Live Markets: When at the corner of Wall Street and Easy Street, better look both ways

Agritek Holdings

28/09/2023 17:25

* 
      Main U.S. indexes rise: Nasdaq out front, up ~1%
    

        * 
      Comm svcs lead S&P 500 sector gainers; utilities weakest
group
    

        * 
      Euro STOXX 600 index ends up ~0.3%
    

        * 
      Dollar, gold, crude dip; bitcoin up ~3%
    

        * 
      U.S. 10-Year Treasury yield edges down to ~4.61%
    

  
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    WHEN AT THE CORNER OF WALL STREET AND EASY STREET, BETTER
LOOK BOTH WAYS (1215 EDT/1615 EDT)
    Over the last decade or so, the S&P 500 and U.S. tech sector
have posted some stellar returns. However, Dan Suzuki, deputy
CIO at Richard Bernstein Advisors (RBA) has a warning for
investors:
    "Be careful when Wall Street starts to feel like Easy
Street."
    According to Suzuki, since 2010, the S&P 500 index  .SPX 
and the tech sector  .SPLRCT  have returned 389% and 847% (14%
and 21% per annum), respectively.
    Meanwhile, he says that with valuations and household equity
allocations now near all-time highs, it suggests investors are
positioned for more of the same.
    "What concerns us about investors doubling down on the best
trade of the past decade are the numerous historical precedents
suggesting that a continuation of these extreme returns is
unlikely," writes Suzuki in a note out Thursday. 
    He adds that "either these time-tested rules no longer
apply, and investing is now as easy as simply buying what has
worked, or investors are improperly allocated for the next
market cycle."
    As Suzuki sees it, extremes in performance and valuations
tend to reverse, as it becomes increasingly difficult for
results to keep pace with the hype driving expectations.
    Conversely, he says investment opportunities that have been
left for dead tend to have an easier time exceeding expectations
when the bar is low.
    Additionally, Suzuki believes major shifts in macroeconomic
fundamentals tend to come with new market leadership, and this
changing of the guard across cycles tends to be accompanied by
significant market volatility.
    Finally, Suzuki says, "it's never too early to sell a
bubble."
    Although he admits timing major market reversals and
leadership changes is no easy feat, the unique aspect to a
bubble is that it’s never too early to sell. 
    He notes that even if you bought the Nasdaq-100 index a full
year before its Y2K peak, initially doubling your money, it
still took roughly a decade to recoup subsequent losses.

    (Terence Gabriel)
     *****
    
    
    U.S. INDEXES RISE; INVESTORS AWAIT COMMENTS FROM FED
SPEAKERS (1145 EDT/1545 GMT)
    Major U.S. stock indexes are higher in Thursday late-morning
trading, with investors awaiting comments from Federal Reserve
Chair Jerome Powell and digesting remarks from other Fed
speakers.
    Focus remains on interest rates and yields, though the
10-year Treasury yield  US10YT=RR  is now edging lower on
Thursday. Investors have been weighing whether the Fed will need
to keep rates higher for longer.
    Chicago Fed President Austan Goolsbee said on Thursday the
Fed may be on the cusp of "something rare" by lowering inflation
without a major blow to jobs and growth, and must be "extra
careful" about relying too much on the history.
    The materials sector  .SPLRCM  is up more than 1%, leading
gains among S&P 500  .SPX  sectors, while utilities  .SPLRCU 
are falling more than 1%.
    Shares of Micron Technology  MU.O  are losing more than 2% a
day after the chipmaker widened its loss forecast. That said,
the chip index  .SOX  is rallying more than 2% on Thursday.
    Here is the late morning market snapshot:
    
    
    (Caroline Valetkevitch)
     *****
    
   
    SEMI-SOFT? PENDING HOME SALES, JOBLESS CLAIMS, GDP (1045
EDT/1445 GMT)
     A data triple play on Thursday appeared to question whether
the Fed will be able to pull off that fancy "soft landing" trick
everyone's been going on about.    
    Pending sales of previously owned U.S. homes  USNAR=ECI 
tumbled 7.1% last month, according to the National Association
of Realtors (NAR), much steeper than the 0.8% dip analysts
expected.
    The index hit 71.8, which is the lowest it has been since
the one-month COVID shock of April 2020 (the index rebounded to
100.9 in May 2020 - and has been below 100 for the last 17
months).
    The pending sales index, which tracks contracts signed, is
considered among the more forward-looking among housing market
indicators as those signed contracts typically turn into actual
sales a month or two down the road.
    Potential homebuyers are stymied by a dearth of inventories
which is mainly attributable to mortgage rates scaling
multi-decade highs, making the timing unattractive for
lower-rate mortgage holders to put their homes on the market.
    The average 30-year fixed contract rate  USMG=ECI  reached
its highest level in 23 years last week, according to the
Mortgage Bankers Association. Add to that mix the fact that home
prices - driven by lack of supply - are once again on the
upswing, and the prospect of making monthly payments drifts
outside the realm of affordability for many potential buyers.
    "Mortgage rates have been rising above 7% since August,
which has diminished the pool of home buyers," writes Lawrence
Yun, chief economist at NAR. "It's clear that increased housing
inventory and better interest rates are essential to revive the
housing market." 
    The number of U.S. workers to join the queue for
unemployment benefits  USJOB=ECI  hardly budged last week,
inching 1% higher to 204,000 and landing 5.1% to the south of
consensus.
    Weekly noise aside, the broader trend is heading downward,
with the four-week moving average of initial claims dipping by
2.9%, suggesting that whatever labor market softness resulting
from a year-and-a-half of Fed policy tightening has yet to
manifest itself in pink slips.
    "We expect some increase in layoffs later in the year as the
economy slows but look for job losses to be modest," writes
Nancy Vanden Houten, lead economist at Oxford Economics. 
    Reiterating her belief that the Fed will hold key interest
rates where they are "before embarking on a very gradual pace of
rate cuts in mid-2024," Houten adds that "the Fed needs to see
other signs that the labor market is continuing to come into
better balance if it is to refrain from further rate hikes."
    Ongoing claims, reported on a one-week lag, crept 0.7%
higher to 1.67 million, lingering just below the pre-pandemic
level. 
    And now, for some news from the Jurassic period. The
Commerce Department took its third and final stab at
second-quarter GDP  USGDPF=ECI , leaving it unchanged, as
expected, at a fairly robust quarterly annualized gain of 2.1%.
    But beneath the placid surface, the GDP deflator - which
tracks changes in U.S.-produced goods and services - was revised
30 basis points lower to 1.7%.
    More worryingly, growth of consumer spending - which
accounts for about 70% of the economy - was slashed to 0.8% from
1.7%.
    "The consumer is much weaker than initially thought as
economic momentum slows," says Jeffrey Roach, chief economist at
LPL Financial. "The key takeaway is consumers are nearing the
end of their spending splurge. Investors should expect further
slowing in the final quarter of 2023 and businesses would do
well to prepare for a period when the consumer will retrench and
become a bit more cautious on spending. 
    (Stephen Culp)
    *****
    
        OIL BULLS STRIKE BACK (0927 EDT/1327 GMT)
    Rising crude prices may be a growing risk for investors
concerned about sticky inflation forcing central banks to keep
rates high for longer. But, for energy firms, that just means
fatter margins out of their traditional oil operations.
    And energy stock bulls seem to be striking back.
    In Europe, just as the broader STOXX  .STOXX  is flirting
with a sixth straight day of losses, TotalEnergies  TTEF.PA  has
made a new record high, one day after the biggest U.S. major
Exxon Mobil  XOM.N  also climbed to a fresh lifetime peak.
    After four consecutive quarters of falling crude prices, the
tide is turning. Brent  LCOc1  prices have risen around 29% so
far in the third quarter, and profit expectations are improving,
suggesting the upcoming reporting season might bring along some
positive news. 
    Take the STOXX Oil & Gas index  .SXEP . LSEG Datastream data
shows earnings revisions - a metric investors watch to gauge
market momentum - are now positive for the index after months in
the red, and analysts now see earnings growth of around 4% in
2024, versus a big drop seen in January.
    The picture is pretty much the same for the S&P 500 energy
sector  .SPNY , which includes Exxon along with other 22 energy
companies such as Chevron  CVX.N  and Conocophillips  COP.N .
Net earnings revisions for the index are also positive while
2024 profit growth is seen at 2.1%.    
    Yet not all are enthused, as seen here: GRAPHIC-High oil
prices don't make Europe energy stocks attractive to all
         
    (Danilo Masoni)
    *****
    
    
        ROOM FOR UPSIDE: AI COULD BE THE 'HAMMER OF THOR' FOR US
UTILITIES (0920 EDT/1320 GMT)
  
    Higher borrowing costs have ravaged the U.S. utilities
sector this year, but the growth of artificial intelligence (AI)
could act as the "Hammer of Thor" by providing the much needed
'thunder' for the industry in the long run.
    Citigroup says power market participants forecast AI-driven
load growth to be about 30% per year (or about 40 basis points)
in the U.S.
    "These forecasts, albeit bullish, have not been priced into
current physical power forward price curves," Citi adds.
        The load growth is expected to be centered in Northern
Virginia, followed by Texas, California, and the Southeast as
that is where existing data centers are located, brokerage says.
    Data centers utilize huge amounts of power for their
functions such as computing and storing data and the revolution
of AI has amplified the need for data centers.
    The utilities sector  .SPLRCU  is the worst performer among
S&P 500  .SPX  groups, having fallen nearly 15% so far this
year.
    Within Citi's coverage universe, AES Corp  AES.N  and
American Electric Power  AEP.O , PG&E  PCG.N , CenterPoint
Energy  CNP.N  and Sempra  SRE.N  may benefit from load growth
brought by additional demand, as they own electric utilities in
those regions.
        The brokerage says in order to facilitate this growth,
PJM Interconnection, the biggest U.S. power grid operator, and
the Electric Reliability Council of Texas (ERCOT), which
operates the grid for more than 26 million customers, are making
plans to handle the additional load.
    "In the short term, the impacts are minimal but could be
more pronounced over the long run for the industry," Citi adds.
    
    (Siddarth S)
     *****
    
    
    S&P 500 INDEX: SO FAR SURVIVES SUPPORT LINE TEST (0900
EDT/1300 GMT)
    The S&P 500 index  .SPX  survived a test of the support line
from its October 2022 low on Wednesday:
    
    
    Indeed, the benchmark index hit a low of 4,238.63, which put
it essentially right on the line, which was around 4,235. The
SPX then rallied and eked out a tiny gain on the day.
    At the low, the S&P 500 was down around 8% from its
late-July intraday high.
    Meanwhile, with the small gain, the daily relative strength
index (RSI) ticked up slightly. On Tuesday, it had fallen to its
most oversold level since September 27, 2022.
    Now in the wake of the latest batch of economic data,
e-mini-S&P 500 futures  EScv1  are suggesting a roughly flat
open on Thursday.
    In any event, traders will remain focused on whether the
support line, which ascends to around 4,237 on Thursday, can
continue to contain weakness.
    The SPX faces initial hurdles in the 4,302-4,312 area
followed by the 4,325-4,335 area. There is a weekly Gann Line
which is now acting as resistance that resides around 4,371 and
the 100-day moving average (DMA) will be around 4,385 on
Thursday.
    In the event the support line gives way, the next levels are
at the 50% retracement of the March-July rally at 4,207.97 and
the rising 200-DMA which will ascend to around 4,197 on
Thursday.
    There is a weekly Gann line which is now acting as support
at 4,175 and 50% retracement of the S&P 500's 2022 decline is at
4,155.     
      
       
    (Terence Gabriel)
     *****
 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
SPX09282023    https://tmsnrt.rs/3rljBla
STOXX Oil     https://tmsnrt.rs/46v35O6
Brent    https://tmsnrt.rs/3LF97nE
Pending home sales    https://tmsnrt.rs/3rwPjvD
Jobless claims    https://tmsnrt.rs/45e7fJc
GDP consumer contribution    https://tmsnrt.rs/3EVEHJT
Late morning snapshot    https://tmsnrt.rs/3ZDoxhY
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)