Watch Out: Wall Street's Sloppy Under the Surface

Equities, at least at the headline level, looked almost strong on Monday. Both the S&P 500 and the Nasdaq Composite closed at record highs yet again, after posting gains of 0.24% and 0.97% respectively. The S&P 500 ended Monday at its 54th record high close of 2024, while the Nasdaq Composite ended the day at its 33rd record high close of the year. Fifty-four record high closes with a month to go. That's almost five record closes per month. That's more than one record close per week. Just Incredible.

But the action on Monday was a lot sloppier than that first paragraph implies. The day started with a market reaction to President Elect Trump's 100% tariff threat against the BRICS nations that have flirted with both creating their own group currency in the past or simply using either their own national currencies or gold to settle cross-border transactions. The Dollar Index caught a nice pop on that news, but Treasuries did little, and stocks waffled around. For the day, the yield for U.S. Ten Year Note came in one basis point to 4.19%, while the yield for the U.S. Two Year Note backed up two basis points to 4.18%.

There was also some stronger-than-expected macroeconomic data released in the forms of the ISM Manufacturing Index for November and October Construction Spending as well as some confused sounding public statements made by Fed officials that added to the sloppy, back and forth type trade for the session.

While the Nasdaq Composite and Nasdaq 100 showed real strength on a pop across the semiconductors, the small to mid-cap equity indexes had a quiet session as both the Dow Transports and Dow Industrials closed in the red.

What's up With the Semis?

The Philadelphia Semiconductor Index gained 2.61% and the Dow Jones U.S. Semiconductor Index gained 1.28% for the session. Lam Research LRCX led the way, gaining 6.27%. followed by Taiwan Semiconductor TSM, Applied Materials AMAT and Marvell Technology MRVL, all of whidh scored runs of at least 4.5% for the day. Marvell will report quarterly earnings this evening. That action was sort of odd on such a mixed day, and on a day that the Biden administration announced increased restrictions on sales of high-end technology to Chinese buyers. This round of increased restriction focused on memory chips as well as semiconductor equipment suppliers, while the Biden administration also added 140 Chinese companies to its trade blacklist.

The Semis did not react in such a way as traders might have expected, 

The why? Simple. The increased restrictions had been priced in and what had been priced in was more severe than what actually broke as news. For one, the restrictions on equipment suppliers were not nearly as strict as feared. Second, most industry group watchers had expected at least 200 Chinese companies to be blacklisted.

Breadth

Casual market followers might be surprised to learn that on a day where the two major U.S. equity indexes both closed at record highs, just three of the eleven S&P sector SPDR exchange-traded funds closed in the green and that none would even gain 1%. Technology XLK led the way at +0.95% for the session, while three of these funds surrendered at least 1%, led lower by the Utilities XLU, which were down 2.15%.

Now check this out. The difference in performance between names listed at the exchanges in New York was almost startling. Trading volume was back after last week's wind-down, so we don't know how meaningful Monday was until later in the week, especially with November Jobs Day calling on Friday.

Losers beat winners at the NYSE by a rough 5-to-4 margin, while advancing volume took just a 38.9% share of composite NYSE-listed activity. However, winners beat losers by just a bit, 10 to 9 at the Nasdaq, while advancing volume took a 56.8% share of composite Nasdaq-listed trade. Securities domiciled at both exchanges experienced their busiest sessions since last Monday.

Macro Party, USA

Let's not get carried away. The ISM Manufacturing Index for November still printed in a state of headline contraction from the month prior as it has for 24 of the past 25 months. That said, the headline print of 48.4 topped expectations for something close to 47.6 and showed a deceleration in the pace of decay from October's 46.5.

Perhaps even more important than that, was the 50.4 (slightly expansionary) print for the most important component in the report, New Orders. This was the first expansionary print for New Manufacturing Orders for the series since March and the second of 2024. Most of the other components, such as Production, Employment, Order Backlogs, and Export Orders all remained in awful shape, so there is no huge victory here, but there is a possible change in direction that would need to be confirmed in December.

There was one other component that printed in a state of expansion, which of course was pricing. Prices, though decelerated from the pace they were rising at, quite notably to 50.4. This was down from a torrid 54.8 print in October and was the second slowest month of the year for manufacturing-focused inflation.

Additionally, the Census Bureau published its construction spending report for October, which crossed the tape at month over month growth of 0.4%. This beat estimates for growth of 0.2% and was the hottest print for the series since December 2023.

Pop Goes the Weasel

In response to the release of the macroeconomic data-points, the Atlanta Fed revised its GDPNow model for the fourth quarter up to growth of 3.2% (q/q, SAAR) from 2.7%. Atlanta tweaked higher its inputs for real personal consumption expenditures and real gross private domestic investment on those numbers.

Atlanta will revise its model again this Thursday after the national trade balance for October is released. Not to be a party-pooper, but keep in mind that Atlanta has been by far the most optimistic of the four regional Fed real-time GDP models. Out of New York, Cleveland, and St Louis, the next most optimistic estimate for Q4 economic growth comes out of Cleveland at +1.84%, and Cleveland is based on the slope of the Treasury yield curve. The other two macro-based models are even lower.

Keystone Fed Officials

The clown show is out in full force this week ahead of the media blackout period that goes into effect this Saturday ahead of the Dec. 18 Fed policy decision. Fed Gov. Christopher Waller spoke from Washington on Monday. Waller leaned dovish, stating "At present, I lean toward supporting a cut to the policy rate at our December meeting." 

OK, fair enough. 

Waller explained himself, "I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren't pressing on the brake pedal quite as hard. Another factor that supports a further rate cut is that the labor market appears to finally be in balance, and we should aim to keep it that way."

There's always a "but", and Waller had one on Monday as well: "But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation." 

Simply put, Waller reserves the right to change his mind because he really just doesn't know. November jobs are likely to be accurately reported this Friday, while the November consumer price index will be released next Wednesday. November is expected to be the second straight month of notably re-accelerating consumer level inflation since prices bottomed in September.

Elsewhere, that economic lightning bolt, John Williams of the New York Fed, said, "The path for policy will depend on the data. If we've learned anything over the past five years, it's that the outlook remains highly uncertain." 

Thank you, Captain Obvious. Are we really sure that we need to hire highly educated people for these jobs? I'm pretty sure a high school kid picked at random could have given us that gem.

Out in SpaceX

Bloomberg News reported on Monday that the still-not-publicly traded SpaceX was engaged in discussions to sell insider shares that would boost the valuation of the satellite launching business to roughly $350 billion. The tender offering would allow employees and early investors to sell shares and would entrench the firm as the most valuable private startup business in the world. Earlier this year, the firm had been valued at about $210 billion.

Breakout?

Readers will see shares of Apple AAPL breaking out from an ascending triangle (which is a bullish pattern) formation on Monday. AAPL had recaptured the stock's 21-day exponential moving average and 50-day simple moving average earlier this month. It now sports a reading for relative strength that is in nearly, but not quite technically, overbought territory. It also has a daily Moving Average Convergence Divergence indicators that is now postured quite bullishly with the histogram of the 9-day exponential moving average, in positive territory and with the 12-day EMA above the 26-day EMA.

Again, old Jim was right about owning AAPL and not trading it. Again, I traded it (profitably, but he was right) instead of just owning it. C'est la vie.

Rest in Peace, Arthur

Rest in Peace, New York Stock Exchange legend & badge number 805, Arthur Cashin. Without "Cashin’s Comments" there never would have been "Sarge’s Market Recon". Arthur was a kind man who selflessly shared his knowledge with the next generation and encouraged me to even write in the first place. He set an example in class for the rest of us. A sad time for Wall Street.

Economics (All Times Eastern)

 

08:55 - Redbook (Weekly): Last 4.9% y/y.

10:00 - JOLTs Job Openings (Oct): Last 7.443M.

10:00 - JOLTs Job Quits (Oct): Last 3.071M.

4:30 p.m. - API Oil Inventories (Weekly): Last -5.935M.

The Fed (All Times Eastern)

12:35 p.m. - Speaker: Reserve Board Gov. Adriana Kugler.

3:45 - Speaker: Chicago Fed Pres. Austan Goolsbee.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: CNM (.66), DCI (.82)

After the Close: MRVL (.41), OKTA (.58), CRM (2.45)

At the time of publication, Guilfoyle was long XLU.