After Eight Days of Going Up, Where Do We Go Now?
Monday was a quiet rally, now we've got a case of the macro-economic jitters as we await Powell's speech later this week.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
It felt quiet on Monday. The macroeconomic calendar was thin, as was the earnings calendar. Treasury debt securities did not move much. The U.S. Ten Year Note paid 3.87% by day's end. That was down one basis point and around where that yield has remained overnight. The U.S. Two Year Note went out at a yield of 4.06% on Monday, up one basis point. That yield has also remained anchored overnight.
"They" bought stocks again on Monday. The rally was broad across all mid-major to major equity indexes and sectors on trading volume that was more in line with last week's less active rally than it was with the volatile week prior. The S&P 500 gained 0.97%, the Nasdaq Composite gained 1.39% and the Nasdaq 100 gained 1.32% as all three of those indexes pushed their winning streaks out to eight-consecutive daily sessions.
This is a rare feat, as was how broad the rally was. Even the Dow Utilities closed in the green along with the small to mid-cap indexes, the Philly Semiconductors and the Dow Transports. Can the major indexes go for a nine-day winning streak? It does feel as if there is a fear among portfolio managers of taking profits or not being fully invested going into Friday's public appearance by Fed Chair Jerome Powell from Jackson Hole. Most of Europe appears to be opening higher, as U.S. equity index futures are anywhere from flat to up small. Just an FYI, the S&P 500 has not posted a nine-day winning streak since November of 2004.
Breadth
As mentioned above, everything with the exception of the VIX (and WTI Crude) moved higher on Monday. All 11 S&P sector-select SPDR exchange-traded funds closed out the day on Monday in the green. Technology XLK led the way north, gaining 1.65%, followed by the Discretionaries XLY and Communication Services XLC. The tech sector was led by the semis, and the semis on Monday were led by Advanced Micro Devices AMD and Nvidia NVDA. Those two names were up 4.52% and 4.35% respectively. The Staples XLP finished in last place among the eleven sectors for the day, but still gained 0.34%.
Winners beat losers by more than three-to-one at the New York Stock Exchange and by nearly the same at the Nasdaq on Monday. Advancing volume took a commanding 83.1% share of composite NYSE-listed trade and a 78.6% share of composite Nasdaq-listed activity. Interestingly, while aggregate trading volume moved lower across the realms of NYSE-listing and the membership of the S&P 500, trading volume actually picked up across Nasdaq-listings.
Macro-Jitters
While the economic calendar was light on Monday, it wasn't bare. The Conference Board released their Index of Leading Indicators for July. This index is composed of 19 economic indicators covering labor markets, new orders, confidence surveys, housing, equity prices, credit spreads and more. The July print hit the tape at -0.6% month over month, which was below the -0.4% that Wall Street had in mind and an acceleration to the downside from June's -0.4% print. This index has shown growth for only one of the past 28 months and has not put back-to-back months of growth together since the spring of 2022.
Elsewhere, the New York Fed released its quarterly Survey of Consumer Expectations. According to the survey's results, a stunning 4.4% of respondents expect to lose their jobs within the next four months. This was a record high for the survey that only goes back to 2014. The percentage of people who reported looking for a job in the last four weeks, increased to 28.4% from 19.4% a year ago, while the percentage of respondents satisfied with their wages, benefits and possibility for promotion all dropped to 56.7%, 56.3% and 44.2% respectively. Additionally, within the survey, the overall rejection rate for credit applications increased to 21.4% from 18.7% as recently as February of this year. This increase was broad-based across age groups and credit score groups.
On Powell's Speech
On Monday, Evercore ISI head of global policy and central bank strategy Krishna Guha said, "We do not expect a hard steer as to whether the first move will be a 25 bps or 50 bps cut, with Powell likely instead to indicate that this will depend on the next set of labor data. We think (Powell) will note that the Fed's job is still not fully done on inflation, but he will chart progress since the peak of the inflation surge."
This morning, I see futures trading in Chicago are pricing in a 76% probability for a quarter-percentage basis point cut made to the target range for the Fed Funds Rate on Sept. 18. The other 24% is going for a half-point rate cut. These markets are still pricing in a 58% likelihood for one-point worth of rate cuts by year's end.
On That Note...
For the first time to-date on Monday, the spot price for gold surpassed $2,500 per troy ounce, making the typical gold bar (400 ounces) worth $1 million. Understand that there is no set standard for gold bars, and according to the London Bullion Market Association, an "official" bar can weigh between 350 and 430 ounces of pure gold, though 400 is normal.
This morning, front-month futures for gold are trading around $2,560, up around 0.75% from Monday. I remain long physical gold, as well as the SPDR Gold Shares GLD and the Goldman Sachs Physical Gold ETF AAAU. I do not have target prices on these ETFs. They are there to help balance my portfolio and act as a counter to the value of the U.S. dollar in the event a dark-colored swan knocks on my door.
Hedgeye Risk Management, whom I lean on heavily for accurate macroeconomic modeling, still expects economic growth and inflation to decelerate through the current quarter, with consumer-level inflation accelerating again, (but not economic growth) likely in the fourth quarter.
Good News?
On his ninth trip to the region since Hamas attacked Israel last October, U.S. Secretary of State Antony Blinken reported that Israeli Prime Minister Benjamin Netanyahu had accepted a cease-fire proposal to put a halt to the war in Gaza. Blinken will now head to Egypt and Qatar to try to get a grip on what Hamas leadership is thinking and if this cease-fire is acceptable to them. Complicating matters, both Hamas and Islamic Jihad (another Palestinian militant group) claimed responsibility for a suicide bombing in Tel Aviv on Sunday evening. All three of the large defense contractors on my books... Lockheed Martin LMT, Northrop Grumman NOC, and General Dynamics GD are down small on this news.
Economics (All Times Eastern)
8:55 a.m. - Redbook (Weekly): Last 4.7% y/y.
4:30 p.m. - API Oil Inventories (Weekly): Last -5.205M.
The Fed (All Times Eastern)
1:35 p.m. - Speaker: Atlanta Fed Pres. Raphael Bostic.
2:25 - Speaker: Reserve Board Gov. Michael Barr.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: LOW (4.00), MDT (1.20), VIPS (3.86)
After the Close: COTY (.04), TOL (3.31)
At the time of publication, Guilfoyle was long AMD, NVDA, GLD, AAAU, LMT, NOC, GD.
