After Friday’s 3%+ sell-off, the major US indices have been bouncing around in Monday’s session as investors weigh Powell’s hawkish comments. With this sell-off comes a test of the 50-DMA, which the major indices broke above in mid-July. For those who follow technicals, this is a critical level where bulls want to see support and bears want to see price break definitively below. On the bright side, most major indices are holding up, at least for now.

Starting with the S&P 500 (SPY), the ETF is currently trading just 1.4% above the 50-DMA just two weeks after testing the 200-DMA on the upside. SPY didn’t quite touch the 50-DMA in Monday’s trading but came close enough to make the occurrence notable, and as of now is more range-bound between these moving averages than anything else.  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

The Nasdaq 100 ETF (QQQ), on the other hand, did test the 50-DMA in Monday’s session. It found support at this level and is now trading 64 basis points above it. QQQ has a very similar technical setup to SPY, as both have been range-bound by the 200 and 50-DMAs. QQQ currently has the widest spread between the 200 and 50-DMAs of the major US index ETFs due to higher volatility.

The Dow Jones Industrial Average ETF (DIA) did cross below the 50-DMA Monday, trading 35 basis points below the level at its intraday lows.  Unlike SPY and QQQ, DIA never fully tested the 50-DMA in late July and was able to break the 200-DMA in mid-August. Unfortunately for bulls, the brief stint above the 200-DMA did not last. DIA also has the narrowest spread between the 200 and 50-DMAs at 5.2% due to lesser volatility.  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

Interestingly, the small-cap Russell 2000 ETF (IWM) is relatively distanced from the 50-DMA, trading 3.1% above this level as of this writing. This is more than twice the distance than the next closest major index ETF (SPY: 1.4%). Although this may imply that IWM has further downside before finding support, the index is actually outperforming QQQ on the day. However, IWM is having a worse day than both SPY and DIA. The technical setup on IWM is quite similar to DIA.

Long-story short, investors should watch how the major indices trade around their respective 50-DMAs. Further recovery tomorrow would imply support around the 50-DMA, which would be bullish in the near-term. If we see this support tomorrow, we would not be surprised to see the major indices retest the 200-DMA, but the potential results of that test is a topic for another day.  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

The Dallas Fed updated the final of the regional Fed manufacturing indices this morning.  Business Activity remains in contraction but improved versus July.  The headline index came in at -12.9, slightly worse than expectations of a reading of -12.7. Expectations saw a similar move with a large bounce off of the worst levels of the post-pandemic period.

Although the headline reading was higher, breadth was disappointing with only five other categories rising month over month.  With broad declines across other categories, three indices—Unfilled Orders, Capacity Utilization, and Delivery Times—fell from expansion and into contraction.  As has been the case with other regional Fed indices, expectations are generally far more pessimistic with ten of the sixteen indices in the bottom decile of their historical ranges and two others only half of one percentage point away. For comparison, there is not a single current conditions index at that low of a reading.

As demand has pulled back with New Orders seeing the third straight monthly contractionary reading, Production and Capacity Utilization are two of the most depressed indices of the report. These indices are in the 18th and 17th percentiles of their historical ranges, respectively. After this month’s declines, those two indices have reached the lowest levels since May 2020.  In other words, consistently weak demand in recent months has resulted in production to go little changed.  Ironically, the region’s firms reported much healthier expectations with significant increases in those indices.  For Production, the 10.3 point month-over-month increase ranks in the top 7% of all monthly readings.

Likely another result of weakened demand, both Prices Paid and Received have continued their sharp declines across both current conditions and expectations. Prices Paid fell for the third month in a row and is now at the lowest level since October 2020 whereas Prices Received has fallen five months in a row and is down to the lowest level since February 2021.  Not only are firms seeing a deceleration in price increases, but Delivery Times actually fell into contraction for the first time since June 2020. Paired with that, Inventories are also signaling improvements in supply chains as this month marked the fourth consecutive expansionary reading; the longest such streak since a six-month streak ending in January 2019. Expectations, however, are now calling for that dynamic to remain for much longer as the drop to -9.7 is the lowest reading since April 2020. Click here to learn more about Bespoke’s premium stock market research service.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Utilities

America’s trash flow isn’t signaling a recession, CEO explains by Luke Carberry Mogan (Yahoo! Finance)

The CEO of a large trash hauler is reporting very strong demand from consumers, industrial customers, and commercial customers. Typically trash production leads or is at least coincident with weaker economic data that comes with a recession. [Link; auto-playing video]

A ‘Tsunami of Shutoffs’: 20 Million US Homes Are Behind on Energy Bills by Will Wage and Mark Chediak (Bloomberg)

Roughly one in six homes has fallen behind on utility bills, with unpaid utility balances rising through the pandemic and continuing to move upwards this summer. [Link; soft paywall]

National Defense

The Family That Mined the Pentagon’s Data for Profit by Mark Harris (Wired)

How to build a family business based on national secrets? Step one is an aggressive use of the Freedom of Information Act to fill your inventories. [Link; soft paywall]

How China Could Choke Taiwan by Chris Buckley, Pablo Robles, Marco Hernandez and Amy Chang Chien (NYT)

A detailed analysis of how the geography of Taiwan leaves it vulnerable to blockade by China…should China take that step as part of an effort to bring the island back under its control. [Link; soft paywall]

EVs

The Only Electric Car Worth Buying Right Now Is Used by Kyle Stock (Bloomberg)

As the EV supply chain ramps up, high prices and lack of availability may mean the best way to get your hands on a battery-powered car is via the used market. [Link; soft paywall]

California Approves Rules to Ban Gasoline-Powered Cars by 2035 by Mike Colias and Christine Mai-Duc (WSJ)

Wit the support of automakers, California’s Air Resources Board will phase out internal combustion engines over the next decade and a half as the nation’s largest auto market does away with engines. [Link; paywall]

Food At Scale

The Mysterious, Stubborn Appeal of Mass-Produced Fried Chicken by Adam Clair (Vice)

An investigation into the mysteries of industrially manufactured fried chicken and why it beats more artisanal approaches to deep fried bird. [Link]

There’s a Carbon Dioxide Shortage, and Food and Drink Makers are Scrambling by Jesse Newman (WSJ)

Carbon dioxide is a byproduct of ethanol and fertilizer manufacturing, which have both been disrupted by supply chain issues. The result has been a scramble for supplies across the food and beverage industry. [Link; paywall]

Real Estate

The Sellers Strike and Housing Inventory by Bill McBride (Calculated Risk)

The flow of new listings on to the market is slowing as potential sellers decide to hold supply back from housing markets where inventories have soared amidst weak demand; it remains to be seen how long the “seller’s strike” can continue. [Link]

Home Sellers Are Slashing Prices in Pandemic Boomtowns by Paulina Cachero (Bloomberg)

Almost three-quarters of homes on sales in Boise had price cuts in July as the soaring prices of the pandemic era Zoom town boom start to roll over and even reverse. [Link; soft paywall, auto-playing video]

Great White North

The best places to live in North America (The Economist)

A ranking of major cities across 30 different metrics for education, culture, the environment, health care, infrastructure, and stability suggests Canadian cities are the most livable in North America. [Link]

Hurricane Season

Hurricane season on the verge of rarely seen August without a named storm by Chris Perkins (South Florida Sun Sentinel/ArcaMax)

Hurricane season is off to a slow start; it’s on track to be only the third August since 1961 without a named hurricane in the Atlantic. [Link]

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Have a great weekend!

Heading into a weekend when everyone is focused on commentary out of Jackson Hole, we decided to go a different direction. Today we are highlighting some of the most interesting quotes from earnings releases and conference calls during the month of August. We picked out the quotes from our Conference Call Recaps that provide insight into either the broader economy or specific industries.  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

Overall, company commentary suggests that the consumer is generally strong, but purchasing patterns have changed due to higher gas prices, inflation, and shifting consumer activities. On the corporate side, a number of tech companies have made note of the fact that business has softened as the economy is now on the backend of the COVID demand pull forward.

August ’22 Earnings Quotes:

Uber (UBER) CEO Dara Khosrowshahi noted: “Driver engagement reached another post-pandemic high in Q2, and we saw an acceleration in both active and new driver growth in the quarter. Against the backdrop of elevated gas prices globally, this is a resounding endorsement of the value drivers continue to see in Uber.” This might be due to the higher cost of living brought forth by the inflationary environment.

UBER’s management team saw “Delivery demonstrated stable consumer, merchant, and courier metrics against tough YoY comps as COVID-19 restrictions continued to ease around the world.”

Starbucks (SBUX) is still seeing “strength in customer demand globally,” according to CEO Howard Shultz.

“We are not currently seeing any measurable reduction in customer spending or any evidence of customers trading down, reflecting the strength of the Starbucks brand, deep customer engagement and loyalty, pricing power, and the premium nature of our beverage and food offerings.” – Shultz

Tyson Foods (TSN) CEO Donnie King noted that “increasing consumer demand for protein remains relatively steady.” However, consumer demand is being impacted by “a challenging macroeconomic environment.”

Walmart (WMT) CEO Doug McMillon noted: “We expect inflation to continue to influence the choices that families make, and we’re adjusting to that reality so we can help them more.”

CFO David Rainey is seeing consumers trade down “in terms of quality and quantity… Clearly, they’re stressed from higher gas prices, higher food prices, and even housing.”  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

Target (TGT) Chief Growth Officer Christina Hennington commented that, although consumer spending power appears to remain strong, “confidence in their personal finances continues to wane.” Hennington also added that “difficult news headlines, COVID surges, and continued political volatility” had a negative impact on consumer confidence as well.

Home Depot (HD) CEO Ted Decker noted “continued strength in demand for home improvement projects,” which is likely supplementing a decline in new home activity.

PayPal (PYPL) CFO Gabrielle Rabinovitch commented: “we’re closely monitoring the impact of high inflation on economic growth, consumer demand, and sentiment, as well as broader global macroeconomic indicators. The backdrop continues to be complex, and we’re taking an appropriately prudent approach to managing our business.”

Alibaba (BABA) still sees “supply chain and logistics disruptions” due to China’s COVID-zero policy. However, the company did see improvement towards the end of the quarter. CEO Daniel Zhang saw “signs of recovery since June as logistics and the supply chain situation gradually improved after COVID restrictions eased.”

Coinbase (COIN) CEO Brian Armstrong said, “you have to really remember that crypto is not linear. Any given quarter could be up or down or even any given year. But if you evaluate the business across price cycles, it tells a much different story.”

“The future of all media is digital and programmatic, eventually all media will be digital, and it will be transacted by machines,” according to The Trade Desk’s (TTD) press release.

Zoom (ZM) lowered guidance due to FX headwinds, weak online sales, and “to a lesser extent backend linearity,” as per CFO Kelly Steckelberg.

Cisco (CSCO) CEO Chuck Robbins commented: “While we anticipated some moderation from the unprecedented product order growth of last year, demand signals remain solid.”

Advanced Micro Devices (AMD) CEO Lisa Su noted that “there has been additional softness in the PC market in recent months.”

NVIDIA (NVDA) CFO Colette Kress added: “we have likely under-shipped gaming to our end demand significantly… we do have gaming growth drivers to consider for the future.”  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

“The next wave of computing is coming. With AI and 3D graphic advances, developers will extend the internet with virtual world overlays that connect to the physical world,” as per CEO Jensen Huang.

Salesforce (CRM) Co-CEO Bret Taylor noted that the company is “seeing [gross merchandise value] decelerate in line with the rest of the e-commerce industry as consumers settle back down to pre-pandemic norms.”

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With the S&P 500 pivoting lower in the past week, sentiment has reflected the move as the AAII sentiment survey showed bullish sentiment drop from 33.3% last week down to 27.7%.  That marked the first time bullish sentiment fell in three weeks, and it was the largest single-week decline since an eleven percentage point drop the week of June 9th.

Bearish sentiment picked up the bulk of that decline as the reading topped 40% for the first time since the last week of July.  At 42.4%, it is at the highest level since July 14th. Although that marks a shift toward more pessimistic sentiment, reversing a trend of improvement from the past few weeks, the current reading on bearish sentiment is well below the highs from throughout the spring and early summer.

Nonetheless, after coming within only a few points of a positive reading in the past month, the bull-bear spread took a sharp turn lower as a result of this week’s results.  The spread fell to -14.7 which is the lowest reading since July 14th. That was also the first double-digit week-over-week drop in the reading since June.  Additionally, with a move deeper into negative territory, the spread is a week away from becoming tied for the second-longest streak of negative readings on record. Click here to learn more about Bespoke’s premium stock market research service.

Initial jobless claims have come well off of the historic lows from earlier this year, but the past couple of weeks have also seen modest improvements.  We’ve now seen back-to-back weeks of declines in claims for a total drop of 9K, leaving seasonally adjusted initial claims at 243K.  That is the lowest reading since the week of July 22nd.  However, that is still above the range from the two years prior to the pandemic.

Non-seasonally adjusted claims are nearing what is typically an annual low.  The past couple of weeks have historically been two that have seen the most consistent declines on a week-over-week basis throughout the year. That has dropped NSA claims to 184.4K which is only slightly above the post-pandemic low of 183.6K from the final week of May.

Continuing claims came in lower than expectations this week dropping to 1.415 million versus forecasts for an increase to 1.441 million.  Overall, continuing claims remain much stronger and less elevated off the lows than initial claims. Whereas initial claims are above their pre-pandemic range, current levels of continuing claims continue to come in at some of the lowest levels since the first few years of the data.

Given this, the ratio of initial to continuing claims continues to hover at levels that are well above the norm of the past few decades even after peaking last month.  That would imply healthy turnover as those who are filing for unemployment are not remaining unemployed for long given the small amount of follow-through of initial claims into continuing claims. Click here to learn more about Bespoke’s premium stock market research service.