For the most part, equity markets, especially large-cap equities, rallied from the opening bell on Wednesday into early afternoon. Markets then proceeded to sell off on rather heavy trading volume over the final two hours of the regular session. Final tallies were not bad, by day's end, but that last glance may have been somewhat deceptive. Hard to tell.
The Nasdaq Composite still added 0.3%, notching the 33rd all-time record high close for that index, just for 2021. The S&P 500 closed virtually unchanged, while the Dow Jones Industrials contracted just a smidge. Oddly, the Dow Transports and small-cap indices outperformed broader markets despite daily sector performance tables that showed all five cyclical groups in the red, and all four defensive groups in the green for the session. Technology, as a sector, nearly stood still, as semiconductors underperformed the rest of the sector.
Despite what might be seen as a disappointing session, breadth appears to have been quite positive, as trading volumes remained (relatively) heavy. Winners beat losers at both of New York's primary equity exchanges, but this really was a tale of two market environments. A slow five-hour rally, followed by a sharper two-hour selloff.
Economists were stunned early on Wednesday by a much weaker than expected ADP Employment Report for August that showed 374K private sector jobs added for the month versus expectations of something close to 600K. It is easy to point to the Delta variant as the culprit, and there is truth to that, but the complexity of sluggish job creation, whether due the virus itself or due to the rising wages and constricted supply chains that have become the pandemic's collateral damage, creates problems if such poor labor market performance is confirmed by the BLS survey data on Friday.
This is an economy that, coming next week, will likely have to absorb 11M new participants that will roll off of the back end of a number of pandemic-era federal assistance programs, as those programs expire.... losing for those folks what has provided sustenance going back to mid-2020.
A real fly in the ointment might be that of those 374K new jobs reported on Wednesday, 201K came from the leisure and hospitality sectors -- areas of the economy that we now know performed much more poorly in August than had been projected as the Delta variant of Covid-19 slowed travel and dining for large areas of the nation. In fact, you may have noticed that less than 1.35M people were screened by the TSA on Tuesday, the fewest since early May.
Readers know that I feel that the read-outs for September and October employment (which we will see in early October and November) will be far more important in terms of impact upon the trajectory of forward-looking monetary policy. What it says about the economy, if poor levels of job creation are actually being experienced ahead of those 11M individuals joining the supply side of the national labor market, could be terrifying.
What if areas of expected growth in labor market demand moving forward do not materialize? Unless one only roots for asset-price bubbles and cares not about economic performance. Remember, in the end, economics is simply a numerical expression of what is at its base the living, close to real-time human response to conditions of both surplus and scarcity, whether natural or artificial. Don't root against people.
So Much for That
The Biden administration had called upon OPEC and OPEC Plus (the cartel plus allied producers) to increase oil production more quickly than the schedule the group had laid out back in July in response to rising consumer prices. Back in July, the group had decided to boost production by 400K barrels per day each month up until 2022.
Whether intentional, after the U.S. embarrassment in Afghanistan over the past three weeks, or not, the OPEC Plus meeting took but 30 minutes as the group decided to completely ignore President Biden's request and move on with their plan -- illustrating (hopefully temporarily) diminished U.S. global influence. It's not surprising really (how OPEC must laugh behind closed doors at this) that the administration making this request had taken immediate steps upon taking office to dismantle U.S. energy independence, thus forcing a national energy dependency upon foreign decision makers.
On That Note...
...Taiwan's Ministry of National Defense in its annual report to the autonomous island's legislature, warned that Beijing could "paralyze" Taiwan's air and sea defenses with "soft and hard electronic attacks." The Ministry also defined seven events that could provoke a Communist Chinese attack, noting that this year, Communist forces have regularly probed Taiwanese air space. Those events include the perception that Taiwan could be moving toward declaring independence, suffering domestic turmoil, or accepting the stationing of foreign forces on the island.
Flat out, the U.S. is going to have to get its head back in the game fast, if it wants to be able to respond appropriately and maintain influence in the Asia Pacific region. There's not a lot of global trust in U.S. leadership right now. We have voluntarily surrendered the ability to make Beijing watch both their front and back door by evacuating the air base at Bagram. I won't beat you over the head with that, but there is no denying the potentially catastrophic results of making unforced strategic errors.
Adversaries are watching. They always do.
-- Moderna (MRNA) has filed initial data with the U.S. FDA for clearance of a third-dose booster shot of its Covid-19 vaccine.
-- Pfizer (PFE) dosed the first participant in late-stage trials of an experimental oral antiviral for adults who are at low risk for developing severe Covid.
-- Apple (AAPL) is requesting that all U.S. employees report their vaccination status by mid-September regardless of whether they work at home or onsite.
-- The WHO is monitoring a new variant of the SARS-CoV-2 virus, known as B.1.621 to scientists, and nicknamed "mu" for now. The "mu" variant, first detected in Colombia has several genetic mutations that appear to potentially make the virus more easily transmissible, as well as aid the virus' ability to evade natural immunity, current vaccines, and/or monoclonal antibody therapies.
I was asked by a reader on Wednesday if I was adding to the dip in AbbVie (ABBV) . The answer is that yes, I did, but small in size because even closing down 7% at $112.27, the share price remains well above my net basis.
AbbVie was slapped around on Wednesday basically because the FDA concluded that there is an increased risk of heart attack, stroke, cancer, blood clots, and/or death associated with Pfizer's arthritis and ulcerative colitis treatments Xeljanz and Xeljanz XR. The problem for AbbVie is that though not part of the FDA's study, the warning was extended to two other arthritis treatments in the same broader JAK inhibitor class -- AbbVie's Rinvoq, and Eli Lilly's (LLY) Olumiant. AbbVie is reliant upon Rinvoq to help plug the expected hole in cash flows that will appear as the best-selling Humira patent expires in the U.S. in 2023.
Now, Rinvoq may still prove different. It may end up with a completely different risk profile and is being approved elsewhere for rheumatoid arthritis. Was Wednesday's sell off an overreaction? Quite possibly, but really I am an investor/trader, not a medical professional, though I do read enough of these reports.
AbbVie is probably one of my favorite defensive-type plays as the shares had underperformed the group and the sector year to date at up 13% prior to Wednesday, but pay out $5.20 annually for a yield of 4.63%, which is rare for a stock priced in three digits.
For now, I am reiterating my $143 target price.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 347K, Last 353K.
08:30 - Continuing Claims (Weekly): Last 2.862M.
08:30 - Balance of Trade (July): Last $-75.7B.
08:30 - Unit Labor Costs (Q2-rev): Flashed 1.0% q/q SAAR.
08:30 - Non-Farm Productivity (Q2-rev): Flashed 2.3% q/q SAAR.
08:30 - PCE Price Index (February): Expecting 1.7% y/y, Last 1.7% y/y.
08:30 - Core PCE Price Index (February): Expecting 1.6% y/y, Last 1.5% y/y.
10:00 - Factory Orders (July): Expecting 0.3% m/m, Last 1.5% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +29B cf.
The Fed (All Times Eastern)
13:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.