The dominoes keep tumbling and I think we’re now set up for one of those extremely volatile market melt ups through early January. Why do I believe that? And what’s a melt up look like? Glad you asked.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My sixty-fourth YouTube video “It’s a market melt up! went up today.
As we contemplate the extraordinarily strong earnings from Wall Street’s big banks last week, it’s important to remember that Wall Street isn’t Main Street.
You can see yesterday’s stock rally and its continuation today as a return of the Goldilocks market. Yesterday, for example, inflation, if you look just at core inflation–that is without food and energy prices–looked strong enough to make the Federal Reserve very cautious about removing monetary stimulus from the economy, but core inflation wasn’t so strong that it sent up warning flares. And today, the drop in initial claims for unemployment to 293,000 (for the week ended October 9) for a new Pandemic low argues that the economy continues to improve but that the economy in general and the job market in particular are neither too hot nor too cold In other words a Goldilocks scenario.
In the last few days both Goldman Sachs and the International Monetary Fund have cut their forecasts for global economic growth. The predictions don’t call for a big slowdown in growth but the trend is definitely downward.
Why the lack of a reaction to the disappointing September jobs report that fell into territory that had been billed as a market moving event? Because Wall Street didn’t believe the headline jobs numbers. And with good reason.
Profit warnings for the third quarter, which ends on September 30 for most companies, have started to worry Wall Street. So far most of the revisions have come from materials producers such as PP Industries (PPG) and Sherwin-Williams (SHW). PP Industries, for example, lowered its sales number for the quarter by $250 million. That’s a decent-sized hit on Wall Street’s projected $4.3 billion in sales. Sherwin-Williams said that limited availability of raw materials is hampering its ability to meet demand. Quarterly sales could fall by a low single digit percentage year over year. But there are signs of a more extensive problem.
I expect that the the financial markets will remember this week that the Federal Reserve will actually say something after its meeting on Wednesday, September 22. Even if the Fed doesn’t change policy at all, the central bank will deliver a new set of economic projections with views on inflation and GDP growth that could add volatility to an already nervous markThe CME Fed Watch Tool, which looks at prices in the Fed Funds Futures market to calculate market expectations for an interest rate move by the Federal Reserve, says there’s a 0% chance of a change in interest rates at Wednesday’s meeting. The odds for a Fed interest rate increase go up to only 1.8% at the November 3 meeting according to the CME Fed Watch. And are only 1.7% for the December 15 meeting. In other words the market is utterly convinced that the Fed will do nothing.
An interesting–and I think important–post by Ethan Wolff-Mann on Yahoo Finance yesterday. According to Data from Vanda Research, individual investors haven’t been buying the September dip.
I found myself humming “I scare myself” this morning as the market continued its September selling. The Dan Hicks and the Hot Licks song pretty much sums up the market action this morning. We all know that stocks go down in September so we’re sending stocks downward. And we all know that September 17 is the Big Bad Day in the month so it’s unreasonable to expect a turn in sentiment before that date. But so far, I’d note, the selling seems “orderly” with the usual candidates bucking the trend and showing up in the green. It’s when those still in the green stocks start tumbling that I’ll really start to worry.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My forty-sixth YouTube video “September and October 2021 Worse Than Usual for Investors” went up today. The “solutions” post will go up Sunday.
More than 2 million options on the September 10-year Treasury expire by the end of trading tomorrow, August 27. That’s 63% of all options open interest in Treasuries. It “looks” like the positioning of those Treasury options is relatively balanced. Bloomberg reports that data from JPMorgan Chase show that the bank’s clients have pulled back on short bets on a steeper yield curve after tomorrow’s speech (10 a.m. New York time) by Fed chair Jerome Powell. But I wouldn’t bet against some extra volatility tomorrow.
