Oct 8, 2021
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“The greatest teacher I know is the job itself.” – James Cash Penney
Good Morning Subscriber,
It’s jobs Friday, and while there has been little movement in futures ahead of the report, there has been a modest drift higher as futures are indicating a slightly positive open. Treasury yields are higher in anticipation of a solid jobs report and rising bond yields in Europe. After the employment report, there’s little in the way of economic data, and with the bond market closed on Monday for Columbus Day, this afternoon could have the feel of a Summer Friday even if it is October.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
It hasn’t been a quiet start to October, but with the first full week of the month behind us, it’s been a positive start. The S&P 500 is up over 2%, and all eleven sectors are also to the north of unchanged. Not surprisingly, Energy has been the best performing sector month to date with a gain of over 5%, but Financials, Industrials, and Materials have also rallied more than 3%. Like Energy, the Financials sector is also at overbought levels, but Industrials and Materials are only just moving out of oversold levels. The only other sector even above its 50-day moving average is Consumer Discretionary.
You can look at the current setup in one of two ways. On the one hand, there is still a lot more room for upside before the market reaches short-term overbought levels. Then again, one could also argue that the equity market has a lot more to prove before we can say the pullback is over.
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Oct 7, 2021
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“If everyone is moving forward together, then success takes care of itself.” – Henry Ford
It may not feel like it, but based on where futures are currently trading, the S&P 500 is up over 2% for the month of October and the Nasdaq is up 1.5%. Yesterday, at this exact same time the S&P 500 was flat on the month and the Nasdaq was down over 1%. No one said October isn’t a volatile month! Who knows where things will settle out at the closing bell when markets close the book on the first week of October, but bulls will take the gains however they can get them. While stocks are higher to kick off October, sentiment hasn’t improved as the weekly AAII sentiment survey showed a modest decline in bullish sentiment falling from 28.1% down to 25.5% putting it just three percentage points above its low of 22.4% from three weeks ago.
The economic calendar is light today as Initial and Continuing Jobless Claims are the only two data releases on the calendar, and both came in lower than expected. In terms of Fed speakers, the only one scheduled is Cleveland President Loretta Mester at 11:45 (speaking on policy). With the lack of data, all eyes will likely be on DC again today as lawmakers look to avoid an impasse on raising the debt ceiling. Following McConnell’s offer of a short-term extension yesterday, it appears as though we could be kicking the can down the road so we can take it up again later in the year, but for now, it likely removes a major overhang on the market and economy.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
Equities are off to a positive start for October, but from a technical basis, both the S&P 500 (SPY) and Nasdaq 100 (QQQ) have some work to do in order to break their short-term downtrends. As shown in the charts below, even after taking into account this morning’s gains, both indices have yet to break their short-term downtrends and remain below their 50-day moving averages (442 for SPY and 369 for QQQ).
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Oct 6, 2021
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“Blessed are the young for they shall inherit the national debt.” – Herbert Hoover
Futures are lower this morning as the S&P 500 is indicated to open down nearly 1% as the market swings back and forth between 1% daily gains and losses. One cited cause of today’s weakness is higher interest rates, but we would note that the yield on the 10-year is actually now down on the day and yesterday it was up 4 basis points (bps) and the market had no problem rallying.
In economic data today, the only report on the calendar was ADP Private Payrolls which handily topped estimated and gave a little bit of a lift to futures.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
If the declines we’re seeing in the futures do hold throughout the trading session it will not only be the fifth straight day with a 1%+ daily move, but it will also be the first time since March 2020 that SPY has alternated between 1% gains and losses for five trading days. If SPY does indeed fall 1% today, the current period will be just the second occurrence since SPY started trading in 1993. One key difference between now and March 2020, though, is that back then the daily moves were much larger and the five alternating days were also part of a 13 trading day stretch where the ETF experienced daily moves of 1%.
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Oct 5, 2021
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“Be willing to make decisions. That’s the most important quality in a good leader. Don’t fall victim to what I call the Ready- Aim-Aim-Aim Syndrome. You must be willing to fire” – T. Boone Pickens
After a sell-off in Asia overnight that took the Nikkei down over 2%, European equities have been bouncing back this morning with gains of between 0.50% and 1.0% across the region. US equity futures are also trading higher and have been building on their gains throughout the morning. Besides the fact that it’s Tuesday and we had a big sell-off yesterday, there’s really not much driving the action this morning. We’ve had a number of these situations in the last few weeks where futures were positive only to give up those gains throughout the day, so we’ll see if the bulls can keep the market in the green today.
Pepsi (PEP) reported earnings earlier and topped both top and bottom-line forecasts. In economic news, the only report on the calendar is ISM Services at 10 AM. Economists are forecasting the headline reading to show a modest decline relative to August’s reading.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
While the rest of the market has been under pressure, energy stocks have been on fire. Just in the last ten trading days, the S&P 500 is down over 1%, but the Energy sector is up over 15%! Going back to 1990, there has never been another 10-trading day period where the S&P 500 was lower and the Energy sector was up over 15%. The only period that was even close was earlier this year in March when the S&P 500 was down 1.7% and the Energy sector was up 14.9%.
One reason we’ve never seen such a wide divergence between the S&P 500 and the Energy sector is that historically, the sector was always a larger share of the S&P 500, so when it rallied as much as it has now, it had a larger impact on the index. Now that it is such a small share of the overall index, though, it can have a move of the magnitude it has had over the last two weeks and still have a negligible impact on the broader market.
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Oct 4, 2021
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“If a window of opportunity appears, don’t pull down the shade.” – Tom Peters
Equities are looking lower to start to the week, but the magnitude of the losses has narrowed over the last hour or so. There’s very little in the way of economic or earnings-related news to deal with today. For the week, the major economic news will be Tuesday’s ISM Services report and Friday’s Non-Farm Payrolls. That will give investors plenty of time to focus on negotiations in Washington over reconciliation and the debt ceiling.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
With equity futures lower, one thing you can count on is that interest rates are moving higher to start the week. As shown in the chart below, the performance of the equity market has recently been closely tied to the direction of the 10-year US Treasury yield on an inverted basis. For much of the last six months, SPY has moved step for step with the yield on the 10-year. The only period of divergence was back in August when yields first started to move higher (shown in the chart below as a falling red line). Initially, the S&P 500 kept moving higher, but by early September, the tug of interest rates began to pull the equity market lower.
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Oct 1, 2021
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“As an investor, my job is to figure out what will happen rather than what should happen.” – David Einhorn
It wasn’t looking like a positive start to October earlier this morning as futures were significantly lower, but beginning at 6 AM we started to see a turnaround following positive trial results from Merck (MRK) regarding its oral anti-viral COVID treatment. The thought of being able to simply pop a pill to significantly reduce the chances of an adverse reaction to COVID would be a big step in returning back to normal.
Given the volatility and sell-offs we’ve seen during the regular trading session this week, there’s still a real possibility that these early gains don’t hold, but at least this morning we’ve seen futures strengthening from low levels throughout the morning rather than the opposite of weakness from higher levels.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
As far as closing acts go for a quarter, Q3’s exit was one to forget. Over the last week of the month, the S&P 500 dropped 3.18% for its worst final week of September since 2003 when it dropped by a similar amount. In the S&P’s history, there have been thirteen prior years where the index dropped more than 2.5% in the final week of September, and we have highlighted each of those years below.
Looking ahead to today and the first week of October, weak finishes to September have historically been followed by a weak first day of October. In the thirteen prior years shown, the S&P 500 dropped by an average of 0.19% (median: -0.60%) on the first trading day of October with positive returns just under a third of the time. Based on the turnaround we have seen in futures this morning, we may be on pace to buck that trend today.
While the first trading day of the month has been weak, the first week of October has been positive with an average gain of 0.30% (median: 0.93%) and positive returns just over two-thirds of the time. Relative to the long-term average, returns on the first trading day of October have been below average while performance in the first week of October has been pretty much right in line with the historical average of all first weeks of October.
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