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“Economics is extremely useful as a form of employment for economists.” – John Kenneth Galbraith

Morning stock market summary

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Normally on the first Wednesday of the month, we’d be discussing the release of the ADP Private Payrolls, but that report is still on the DL as economists work on revising its methodology to make it a more accurate gauge of payroll trends in the economy. The only reports on the calendar today are Durable Goods, Factory Orders, and the ISM Services report which will all be released at 10 AM Eastern.  It’s been another busy day for earnings, and the results continue to surprise to the upside with EPS and revenue beat rates that are higher than most analysts and strategists would have expected heading into earnings season.

Equity futures are higher this morning, oil is higher as OPEC+ only agreed to a small increase in daily output, and Treasury yields are continuing their steep run higher which began yesterday morning at right around this time. After trading well below 2.6% yesterday, the yield on the 10-year is now pushing 2.8%.

Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, Pelosi’s visit to Taiwan, a detailed look at PMI and economic data from around the world, and much more.

As oil prices have pulled back in the last couple of months, stocks in the Energy sector have also experienced a hiccup as growth-oriented names have enjoyed some time in the sun.  Technology is one sector that has experienced a rebound, and that bounce has shown up in the chart of Energy’s relative strength versus the Technology sector.  From the summer of 2020 through late last year, there was a push and pull with lots of noise between the two sectors, but neither one had anything to show for it as they essentially performed in line with each other during that entire period.  Beginning in late 2021, though, when the Fed apparently got religion with respect to surging inflation, tech stocks plunged while energy names surged.  That run essentially continued uninterrupted right up to mid-June.  In the span of under two months, though, Energy has given up 40% of its outperformance versus Technology.  Easy come easy go.

Given its outperformance in the years coming out of the Financial Crisis, there’s almost a Pavlovian instinct for investors to look towards the technology sector for outperformance. Over the last two years, though, the sector has essentially generated zero alpha.  Comparing the sector’s relative strength to the S&P 500, Technology is barely positive versus August 2020.

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