Remembering September 11, 2001.
Sometimes it feels like two lifetimes ago. Sometimes I'm still there. In the dark. Trying to step over whatever all of this stuff is. Sometimes I can think about it with not too much difficulty. Sometimes I picture the faces of friends and acquaintances that never came home from work that day. I try to imagine their terror. When did they know it was over? Did they know? Then I see one friend's face in particular. We know how he died. I can hardly continue with this morning piece thinking about his death. The worst. The absolute worst death a man who loved his wife and kids could die.
I stayed at my post that day through the fall of both towers. First they evacuated the NYSE. Then there was so much debris falling from the sky. Papers floated through the air. Some of it burnt. Then a book hit the ground...still on fire. Then a shoe. A half naked man ran down Wall Street. What clothing he still wore was torn and burnt. Then real heavy debris started hitting the ground. My group, which was maybe a dozen of us at this point, forced our way past the guards and back into the NYSE. The guards did not try to stop anyone.
Then the first earthquake hit. There would be two. I had been on the phone. "Tell my children I love them" was the last thing my wife heard from me for maybe 10 hours. It still haunts her. I could not find a phone that worked or get a cell signal until I had walked to Canarsie, Brooklyn. My friend's apartment. I still think of a terrified police officer who would not stop screaming. I still think of a fireman that walked past me in the pitch black of what had been a sunny day. Neither of us saw each other until we almost bumped into each other. I remember tearing tee shirts and dress shirts into strips and making them into makeshift gas masks. Our group had reached 40 or 50 at this point.
I still think of those F-16 Falcons that had been sent from Maine that got there 8 minutes too late. We could hear them, but not see them. I think of the fighter pilots who had to watch what happened from above and wonder what I would have done if ordered to shoot down a civilian jetliner. I don't have an answer for that one. I still think of the people I saw crying as I crossed the Brooklyn Bridge, and that one last explosion that came from the direction of the Towers after they had already fallen that actually swayed that old bridge.
My friend in Canarsie tried to get me to the Long Island Railroad terminal in Jamaica, Queens. He got us east alright. Nothing was going west except for military convoys. I had already been a veteran. It hit me as those convoys went towards Manhattan. We were at war. These guys were from the legendary "Fighting Irish".... the 69th NY Infantry Regiment. Still defending us all. Still standing up for those who can't. Through the Civil War, through World War I and World War II. The Regiment with more battle streamers than any unit in the history of the United States Army, despite "just" being a National Guard unit, was on the move. Ultimately, that same unit would also be adding a new middle-aged sergeant after a 22 year break in service.
It would take my friend six hours to get from Queens back to Brooklyn that night. I stepped onto a Long Island bound train in Jamaica, Queens. It was mostly empty. Except for 15 or 20 girls wearing Catholic high school uniforms chatting nervously among themselves. They all stopped talking at once and stared at me. I had no idea until that moment. That my clothes, face, hair and shoes were covered in the thick powder of pulverized building materials.
I started out not wanting to even write about this today. I hate this day. I hate it. I hate it. I hate it. Except for naming names, I have already told you way too much. I guess that's okay though. Someone has to not let others forget. Someone has to let the people who came later know that it wasn't just two buildings. It was two towers. Seven buildings were destroyed. The actual fire would burn into December 2001. The putrid smell of death lasted more like two years in the subways and in the neighborhood in general.
God bless you all. May light shine perpetually upon the souls lost that day and also those lost because of that day over the past 22 years. The loss of life continues. The scars you can't see are forever. Finally, God bless America.
The rockets red glare
The bombs bursting in air
Gave proof through the night
That our flag was still there.
For those unaware
Is my flag.
.... and my flag is still there.
"Short Weeks Are Always Long"
The saying is nearly as old as Wall Street itself. Many of you have either heard me say this or have read me write this catchy little adage over the years. Originally, this saying came about because those of us living off of a P/L or working for commission really don't appreciate market holidays the same way salaried employees might. There are weeks where we can use that "lost" day.
I am sure that many of us would have liked to have had a fifth day last week. Equities suffered a broad four day selloff coming off of Labor Day, putting an end to the two week rally that has almost let us forget how ugly the first few weeks of August had been.
Where is this pressure coming from? Spin the wheel. The choices are vast. Number one last week had to be the report in the Wall Street Journal that Beijing would ban Chinese government employees and employers of government contractors from using foreign made smartphones or electronic devices at their offices or worksites. This, of course, was seen as a shot across the bow at Apple (AAPL) .
Apple had been projected to sell 45M+ iPhones in the greater China region this year, and the Chinese telecom giant Huawei had just released its first new smartphone in years a week earlier. For the second quarter of this year, Chinese consumers accounted for 24% of all iPhone sales. US consumers? "just" 21%. The Chinese market is key to iPhone sales and iPhone sales are still key to Apple's success.
We can talk about Apple services and the Apple ecosystem all we want. The iPhone is the key that opens the door to those higher margin businesses that has afforded Apple a much higher valuation than it ever had when it was primarily a consumer hardware business
Obviously, the Chinese government, with its economy hitting on far fewer than all cylinders, would like to see Chinese consumers purchase goods made by Chinese companies. They also can not be blind to the fact that due to their own inconsistent policies during the pandemic, Apple and others have been forced to diversify their manufacturing base. Apple now makes goods in Vietnam, India and elsewhere. In addition, Apple has recently been focusing its attention on Indian consumers, as they are plentiful, and live in a nation not likely to change the rules of the game on an all too often basis.
As a week that was light on earnings and thin in the release of macroeconomic data-points wore on, yields remained elevated, and the US Dollar Index gained in strength. Two things that usually show up as obstacles that stand in between the present and what would be a further stretching of equity valuations. Where a week earlier, it had appeared that almost all of the macro had printed on the softer side of expectations, the Atlanta Fed's GDP Now model still stands at growth of an all too hot 5.6% q/q, SAAR for the current quarter.
Too hot for whom? Too hot for the Fed, that's who. Suddenly, or maybe not really so suddenly, the talk around the future trajectory for monetary policy has evolved from "when will the Fed be forced to cut short-term rates" to "how long will the Fed have to keep rates up here?" to "maybe the Fed will have to raise rates a little further."
Complicating matters, energy prices, specifically, crude oil prices have soared as both Saudi Arabia and Russia have agreed to extend production cuts. It's not everyday, or should I say even every week, that oil prices are able to rise as they did last week in unison with a strengthening US dollar. That my friends, is as inflationary as it gets at the headline level.
But Wait, There's More...
US financial markets are struggling with inflation, especially energy sector inflation here at home and uncertainty in forward looking monetary policy. We know this, but global economies are also being forced to price in economic weakness in not just China but also Europe and the UK as well. Seasonally, this is the weakest time of the year for investment. The ECB will have to make a policy decision this Thursday as inflation in the eurozone still runs too high and as that economy teeters just on the edge of entering into recession.
We're a long way out from Q3 earnings season right now. JP Morgan (JPM) , Citigroup (C) , and Wells Fargo (WFC) will all report on Friday, October 13th (Feeling lucky?), so the unofficial kickoff of that season is still more than a month away. Using FactSet as my guide (New readers: I regularly rely heavily on FactSet for my earnings related information.), the current (third) quarter is currently seen growing S&P 500 earnings by 0.5% on revenue growth of 1.6%.
If this result or better comes to pass, it would put an end to a three quarter losing streak for the S&P 500. By losing streak, I mean three consecutive quarters of negative year over year earnings growth. Consensus view is for a better than pretty good fourth quarter for the S&P 500... earnings growth of 8.6% on revenue growth of 2.4%. That would allow the S&P 500 for calendar year 2023 to end up growing earnings 1.2% and revenues by 2.4%.
Looking ahead (still using data provided by FactSet), the current quarter is expected to show eight sectors with positive earnings growth led by Communication Services (+32.6%) and three sectors sliding into year over year earnings contraction, led to the downside by Energy (-40%). As far as revenue is concerned, Consumer Discretionaries are expected to lead nine sectors into positive territory at just +7%, while Energy will again be the underperformer at -19.7%.
Currently, the S&P 500 trades at 18.6 times 12 month forward looking earnings. That's down from 18.8 times a week ago. This is just below the S&P's five year average valuation of 18.7 times and well above the ten year average of 17.4 times.
US equity markets had a lousy week last week, though it was still mostly on light trading volume. Not every single day was slow though. As readers can see below, the red candle days seemed to trade on heavier trading volume than did "up" sessions. Readers will note here that the Nasdaq Composite had successfully formed a double top reversal (with a 13,997 pivot) in late July and then sold off into mid to late July. This is not something new.
Now, unlike what we saw one week ago at this time, the index has now failed just after rallying past that mid-summer reversal's pivot point. That's a negative as it means resistance had been set up algorithmically to react at that spot. Making matters worse, just a few days after this index had successfully taken back its 21 day EMA (exponential moving average) and 50 day SMA (simple moving average), it turned around and surrendered those two lines, closing out last week below both of them. A failure to retake the 50 day SMA in particular, could set up an acceleration in this correction as portfolio managers will not be likely to add close to that line as it would then become first line resistance.
The S&P 500 also had a tough week. Readers will see how what has started to look like a head and shoulders (as pointed out by Doug Kass) pattern has evolved. Is it meaningful that the right shoulder almost produced a breakout the week prior to last? In doing so, that right shoulder ended up apexing at a higher level than had the left shoulder? Yes, that is possibly meaningful. 4335 is the level I'm watching. That was neckline support for the development of that right shoulder regardless of where it peaked. You crack 4335 to the downside, and you probably crack the S&P 500.
Let's take a look at the small-caps, as they were hit the hardest last week...
The iShares Russell 2000 ETF (IWM) now also looks, at least to me, to have developed a head and shoulders pattern with a "higher" right shoulder. The difference here is that the 200 day SMA has been twice tested at what had been neckline support for the development of that right shoulder. You crack support there, and strong dollar or not, the small-caps could be headed for an appointment with the ugly stick. Losing the 200 day line generally means losing a considerable portion of professional long side exposure.
For the past week, the S&P 500 gave back 1.29%, after gaining back just 0.14% on Friday. The S&P 500 closed last week up 16.1% year to date. The Nasdaq Composite was hit for a loss of 1.93% over the past four business days, after gaining back just 0.09% on Friday. This puts the Nasdaq Composite up 31.48% for 2023. The higher tech, more narrowly focused Nasdaq 100 closed down 1.36% last week. The Nasdaq 100 remains up a still impressive 39.68% year to date.
The Philadelphia Semiconductor Index was not our leader last week. That index did however give up 3.17% over the past week. after tacking on the loss of an additional 0.45% on Friday. The "SOX" stands up 40.83% for the year.
That leaves us with the Russell 2000. The small-cap index ceded a mere 0.23% on Friday, but a nasty 3.61% for the week. The Russell 2000 now stands up 5.13% for 2023. Other equity indexes of note that were smacked around last week include the KBW Bank Index (-2.4%), the Dow Transports (-3.96%) and the S&P Small Cap 600 (-4.34%). It was clearly not a very good period for small-caps.
Seven of the 11 S&P sector-select SPDR ETFs shaded green this past Friday, with two of these SPDRs closing in the red and two closing unchanged. Not sure if two unchanged sectors over a full day is a post-decimalization record or anything, but this is certainly rather rare. Nine of these sector funds shaded red for the week. For the week, Energy (XLE) easily led the winners at +1.44%. Utilities (XLU) were also green. Industrials (XLI) and Materials (XLB) were the two worst performing sectors for the period at -2.91% and -2.41%, respectively.
The Week Ahead...
More Crickets? Only from the Fed this week. The big events will be Apple's launch event on Tuesday, and Wednesday's release of August CPI, but there will be more than that to look at and listen to.
- The Fed
The Fed's media "blackout period" ahead of the September 20th policy decisions went into effect on Saturday. So, no Fed speakers this week into next. At least we have each other, and at least we have that. We will still be tracking any movement in Fed Funds futures markets trading in Chicago throughout the week.
As Sunday night slowly turned into Monday morning, I can see that market still pricing in a 93% probability for no rate change at all on September 20th, and a 58% likelihood that the FOMC is completely done raising rates for this cycle. This same market is also pricing in a 57% probability that the Fed starts cutting rates by June 12th, which would be the first of four rate cuts (according to these markets) made throughout the back half of calendar year 2024.
- Macro Attack
This will be a much more active week than was last week, from a macroeconomic perspective. The truly key events will be the auctions of $35B worth of US Ten Year paper on Tuesday and of $20B worth of US Thirty Year Bonds on Wednesday. As far as data is concerned, August CPI hits the tape on Wednesday. That's the one release that could move the above Fed Funds futures market more than anything else.
On Thursday, we'll see the weekly print for both initial and continuing jobless claims, as well as August PPI. Once Friday rolls around, we'll be on the lookout for August Industrial Production, and Capacity Utilization. We'll also hear from the University of Michigan concerning consumer sentiment, as well as both one year and five year consumer inflation expectations. The Atlanta Fed is expected to revise their third quarter model for GDP on Thursday of this week.
As far as special events go, we have a couple of huge ones on this week's docket. Apple will hold its annual late summer/early autumn product launch event on Tuesday, which has been dubbed "Wonderlust." Expectations are for the unveiling of the iPhone 15 as well as a new and improved Apple Watch. Not expected as of yet, will be the Vision Pro Mixed Reality Headsets that we know are eventually coming.
Salesforce (CRM) will also hold that firm's annual "Dreamforce" conference this Tuesday. Nike (NKE) holds its annual meeting Tuesday as well, likely making Tuesday a day full of corporate headline making.
The Morgan Stanley Global Healthcare Conference is set for this week as well. Investors will also be on the lookout for a potential pricing for any Arm Holdings IPO as well as a possible strike by the United Auto Workers. That would impact General Motors (GM) , Ford Motor (F) and Stellantis (STLA) , as well as their 150K workers in aggregate that happen to belong to that labor union.
Economics (All Times Eastern)
No significant domestic macroeconomic data-points scheduled for release.
The Fed (All Times Eastern)
Fed Blackout Period.