Main U.S. indexes gyrate, now red: DJI off ~0.8%
Real estate weakest S&P 500 sector; energy sole gainer
Euro STOXX 600 index off ~0.7%
Dollar, crude rise; gold, bitcoin down
U.S. 10-Year Treasury yield rises to ~3.81%
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SEMIS OUTPERFORM AS WALL STREET’S RECENT RALLY FADES
(1205 EDT/1605 GMT)
Chip stocks bouncing between small gains and losses on
Thursday but outperforming the rest of Wall Street as Advanced
Micro Devices and Nvidia build on their recent rebounds.
The Philadelphia Semiconductor index is down 0.1%
around mid-day, better than the S&P 500’s 0.7% drop and
the Nasdaq’s 0.4% dip.
While much of Wall Street has hit the brakes after a
monster rally on Monday and Tuesday, Nvidia has continued to
climb, albeit with a modest 0.4% rise on Thursday. The graphics
chipmaker has now ascended almost 10% since Sept. 30, when it
closed at its lowest level since March 2021.
Rival Advanced Micro Devices is rising almost 1%
on Thursday, and is now up about 9% since Sept. 30, when it
closed at its lowest level since July 2020.
Investors continue to worry that the global chip
industry is heading for its first revenue downturn since 2019,
but sentiment has been bolstered a little by a recent dip in
Treasury yields. Valuations of high-growth companies, such as
many chipmakers, tend to be hurt by high interest rates.
Following the recent rebound in battered chip stocks,
the SOX remains down 36% year-to-date. If the index were to end
2022 at its current level, it would be its worst year since the
2008 financial crisis.
BANKS ARE RESILIENT BUT… (1101 EDT/1501 GMT)
A week ahead of a busy start to the third-quarter bank
earnings season, Credit Suisse analyst Susan Roth Katzke is
focused on “fundamental resilience” in her preview research.
While Katzke sees Q3 bank earnings per share running 11%
below year-ago numbers, she expects pre-provision net revenue
(PPNR) 2% above year-ago levels and up 5% sequentially.
The biggest support for the sequential increase is the lift
in interest rates along with healthy loan growth and loss rates,
according to Katzke. But she notes that investors will already
be expecting weaker market revenue, other than trading, and
weakness in mortgage banking.
But as always investors will be heavily focused on guidance
on net interest revenue momentum, loss rate expectations and
loan loss reserve adequacy due the heightened recession risk.
“We enter earnings season confident in the strength of
banking fundamentals, but cautious vis a vis the direction of
estimate revisions,” wrote Katzke suggesting that there is
limited upside due to macro and market-related estimate risk.
The analyst’s outlook for stocks highlighted broader
uncertainty as she sees “~20% total return potential on average
across the Large Cap Banks realizable with greater confidence in
the manageability of macro slowing,” but also sees the potential
for “~20% downside to more fully discount a mild recession.”
This said, Katzke’s highest conviction recommendations, each
with ~30% total return potential are: Goldman Sachs,
Wells Fargo, Bank of America and JPmorgan Chase
Meanwhile, banks are taking a backseat on Thursday. The S&P
500 banks index is off around 0.9% vs a 0.25% decline
for the overall S&P 500 index.
THE UNEMPLOYMENT LINE IS GROWING – WOO-HOO! (1032 EDT/1432
U.S. labor demand is showing early signs of softness as a
months-long barrage of interest rate hikes from Powell & Co are
beginning to make themselves felt.
So, in this topsy-turvy upside-down world of hot inflation,
a hawkish Fed and recession jitters, bad news can be good:
tightening monetary policy appears to be working, a prospect
which could afford the central bank to pivot back to a less
aggressive stance, perhaps sooner than anticipated.
The number of U.S. workers filing first-time applications
for unemployment benefits surged by 15.3% last week
to 219,000, landing 16,000 north of consensus, according to the
A combination of low participation and a record number of
job openings has resulted in an extremely tight labor market and
has put upward pressure on wage growth, which has stoked market
participant fears that decades-high inflation could be the exact
opposite of ‘transitory,’ which was a favorite Fed adjective
until it wasn’t.
The central bank fired the opening rate hike salvo six
months ago, when jobless claims touched their lowest level in
generations. Last week’s print is a considerable 31.9% higher
than the March nadir of 166,000 claims.
Even so, the Fed hike tantrum isn’t likely to subside any
“Any easing of labor market conditions will be welcome by
the Fed but won’t change the FOMC’s plans to continue to raise
rates in an effort to bring down inflation,” writes Nancy Vanden
Houten, lead U.S. economist at Oxford Economics. “The labor
market should still be characterized as tight, with the ratio of
job openings to unemployed workers still elevated in August
despite a small decline.”
Ongoing claims, reported on a one-week lag,
inched 1.1% higher to 1.361 million
Separately, the stack of pink slips promised by U.S. firms
grew 46.4% taller in September, surging to 29,989 total job
Executive outplacement firm Challenger, Gray & Christmas’
(CGC) planned layoffs report also shows a 67.6%
increase from September of last year.
“Some cracks are beginning to appear in the labor market,”
writes Andrew Challenger, senior vice president at CGC. “Hiring
is slowing and downsizing events are beginning to occur.”
Still, labor market tightness lingers. The 209,495 job cuts
announced year-to-date are 21% below the same time last year.
That ship is only just starting to change course.
“We expect layoffs to rise gradually over coming months in
response to Fed tightening, which will weigh on demand,” says
Rubeela Farooqi, chief U.S. economist at High Frequency
Economics. “But for now, having faced persistent labor
shortages, businesses are still holding on to rather than
letting go of workers.”
So far this year, automotive, healthcare and technology
sectors have been hardest hit.
Investors now look to the Labor Department’s
always-hotly-anticipated employment report due Friday morning,
which is expected so show payroll growth of 250,000 in
September, with the jobless rate holding steady at a low 3.7%.
As shown in the graphic below, Fed rate hikes amid low
unemployment and spiking inflation are often prelude to
Wall Street is now heading lower on Wednesday, ceding
territory won in robust rallies earlier in the week.
An uptick in benchmark Treasury yields have put bond proxies
on the run, with utilities and real estate
The FAANG gang are once again weighing heaviest.
U.S. STOCKS ARE MIXED AND MODEST IN EARLY TRADE (0955
The main U.S. stock indexes are mixed early on Thursday,
though changes are relatively modest, after data showing an
increase in weekly jobless claims suggested the Federal Reserve
may need to ease its aggressive monetary tightening cycle.
With this, however, the U.S. dollar is stronger,
while the U.S. 10-Year Treasury yield is rising back
up over 3.80%.
S&P 500 sectors are mixed with energy out
front of the gainers. Defensive bond-proxies are on the weaker
Chips are outperforming with a gain of more than 1%,
and growth is on track to outperform value for a
Meanwhile, the S&P 500, at just over 3,765, still faces
resistance in the 3,810.32/3,815.20 area. Wednesday’s high was
at 3,806.91 before the benchmark index then backed away. Support
is at Wednesday’s low of 3,722.66 and then 3,712.
Here is a snapshot of where markets stood around 20 minutes
into the trading day:
BITCOIN: RUMBLE, STUMBLE, OR CONTINUE TO BUMBLE? (0900
Since collapsing into its June lows, bitcoin has
essentially been range trading, making no progress for more than
However, given what are now especially compressed daily
historical volatility readings, and strong positive correlations
with U.S. equity indexes, a bitcoin breakout may coincide with
either a surprising risk-on charge, or another market panic:
Since bottoming on June 18, one trading day after the S&P
500’s intraday low, and down 72% from its Nov. 8, 2021 record
close, bitcoin has struggled to make progress. Its summer rally
stalled with its August-15 intraday high, one day prior to the
intraday highs in the main equity indexes. Both bitcoin, and
stocks, were then whacked.
However, bitcoin bottomed on Sept. 21, or nine trading days
ahead the stock indexes’ Sept. 30 troughs.
Meanwhile, on Oct. 3, bitcoin’s daily Bollinger Band (BB)
width fell to 0.087. Of note, over the past several years or so,
major bitcoin moves have come in the wake of sub-0.2 daily BB
width readings. Low BB width does not in itself predict
direction, but it can indicate a market especially ripe for much
more spirited action, or its next significant trend.
The recent BB width low was its tightest since October 10,
2020. In the wake of the Oct. 9, 2020 BB width trough, bitcoin
enjoyed an upside breakout leading to a massive bull-run.
Bitcoin, now around $20,200, could continue to range trade,
however, given especially compressed daily historical
volatility, traders are on alert for a next big move.
A forthright thrust, and close, above the upper daily BB,
now just over $20,400, will have potential to spark a sharp
band-width rise, and an upside breakout.
A close below the 20-day moving average, now around $19,400,
can flip pressure back toward a downside range break.
Violating the lower daily BB, now around $18,400, can also
spark a sharp band-width rise, and lead to a slide to new lows.
Of note, bitcoin’s Nov. 8 record close coincided with the
record close in the small-cap Russell 2000, and came just
nine trading days ahead of the Nasdaq Composite’s Nov.
19 record finish.
Bitcoin’s rolling 50-day correlations with the RUT, and
IXIC, now stand at a robust 0.77 (+1.00 is a perfect positive
correlation). Thus, if bitcoin resolves its range, one way or
the other, U.S. equity indexes will likely be coming along for
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