Daily Markets: Multiple Headwinds Facing Investors This Week
Today’s Big Picture
U.S. equity futures point to a material decline at the open, continuing the market’s rather grumpy September mood. Concerns over the potential default from China Evergrande Group (EGRNY) is gripping investors - see Stocks to Watch below for more on this. The major equity indices that were open for trading today in Asia-Pacific were in a seriously dour mood with Hong Kong’s Hang Seng falling 3.3% and Australia’s ASX 200 2.1%. The markets in mainland China, Japan, and South Korea were closed for holidays. By midday trading, European equities were also taking it on the chin with the pan-European Stoxx 600 index down around 1.8%, while Germany’s DAX, France’s CAX 40, and Italy’s FTSE MIB were all down more than 2%.
Last week was the second consecutive week of declines in equity markets, and this week sees some of these same issues as ongoing concerns. Markets are being driven by investor angst over rising Covid-19 hospitalizations, decade-low consumer confidence, ongoing inflationary pressures, growing geopolitical risks, and a debt-ceiling fight that looks to be another cliff-hanger battle on Capitol Hill. We may get more details on Federal Reserve plans to slow bond purchasing amid talk of raising taxes, including a major change that would impact ETFs, and you have a lot of headwinds. That said, as Apollo Global Management’s (APO) chief economist Torsten Sløk points out, global central banks are buying about $300 billion in assets every month. That’s one hell of a floor under global markets and explains ongoing the success of buy-the-dip. Will we see that pattern hold again this week? We're about to find out.
The vaccination rate in India accelerated by 22% last week, with an average of 8.9 million jabs administered every day, 25 million alone on Friday in a strangely 2021 way of celebrating Prime Minister Narendra Modi’s 71st birthday. After a slow start, the country has now administered over 800 million shots which equates to around 58 jabs for every 100 persons in the country. About 45% of inhabitants have received at least one jab and over 15% are fully vaccinated.
Madrid, Spain is expected to remove many of its Covid-19 restrictions starting today as the nation’s infection rate drops to the lowest level in over a year.
After Friday’s market close, an FDA panel voted 18-0 in favor of Pfizer (PFE)-BioNTech (BNTX) vaccine booster for individuals 65 years of age and older and individuals at high risk of severe COVID-19. Then this morning we learned the two companies found that their Covid-19 vaccine was safe and generated a strong immune response in children aged 5 to 11 years in a late-stage study. Pfizer reported that it will share the results with regulators in the U.S. and other nations as it seeks emergency use authorization. This could mean a big jump on squashing the virus as the lack of vaccinations amongst the youth means a ready pool of candidates to infect and pass around the virus, giving it more opportunity to mutate into even more lovely versions with which to torment us. Can we get a “Hell yeah!?”
Inflation pressures accelerated in Germany as the country’s August PPI surged 12% YoY, up from +10.4% in July and topping the consensus forecast for a +11.4% increase. The August print marked the largest increase since December 1974. On a MoM basis, the August PPI reading rose +1.5% vs. the expected 0.8%.
Friday’s University of Michigan consumer sentiment for the U.S. rose slightly to 71 in September from a decade-low of 70.3 in August, still below expectations for an increase to 72. What this metric means is that consumers still expected the least favorable economic prospects in over ten years. The gauge for current economic conditions fell again to 77.1 from 78.5 but expectations did increase to 67.1 from 65.1. Sentiment for buying household durable goods dropped to a low seen only once before in 1980 and long-term economic outlook dropped to a decade low. The assessment of current buying conditions for homes and cars are also all near all-time record lows due to high prices.
All 50 Republican Senators have said they will not support a debt ceiling increase attached to a short-term funding bill that requires 60 votes. If this doesn't pass, the federal government will shut down on October 1 and Treasury could run out of money in late October.
House Majority Whip Rep. James Clyburn (D-SC) said there is a "possibility" the September 27 vote on the $1 trillion bipartisan infrastructure bill could be delayed despite earlier commitments.
Later today we will get the NAHB Housing Market Index, which is expected to slow slightly to 74 from 75, a new 13-month low.
U.S. equity markets closed in the red for the second consecutive week with the Dow losing 0.1% on the week, the S&P 500 -0.6%, and the Nasdaq fell -0.5%. The only major indices to close in the green were the Russell 2000 and the S&P 600, but not by much. We had some positive news come in last week from the regional Fed Manufacturing Indices and retail sales, but the market was dealing with one of the largest options expirations on record, so it was bound to get messy. The big winner so far in September has been volatility, which is up nearly 30%, while the main equity indices are all in negativity territory.
Stocks to Watch
Earnings Announcements & Guidance
Before U.S. equity markets open this morning, Cognyte Software (CGNT) will be among the few companies reporting their quarterly results.
China Evergrande Group shares plunged to over 11-year lows earlier today as the company scrambles to raise funds to pay lenders, suppliers, and investors as regulators warn its $305 billion in liabilities could spark broader risks to the country's financial system if not stabilized. Per reports, the company has an $83.5 million interest payment due on September 23 for a March 2022 bond and has another $47.5 million interest payment due on September 24 for March 2024 notes. The greater concern is a domino effect on China and Hong Kong property developers.
Because of the COVID-19 pandemic in Malaysia, the production of chips dedicated for the Li Auto’s (LI) millimeter-wave radar supplier has been severely hampered. While the chip supply recovery has begun, it has also been slower than expected, leading Li to cuts its vehicle delivery forecast for the current quarter to ~24,500 vehicles from its previous guidance of 25,000-26,000 vehicles.
PG&E (PCG) in California and Berkshire Hathaway's (BRK.A) NV Energy in Nevada warned they may need to cut power to some customers to prevent the possibility of their equipment causing wildfires, as dry and windy weather continues to plague much of the western U.S.
Netflix’s (NFLX) “The Crown” won seven awards, including best drama series, at the Emmy Awards last night while Apple’s (AAPL) “Ted Lasso” earned four awards. If you haven’t experienced “Ted Lasso” yet, we suggest you drink in this clip that in our view is likely to win you over. #BeCuriousNotJudgemental
Last week, Tesla’s (TSLA) Elon Musk said drivers would soon be able to request an enhanced version of what Tesla calls its “Full Self-Driving Capability;” however, Jennifer Homendy, the new head of the National Transportation Safety Board, said Tesla shouldn’t roll out the city-driving tool before addressing what the agency views as safety deficiencies in the company’s technology.
Brooks Automation (BRKS) announced that it has entered into a definitive agreement to sell its Semiconductor Solutions Group business to Thomas H. Lee Partners, LP for $3.0 billion in cash. Following the completion of the transaction in the first half of 2022, the remaining life sciences business will operate as a standalone publicly-traded company, under a new name.
Dividends and More
Shares of Krispy Kreme (DNUT), Flywire (FLYW), Couchbase (BASE), F45 Training Holdings (FXLV), Traeger (COOK), Weber (WEBR), and 56 other recently IPOed stocks could see a boost as the FTSE Russell adds them to its Russell 2000 index as early as today.
After Today’s Market Close
Homebuilder Lennar (LEN) is expected to report its quarterly results. With less than two weeks until the close of the quarter, we’ll be on the lookout for September quarter earnings pre-announcements, both good and bad. Those looking to get a jump on the earnings reports in the coming days should visit Nasdaq’s earnings calendar page.
On the Horizon
- September 21: Housing Starts, Building Permits
- September 22: Existing Home Sales, Federal Reserve Rate Decision. President Biden holds a virtual vaccine summit
- September 23: Chicago Fed National Activity Index, Weekly Jobless Claims, Markit Manufacturing PMI, Markit Service PMI
- September 24: New Home Sales
- September 27: Durable Goods Orders, Dallas Fed Manufacturing Index
- September 28: Goods Trades Balance, Wholesale Inventories, S&P/Case-Shiller Home Price Index, Conference Board Consumer Confidence
- September 29: Pending Home Sales
- September 30: GDP for Q2 (final estimate), weekly jobless claims, Chicago PMI
- October 1: Personal Income & Spending, PCE Price Index, Markit & ISM Manufacturing PMIs, Michigan Consumer Sentiment, Construction Spending
- October 4: Factory Orders
- October 5: Total Vehicle Sales for September, Balance of Trade, Market & ISM Service PMIs, IBD/TIPP Economic Optimism
- October 6: ADP Employment Change
- October 7: Jobless claims
- October 8: Nonfarm payrolls, Wholesale inventories
- October 12: JOLTs report
- October 13: CPI, FOMC Minutes
- October 14: Weekly jobless claims, PPI, Monthly budget statement
- October 15: Retail Sales, Import & Export Prices, NY Empire State Manufacturing, Michigan Consumer Sentiment (preliminary), Business Inventories
Thought for the Day
“Mistakes are as serious as the results they cause.” ~ Dr. Gregory House
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.