Thirty-four years ago today, a Monday, I went to work on the trading floor of the New York Stock Exchange with a very nervous feeling in my stomach.
Price discovery had been horrendous on Friday, October 16, 1987, over the final 90 minutes of the session or so. That weekend was awful. Everyone I knew, who was in the markets back then, knew that the market was going to crash on Monday morning. Nobody working outside of the markets wanted to listen, or discuss. There was no such thing as an internet. Basically, after work on Friday night, until returning on Monday, we all scattered to our own little lives, and waited. Would there even be demand for rank-and-file labor by that time the next week?
On Monday morning, the bell rang, and the rest was history. As for demand for labor, this was pre-algorithmic trading, and pre-electronic execution, but not pre-program trading. Waves of programs were unleashed upon the point of sale in baskets... and executed by hand. The Dow Industrials gave up 22% in one session. No circuit breakers. We never caught up. Not on Monday. Not for weeks.
Working 5 a.m. to 11 p.m. every day -- for months. No meal breaks. Running at a sprint to the restroom, and running back at a sprint as well. The open-outcry auction market would not last forever, but certainly proved its metal in 1987. Individuals at the point of sale literally stood their ground, put the U.S. economy on their shoulders, and their shoulders alone, while sales traders and market makers up and down New York City simply turned off their telephones. Cowards.
Oh, there was a time, my friends... a time when greatness was required, a time when greatness for a short while became almost common at 11 Wall Street through necessity. Many years later, I am not the last of my kind, but am now very close to it. I was a junior guy at the time, thrust into a position of small unit leadership during a crisis. I still had a lot to learn, but I shared that trading floor with some of the all-time greats. Yes, I have walked with giants.
Celebration?
Sure. Celebrate. On the 34th anniversary of Black Monday, the first ETF linked in some way to Bitcoin will launch at "The Big Board." The ProShares Bitcoin Strategy ETF ( BITO) will not invest directly in Bitcoin, but will hold futures contracts of the highest profile cryptocurrency.
Several other issuers appear ready to make similar offerings. Valkyrie seems ready to launch as soon as possible a Bitcoin Strategy ETF under the symbol "BTFD" (such class), while Grayscale Investments announced plans to convert the Grayscale Bitcoin Trust ( GBTC) into a spot ETF.
The quiet approval of such a product, or products, that are really derivative products holding only derivatives of an underlying asset class largely used only for speculative purposes, capital flight, and criminal activity. Hmm... seems a little bubbly if you ask me.
The fact is that Bitcoin itself, as well as a number of cryptocurrencies, have run into this approval as investors expect that the increased ability of 401(k)s, IRAs and literally all market participants to more easily gain exposure to the alternative asset space. You can own paper gold or silver without actually owning the metals. Now, there will be a way to move in and out of Bitcoin exposure (and probably other cryptos sooner or later) without actually owning any Bitcoin.
Sell the news? Maybe not today. Then again, perhaps soon. There is no doubt in my mind that while cryptocurrencies are indeed an asset class, and they are divisible, they do not serve as a medium of exchange, and remain unproven as a store of value, though it would be disingenuous of me to suggest that cryptos cannot serve that last function as well as or better than can precious metals. I doubt that they can over the longer term, but that is my admitted personal bias. Time will tell.
Leadership Broadens
Equity markets enjoyed a fourth consecutive "up" day on Monday. Large-caps (Nasdaq 100, Nasdaq Composite, S&P 500, Dow Transports), and caps not so large (S&P 400, S&P 600, Russell 2000) all traded moderately higher. The Dow Jones Industrials closed down small on weakness in Walt Disney ( DIS) and Amgen ( AMGN) , but that index does not represent "the market" as it did in 1987. The S&P 500 took that mantle away from the Dow in the early 1990s.
Seven of 11 S&P sector select ETFs closed higher, as the retailers lifted Consumer Discretionaries ( XLY) , as the Dow Jones US Software Index (+1.07%) and Philadelphia Semiconductor Index (+0.74%) lifted Technology ( XLK) , and as the Dow Jones US Internet Index (+1.63%) boosted Communications Services ( XLC) .
Despite all of this outperformance, across the index and sector landscape, market breadth was surprisingly softer than one might have thought. Losers beat winners at both of New York's primary equity exchanges. Declining volume did beat advancing volume for Nasdaq-listed names, but the opposite was true for names listed at the NYSE. Aggregate trading volume, all told, ebbed significantly from levels experienced late last week.
Before we poo-poo the action on Monday, though, understand this: The market rallied into the close and closed at the day's highs and on the day's highest trading volume.
What Gives?
A couple of things mattered on Monday to be sure.
First off, Bloomberg News ran a story on Monday morning explaining that the Federal Reserve Bank's staff of more than 400 PhD economists (not the ones you know, but the staff) still predict that consumer-level inflation drops back below 2% in 2022. As possibly the last pundit still saying that I do see inflation as transitory, I do feel some vindication that other folks who study these things see what I see. Of course, the word "transitory" is as variable as are energy prices. I have long stated that I did expect inflation to remain elevated for nine to 15 months. That to me, is transitory. I also do not expect inflation to fall back below the low 3%s very easily, so this crew sees even less "stickiness" than I do.
One thing layfolks (non-economists) must understand is that over time, the Fed's rank-and-file economists are particularly accurate. More so than is the FOMC's absurd dot plot, and more so than Wall Street's army of private-sector economists. In short, this crew flies under the radar, but they are very, very good at their job, which is model building for those charged with policy making.
Then, the Federal Reserve went to the tape with September Industrial Production numbers. Sounded something like a garbage truck driving off of a cliff. Industrial Production for September contracted 1.3% month over month versus expectations of +0.3%. The result is even worse than you think, as August was revised from +0.4% to -0.1%, so the -1.3% prints off of a lower base.
Manufacturing, Utilities and Mining Production all contracted in September from August, while Capacity Utilization receded back to May levels, missing projections by a country mile. Blame semiconductors, blame hurricanes, blame whomever you want, but the job is not getting done. and that slows economic activity.
Bond traders bought Treasuries.
Mixed Boosting
The FDA is expected to be busy this week.
After already having authorized booster shots at the six-month mark for the Pfizer ( PFE) /BioNTech ( BNTX) jab for seniors, those with underlying health conditions and those at elevated job-related risk of exposure, this week, the expectation is that the FDA will authorize booster shots for both the Moderna ( MRNA) and Johnson & Johnson ( JNJ) Covid vaccines under the same parameters.
The FDA is also considering giving the go-ahead for mixing shots after being what was once considered "fully vaccinated." In other words, the FDA may authorize for individuals the seeking out of a booster different from their original vaccination, for those who got the JNJ shot especially. An NIH study shows that a third dose of the same vaccine boosted antibody levels from 4 to 20 fold, while mixing shots boosted antibody levels from 6 to 76 fold.
Small Small World
On Monday, Barclays four-star (at TipRanks) analyst Kannan Venkateshwar downgraded Walt Disney ( DIS) to "equal weight" from "overweight," while reducing his target price to $175 from $210. Venkateshwar cited slower growth for Disney+ as the driver for his move. Disney then announced a series of delays for coming cinematic releases that for the day, which made matters worse. In addition, MoffettNathanson's four-star analyst Michael Nathanson maintained a "neutral" rating on Disney shares, while reducing his target price to $180 from $185.
You kids remember what Disney CEO Bob Chapek told us less than one month ago, right? I'll remind you. Chapek told us that growth for Disney+ will slow down during the current quarter due to production delays. Hello!!! This was not news. The CEO literally already told us. Disney, mind you, remains a chief beneficiary of a reopened economy and has set itself up nicely in order to better survive in a less than fully reopened economy. These two guys know that cross-border travel is just starting up again, right? Maybe they missed the memo.
Disney reports its quarterly results after the closing bell on Wednesday, Nov. 10 (Always Faithful). Whispers for both EPS and revenue are already running above consensus. Revenue well above.
Did I add DIS on Monday's dip? You bet your tail I did, and there's plenty of dry powder where that came from. The stock pivots at $187. We see $187, we might see $224. Everyone has an opinion. That one is mine.
Economics (All Times Eastern)
08:30 - Housing Starts (Sep): Expecting 1.617M, Last 1.615M SAAR.
08:30 - Building Permits (Sep): Expecting 1.677M, Last 1.721M SAAR.
08:55 - Redbook (Weekly): Last 14.8% y/y.
16:30 - API Oil Inventories (Weekly): Last +5.213M.
The Fed (All Times Eastern)
08:30 - Speaker: Philadelphia Fed Pres. Patrick Harker.
11:00 - Speaker: San Francisco Fed Pres. Mary Daly.
13:15 - Speaker: Reserve Board Gov. Michele Bowman.
14:50 - Speaker: Atlanta Fed Pres. Raphael Bostic.
15:00 - Speaker: Reserve Board Gov. Christopher Waller.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( BK) (1.00), ( ERIC) (1.52), ( HAL) (0.28), ( JNJ) (2.36), ( PM) (1.56), ( PG) (1.59), ( TRV) (2.05)
