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“You’re going the wrong way!” – Planes, Trains, and Automobiles
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Paul Hickey appeared on CNBC’s Closing Bell Overtime after the close yesterday to discuss markets and the levels of uncertainty ahead of today’s Fed meeting. To view the segment, click on the image below.
The global tech unwind trade continued overnight in Asia as the Nikkei fell 1.5%, and the Kospi fell another 6%, taking its peak-to-trough decline to more than 37%. Last night’s weakness was primarily driven by a nearly 10% decline in SK Hynix after the company reported weaker-than-expected results. Interestingly, the company’s ADRs are down just 1% in the US this morning, so that will be an interesting trend to watch throughout the day.
In Europe, we’re seeing a mixed showing as the STOXX 600 trades down 0.2%, with a 1%+ decline in Spain leading the downside as UK stocks buck the trend and rally.
In the US today, there’s no economic data on the calendar, but the focus during the session will be on the Fed decision at 2 PM. The level of uncertainty heading into the meeting is higher than any meeting in years, as the futures market still has the odds of a hike as high as 36%. Those odds seem way too high given that last month’s CPI was negative at the headline level while the core reading was unchanged. Concerns over higher energy prices have been the main worry regarding inflation in recent months, but the average price of crude oil so far this month is lower than it was in June. So, if oil prices have any impact on CPI this month, it would be to the downside.
Investors betting on a rate hike think that Warsh and his colleagues on the Fed want to send a signal to the market that they’re going to be tough on inflation. Acting tough and being rational aren’t the same, though. After all, everyone has seen pictures of “that guy” shoveling snow outside in nothing but a t-shirt and a pair of shorts. He may be tough, but that doesn’t mean he’s making any sense.
How the market has performed this month depends in large part on the index you’re looking at. The S&P 500 Equal Weighted Index closed at a new all-time high yesterday. The S&P 500, meanwhile, is down nearly 1% month to date, while the Nasdaq has dug itself into a much larger hole of just over 5%. The differences don’t stop there, either. Heading into today’s trading session, the S&P 500 is riding a three-day winning streak, albeit with modest gains each day, while the Nasdaq has traded lower for five straight days.
Given the diverging streaks, the daily moves of the two indices have been in opposite directions for three straight days. Since the Nasdaq’s inception in 1971, there have only been 45 other periods where the two indices moved in opposite directions for three or more days, and only seven have occurred since the turn of the century. If the current streak continues today, which is conceivable based on where futures are trading now, it would be just the eighth four-day streak since the Nasdaq’s inception.
Turning back to the Nasdaq, its current five-day losing streak has contributed to what has been a month with little in the way of upside. Through yesterday’s close, the index has only traded higher on seven out of the month’s 19 trading days. At 36.8%, that would rank as the lowest percentage of positive days for a given month since August 2022.
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