Wall Street's Words of the Day: Defensive and Pensive
We saw a rotation into defensive stocks as traders got serious while they await Nvidia's earnings; Also we have confirmation of an ongoing industrial recession.
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Is the market getting cautious, or pensive? Does it matter?
There was just a whiff of risk-off behavior in the air so far this week -- the impulse was not overwhelming. Treasury securities were down (yields up) small. That tells us that there was no real fear across the marketplace. There was a mild rotation out of tech stocks, semiconductors most notably, ahead of this Wednesday afternoon's expected earnings release by elite chip designer Nvidia NVDA into more defensive sectors.
So, I guess I'll go with caution more than pensiveness, as caution implies an avoidance of danger, while to be pensive one must first be thoughtful. I doubt just how much human interaction there was up and down Wall Street with trading volume as light as it was on the Monday of the last real vacation week of the summer.
Marketplace Boxing Match
Most of our favorite, or less than favorite, equity indexes traded moderately lower on Monday. Only the Dow Industrials (nobody cares) and Dow Utilities closed out the day on the plus side, as the flow of capital did favor defensive sectors. The S&P 500 gave up just 0.32% for the session, but the Nasdaq Composite (-0.85%) and Nasdaq 100 (-1.04%) both got punched in the nose. The Philadelphia Semiconductor Index led tech lower and was slapped around for a loss of 2.51%.
Arm Holdings ARM and Marvell Technology MRVL led the semis to the downside at daily losses of 4.96% and 4.2% respectively. Elsewhere, small cap stocks on the whole, ran in place as the Russell 2000 gave up only 0.04% and the S&P 600 surrendered just 0.14%.
Six S&P sectors SPDR exchange-traded funds of 11 ended the day in the green, with Energy XLE out in front, gaining 0.9%. Defensive sectors such as the Staples XLP and the Utilities XLU finished close behind. As inferred above, Technology XLK easily led to the downside.
Breadth was mixed on Monday. Winners beat losers by about 5 to 4 at the New York Stock Exchange, while losers beat winners by a rough 6 to 5 at the Nasdaq. Advancing volume took a 54.2% share of composite Nasdaq-listed trade and a 52.4% share of composite NYSE-listed activity. It is somewhat positive that on what was seen as a "down" day at the index level, a majority of sector SPDRs closed in the green as a majority share of trade for names listed at both exchanges printed to the upside.
That said, aggregate trade was thin. Trading volume was down 10.7% day over day from Friday for NYSE-listed securities, down an even 5% day over day for Nasdaq listed securities and fell short of the 50-day trading volume simple moving average of the S&P 500 for a 12th consecutive trading day. In fact, on Monday, aggregate trade across the S&P 500 fell a whopping 23% short of that moving average. Does that mean that Monday's trade was less than meaningful from a price discovery perspective? Yeah, sort of. Your prices are still your prices, but in the grand scheme of things Monday will not go down in history.
The Macro: Big Weird
The Census Bureau released the July data for Durable Goods Orders on Monday and wow ... that was a weird report. At the headline, July appeared to be strong, clocking in at month-over-month growth of 9.9%, well ahead of expectations for about 5% and up from June's downwardly revised print of -6.9%. But not including transportation (because planes are costly), the print hit the tape at a decline of 0.2%, down from growth of 0.1% for June. Most importantly, core capital goods orders, which delete both defense purchases as well as transportation purchases, in the July print landed at a decline of 0.1% month over month, down from a June print that was revised from 1.0% to 0.5% growth, making this July print even worse.
Why are core capital goods orders seen as the most important print within this report? Simple, this item is a proxy for national private sector business investment. Five of the past eight, seven of the past 11 and 12 of the past 19 months have seen this item contract from the prior release. This confirms that the U.S. economy has been in at least an industrial recession for about two years now.
This confirms that the U.S. economy has been in at least an industrial recession for about two years now.
Very interestingly, the Atlanta Fed chose to leave its real-time GDPNow model for the third quarter at growth of 2.0%, which is where it was coming into the event, just slightly tweaking the input for net exports down small, but not enough to change the model. Atlanta will now likely revise the model next on Friday after July Personal Income and Outlays cross the tape.
Mortgage Missive
On Monday, Bloomberg news reported that economists Mahir Rasheed and James Finucane at the research arm of insurance firm Swiss Re, estimated that mortgage rates locked in at low levels afforded U.S. consumers approximately $600 billion in spending cash since 2022. As the Federal Open Market Committee increased short-term interest rates over that time, according to this report, this aided some consumers in being a bit more resilient in the face of increased borrowing costs. Effectively, this muffled the impact of those rate hikes.
The concern is now that moving forward, with median home prices up 60% since the start of the pandemic and credit card delinquencies above pre-pandemic levels, that an FOMC that reduces short-term rates, even aggressively, may only see a limited benefit from this easier policy.
Daly Speaks...
There certainly is not a lot of "Fed Speak" this week, coming out of Jackson Hole and going into a three-day weekend. That said, San Francisco Fed Pres. Mary Daly did appear on Bloomberg TV with Mike McKee. Daly echoed what Fed Chair Jerome Powell told us on Friday. She said, "The time to adjust policy is upon us." Then Daly added... "We don't want to get ourselves into a situation where we're keeping policy highly restrictive into a slowing economy."
Oddly enough, Daly also mentioned that the Fed must still bring consumer level inflation down to 2% but that she did not want the central bank to harm labor markets. That's all well and good. Heck, I want to live in a castle and ride around on a horse. The Fed's dual mandate, by design, forces policy makers at inflection points on the economic timeline to rob Peter to pay Paul. Sometimes, actually most times, focusing on one mandate will have to come at the expense of the other. Daly declined to say whether or not she would favor a 50-basis point rate cut on Sept.18.
Less Than Two Weeks ...
Apple AAPL announced on Monday that it will hold a press conference on Sept. 9 at corporate headquarters in Cupertino, Calif., to announce a new lineup of iPhones and Apple Watches. The event will be live streamed on its website and on YouTube. The event had been planned for Sept. 10, but the company moved it up one day, as there is a presidential debate scheduled for the 10. These iPhones, the 16 series, are expected to be the first released with some AI capabilities inside them. How excited I am. Just kidding. I couldn't care less if my phone has some AI inside.
Economics (All Times Eastern)
8:55 a.m. - Redbook (Weekly): Last 4.9% y/y.
9:00 - Case-Shiller HPI (June): Expecting 1.7% y/y, Last 1.7% y/y.
9:00 - FHFA HPI (June): Expecting 0.2% m/m, Last 0.0% m/m.
10:00 - CB Consumer Confidence (Aug): Expecting 100.1, Last 100.3.
10:00 - Richmond Fed Manufacturing Index (Aug): Expecting -14, Last -17.
4:30 p.m. - API Oil Inventories (Weekly): Last +347K.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: BOX (0.41), JWN (0.73), PVH (2.28), S (0.00)
At the time of publication, Guilfoyle was long S, NVDA, XLU.
