The Past Week, In A Nutshell
What Happened: Last week ended negative with mega-cap and technology stocks regaining strength into week-end.
Remember This: “Markets had embedded substantial optimism in early September, with the valuation of the S&P 500 at the highest level in 20 years and sentiment at extreme highs, setting the stage for a natural period of consolidation,” noted Mark Hackett, chief of investment research for Nationwide.
“Investors are now struggling to find a positive catalyst, as the prospect for fiscal stimulus fades, economic data begin to reflect rising coronavirus cases and earnings season remains a month away.”
Pictured: Profile chart of the Micro E-mini S&P 500 Futures
Broad-market equity indices ended lower with the S&P 500 correcting as low as $3,200.
Recapping Last Week’s Action: Monday’s test of the $3,200 high-volume area offered responsive buyers an opportunity to get in at favorable prices. Buying continued through Tuesday, before resisting an area of resting liquidity at $3,300.
After disappointments in business activity data and stimulus talks, on heavy-volume and supportive delta, Wednesday’s liquidation erased the entire week’s gains. Alongside improvements in home sale data, buyers in mega-caps and technology led the market higher, through Friday’s close, away from value.
Overall, in the bigger picture, the market is churning above $3,200, the site of a large high-volume area that denotes the market’s recent perception of value. When prices trade to a high-volume area, on a swing-up auction, then trade should slow allowing responsive longs a good place to enter. Should prices trade and spend time below this area, then perceptions have changed and longs are no longer favorable, at least in the near term.
Scroll to the bottom for non-profile charts.
John Authers, a Bloomberg columnist, suggested gold is falling due to a rise in real yields.
“When real yields rise then gold, which pays no income, can be expected to fall. This is true even if real yields are rising from deeply negative territory. To explain the intuition behind this, gold is widely regarded as a hedge against central banking irresponsibility. Recent speculation is that the Fed may not print money and cut rates with quite the gay abandon that had been assumed. This may or may not be good news for the U.S. economy, but it raises real yields and for investors in gold and in risk assets, who might benefit from currency debasement, it is definitely bad news.”
Simply put, the theory that the Federal Reserve exhausted itself has buoyed real yields, which have an inverse relationship to metals.
Monday: Fed Mester Speech. Tuesday: Goods Trade Balance, Fed Williams Speech, Fed Harker Speech, CB Consumer Confidence, Fed Williams Speech, Presidential Debate. Wednesday: MBA Mortgage Applications, ADP Employment Change, GDP Growth Rate, Core PCE Prices QoQ Final, Corporate Profits, GDP Price Index, PCE Prices QoQ Final, Pending Home Sales, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change, Fed Kashkari Speech, Fed Kaplan Speech. Thursday: Core PCE Price Index YoY, PCE Price Index YoY, Continuing Jobless Claims, Core PCE Price Index MoM, Initial Jobless Claims, Jobless Claims 4-Week Average, PCE Price Index MoM, Personal Income MoM, Personal Spending MoM, Markit Manufacturing PMI Final, ISM Manufacturing PMI, Construction Spending MoM, ISM Manufacturing Prices, Fed Williams Speech. Friday: Non-Farm Payrolls, Unemployment Rate, Average Hourly Earnings MoM, Average Hourly Earnings YoY, Average Weekly Hours, Non-Farm Payrolls Private, Participation Rate, Fed Harker Speech, Michigan Consumer Sentiment Final, Factory Orders MoM, Michigan 5 Year Inflation Expectations Final, Michigan Inflation Expectations Final.
Fed publishes scenarios for the second round of 2020 stress tests, a credit positive. Sea level rise increases credit risk for U.S. coastal states and local governments. Airlines are calling for COVID-19 coronavirus tests before all international flights. Intel Corporation (NASDAQ: INTC) gets U.S. licenses to supply to Huawei. China air force video appears to show a simulated attack on U.S. base in Guam. How secular shifts will force the U.S. commercial real estate market to adapt. Government aid and stock gains pushed U.S. wealth to pre-pandemic levels. As U.S. business activity loses momentum, home price inflation accelerates. JPMorgan Chase & Co (NYSE: JPM) to pay nearly $1 billion in spoofing penalty. Higher inflation regime in medium term after decade of persistent undershooting. A jump in U.S. coal railroad volumes, 2021 forecasts are driving up sentiment. Global banks seek to contain damage over $2 trillion of suspicious transfers. Amazon Inc (NASDAQ: AMZN) pushes security with indoor drones, car alarms. Crude, product prices diverge as market looks to U.S. stimulus, COVID situation. IEA analysis of innovation in batteries and electricity storage, based on patent data. U.S. upgrades accounted for three-fourths of affected debt in the latest period. Hedge funds see opportunity in the New York, San Francisco apartment markets. Low interest rates create pension and investment challenges but lower debt costs. China is on course for record LNG imports as industries recover and expand. General Electric Co (NYSE: GE) plans to stop making coal-fired power plants. COVID ‘firepower’: Britain imposed six month curbs against a second virus wave. Microsoft Corporation’s (NASDAQ: MSFT) acquisition of ZeniMax credit positive. Bombardier Inc’s (OTC: BDRBF) agreement to sell transport unit credit negative. Coronavirus resets Latin American economies at lower base, driving asset risks. California banning sale of new gasoline-powered passenger vehicles in 2035. Data is suggesting that splits fundamentally change how stocks perform. The corporate bond issuance boom may steady credit quality, on balance. Per earnings and interest rate forecasts, valuations not supported fundamentally. Data expected to confirm sentiment eased across most European countries. Wary buyers and softer foreign demand, likely raised Japan’s unemployment rate. On balance, 2020’s bond issuance boom enhanced overall financial flexibility. Demographics and the rising cost of funding retirement may affect valuations.
Sentiment: 24.9% Bullish, 29.1% Neutral, 46.0% Bearish as of 9/23/2020. Gamma Exposure: (Trending Lower) 1,152,474,010 as of 9/25/2020. Dark Pool Index: (Trending Higher) 42.2% as of 9/25/2020.
S&P 500 E-mini Futures (ES) | SPDR S&P 500 ETF Trust (NYSE: SPY)
Gold Futures (GC) | SPDR Gold Trust (NYSE: GLD)
Crude Oil (CL) | United States Oil Fund LP (NYSE: USO) | Invesco DB Oil Fund (NYSE: DBO) | United States 12 Month Oil Fund (NYSE: USL)
Treasury Bonds (ZB) | iShares 20+ Year Treasury Bond (NASDAQ: TLT)
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