On one hand, equity markets traded broadly lower on Monday. On the other hand, stocks here in the U.S. were actually remarkably resilient, mostly holding onto key territory taken as the major indexes all surged higher on Friday.
I don't think anyone came in on Monday morning looking for further gains after Thursday and Friday. I do think that it just might be encouraging that at least through day one of this new week, the S&P 500 stands well above 4,200 and the Nasdaq Composite stands well above 13,000.
There was some downward pressure on certain slices of the U.S. marketplace, such as the banks, in response to talk of increased reserve requirements for the largest members of that community, and the semiconductors, as those stocks have seen some retracement of their meteoric Nvidia ( NVDA) led generative AI-inspired run. That said, U.S. stocks overcame weaker-than-expected macroeconomic data on Monday as well as the announcement of Saudi Arabia's additional crude oil production cut, and the expected negative market reaction to Apple's ( AAPL) new products launch at this week's Worldwide Developers Conference.
Trading volume, just for the record, was not really there on Monday. As breadth turned bearish with losers outnumbering winners at both exchanges, and advancing volume taking a minority share at both exchanges, trading in the aggregate decreased for names listed at both of those major exchanges as well as across both the S&P 500 and Nasdaq Composite.
In short, portfolio managers did not feel pressed to take short-term profits on Monday and largely sat out the day's trading.
Apple WWDC
WWDC. Sounds like a professional wrestling operation. Instead, it refers to Apple's dog and pony show in Cupertino, California.
As expected by nearly everyone, Apple revealed its first new truly significant product line launch since releasing the Apple Watch in 2014. The "Apple Vision Pro" augmented reality headset device is similar looking in some ways to Meta's ( META) Quest, but does not make use of a joystick, the user instead making hand gestures to control the interface. The Apple device also has a two-way screen in front of the user's eyes, potentially allowing for real-world interaction while in operation.
This new device, expected to launch in early 2024, will retail for $3,499 putting it out of reach for most middle-class consumers. The headset will be made available at Apple stores and the company's website. In order to add a little more pizazz to the event, Walt Disney Company ( DIS) CEO Bob Iger appeared with Apple CEO Tim Cook on Monday and inferred that Disney+ would be available on these headsets from day one.
Apple also announced a larger MacBook Air and the Mac Studio, both using Apple's own M2 Ultra chip. In addition, Apple unveiled the iOS 17 operating system that will change some interfaces for iPhone users and the iPadOS 17 for iPad users.
Just a reminder. We warned Real Money readers last week and Action Alerts PLUS subscribers in a video on Monday morning that Apple may or may not sell off this week (on that front, I remain long this name, but I did make a sale on Monday), but the chart, below, implies that AAPL hits some trouble very soon, perhaps imminently.
I showed you last week this chart of Apple's rising narrowing wedge pattern, which is typically a pattern of bearish reversal. Notice that that on Monday, ahead of the announcement, AAPL tried to break out of this wedge to the upside. That failed and the stock came off of all-time highs, finishing lower on the day.
My idea, beyond making a small sale ahead of the announced coming of the headset, is to use the stock's 21-day exponential moving average (EMA) as a guide. It's been almost three months since this stock pierced that thin green line meaningfully to the downside and one has to go back to December to find an instance of a breach of this line holding for more than a couple of days.
Economic Slowdown
After Friday's BLS Employment Report that some pundits are still trying to sell as robust, the Institute for Supply Management released their non-manufacturing (service sector) survey for May. The headline print hit the tape at a disappointing, yet still slightly expansionary 50.3. Wall Street had been looking for something above 52.5.
Remember, the ISM Manufacturing PMI printed at an anemic 46.9 for May, which was a seventh consecutive month in a state of contraction. Understand that the manufacturing side of the economy has already been in recession.
We lose the much larger service sector, and I don't know how overall economic growth possibly avoids going negative. While New Orders for services remained expansionary (52.5), Employment sunk into contraction (49.2). Keep in mind, this survey covers roughly 77% of the U.S. economy and managers representing that 77% see employment as being in contraction.
What did Morgan Stanley ( MS) tell us on Monday? Strategists at the firm led by Andrew Sheets (not the somewhat perma-bearish Mike Wilson) see earnings per share for the S&P 500 dropping by 16% this year as "a deteriorating liquidity backdrop is likely to put downward pressure on equity valuations over the next three months." Sheets also sees slowing revenue growth and margin compression.
For a Street-wide comparison, data provided by FactSet as recently as late last week still shows a consensus for full year (2023) S&P 500 earnings growth of 1.2% on revenue growth of 2.4% as earnings print in the hole for Q2 (-6.3%), but return to growth in Q3 (+0.9%) and really pop in Q4 (+8.3%).
Interestingly, later on Monday, analysts at Citigroup ( C) led by Scott Chronert, maintained their year-end target for the S&P 500 of 4,000, while trading in a 3,800 to 4,200 range. The index closed on Monday at 4,273 so 4,000 would be a 6.4% decline. While acknowledging the artificial intelligence investment craze and a potential shift in monetary policy, these strategists remain "fundamentally confident" in that above-mentioned forecast.
Back to pure economics. Last Thursday, the Bureau of Labor Statistics informed us that Q1 Non-Farm Productivity had decreased 2.1% quarter over quarter, once seasonally adjusted and then annualized. This was the fourth negative print in six and the fifth negative print in eight quarters for this metric of employee usefulness and efficiency. The print on a year-over-year basis, according to Gwynn Guilford's piece in the Wall Street Journal, was down 0.8% making Q1 2023 the fifth consecutive quarter that worker productivity decreased from the previous year's comparison.
This is the longest streak of negative year-over-year quarters for this series since these records have been kept. FYI, the series made its debut in 1948.
Meanwhile, weekly hours worked dropped to 34.3 for May in Friday's BLS household survey. The drop in hours worked is more profound across the retail, hospitality and transportation industries that are supposedly so overwhelmed with consumers hungry for recreational travel. These workers are down to 30.2 hour workweeks from 30.8 earlier this year and more than 31 hours in 2020 during the pandemic. This is where much of the job creation of the past two years has been. How long does it take for that to unwind? How many jobs will workers have to try to hold down just to work 40 hours?
On That Note...
Analysts from both UBS ( UBS) and KeyBanc ( KEY) released notes over the weekend explaining how headwinds from the restart of student loan repayments will negatively impact discretionary spending.
While KeyBanc downgraded Target ( TGT) in their note, UBS pointed out American Eagle Outfitters ( AEO) , Foot Locker ( FL) , Gap ( GPS) , Nike ( NKE) and Under Armour ( UAA) among a bevy of names likely to be stung by this policy shift.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 1.2% y/y.
16:30 - API Oil Inventories (Weekly): Last +5.202M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: ( CASY) (1.62)
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