"We are put on this earth to have a good time. This makes other people feel good. And the cycle continues."
- Wolfman Jack (Robert Weston Smith), American disc jockey
And The Cycle Continues...
For at least a second day, cyclicals lit the path ahead. Even as various macro-economic data-points continue to hit the tape in mixed fashion, sending mixed signals. On Wednesday morning the Bureau of Labor Statistics released July data for consumer level pricing. The headline number... 5.4% year over year growth, and 4.3% growth at the core, were still quite hot. The month over month data, less so. Investors, I mean algorithms found comfort in the evolution of this series. Comfort in the fact that the various components that comprise the CPI are evolving in such a way as to actually support the Federal Reserve's "transitory" narrative when it comes to inflation.
This resulted in a strong auction of $41 billion worth of US Ten Year Notes, compressing yield spreads just a tad. For sector select SPDR ETFs. This also resulted in gains of more than 1% for the Materials (XLB) , Industrials (XLI) and Financial (XLF) funds. The Dow Jones Industrial Average and S&P 500 hit new records, again. The Dow Transports, though. Wow. That index soared another 1.82%, taking back its own 21 day EMA and 50 day SMA on successive days.
Even more impressive might be that nine stocks constituent to the DJTA outperformed the index... Ryder (R) , JB Hunt (JBHT) , CSX (CSX) , Norfolk Southern (NSC) , JetBlue (JBLU) , Union Pacific (UNP) , Delta Air (DAL) , Matson (MATX) , and FedEx (FDX) . Is there a theme to these nine names? Not really. Three rails, two airlines, transportation management, trucking, maritime, and delivery services are all represented. Game on for economic growth?
Not So Fast
Delta still hunts. Human interaction ebbs. The IEA (International Energy Agency) predicts that the virus will negatively impact global demand for crude over the rest of 2021 more so than previously thought. The IEA cut their own 2021 demand forecast by 100K barrels per day. So, no. There has not been some sudden belief that prospects for either U.S. or global economic growth has improved. Quite the contrary as numbers for Chinese growth, an expected driver, have been coming in.
This was more about the July CPI putting the Federal Reserve into a position where the central bank can take a more measured approach as they head into Jackson Hole later this month. There will be no visible urgency to address inflation that could be misinterpreted as panic. Yes, I saw what Kansas City Fed Pres. Esther George said on Wednesday about removing stimulus. One must understand that George is as close to a perma-hawk as exists in modern central banking. She also does not vote this year. Neither does Cleveland's Loretta Mester who also tends to lean hawkish. Not that George is wrong. Heck, I tend to agree with her. I just also understand that the way of the world is different now. I was raised as an Austrian style economist. That said, those ways are for now confined to textbooks, and will be kept there until some improbable day when the political will of an entire people shifts.
For the present, what investors saw in July was prices for transportation services and used vehicles that appeared well past-peak, as well as still high prices for energy knowing that oil prices have come in during August from July's levels. Of course there will be some stickiness... structural shifts if you will, such as wage growth at the lower bound of the income distribution curve as well as the short to medium-term rapid expansion fiscal policy.
Even as Transports and cyclicals propped up the Dow Industrials and S&P 500, it was the small to mid-cap stocks that kept the Nasdaq Composite in the ballgame (down small) and not technology. While the Russell 2000 continues to trade just below the 50 day SMA for that index, the S&P Small Cap 600 took back that level on Wednesday...
...While the S&P Mid-Cap 400 cemented support at that line earlier in the week, and moved on as the 21 day EMA crossed above the 50 day SMA, creating a mini or swing traders' "golden cross"...
"Just One More Thing"
- Peter Falk as Det. Columbo
Bear in mind that while market breadth appeared strong across both of New York's primary equity exchanges in terms of winners versus losers and advancing volume versus declining volume, the volume remained light. Especially light at the New York Stock Exchange. Aggregate trading volume for NYSE listed names (which is where many of Wednesday's winners are domiciled) was down 9% from Tuesday's already light totals.
In other words everyone is playing the same game without much conviction. PMs are not adding in size to portfolio longs. They are trading.
You Kids Notice...
...That President Biden's national security adviser Jake Sullivan said in a statement early on Wednesday that recent OPEC+ production increases were not enough to offset earlier production cuts. "At a critical moment in the global recovery, this is simply not enough." Sullivan adds that the U.S. is engaged with certain members of the OPEC+ alliance on the importance of setting competitive market pricing.
What? I repeat... What? These guys are aware that the U.S. was energy independent less than a year and a half ago, right? Maybe there are some kids in the Permian or in the Dakotas who might like to sell some oil? You know our neighbors to the north? Yeah, they sell oil too. Asking OPEC+ to increase production? Good thing we don't need coal. We'd be buying it from Australia instead of West Virginia and Pennsylvania.
Chutes and Ladders
First. Delta rages. We are going to need a whole lot of jabs. Up goes Pfizer (PFE) , but much more dramatically, up went Moderna (MRNA) , and up went BioNTech (BNTX) . Up, up, and away... in my beautiful balloon. Then, early on Wednesday, the PRAC (Pharmacovigilance Risk Assessment Committee), which is part of the EMA (European Medicines Agency) made news by starting an official assessment of certain ailments possibly related to the Moderna vaccine that present as skin allergies or protein filtration issues with the kidneys. Down went Frazier. Down went Moderna. Down went BioNTech...
...All the way to their respective 21 day lines. Is this where they find support? NBC News reported on Wednesday night that the FDA is prepared to amend the emergency use authorizations for the Moderna and Pfizer/BioNTech jabs, granting access to booster shots for the immunocompromised. This is a positive, as those folks in many cases experienced less vaccine provoked immunity to COVID in the first place.
Next, I would think, would be to grant access to boosters for the elderly who were immunized the earliest as we know that protection ebbs over time. Then, with any luck... the rest of us. I notice that in San Francisco, the Department of Health is allowing certain individuals who received the single jab Johnson & Johnson (JNJ) vaccine to get a second shot of either one of the other two vaccines available here in the States. Not really such a bad idea.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 373K, Last 385K.
08:30 - Continuing Claims (Weekly): Last 2.93M.
08:30 - PPI (July): Expecting 7.3% y/y, Last 7.3% y/y.
08:30 - Core PPI (July): Expecting 5.6% y/y, Last 5.6% y/y.
10:30 - Natural Gas Inventories (Weekly): Last +13B cf.
13:00 - Thirty Year Bond Auction: $27B.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)