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“We learn from history that we don’t learn from history!” – Desmond Tutu

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

There’s not a lot going on in the futures market this morning, and once again, it will be another day without any economic data as the government remains closed. At this point, very few people have been affected by the shutdown, but as paydays come and go, the switchboards in DC will start heating up.

While there’s no economic data on the calendar, plenty of Fed officials are likely to speak, including Fed governors Bowman and Miran as well as Atlanta Fed President Bostic and Minneapolis Fed President Kashkari. The next Fed meeting is just three weeks away, and markets currently expect a 93% chance of another 25 basis point rate cut.

In Asian markets overnight, it was a quiet session. China and South Korea were closed while Japan finished marginally higher after trading up over 1% earlier in the session. The Yen weakened against the dollar again following the weekend election results as the likelihood of rate hikes declines, although a 30-year auction with a relatively high bid-to-cover ratio calmed some investor nerves.

European stocks are trading higher but by modest amounts, with the STOXX 600 trading up 0.2% with Italy (+0.6%) and France (+0.4%) leading the gains. German stocks aren’t performing as well following an unexpected decline in August Factory Orders (-0.8% vs 1.2%).

If you just looked at the performance of Nvidia (NVDA), which fell 1.1% yesterday, you probably would have thought semis had a bad day as well. You would have thought wrong. While NVDA was down, the Philadelphia Semiconductor Index (SOX) finished up 2.9%, and 24 of the index’s 30 components finished higher on the day. The scatter chart below compares the performance of NVDA (x-axis) to the SOX on every day since the launch of ChatGPT on 11/30/22, and during these 714 trading days, there have only been three where the SOX was up over 2.5% and NVDA traded down at least 1% on the day. In the post ChatGPT world, the SOX usually doesn’t rally without NVDA.

Given the broad strength in semis yesterday, the SOX continued it’s breakout from the summer consolidation and rallied to new highs yesterday. In the process, its price is now higher than the price of the S&P 500, something that only happened on a handful of other days back in 2004.

After yesterday’s rally, the SOX is now more than 31% above its 200-DMA. While that’s not unheard of for a volatile index like the SOX, the move from extreme oversold in April to extreme overbought now has been swift. In the span of 121 trading days, the SOX went from more than 25% below its 200-DMA to more than 25% above it. These kinds of reversals in the index have been uncommon.