Last week’s price action and volume metrics on US equity markets left investors in search of clear directional cues. For the week, the Dow Industrials gained a healthy 508.85 points or 1.85% while the S&P 500 and Nasdaq Composite gained 1.52% and 1.48%, respectively. Volume, however, remained tepid relative to the 50-day moving average.
Investors evidently either let markets close out Q3 and open Q4 with little evident fanfare or conviction, or they got positioned on the previous Friday’s triple witching.
As the S&P 500 chart below clearly illustrates, the 50 DMA continues to be the singular data point that markets appear unable to break from – in either direction. The S&P 500 closed out last week 7% below its recent all-time high. The Dow closed 6% below its high and the Nasdaq stands 8% below its all-time high.
In some respects, the weakness evident in last week’s trade, and in Friday’s trade specifically, was actually encouraging. Considering that we opened trading on Friday with news that President Trump and the First Lady had contracted COVID-19, a loss of less than 1% for the S&P 500 is significantly better than I and many others were expecting. Markets appeared to take the news in stride, at least for the time being.
Another factor to take into consideration is the fact that the Employment Report for September, released Friday morning, was disappointing from a jobs-gained perspective. As discussed below, the initial topline reading in the September Employment Report was 661,000 – less than half of August’s gains and well below consensus. It is a clear indication that the US economy is in need of more stimulus, as touched on last week.
That said, the leadership provided by the large-cap technology names was nowhere to be found. Virtually all the names that led the COVID rally faltered Friday but this does not come as a surprise. We have discussed rotation for 6 weeks now. All-in, the gains that materialized mid-week last week coupled with the marginal uptick in volume allowed for markets to move from confirmed downtrend to confirmed uptrend – though with little conviction and with few signs indicating where leadership for any sustained move higher from here will come from.
Q3 Earnings season underway:
Q3 corporate results begin to hit the tape with earnest this week. On Tuesday, PAYX, LEVI, and UEC report. On Wednesday we hear from RPM. It isn’t really until Thursday that things will get interesting. DAL, DPZ, CCL, and AYI all report. Momentum begins to pick up from there.
The themes driving market direction and tone for this week will be, in this order:
- President Trump’s and the First Lady’s health
- Presidential election news
- Q3 earnings releases
- Economic data
Last week’s economic calendar highlights:
Goods Trade (Advanced) came in at $-82.9B. Imports rose 3.1% and exports rose 2.8%. The Conference Board released its Consumer Confidence reading for September on Tuesday as well. Econoday consensus was 88.8 versus August’s revised 86.3. The actual reading came in at a significantly stronger-than-expected 101.8. The final GDP reading for Q2 was -31.4% – insignificantly better than the last adjusted reading for the quarter. Initial Weekly Jobless Claims were 837K. The previous week’s reading was revised 3K higher to 873K.
Personal incomes and outlay for August were in-line with expectations. Income M/M was -2.7%. Personal consumption rose by 1.0%. Core PCE Price Index Y/Y was 1.6%. September’s monthly Employment Report left the street unimpressed for the most part. The actual results for the month were +661,000. Consensus was +894,000. However, the prior month’s reading was revised higher to +1,489,000 from +1,371,000 and the official unemployment rate dropped to 7.9%. Those two data points, the prior month’s revision, and the drop in the unemployment rate provided a bit of ballast to an otherwise disappointing report.
This week’s economic calendar highlights:
On Tuesday morning, at 8:30, August’s U.S. goods and services trade data is released. Econoday consensus is expecting a monthly reading of $-66.5B. July’s totals were $-63.6B. As the data abstract below clearly illustrates, the U.S. trade deficit has continued to expand in 2020 – dramatically. Both July’s monthly reading and the three-month moving average, as of July, reached YTD highs.
The EIA Petroleum Status report is due out Wednesday at 10:30 am. There remains a relatively tight correlation between supply and demand. In the reading for the week ending 10/2, crude inventories slipped by 2.0 bbl. Gasoline inventories ticked higher (+0.7M bbl) by less than 1M bbl. Distillate inventories contracted by 3.2M bbl. Like I said, a relatively stable market. Also on Wednesday, we receive the FOMC meeting notes from three weeks ago. There should be no surprises here.
Weekly Jobless Claims are released Thursday at 8:30 am. Initial claims last week were an uninspiring 837K with initial claims dropping -36K. The 4-week-moving average stands at 867.25K.
N.B. Last week’s announcement of Charli Louise Kenny’s arrival, in Monday’s morning note, was met with one of the largest responses of love and celebration of any note I have written in over 15 years. Between page views, forwards, LinkedIn responses, emails, texts, and phone calls, the response to little Charli’s arrival has been breathtaking. Thank you for your overwhelmingly loving response to her.