So, we wait. Still. Ever so still. The bugs have found us. You had your breakfast. Now, they have theirs. We do not move. Not a muscle. We just wait. Focused. Focus with a view towards an end. An end that only begins. The next chapter.
So, we wait. Still. Ever so still. The creatures of the night seem not to notice us. We are now one among them. We smell like them. We are not part of their food chain. At least not while there are several of us massed in a small area. A snake here. There. A large cat stops in his tracks. He caught a whiff. Of at least one of us.
He darts off into the brush. That's good. We want no part of that, and we certainly don't need anything coming down this dirt road to notice that creature noticing us. Better he hunts elsewhere.
So, we wait. Still. Ever so still. Sun rising. Sun fades. More bugs. We have now skipped several meals. The bugs will not be skipping theirs. So, we wait. Still. Dare not drift off to sleep. Focused. Focus with a view towards an end. An end that only begins?
So, we wait.
Time Honored Tradition
Almost always. Trading volume dries up as financial markets move on from a triple-witching expirations event. Almost always. Trading volumes typically dry up ahead of an FOMC policy meeting. This explains Monday. Sort of.
The mid-major to-major equity indexes barely moved for the session, as Treasury yields mostly stood still as well. Even the mighty U.S. dollar yawned. Despite some subtle strength in the euro. So, we wait.
The S&P 500 gained three points (+0.07%) on Monday as the Nasdaq Composite advanced less than two (+0.01%). The Dow Industrials picked up six points, which amounted to a "rally" of 0.02%. Truly amazing that the big "two" or big "three," because some still consider the Dow 30 one of the majors, would all close in the green, though in reality, virtually unchanged. Unchanged if we still traded shares in Spanish pieces of eight (or sixteenths) instead of in decimals.
There were some mild currents moving beneath the still surface of these placid waters. The small-caps were slapped around a bit, as the Russell 2000 gave up 0.69% and the S&P SmallCap 600 surrendered 0.57%. The Dow Transports backpedaled 0.56% on the session, as breadth turned negative despite the slightly green finish at the headline level.
What do small-caps and the transports both rely on? Economic growth. More on that in a few.
Market Breadth
Losers beat winners at the NYSE by roughly 5 to 4, as advancing volume took a 31% share of composite NYSE-listed trade. Losers beat winners by more like 3 to 2 at the Nasdaq, as advancing volume took a 41.9% share of composite Nasdaq-listed trade.
Trading volume was obviously down from Friday. In fact on a day-over-day basis, trading volume decreased by 54.4% for NYSE-domiciled names, but "only" by 40.5% for Nasdaq-domiciled names.
For the S&P 500 in aggregate, Monday was the slowest trading session this September. However, aggregate trade across the Nasdaq Composite did manage to reach its own 50-day trading volume simple moving average. So, where trading at the NYSE and across the S&P 500 was truly slow, the action at the Nasdaq, and across the Nasdaq Composite, was only slow relative to late last week, but not slow. Does that make the action across the Nasdaq more meaningful?
It could mean that as the Nasdaq is chock full of both tech names and small-to mid-caps, that there is simply more to fear from higher rates for longer up in Times Square than there is on Wall Street. Though, one would think that the strong dollar would do more damage, broadly, downtown.
Oil continued to move higher on Monday. Most of Big Oil/Energy is listed at 11 Wall. Just a thought.
Of the 11 S&P sector SPDR ETFs, Energy ( XLE) easily led the five sectors that closed in the green at +0.85%. Technology ( XLK) finished in second place for the session at +0.48%, as hardware had its rare day in the sun. The Dow Jones US Computer Hardware Index gained 1.58% on the day, supported by the 1.69% upward move made by Apple ( AAPL) .
The Philadelphia Semiconductor Index also gained ground on Monday, up 0.48% as Lam Research (LRCX) popped for a 2% gain. The Dow Jones US Software Index gave up 0.17% on Monday.
Consumer Discretionaries led the losers on Monday, down 1.09% for the session as the autos underperformed. Tesla ( TSLA) gave up 3.32% in response as Goldman Sachs reduced its 2023 and 2024 earnings estimates for the EV king. Interestingly, this caused non-unionized Tesla to underperform Ford Motor ( F) , General Motors ( GM) and Stellantis ( STLA) even as those three appear to be making no progress in their dispute with the UAW.
Homebuilder Confidence Sags
On Monday, the NAHB (National Association of Homebuilders) released its September Housing Market Index, which is also known as the Homebuilder Optimism Survey. The Index fell to a headline 45 for September from 50 in August and 56 in July.
The report reads that as mortgage rates have stayed above 7%, more builders are reducing new home prices in order to bolster sales. As there has been a clear lack of national inventory concerning existing homes, the survey showed that 42% of new single-family homes were first-time home buyers, which is significantly above the 27% pre-pandemic level.
The weakness in sentiment was broadly felt across the nation. Homebuilder confidence, by region, dropped from 55 to 48 in the Northeast, from 42 to 38 in the Midwest, from 55 to 49 in the South and from 46 to 42 in the West.
A Word From John Donne (1624)
"Therefore, send not to know
For whom the bell tolls,
It tolls for thee."
"You kids are going to love this next segment" ... your pal.
A Word About GDP Projections
We all follow the Atlanta Fed's GDPNow model, as it has been front and center for quite some time. For a long time, we all also followed the New York Fed's GDP Nowcast model until it was discontinued. Then we all turned to the St. Louis Fed's Real GDP Nowcast as an alternative.
Suddenly, this month, the staff of the New York Fed finally brought back their GDP Nowcast after reformulating it for better accuracy. Lastly, we now also have a fourth option. The Cleveland Fed has also created a GDP model that relies more on the slope of the Treasury debt yield curve as a predictor than on real-time economic data.
So, here we go. If you think we have no idea concerning economic growth, just get a load of these professional economists.... all working at regional district branches of our nation's central bank.
For the current quarter (Q3 2023):
-- Atlanta currently sees GDP at +4.9% (q/q, SAAR).
-- New York currently sees GDP at +2.27% (q/q, SAAR).
-- St. Louis currently sees GDP at +1.71% (q/q, SAAR).
-- Cleveland currently sees GDP at +1.01% (q/q, SAAR).
New York's model provides probabilities for the current quarter. Right now, New York shows a 68% probability the Q3 GDP lands in between +0.78% and +3.77% and a 50% probability that Q3 GDP prints in between +1.23% and +3.25%.
Even more interesting, and far scarier, is Cleveland's model that projects future quarters with probabilities for a potential recession. You may want to sit down for this one if you work at one of those standing or treadmill desks.
For Q4 2023, Cleveland currently sees GDP of -0.42%. For Q1 2024, Cleveland sees GDP of -1.99%, for Q2 2024 Cleveland sees -3.08% and for Q3 2024 Cleveland sees GDP of -2.72%. Cleveland also sees a 52% probability for a recession by Q4 2023 and a 77% probability for a recession by Q2 2024. Good times. Aren't you guys glad that I'm the kind of fellow that seeks, finds and tinkers with economic modeling while he works?
You know my toy trains are in a box in the garage that has not been opened since my children were small. I really need a different hobby. Maybe Strat-o-Matic baseball. At least that's still all statistics and probabilities.
Instacart IPO
Maplebear ( CART) , also known as Instacart, was priced at $30 per share last night, which was at the top of the previously stated range. This values the company at $10B. For its most recently completed quarter, in the firm's prospectus, sales printed at $716M and net income at $114M.
According to the firm's S-1 filing, 22M shares have been issued, plus potentially up to an additional 3.3M shares. At this price, Maplebear will raise roughly $660M.
Am I going to buy any? You know the answer to that one. Let's see how it trades. On that note, I remain short Arm Holdings ( ARM) .
Shutdown Risk
House Speaker Kevin McCarthy (R-Cal) announced a plan on Sunday night meant to keep the government from shutting down at the end of the month. His plan cuts domestic agencies' budgets by 8% and resumes construction of "the wall" at the U.S. southern border.
The Speaker of the House is facing some stiff opposition... from the right. Supposedly 10 (at least) fiscally strict, conservative Republican representatives are seeking deeper spending cuts that would include cuts in aid to Ukraine and, according to Bloomberg News, a defunding of investigations into former president Donald Trump.
Should McCarthy face unified Democratic party opposition, he can only lose four Republican party votes and still pass a bill. It's still early, but I'd say the risk of a shutdown is quite significant.
Economics (All Times Eastern)
08:30 - Housing Starts (Aug): Expecting 1.438M, Last 1.452M SAAR.
08:30 - Building Permits (Aug): Expecting 1.443M, Last 1.443M SAAR.
08:55 - Redbook (Weekly): Last 4.6% y/y.
13:00 - Twenty Year Bond Auction: $13B.
16:30 - API Oil Inventories (Weekly): Last +1.174M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
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