Not only did it pass its first procedural vote in the Senate, it passed with broad, bipartisan support. The Chips for America (CHIPS) Act cleared its first procedural hurdle by a 64-34 vote in the US Senate late on Tuesday as legislators worked into the night negotiating other elements of a larger "competitiveness" bill known as the United States Innovation and Competition Act (USICA). The CHIPS Act, if passed into law, would provide roughly $52B in subsidies to encourage the building of semiconductor chip foundries on US soil, while also broadly investing in the industry domestically.
There is agreement on both sides of the political divide that onshoring as much manufacturing of chips as possible is a matter of national security. There is little dispute that the US needs to add more capacity at home in order to counter the supply chain issues that cropped up during and due to the pandemic, particularly at the pandemic's height. Final passage of this CHIPs bill, if it stands as is, could come as soon as early next week.
This procedural vote only needed a simple majority (51 votes) to pass, buy given that it passed with more than 60 votes (making it filibuster-proof), lawmakers set out to see how much support there was on the right for the increased spending asked for in the USICA Act for scientific research into such areas as quantum computing and artificial intelligence.
Why the hold up on the larger bill? The Senate USICA bill in its entirety, would authorize about $190B in spending in addition to the subsidies meant for the chip industry. The House version, passed earlier this year, would authorize $350B in new spending.
On That Note...
Treasury Secretary Janet Yellen continued her trip to eastern Asia, speaking from Seoul, South Korea on Tuesday after also speaking in Tokyo last week. Yellen talked up strengthening trade relationships with "trusted" allies... mentioning "friend-shoring" as an alternative to the present and recent past, and in cases where bringing production home is unrealistic. Yellen said, "Friend-shoring is about deepening relationships and diversifying our supply chains with a greater number of trusted partners to lower risks for our economy and theirs." Yellen added... "We cannot allow countries like China to use their market positions in key raw materials, technologies or products to disrupt our economy or exercise unwanted geopolitical leverage."
It's not like we weren't told. If you thought the action got hot as the broader equity indexes (as well as enough individual stocks) took back their 50 day SMAs, just wait till you see the action up around the 200 day SMA, should we get there. Portfolio managers typically add and shave exposure at these two levels. However, while the 50 day simple moving average is certainly key (Tuesday's action is but the latest example), there is no moving average in our financial universe that gets both portfolio and risk managers as fired up as does the 200 day SMA. For now, we'll celebrate what we have, and watch to see if the markets can hold this newly won ground.
Does this mean that the bottom is in? So many are asking. This action is certainly constructive. That's for sure. Markets created a tradable bottom in mid-June. That has been, and remains our narrative. Too much can still happen, and too much can still change, for us to go way out on a limb and force the issue. Take it as it comes. Right now, we have a market well off of its lows, being driven by cyclicals and technology. That's a very good thing.
The S&P 500 added 2.76% on Tuesday, and now stands down just 17.4% for the year. The S&P 500 closed last night up 8.25% from its June 17th low, and as mentioned... took back its 50 day SMA. Relative Strength has just ticked above "neutral", while the daily MACD continues to improve, albeit with 12 day and 26 day EMAs still stranded in negative territory.
There are a lot of similarities here. One notable difference, the Nasdaq Composite appears to have taken back that 50 day line with a little more vigor than has the S&P 500. The Nasdaq Composite rallied to the tune of 3.11% on Tuesday, and is now down 25.13% for 2022. This index closed last night up 10.87% from its June 16th low.
Remember that the Nasdaq Composite is composed of many technology names and smaller cap stocks as well. Both of these kinds of stocks have been strong. On Tuesday, the Russell 2000 soared 3.5%, took back its 50 day SMA, and now stands both down 19.86% year to date and up 9.63% from its June 16th low.
The Philadelphia Semiconductor Index screamed 4.61% higher on Tuesday, closing down 28.97% for 2022, but up a whopping 17.48% from the July 5th low. (Remember my pitchfork portfolio model for surviving these markets... Staples, Semis, Defense? Well, the semis have worked beyond perfection.) The "SOX" also took back its 50 day SMA on Tuesday, but just by a smidge.
Going up and down the list of US equity indices for Tuesday, about the only red I can find came from the VIX. The day was that good for the net long crowd. All 11 S&P sector-select SPDR ETFs shaded green for the session on Tuesday. Seven of the 11 sector ETFs gained at least 3% for the day, led by the Industrials (XLI) . In fact, for a second consecutive day, the top seven performing sectors were made up of the five cyclical and two growth sectors, while the bottom four places on the daily tables were taken by the four defensive sectors. That said, even those four defensive sectors showed gains, with the Utilities (XLU) finishing in last place at +0.64%.
Winners beat losers at the NYSE by about 5 to 1, and at the Nasdaq Market Site by roughly 7 to 2. Advancing volume took a commanding 89.4% share of composite NYSE-listed trade, and a 71.4% share of that metric for Nasdaq-listed names. Aggregate trading volume, while still not truly heavy, did increase day over day across NYSE-listings, Nasdaq-listings, and constituent names for both the S&P 500 and Nasdaq Composite.
Fact is that the Nasdaq Composite experienced its most heavily traded regular session of July. What you thought you heard was the sound of at least some portfolio managers who had been quiet, deciding that they may have missed the bottom. I am not saying that they definitely did. I am saying that some of them are now nervous.
The White House is warning that Russia is likely beginning to roll out plans to annex large parts of Ukraine currently under their control. US National Security Council head of strategic communications John Kirby spoke from the While House on Tuesday: "Already Russia is installing illegitimate proxy officials in the areas of Ukraine that are under its control, and we know their next moves. First, these proxy officials will arrange sham referenda on joining Russia, then Russia will use those sham referenda as a basis to try to claim annexation of sovereign Ukrainian territory."
Understanding that this follows the Russian playbook for the Crimean peninsula in 2014. Understanding that much of Ukrainian territory currently under Soviet occupation is in the east and in the south, and understanding that in peacetime, the agricultural base of Ukraine is fairly evenly spread throughout the country... I have a question. With Russia in control of much of Ukraine's bread basket, while also potentially in control of global access to trade via the Black Sea, what does this do to global food security, or rather insecurity going forward?
Opinion... NATO needs to secure the western half of Ukraine, establish a "no-fly" zone over "free" Ukraine and help reinforce the port city of Odessa.
Noticing Boeing's (BA) success in Farnborough? On Monday, Delta Air Lines (DAL) placed an order for 100 737 MAX jets, which is the latest version of that aircraft, with options to buy 30 more. On Tuesday, private investment firm 777 Partners decided to purchase 30 737 MAX 8 jets in December with a commitment to purchase 36 more at a later date. 777 Partners will try to place these jets with discount carriers. Then, also on Tuesday, Boeing sold five 787 Dreamliners to aircraft leasing company AerCap Holdings (AER) . Deliveries of the 787 have been halted for the most part for almost two years. Is the worm about to turn? It appears it already has.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 5.74%.
07:00 - MBA Mortgage Applications (Weekly): Last -1.7%.
10:00 - Existing Home Sales (Jun): Expecting 5.39M, Last 5.41M SSAR.
10:30 - Oil Inventories (Weekly): Last +3.254M.
10:30 - Gasoline Stocks (Weekly): Last +5.825M.
13:00 - Twenty Year Bond Auction: $14B.
The Fed (All Times Eastern)
Fed Blackout Period.