Fed and Circuses
Let's check on the market's response to the reported Israel-Hezbollah ceasefire deal, crude's selloff, Wells Fargo and ... yes ... those silly Fed minutes.
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Domestic financial markets waffled a bit early on Tuesday. That is until later in the afternoon, when news broke that Israel had been able to reach an agreement with the Lebanese terrorist organization Hezbollah for a 60-day ceasefire. Optimism sprung across that part of the world that this could be the first step toward a broader peace agreement or at least an expanded ceasefire that might include known Hezbollah allies, Hamas in the Gaza Strip and Iran.
Israeli Prime Minister Benjamin Netanyahu announced on Tuesday that he would bring the proposed deal with Hezbollah to a vote by that nation's security cabinet, which took very little time getting behind the idea. The U.S. is known to have participated in the process as Biden administration envoy Amos Hochstein acted as a "go-between" speaking to both sides. U.S. Pres. Biden and French Pres. Emmanuel Macron issued a joint statement, where the two NATO powers pledged to work toward ensuring the agreement is enforced and further violence is prevented.
Markets
Tuesday price discovery did not surprise very much. Crude sold off mildly on the above-mentioned ceasefire even as the U.S. Dollar Index took a break. Treasuries backed up just a little as some minor level of safe haven investment came off. The U.S. Ten Year Note paid 4.31% by day's end, up five basis points from where it went out 24 hours earlier. The yield for the U.S. Two Year Note remained around 4.26% as the normalization of the spread re-asserted itself.
As for equities, after the S&P 500 and Nasdaq Composite both enjoyed a "confirmation" day on Monday, both indexes traded higher. The S&P 500 and Nasdaq Composite gained 0.57% and 0.63% respectively. The rally, however, was limited in scope as broader markets struggled. The three small to midcap indexes ranged from -0.44% to -0.89% for the day as several specialized industry indexes also ran into some pressure.
The Dow Transports, Philadelphia Semiconductors and KBW Banks all posted red candle days. At least some of this was due to the news that had broken the night before that Pres.-Elect Trump was willing to increase tariffs against Mexico, Canada, and China (the three largest U.S. trading partners) as a means toward getting help in combating the flow of illegal persons and drugs into the nation.
Breadth
U.S. equities were strong enough at the large-cap level as discussed above. Nine of the 11 S&P sector SPDR exchange-traded funds shaded into the green on Tuesday. Interestingly though, four of the top five performers were sector funds that could be defined as defensive in nature. The Utilities XLU led the way, up 1.59% for the session. The cyclicals took the bottom five spots on the daily performance tables, as Materials XLB finished in the basement at -0.75%.
That could have been an algorithmic set-up going into Wednesday morning, which readers can see will be one of the busiest slates of economic data releases one will ever see for a single day. Readers should keep in mind that the day ahead of Thanksgiving is typically a positive day for U.S. equity markets despite the defensive activity on Tuesday.
Interestingly, on Tuesday, losers beat winners by a rough 2-to-1 margin at the NYSE and by about 3 to 2 at the Nasdaq, as large caps were not positive enough to carry overall breadth. Advancing volume took a 35.4% share of composite NYSE-listed activity and a 43% share of composite Nasdaq-listed trade on Tuesday.
One positive would be that the negative breadth occurred on dramatically decreased aggregate trading volume as it appears that some traders may have already headed for their holiday destinations. Aggregate trade was down 32% on a day-over-day basis across NYSE-listed securities and down 19.2% for Nasdaq-listed securities. I have always wondered why trading volume still lets up around holidays now that humans account for so little trading volume.
Guess enough traders still don't completely trust their algos to hum along completely unsupervised. That in itself, I guess, is a small win for the human race.
Fed and Circuses
How about those Fed minutes? On Tuesday afternoon, the Federal Open Market Committee released the minutes of the policy meeting that culminated on Nov. 7 with a quarter-percentage point cut made to the range for the Fed Funds Rate. Nothing says that this crew has absolutely no clue more than the following two quotes. You guys really should read this stuff and not just the media reports covering these things. The actual text can be quite comedic.
On Page 11 of 17....
"In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time."
On Page 12 of 17....
"In discussing the positioning of monetary policy in response to potential changes in the balance of risks, some participants noted that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated, and some remarked that policy easing could be accelerated if the labor market turned down or economic activity faltered."
It's so odd how one can read the latest FOMC minutes and simultaneously think of that little car at the circus that parks in the middle of the center ring (over a covered hole in the ground) and about 30 clowns pour out of the vehicle in single file. I can't be the only one. Can I?
Well Wells ...
The news that Reuters reported on Tuesday that Wells Fargo WFC could be in the final stages of the years-long process to finally getting the asset cap imposed by the Fed in 2018 lifted. The cap was put in place in response to the scandals that were discovered at the bank going back to, or at least were discovered in 2016.
Cleaning up the bank's reputation and getting that restrictive cap lifted has been job one for CEO Charlie Scharf who has been on the job since late September 2019. The piece at Reuters implies that this could happen as soon as the first half of 2025.
Tough Night for Tech
After several retailers went to the tape on Tuesday morning with mixed results, it was tech's turn on Tuesday afternoon. CrowdStrike CRWD, Dell Technologies DELL, HP Inc HPQ and Workday WDAY all stepped to the plate after the closing bell, released their quarterly digits and all four got slapped around overnight. Back with more on this in a little bit.
Gobble, Gobble
For those who will be cutting out early today or won't be reading my other content later today, I would like to wish you all a Happy Thanksgiving. This is truly one of my favorite non-religious holidays. Enjoy the family. Enjoy the football. I'll see you at zero-dark thirty Friday morning. Rock & Roll.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.9%.
07:00 - MBA Mortgage Applications (Weekly): Last 1.7% w/w.
08:30 - Initial Jobless Claims (Weekly): Expecting 218K, Last 213K.
08:30 - Continuing Claims (Weekly): Last 1.908M.
08:30 - GDP Growth Rate (Q3-rev): Flashed 2.8% q/q SAAR.
08:30 - Personal Income (Oct): Expecting 0.3% m/m, Last 0.3% m/m.
08:30 - Consumer Spending (Oct): Expecting 0.4% m/m, Last 0.5% m/m.
08:30 - PCE Price Index (Oct): Expecting 0.2% m/m, Last 0.2% m/m.
08:30 - Core PCE Price Index (Oct): Expecting 0.2% m/m, Last 0.5% m/m.
08:30 - PCE Price Index (Oct): Expecting 2.2% y/y, Last 2.1% y/y.
08:30 - Core PCE Price Index (Oct): Expecting 2.7% y/y, Last 2.7% y/y.
08:30 - Durable Goods Orders (Oct): Expecting 0.2% m/m, Last -0.7% m/m.
08:30 - ex-Transportation (Oct): Expecting 0.4% m/m, Last 0.5% m/m.
08:30 - ex-Defense (Oct): Expecting -0.6% m/m, Last -1.1% m/m.
08:30 - Core Capital Goods Orders (Oct): Expecting 0.5% m/m, Last 0.7% m/m.
08:30 - Wholesale Inventories (Oct-adv): Expecting -0.1% m/m, Last -0.2% m/m.
09:45 - Chicago PMI (Nov): Expecting 44.9, Last 41.6.
10:00 - Pending Home Sales (Oct): Expecting -2.9% m/m, Last 7.4% m/m.
10:30 - Oil Inventories (Weekly): Last +545K.
10:30 - Gasoline Stocks (Weekly): Last +2.054M.
12:00 p.m. - Natural Gas Inventories (Weekly): Last -3B cf.
1:00 - Baker Hughes Total Rig Count (Weekly): Last 583.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 479.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: FRO (.38)
At the time of publication, Guilfoyle was long XLU, WFC, CRWD.
