Oct 4, 2023
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“Being an intellectual creates a lot of questions and no answers.” – Janis Joplin
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Unlike most other days recently, futures have been rallying as we approach the opening bell. While the bounce started before the ADP employment report, it picked up steam after that release came in weaker than expected. Now, we just need to get through Factory Orders, Durable Goods, and most importantly, ISM Services at 10 AM.
After two months of steadily lower trending markets, the number of sector ETFs trading above their 50-day moving average (DMA) is finally down to zero as the Energy sector ETF (XLE) surrendered that level this week. While XLE is less than 0.1% below its 50-DMA, every other sector ETF is trading at least 2% below its 50-DMA (Communication Services), and Utilities and Real Estate are both more than 9% below their respective 50-DMAs.
So, when was the last time this happened? The chart below shows the running total number of sector ETFs above their 50-DMAs, and while it got close to zero in the spring, the last time it was zero was exactly a year ago yesterday (10/3/22), and before that, in the summer of 2022. In the entire post-COVID era, this current period is just the sixth time that a sell-off has resulted in every sector trading below its 50-DMA.
Looking at the longer-term 200-DMA, the only sectors currently trading above that level are Energy (4.2%), Consumer Discretionary (2.1%), Communication Services (8.6%), and Technology (5.7%). Like the 50-DMA, the last time every sector ETF was below their respective 200-DMA was briefly last fall and before that in the summer. In the post-COVID period, though, the only other period where every sector was below its 200-DMA was during the initial market crash when the virus first shut down the US economy. With two sectors still trading more than 5% above their 200-DMAs, it would take a considerable amount of more selling to get that reading back to zero. Something no one’s portfolio wants to see.
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Oct 3, 2023
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“Half of tradition is a lie.” ― Stephen Crane
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Yields are higher again this morning, which means stocks are trading lower. It’s gotten to the point where we picture Bill Murray smashing the alarm clock which is playing “I Got You Babe”. The 10-year yield is nearing 4.75% while the 30-year yield has broken above 4.85% as it joins the list of points on the yield curve that are at their highest levels since 2007. The only data on the economic calendar this morning is the August JOLTS report which is expected to show a modest increase in job openings from 8.83 million to 8.90 million.
As rates rise, Utility stocks have been decimated, and yesterday the S&P 500 Utility sector closed 3.2 standard deviations below its 50-day moving average which is the most oversold reading for the sector since February 2021, and it isn’t often that you see the sector get this oversold.
In the short-term, the sector’s 11% decline is the steepest five-day decline since last June, but the difference between these two periods is that back in June 2022, the S&P 500 was down over 10% during that same five-day span while it’s only down 1% in the current five-day span.
The chart below shows the five-day performance spread between the S&P 500 Utility sector and the S&P 500. After adjusting for the S&P 500’s performance, the Utility sector is underperforming the S&P 500 by the widest margin over a five-day period since October 2002!
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Oct 2, 2023
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“At night a candle’s brighter than the sun” – Sting
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It’s a new week, a new month, a new quarter, and hopefully a new chapter for the market as we get ready to kick off the first day of trading for October. Unfortunately, the story doesn’t appear to have changed much from September as futures, which were higher earlier in the morning, have erased all of their gains and more as interest rates have crept higher. At current levels, the 10-year yield is on pace to close at its highest level of the current cycle in what has been a seemingly endless run higher. Maybe the only thing different this morning is the fact that bitcoin is rallying and trading back above $28,000.
On the economic calendar, the only reports scheduled for today are the ISM Manufacturing reports and Construction Spending. Construction Spending is expected to increase 0.6% m/m versus an increase of 0.7% last month. Similarly, consensus forecasts for the ISM Manufacturing report currently stand at 47.7 which would be slightly higher than August’s reading of 47.6. Regional Fed manufacturing reports have shown some improvement recently, so we’ll see if that translates to the broader national index.
Just as the brightness of a candle looks very much different depending on the amount of light surrounding it, the luster of the market these days looks very much different depending on your perspective. Let’s start with the dim picture. The last two months of trading have been lousy for bulls. It’s been about nine weeks now since the market peaked, and that top coincided with the start of what has seasonally been the weakest time of the year and came just as individual investors finally started to turn more bullish based on various sentiment surveys. As shown in the intraday chart below, since that peak, the S&P 500 has been stuck in a steady downtrend, and September closed out right at the bottom of that channel.
While the last two months have been weak for stocks, the longer-term uptrend for the S&P 500 has remained intact as illustrated in the chart below. It successfully tested that uptrend line in the last week or so, and how it reacts in the days ahead could go a long way in determining the overall tone of the fourth quarter.
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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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