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“I’ll be back” – Arnold Schwarzenegger, The Terminator
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39 years ago today, The Terminator, one of the most iconic Arnold Schwarzenegger movies of all time, hit the screens, and a small line that no one thought would amount to anything during production ended up turning into one of the most recognizable movie quotes of all time. After being denied entry into an LA police station to find Sarah Connor, The Terminator sized up the room and matter-of-factly said, “I’ll be back” and casually walked out. Seconds after leaving, a car comes crashing through the walls and then The Terminator gets out and proceeds to destroy everyone in his path. When faced with a roadblock, The Terminator didn’t mess around.
I wish the same could be said for the bull market that peaked in late July. Don’t get me wrong, the rally through the summer was impressive, and issues like record debt issuance from the US Treasury and war in the Middle East are more than just potholes. But the current pullback of close to 9% in the S&P 500 has been going on for close to three months now, and throughout it all, the best resistance that the bulls have been able to muster is two countertrend rallies of 3%. The small-cap Russell 2000 has been even more pathetic. It’s down 17.5% since the summer high, and through it all, the largest rally has been barely more than 4%. Terminator? The bull market’s reaction to this pullback reminds us more of George Costanza at the birthday party when he pushed all the kids out of the way trying to get out of the apartment when the fire alarm went off.
The market remains in ‘Costanza mode” this morning as futures sell-off in follow-through from yesterday’s shellacking. The primary culprit has been rising rates (what else is new), but earnings results have also been lackluster as many more companies are lowering guidance than raising guidance. As if that wasn’t enough to contend with, the economic calendar this morning is jam-packed with GDP, Core PCE, Durable Goods, Initial Claims, Pending Home Sales, and the KC Fed Manufacturing report among the more notable reports. On the geopolitical front, an Israeli ground invasion of Gaza seems imminent.
Of the data that was just released, GDP topped expectations (4.9% vs 4.5%), Durable Goods Orders were much better than expected (4.7 vs 1.9%), Core PCE was slightly lower than expected (2.4% vs 2.5%), and jobless claims were mixed. While initial claims were pretty much right in line with forecasts, continuing claims surged to 1.790 million which was the highest reading since May. In reaction to the data, treasury yields declined while equity futures got less worse.
Yesterday’s 2.5% decline for the Nasdaq 100 was the index’s worst day of the year. That’s notable because it’s extremely uncommon for the index’s worst day in a calendar year to fall this late. The scatter chart below shows the day (x-axis) and magnitude (y-axis) of the Nasdaq 100’s worst day in each calendar year. Yesterday’s 2.5% decline ranks as the third latest day in a year that the index had its worst day, trailing only 1997 and 1991. 2018 was also close, but the worst day in that year was a day earlier.
There are still two months left in the year, so we could conceivably have an even worse day for the Nasdaq 100 between now and year-end. However, if yesterday ends up being the Nasdaq 100’s worst day, it will also rank as the third mildest worst day of a year for the index trailing only the 2.3% declines in 2005 and 2013.
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