Sep 29, 2023
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“I didn’t know you were Catholic.” – Nancy Pelosi
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Futures have added to earlier gains following the latest batch of economic data which included Personal Income, Personal Spending, and PCE Inflation data. There were no notable surprises, but if there’s one headline to take from the data it was that the PCE Core Deflator finally dropped below 4% (3.9%), although the move was expected.
News headlines for the last 24 hours have been focused on the fact that Congress has been unable to pass a measure to keep the government from shutting down this weekend, which is fitting given the fact that it was fifteen years ago today that Congress couldn’t get its act together and pass the $700 billion bank bailout plan. The bailout bill ultimately authorized and led to the creation of the Troubled Asset Relief Program, otherwise known as TARP. In the days leading up to the Congressional vote on the plan, then-Treasury Secretary Hank Paulson reportedly got down on one knee in front of House Speaker Nancy Pelosi and begged her not to “blow it up”, leading Ms. Pelosi to reply with the quote above.
Whatever your views towards TARP are in retrospect, when Congress failed to pass the measure, an already ugly market turned Medusa-like. As shown below in the intraday chart of the S&P 500 from that day, you don’t need a label to show you when it was that the bill failed to pass. Just as the market was starting to stabilize from a morning swoon, the bottom fell out of the bottom, and by the time the closing bell rang, the S&P 500 was down 8.8% for its largest one-day decline since the 1987 crash on 10/19/87. Since then, there have been four other days that were worse with two more in 2008 and then two more during the COVID crash. Ironically, it was probably the market’s reaction to the bill getting voted down that enabled passage a few days later.
Historically, the last trading day of September has had a negative bias. Over the last 50 years, the S&P 500’s median change on this day has been a decline of 0.18% with gains just 44% of the time. Trading has been particularly weak in the last two years with declines of over 1% on the last day of September each time. Thankfully on Wall Street this morning, the only problem traders are dealing with is flooding rains getting to and from New York City (if they’re even leaving their houses in the first place).
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Sep 28, 2023
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“Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” – Ted Williams
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Futures are getting a bit of a boost this morning as revised GDP for Q2 was slightly weaker than expected coming in at 2.1% versus forecasts for a reading of 2.2%. Other data saw some larger moves. Personal Consumption was more than cut in half from 1.7% down to 0.8% while the GDP Price Index was revised down to 1.7% from 2.0%. Initial Jobless Claims rose 3K from 201K up to 204K, but that was still more than 10K below the consensus forecasts. Overall, this data was market friendly pushing equity futures higher and yields lower. The 10-year yield which touched 4.65% earlier is now slightly below 4.61%.
In a meaningless doubleheader to close out the MLB season 82 years ago, Ted Williams got six meaningful hits in eight at-bats pushing his average to .406 becoming the first player since 1930 and the last player since then to hit .400 (Williams also hit a home run on his last career at-bat on this day 19 years later in 1960). Hitting .400 is next to impossible in baseball (hence the quote above), but in the stock market it isn’t very good. Heading into today’s trading, the S&P 500 has traded higher on just eight out of eighteen sessions which works out to 44.4% of all trading days, but if the last two trading days are negative, September will finish off as a .400 month. If that happens, we’ll just call it Ted Williams month!
There hasn’t been a lot of good news to speak of lately, but maybe the image from our Seasonality snapshot below will brighten your mood a bit. While the upcoming week ranks in just the 29th percentile of all one-week periods throughout the year, the next month ranks in the 89th percentile, and the next three months rank in the 100th percentile. History doesn’t always repeat itself, but from a seasonality perspective, it doesn’t get much better than that!
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Sep 27, 2023
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“For those who believe, no proof is necessary. For those who disbelieve, no amount of proof is sufficient.” – Ignatius of Loyola
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As the market declines this month, the number of ‘believers’ is starting to shrink, and while they haven’t necessarily turned bearish yet, former bulls are looking over their shoulders. The prospect of a government shutdown is just one of many concerns weighing on investors this week, and based on the intransigence of both parties, making a deal before the deadline looks increasingly difficult. The quote above from Ignatius of Loyola may be over 500 years old, but it’s just as applicable today as it was back then. With each side of the aisle increasingly locked into their tribal ideology, no amount of ‘proof’ is enough to get the other to see ‘the light’.
Futures have been trending higher all morning as the market looks to regroup from yesterday’s beating. The only data on the economic calendar this morning was Durable Goods orders which came in higher than expected for August (+0.2% vs. -0.5%), but July’s reading was revised down to -5.6% from -5.2%.
With the S&P 500 falling to its most extreme oversold levels of the year yesterday, it should come as no surprise that most of them are also at what we would classify as ‘extreme’ oversold levels. The only sector even above its 50-day moving average is Energy. Declines have been broad-based during the sell-off of the last week. Real Estate and Consumer Discretionary are both down 5.81% followed by Technology, Utilities, and Financials which are all down over 4%. Just to illustrate how bad a week it has been, the two best-performing sectors – Health Care and Energy – are down well over 1%.
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Sep 26, 2023
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“Humankind cannot bear very much reality.” – T.S. Eliot
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Rising yields and oil prices have been two major headwinds to equity prices over the last two months, but this morning both are lower, and equity futures still don’t care. After some sizable losses overnight in Asia and Europe this morning, investors see little incentive to step up and buy. Especially when the CEO of the country’s largest bank says that the market may not be ready for 7% interest rates. Other drivers of the weakness in Asia were news that Chinese real estate developer Evergrande missed an interest payment, higher-than-expected inflation data out of Japan, and a much weaker-than-expected report on Industrial Production out of Singapore. On the docket this morning in the US, we’ll get July home price data at 9 AM and then New Home Sales and Consumer Confidence at 10 AM.
We’ve talked about the weakening breadth of the US equity market frequently since the summer peak, but things have also been weakening on an international level as the declines from the summer highs start to get real. For example, we’ve seen a winnowing of the number of major international equity benchmarks trading above the 200-day moving averages. The chart below shows the current price versus the 200-DMA spread of the benchmark equity indices of the world’s 25 largest economies. At 3.4% above its 200-DMA, the US ranks relatively well trailing only Brazil, India, Japan, Russia, Turkey, and Argentina. While the double-digit percentage spreads of Argentina and Turkey look impressive, keep in mind that inflation in these two countries is in the range of 60% to 130% on a y/y basis. On the downside, China is the only country trading more than 5% below its 200-DMA, but Belgium and the Netherlands are getting close.
Overall, just over half of the 25 countries shown above are trading above their 200-DMAs which is down from over 100% in late July. Interestingly, while there have been plenty of times when every index was trading above its 200-DMA, there hasn’t been a period since 2000 when all of them were trading below their respective 200-DMAs. Again, though, that’s partially a reflection of the fact that when you have some countries dealing with near triple-digit inflation, it’s hard not to have a rising stock market, unless the country is completely imploding.
What’s notable about the current level of indices trading above their 200-DMAs is that we have now gone 218 trading days with more than half of all indices above each of theirs. As shown in the chart below, since 2000, there have only been seven other periods where the percentage was above 50% for even longer. Unless global markets turn higher in the next couple of days, it’s highly likely that we’ll drop below 50% at some point soon. That probably wouldn’t be looked at as a positive development, but sometimes you need the market to break a little bit before it can get back on track.
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Sep 25, 2023
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“Parents of young children should realize that few people, and maybe no one, will find their children as enchanting as they do.” – Barbara Walters
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The September sag continued this morning as equity futures, which were higher overnight, steadily drifted lower to their lows of the session. The culprit this morning once again is higher yields where the 10-year yield has moved back above 4.5% even as the 2-year yield is basically flat. The threat of a government shutdown, which now looks increasingly likely, hasn’t helped either. Not all the news is bad this morning, though, as Hollywood writers have reached a tentative deal, and even the UAW has announced progress in talks with the Big 3 automakers.
There’s still a week left in the month that can’t end soon enough, but if you think this September’s 4.2% decline has been bad so far, remember that last year at this time, the S&P 500 was down 6.6% and then fell an additional 2.9% in the last week of the month. The year before (2021), the S&P 500 was down 1.6% at this point (before falling 3.2%) in the last week, and in 2020, the index was down 7.5% month to date (MTD) through 9/23 before rebounding 3.9% in the last week of the month.
The chart below summarizes the historical performance since 1952 (when the five-day trading week in its current form started) of the S&P 500 in the last week of September based on how the index performed MTD up until the last week. Unfortunately for bulls, the weakest returns to close out the month have come in years when the index was already down by as much or more than it is now. In the 16 years that the S&P 500 was down 3%+ MTD, its median performance in the last week of the month was a decline of 0.67% with positive returns less than 40% of the time. That’s more than twice the decline of the next closest category (up 3%+) and is the only performance range where the index was up less than 40% of the time.
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Sep 22, 2023
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“The future ain’t what it used to be.” – Yogi Berra
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It’s a positive morning for futures as investors look to regroup following the post-Fed declines since Wednesday. Treasury yields are lower, but crude oil is back above $90 per barrel.
A lot of index and sector charts started to show signs of breaking down (on a short-term basis at least) yesterday, and the small cap Russell 2000 moved into ‘correction’ territory as it is now down over 10% from its summer high. The Nasdaq still has a bit over 2% to go before it reaches correction territory, and the S&P 500 is only just over halfway there.
At the sector level, Real Estate and Utilities are the only two sectors down over 10%, but both sectors are down from highs that occurred very early in the year. The only three other sectors that hit their YTD highs before Memorial Day are Financials, Consumer Staples, and Energy. Behind Real Estate and Utilities, Technology is less than half of a percent from correction territory, and the only three sectors that are less than 5% from their highs are Energy, Communication Services, and Health Care.
Heading into the final week of the month, the good news and the bad news are the same – there’s a week left in September. First, the bad news. September has historically been a weak month, and with respect to the four-year presidential cycle, year three is the only time Q3 has been negative. Lastly, the final two weeks of September is the second worst two-week period of the year (behind the two weeks following the close on 2/21), so there’s still another week left of that stretch. With all these weak seasonal tendencies, if Yogi Berra was still around, he may have said, you can understand why investors don’t want to step up and buy anything, and nobody’s going to stop them.
Now, the good news. There’s only a week left in September and that means Q4 is just over a week away. With respect to seasonality, Q4 has historically been a strong time of year and even stronger in year three of the presidential election cycle. Not only that but when it comes to rolling two-week returns, there is only one day in Q4 when the S&P 500’s average forward two-week return is negative. When it comes to seasonality, the last two weeks have followed the script very closely, now bulls hope that continues to be the case.
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