Always Faithful

Have you ever tried to sing the national anthem? Have you ever watched the colors unfurl? The choked-up feeling. The water in the eyes. There is no greater feeling of pride and joy -- other than seeing one's own child for the first time -- that a human being can have than when rendering a crisp hand salute as "Old Glory" marches by. It takes just about all the discipline a man can muster to keep it together in that moment, that emotional moment.... 

A lifetime ago it seems. Sometimes, in the dark, when it's quiet ... I am still there. We all are. Sometimes I get through this awful day without too much difficulty. Sometimes I see their faces, but they are cloudy after 23 years. Friends and acquaintances, all still so young. Never grew old with the rest of us. I try to imagine their terror. Especially one friend who I am reasonably sure jumped that day. When did he know it was over? How much pain was he in to do that? He had small children he loved. Did he reach his wife? I saw people fall. Did I see him?

I stayed at my post that day through the fall of both towers. I saw more in that one day than a person should. I felt the first earthquake. By the second earthquake, there was no longer any surprise. Just shock. I had been on the phone before the first tower fell. "Tell my children I love them" was the last thing my wife heard from me for maybe ten hours. That phone cutting out as the first tower fell still haunts her. I could not find a pay phone that worked or get a cell signal until I had walked to Canarsie, Brooklyn from Wall Street. For those ten hours she had to plan a life raising two small kids without me. 

I still think of those F-16 Fighting Falcons that had been sent from Maine. They got to downtown New York eight minutes too late. We could hear them, but not see them. It was too dark. I think of those fighter pilots who had to watch what happened from above and wonder how awful that must have been. I would ultimately put the uniform of my nation back on after a 22-year break in service. Always Faithful. A cloth flag over the permanent one on my shoulder. Above the one etched in my heart. 

I truly hate this day. Sometimes going into detail makes it worse. Sometimes it helps. Today, I couldn't go into much detail. There is evil in this world, and those consumed by its power and allure will take our freedom and will even try to kill us. Let the words burn in. Become the words. Live by them. For in these words there is honor, and honor is the key to everything.

 

And the rockets' red glare

The bombs bursting in air

Gave proof through the night

That our flag was still there.

Our flag was still there!

Our flag is still there!

We are free. We are brave.

 

Oh, and make no mistake... We shall fear no evil.

This Week's Event 

It's Wednesday. Good morning. Once again, we have reached the event we've been waiting for, as we seem to each and every week. Last night's presidential debate has mercifully passed. If I am objective, I think it's safe to say that neither candidate impressed, while one clearly had a worse night than the other. That sent U.S. equity indiexes lower overnight, but not tremendously lower. It was a jab, not an uppercut.

This morning, the Bureau of Labor Statistics will release August data for consumer prices. Expectations are for continued softness pretty much across the board, which is what markets are rooting for if they truly want to see the Federal Open Market Committee focus solely on their full-employment mandate. It would be nice if the committee could reduce the target range for the Fed Funds Rate without concern that doing so might reawaken the need to reassert itself in its year and a half long focus on its price stability mandate. 

Consensus view for this morning's consumer price index print is for month-over-month growth of 0.2% both at the headline and at the core. This would be in line, in both cases, with the 0.2% experienced in July. On a year-over-year basis, core CPI is expected to cross the tape at growth of 2.6%, which would be in line with July's pace. At the headline, due to the drop in gasoline prices, estimates are for a year-over-year drop from July's 2.9% pace to 2.6%. The Cleveland Fed's inflation nowcast shows month-over-month August CPI up 0,2% at the headline and up 0.26% at the core. Cleveland shows year-over-year August CPI up 2.56% at the core and up 3.21% at the headline. 

Bear in mind, that we expect consumer-level inflation to accelerate again somewhat late 2024 into early 2025. We'll ultimately see how that plays out and how that impacts the Fed's ability to stay the course, once kicking off its change in the trajectory for forward-looking monetary policy next week.

Tuesday's Marketplace 

Markets appeared to behave tentatively on Tuesday. Capital flowed into Treasury securities ahead of this morning's macroeconomic data, and this afternoon's auction of new U.S. Ten Year paper. That Ten Year Note paid 3.65% by day's end. The U.S. Two Year Note went out on Tuesday yielding 3.61%. As the zero-dark hours pass on Wednesday morning, I see those two products yielding 3.61% and 3.57% respectively, maintaining a positive spread as demand has kept up through the overnight session.

Equities sold off hard about 90 minutes into the regular Tuesday trading session, and then rallied over the final four hours of that session, mostly closing in the ballpark of where they had opened, which had been slightly higher than Monday's closing prices. The S&P 500 ended Tuesday up 0.45% ... while the Nasdaq Composite gained 0.84%. The small cap, and mid-cap indexes all closed down small as did the Dow Transports. 

If there was a pronounced diversion in equity performance on Tuesday, it was between the semiconductors and the financials. The KBW Banks surrendered 1.84% for the day as the Philadelphia Semis gained 1.19%. All told, seven of the 11 S&P sector SPDR exchange-traded funds gained ground on the session led by the real estate investment trusts XLRE and Tech XLK, while four of those funds closed lower, led in that direction by Energy XLE and of course, the Financials XLF.

Sloppy Breadth 

Breadth was sloppy on Tuesday. Winners beat losers by the slimmest of margins at both the New York Stock Exchange and the Nasdaq on the day. While advancing volume took a 58.8% share of composite Nasdaq-listed trading volume, however, advancing volume only managed a 38.6% share of composite NYSE-listed activity. Making things more confusing, aggregate trading volume actually increased small across NYSE-listings where advancing volume took a minority share but dropped 3.3% day over day across Nasdaq-listings, where the split had been positive for advancing trades.

Why the Banks? 

There was some good reason for the broad weakness in financials on Tuesday and in particular, across the banks. So, why did the ugly stick touch the banks on Tuesday? It really started on Monday when Goldman Sachs GS CEO David Solomon said that he expected third-quarter trading revenue at his firm to drop by 10%. GS was down 4.39% on Tuesday. 

•  JP Morgan JPM President Daniel Pinto spoke at an industry conference on Tuesday, as did many of his peers. Pinto referred to the $89.5 billion estimate for net interest income for his firm for next year "not very reasonable" and said it "will be lower." He also said that his firm would likely see investment banking fees rise just 15% and markets-driven revenue rise just 2% for the current quarter. That would be below expectations on both counts. JPM stock closed down 5.19%, its worst day in four years.

•  Morgan Stanley Co-President Dan Simkowski warned that revenue driven by his firm's merger advisory and IPO businesses (investment banking) would remain below historical averages as net interest income driven by the firm's wealth management business declines yet again. MS was down 1.59% on Tuesday.

• Bank of America BAC CEO Brian Moynihan also said that quarterly results for his firm in the investment banking space would come in lower than some expectations. Moynihan also said that the sales and trading business would likely increase by low single digits. BAC gave up 0.48% on Tuesday. 
• Then there was Ally Financial ALLY. Ally Financial informed investors that auto delinquencies and net charge-offs were up more than expected. This put the fear of recession in energy markets and dragged down other consumer facing lenders such as Capital One Financial COF and Synchrony Financial SYF. This despite the seemingly optimistic message brought to market earlier this week by SoFi Technologies SOFI CEO Anthony Noto. ALLY had its worst day since early 2020, giving up a jaw dropping 17.62%. COF was down 3.23%, as SYF dropped 4.19%. SOFI gave back just 0.42%.

Then There Was This... 

Federal Reserve Vice Chair for Supervision Michael Barr revealed on Tuesday, that U.S. regulators would make significant changes to a proposed set of banking regulations that would largely cut in half a planned increase to capital reserve requirement. For the largest banks the size of the increase would likely drop from the originally proposed 19% to something like 9%, but it's still an increase. Banks with under $250 billion in assets from credit risk and operational risk frameworks will be exempt and the increase will be smaller for smaller banks that are not exempt. Those banks would likely see an increase in their requirements of 3% to 4%.

Economics (All Times Eastern)

07:00 a.m. - MBA 30 Year Mortgage Rate (Weekly): Last 6.43%.

07:00 - MBA Mortgage Applications (Weekly): Last 1.6% w/w.

08:30 - CPI (Aug): Expecting 0.2% m/m, Last 0.2% m/m.

08:30 - Core CPI (Aug): Expecting 0.2% m/m, Last 0.2% m/m.

08:30 - CPI (Aug): Expecting 2.6% y/y, Last 2.9% y/y.

08:30 - Core CPI (Aug): Expecting 3.2% y/y, Last 3.2% y/y.

10:30 - Oil Inventories (Weekly): Last -6.873M.

10:30 - Gasoline Stocks (Weekly): Last +848K.

1:00 p.m.: Ten Year Note Auction: $39B.

The Fed (All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights (Consensus EPS Expectations)

After the Close: OXM (3.00)

At the time of publication, Guilfoyle was long SOFI equity.