris Conway found online - a buy-the-dip confidence index.

And if you didn't know that was a thing, you do now. The chart is simple to read. The higher the percentage, the more of those investors surveyed would be willing to buy the dip in US equity markets. And look at how far that's fallen.

And speaking of buying the dip, here's one to consider. If you're one of the 20% looking to buy the dip, then you need not be in a rush. That's because bear markets will only end (historically) after the Fed is long-cutting interest rates. Just like the Fed, I guess markets too want a trend to come good. 

STOCKS TO WATCH

A couple of retailers are in the dog house at Macquarie - namely Baby Bunting (ASX: BBN) and Temple and Webster (ASX: TPW). Both have been downgraded by the broker right as consumer sentiment continues to sour. For context, the Westpac-MI consumer sentiment read collapsed by nearly 7% last month with every metric falling except... unemployment expectations. In the meantime, ANZ's weekly consumer inflation expectations print soared to its highest since the survey was first started in 2010. 

With all this in mind, Baby Bunting has been downgraded by the broker due to the weaker consumer outlook as well as currency headwinds. The latter has the power to reduce margins by as much as 200 basis points next financial year. It's now neutral instead of outperform.

In the case of Temple and Webster, it's all about slowing data in consumer confidence as well as the slowdown in housing-related purchases. At the company level, online sales have reverted to pre-pandemic levels and site visits are down 25% from their peak. The stock is knocked down to an underperform from neutral.

THE TWEET

Hans Lee wrote today's report.

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