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“At night a candle’s brighter than the sun” – Sting

Morning stock market summary

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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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