I can't tell you what to call today. You might like to call the day "Indigenous Peoples' Day" as it is known regionally, or Columbus Day, as it is still known federally. I think. It may or may not matter to you that there were people already living in the western hemisphere in 1492. It may or may not matter to you that Saint Brendan of Ireland probably "discovered" Greenland or maybe even the east coast of Canada almost a thousand years before Columbus "discovered" the West Indies. It may or may not matter to you that there is evidence of contact between Vikings and Native Canadians, as well as evidence of Norse colonization on Greenland dating more than 500 years prior to the Nina, the Pinta, and the Santa Maria making their famous voyage.
What probably matters to you this day, if you are up and at 'em on an October Monday morning, trying to turn a buck or two, is that today is a bank holiday, and though we can trade equities and futures, bonds markets will be closed, and therefore trading volumes will reduced as one giant catalyst for algorithmic behavior has been removed from what passes for price discovery in the year 2021. Enjoy. Fact is that markets today will enter into a new week, filled with increased macroeconomic headline risk, continued political risk, and in a couple of days or so... a brand spanking new "earnings season." So, Happy Indigenous Peoples' Day, Happy Columbus Day. Happy seafaring Monks of Ireland Day, and Happy Norse Culture Day. There's money on the table. Let's get to work.
Equity markets rallied small for the most part, over the past five day trading period, with both the S&P 500 and Nasdaq Composite making successive attempts on Thursday and Friday to retake and hold their respective 21 day EMAs. Both of our key large-cap indices failed to capture that technically key line for swing traders. Trading volumes dwindled significantly later in the week, suggesting at least some exhaustion of aggregate demand as markets priced in the fact that Congress (still has to pass) appears to have kicked the federal default can less than two months down the road, which only matters if warring factions within the Democratic party can agree on the size and scope of what they are trying to do and how they want to go about it. Either that, or get at least a handful of Republicans on board. Hmm. It will be a pleasure to focus on something other than political dysfunction, at least for a little while.
The Bureau of Labor Statistics went to the tape with their September employment situation survey results on Friday morning. The Non-Farm Payrolls number, taken from the establishment survey, which is considered the headline number, badly missed consensus view for a second consecutive month. If one can believe these surveys, which are always revised... sometimes significantly so, and just appear to this observer as an extremely sloppy way to gather information, then job creation across the nation had a tough September on top of a tough (though revised higher ) August. For September, the BLS printed seasonally adjusted non-farm payroll net adds of 194K, after the private sector created 317K jobs and government payrolls decreased by 123K after some kind of mass retirement event or something. Bear in mind that last Wednesday, the ADP Employment Report for private sector jobs showed 568K new jobs created in September, well above projections, and also understand that the BLS household survey shows roughly 526K more folks employed in September than in August. Call me a fool, but I think it likely that the September NFP print after next month's revision will end up moving toward the number provided by both the ADP data, and household survey results.
What I think supports the idea that the September NFP print might be mistaken, is the fact that average hourly earnings popped 0.6% month over month (above expectations) and 4.6% year over year (as expected), while average weekly hours inched up to 34.8. These data-points suggest increased demand for labor, which I think is obvious at this point. What I find difficult to believe would be the drop in participation to 61.6%. While I fully understand that the pandemic has forced two-earner households with children into a corner as far as leaving the secondary family earner home in an unreliable in-person schooling environment. I find it highly unlikely that participation would drop as folks rolled off of pandemic era emergency government provided support. This potentially sets up a monster report for October, or folks have somehow found, or are finding a way to get by on less income, at least until they feel safe enough to return to work.
Given the inconsistency of and within these survey results, I doubt very much at all, that FOMC leadership has altered their view that they would like to move ahead with a tapering of monthly asset purchases as soon as their next policy statement on November 3rd, which, by the way, has been scheduled two days ahead of the November 5th BLS October employment situation release.
Yes, you in the back. You have a question....
Q) Is the Fed allowed to use their heads and delay that November meeting a week so that they will have more meaningful data available when they have to make that next decision?
A) Of course not, and stop trying to solve problems. Moron.
Okay... Now, we are talking about inflation expectations, consumer sentiment and consumer confidence. How powerful is aggregate human response to perceptions of perceived surplus and scarcity? How predictable are those results? Better read that white paper making the rounds co-authored by Dartmouth's Danny Blanchflower if one needs to see how these conditions can develop. Goldman Sachs just shaved their 2021 expectations for GDP. Methinks they need to get a closer shave. The Atlanta Fed's GDPNow model now has U.S. third quarter growth running at a far from robust (q/q SAAR) 1.3%. If the cold weather brings with it higher energy prices, and a next wave of COVID infections to the northeastern and mid-western states, what do you think will happen to fourth quarter growth? Anyone? No answer. Thought so.
On that note, as equity traders follow the banking industry into "the season", economists and your Federal Reserve Bank will be watching September CPI and PPI data from that same Bureau of Labor Statistics on Wednesday and Thursday, and then September Retail Sales to be released by the Census Bureau, on Friday morning.
Estimates for third quarter S&P 500 earnings growth are still running at about 27.6% year over year on projected revenue growth of 14.9%. Banking industry earnings growth is expected to land at an average of roughly 20%. What matters for the season more broadly are going to be what firms are guiding for in terms of margin pressure. In other words, even more important than results will be how confident corporate leaders appear to be in working around back-ups and scarcities in the supply chain, labor market imbalances, higher fuel prices, and pandemic control.
While a bank such as Goldman Sachs (GS) goes into earnings season technically set-up for a rally triggered through its ability to capitalize on a robust fixed income trading environment, my thoughts are that for most of the big banks that go to the tape this week, what matters are going to be net interest income/margin and loan growth. My personal thoughts are that Bank of America (BAC) , and Wells Fargo (WFC) are best positioned as traditional bankers to take advantage in such an environment. That's why I remain long both of those names. JP Morgan (JPM) , best in class, in my opinion, is coming in a bit hot for my liking. The already mentioned GS is perhaps the best short-term trade here. GS reports Friday. I am not long the name as I write this note. I imagine that I will be by then. The stock is almost absurdly cheap as measured by either PE ratios or tangible book, almost enough so, where if the trade doesn't work, the name can be an investment.
... That on top of earnings, this Thursday brings with it two events that will not fly beneath Wall Street's radar. One, is super high profile, and will be covered heavily by the mainstream and financial media. That will be the all day meeting of FDA advisors in regard to whether or not to recommend booster shots for Moderna's (MRNA) Covid-19 vaccine. Under consideration will be the potential use of a booster different from the original as a means to tackle emerging variants.
Secondly, former Sarge fave Plug Power (PLUG) will host a symposium to explore trends influencing the widespread adoption of green hydrogen to accelerate the global energy transition. The stock popped in response to last year's similar event. This event could also have implications for FuelCell Energy (FCEL) , which is a holding of the "Stocks Under $10" portfolio that I co-manage here at Real Money along with Chris Versace.
Shipping managers indicate that it now takes about 80 days to transport goods across the Pacific Ocean, which is twice the pre-pandemic norm. In what must seem to be a somewhat stunning solution, mass retailers such as Walmart (WMT) , Costco (COST) , Target (TGT) , and Home Depot (HD) have taken the margin pressuring step to charter smaller ships that can tote a roughly 1K containers for about $140K per day, and reroute the cargo away from the hopelessly congested Port of Los Angeles, toward less crowded ports up and down the West Coast such as Oakland and Portland. In some cases, the longer trip can even be made to the East Coast of the United States as these smaller cargo ships can pass through the Panama Canal.
Is this a case of market share preservation at any cost? Does this have longer-term implications for the maritime transport industry? What if chartering leads to purchasing. Will large retailers ensure that this never happens to them again, by creating their own or shared fleets so that they are not left competing for space on vessels capable of carrying 20K containers but who serve all comers? These are questions that will be asked of these retailers are they report later in the season, but perhaps will be the most fascinating story of human response told this entire earnings season. Maybe I'm just a nerd, but this is fascinating and I love the ingenuity.
Window Shopping, Maybe
Remember that year, we made a ton of dough in Apache Corp, now APA Corp (APA) ? There was a nine month period back in 2017/2018, where the stock traded in a rough $8 range and all we did was play pong? That was awesome. Well, now, here we are... crude and natty gas are hot as heck going into the winter season. Energy traders are clamoring over domestic drillers such as Pioneer Natural Resources (PXD) and Diamondback Energy (FANG) . Others are reaching for Chevron (CVX) . I have already explained my ConocoPhillips (COP) long position, which has been the best of the lot recently.
What about old pal Apache? Nobody loves APA. Hold rating after hold rating. Price targets in line with the last sale. Unimpressive free cash flow yield. Dividend yield (1%) that won't knock your socks off. Negative book value per share. Really, not an upside catalyst. Except for the technical set-up. Oh, and the risk/reward proposition that gains U.S. (and beyond) exposure to crude and natural gas at an affordable price. Check this out.
APA suddenly appears overbought as the shares play catch up to the industry group. Readers will note the breakout on Friday from a $23.75 pivot created by a cup and handle pattern. Depending on where the shares are trading when this piece is published, I may grab a trade sized portion of these shares for myself. I'd be looking for a cool $6 if I had my way. I'd settle for less, and I'd panic at the 21 day line.
Economics (All Times Eastern)
Bank Holiday. No significant macroeconomic data-points scheduled for release.
The Fed (All Times Eastern)
18:00 - Speaker: Chicago Fed Pres. Charles Evans.
Today's Earnings Highlights (Consensus EPS Expectations)
There are no significant quarterly earnings scheduled for release.