Strange day.
Equity markets appeared to rally on Monday, coming off of a rather negative first full week of September. Investors were perhaps mildly optimistic looking ahead to events such as today's (Tuesday's) key corporate clambakes that include Apple's ( AAPL) "Wonderlust" product launch event and the Salesforce ( CRM) "Dreamforce 2023" conference.
Both Apple and Salesforce were up less than 1% on Monday. As Apple prepares the launch of the iPhone 15 lineup, as well as the Apple Watch 9, Apple Watch Ultra 2 and AirPods Pro 2 products, Salesforce puts on what might or might not save the city of San Francisco with various celebrities and leaders in the burgeoning field of generative AI converging on the city with 43K of their best friends.
Investors are also looking ahead to some significant macroeconomic data as the week wears on. That all starts with the auction of $35B worth of U.S. 10-Year Notes this afternoon, but the main economic event of the week will be tomorrow (Wednesday) morning's release by the Bureau of Labor Statistics of August CPI data.
The Nasdaq indexes led the way Monday on what was a day that saw almost every single mid-major to major equity index close in the green. The Nasdaq 100 closed up 1.19%, with the broader Nasdaq Composite up 1.14%. The S&P 500 gained 0.67% for the session and again, small to mid-caps stocks underperformed the broader market. The Russell 2000 gained 0.19% for the day as the S&P Midcap 400 rose 0.12% and the S&P SmallCap 600 advanced a mere 0.07%.
Ten of the 11 S&P sector SPDR ETFs closed higher for the day with Consumer Discretionaries out in front at +2.69%. propped up primarily by Tesla ( TSLA) as that stock popped for a 10% gain in response to having won over analyst Adam Jonas who sees the firm's Dojo supercomputer eventually adding as much as $500M in market cap to the company's valuation. Energy ( XLY) flipped the script from last week and closed in last place among the 11, down 1.31% and the only sector to end the day in the red.
Interestingly...
Breadth was not that great. Winners beat losers by the narrowest of margins at both the NYSE and Nasdaq Stock Market. However, advancing volume took a decisive enough share of aggregate trade at both exchanges... 65.1% of composite Nasdaq-listed trading volume and 60.4% of composite NYSE-listed trade. Trading volume also increased on a session-over-session basis for names domiciled at both exchanges as well as across both the S&P 500 and Nasdaq Composite.
On Monday, the Nasdaq Composite successfully took back both its 21-day exponential moving average (EMA) and 50-day simple moving average (SMA), as did the S&P 500:
Does this negate the "almost" well-developed "head and shoulders" pattern that we have been talking about? I am not sure. Some would say that the whole thing had already been negated by the fact that the right shoulder peaked higher than did the left shoulder. What I do know is that for as long as these major indexes can stay in touch with their 50-day SMAs, portfolio managers will drag their collective feet in further reducing broad long-side large cap equity exposure.
One sector that split its performance on Monday was Technology ( XLK) . The SPDR ETF did well enough, gaining 0.52% for the day, which was good enough for fifth place among the 11 funds. However, the Dow Jones U.S. Software Index gained 0.98% on Monday led by MongoDB ( MDB) , Palantir Technologies ( PLTR) , which is a core holding in TheStreet's Stocks Under $10 Portfolio , and DataDog ( DDOG) . These three were up 4.5%, 4.36% and 4.32%, respectively.
On the other end of the spectrum, the Philadelphia Semiconductor Index gained just 0.09% on Monday, really propped up by Action Alerts PLUS holding Qualcomm ( QCOM) as that stock ran 3.9% after Apple extended an agreement with the firm to keep on supplying the consumer electronics giant with chips into at least 2026, suggesting that Apple is either not ready or not able to manufacture all of its own chips. Again, the foundries did well as GlobalFoundries ( GFS) and Intel ( INTC) advanced 1.76% and 1.53%, respectively.
What did not do well were the AI/Data Center darlings -- Nvidia ( NVDA) and Advanced Micro Devices ( AMD) . Those two were down 0.86% and 0.73%, on Monday.
In what may or may not be a key development, NVDA experienced a downside piercing of both its 50-day SMA and long-term trendline of support. That said, the stock has not broken contact with the 50-day line and hence, that line stands by the skin of its teeth, unbroken. However, those of us who are long the name cannot fail to notice that AI-inspired gap from last May that remains unfilled.
NVDA needs to trade at $306 or lower to fill that gap. That's down 32.3% from here for those whipping out their calculators.
Skating on Thin Ice
We have seen and heard a number of concerning data points, some of them anecdotal, some of them statistically factual concerning the aggregate state of health of the U.S. consumer.
On Monday, the New York Fed released its August 2023 Survey of Consumer Expectations. Results of the survey show that median one-year-ahead inflation expectations increased from 3.5% to 3.6%, as median five-year-ahead inflation expectations moved up from 2.9% to 3.0%. This was coupled with a median expected growth in household income that dropped from 3.2% to 2.9%. which is the lowest print for this monthly survey since July 2021. Median expected household spending growth dropped from 5.4% to 5.3%.
Pairing some of this up with last Friday's Federal Reserve Bank release of July consumer credit, we see that revolving credit popped for growth of $9.7B that month, while non-revolving debt grew just $0.7B. The combined growth of $10.4B in consumer credit printed well below the growth of $16.1B that had been consensus. This shows that U.S. consumers cut back on expected borrowing in July and what borrowing that had to be done, was done through the more expensive, more dangerous route, the use of credit cards.
As Chris Versace reminded us on Monday in one of his pieces for the Action Alerts PLUS crowd, two weeks ago, the Bureau of Economic Analysis, in their Personal Income and Outlays Report for July put the personal savings rate at 3.5%, which goes back to depths of the aftermath of the Great Financial Crisis.
Mind you, this comes ahead of the expected restart of student loan repayments this October. Of the adult U.S. population, 17% owes money on student loans. That's 17% of adult Americans that know that their disposable income is about to dip.
Connect that to the New York Fed survey for August above. Now, understand that according to the Consumer Financial Protection Bureau, roughly 20% of student loan borrowers have risk factors suggesting that they will struggle upon the restart, and more than one in 13 student loan borrowers (7.7%) are already delinquent on other financial obligations even before this coming restart.
Anyone Else Notice This?
Kyle Bass, founder of Hayman Capital Management, was on Bloomberg TV on Monday. Bass said, "Banks in the U.S. will lose $200, $250B in office (holdings value) over time here, and there's about $2T of equity in the banks so it's like a 10% hit to U.S. banking equity." Bass went on to predict that older and lower quality office buildings in the U.S. will have to be razed to reset the market. Bass expects the U.S. economy to slow over the next six to eight months.
Though Bass was referencing proposed regulatory changes that will require banks with more than $100B in assets to hold 30% or more in capital than European competitors, JPMorgan Chase ( JPM) CEO Jamie Dimon on Monday said... "I wouldn't be a big buyer of a bank." Maybe he also sees what Bass sees ahead for commercial real estate. Maybe he also sees what we see as far as the U.S. consumer is concerned.
Dimon added: "To say that the consumer is strong today, meaning you are going to have a booming environment for years, is a huge mistake." Just for the record, Dimon, earlier this year, was personally long almost 632K shares of JPM.
Broken
As a little boy, I never even considered any idea other than that once a kid graduated from high school, they went to boot camp and then went on to Vietnam. By the time I was in fourth grade, U.S. combat troops had left Vietnam.
Two years after that, Saigon fell to North Vietnamese forces. I was in middle school. What the heck was I going to do with my life now? The war had been going on for my entire life up until then and in my world, at that age, that meant that you stand up and raise your right hand when you get the chance.
Well, those last U.S combat troops left Vietnam 50 years ago. South Vietnam fell to the Communists 48 years ago. On Monday, President Joe Biden and Vietnam General Secretary Nguyen Phu Trong agreed to "welcome further cooperation in defense industry and defense trade" between the two former enemies in a joint statement. Vietnam raised the diplomatic status of the U.S. to "comprehensive strategic partner" putting the U.S. on the same level diplomatically as China.
I sure do hope that Vietnam buys something from RTX Corp. (Raytheon) ( RTX) . This is still a good company, but the stock is broken. I sold some shares on Monday morning and bought half of them back $2 lower on Monday afternoon. Kind of like throwing a deck chair off of the Titanic.
On Monday, RTX announced that 600 to 700 geared turbofan engines will have to be removed from aircraft for quality checks. These removals will result in a pretax charge of about $3B for the third quarter. These engines are installed on Airbus A320neo jets.
The firm still expects to generate full-year free cash flow of $4.3B, and repurchase $3B shares of stock as well. RTX also still expects to earn an adjusted $5 per share for the year. Five-star rated analyst Cai von Rumohr of TD Cowen reiterated his "buy" rating on the stock yesterday, but did reduce his target price from $109 to $99.
Readers will see that the stock is broken, in the chart above. If not already engaged, I would probably not initiate until I see another base building period, though that strategy did not work for those who initiated in August. The stock now needs to trade at $83 to fill gap number one and $97.25 to fill gap number two.
Do I think RTX ultimately fills these gaps? I do. Readers should be well aware that I am certainly capable of unintentional bias when analyzing the large defense contractors. That said, I see nothing wrong with trading around positions already in place. That said, part two, if one does something else occupationally, and can not babysit the position full-time, I would avoid RTX altogether for now.
Economics (All Times Eastern)
06:00 - NFIB Small Biz Optimism Index (Aug): Expecting 91.7, Last 91.9.
08:55 - Redbook (Weekly): Last 4.1% y/y.
13:00 - Ten Year Treasury Note Auction: $35B.
16:30 - API Oil Inventories (Weekly): Last -5.521M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
