Stocks Mixed As Fed Meeting Kicks Off
- NASDAQ Composite +0.11% Dow -0.09% S&P 500 +0.06% Russell 2000 -0.31%
- NASDAQ Advancers: 995 Decliners: 1433
- Today’s Volume (vs yesterday) -8.42%
- Crude $60.06 -$2.84, Gold $1508.30 +$3.50, VIX 14.84 +0.17
Market Movers
- August Industrial Production +0.6% vs. +0.2% consensus
- July revised higher to -0.1% from -0.2% reported
- August Capacity Utilization 77.9% vs. 77.6% consensus
- August Manufacturing production +0.5% vs +0.2% consensus
- U.S. M/o/M Redbook retail sales -0.9% vs -0.4% previously reported
- U.S. Y/o/Y Redbook retail sales +5.4% vs +6.4% previously reported
- Reaction to earnings: APOG + 11%, CBRL +4%
Chris’ Commentary
Small caps stocks finished in the green Monday as the Russell 2000 closed up +0.41%. Large cap names finished lower following the weekend drone attacks on the Saudi oil facilities which led to a ~15% spike in crude. The Dow finished lower by -0.52%, the S&P 500 -0.31% and the Nasdaq Composite -0.31%. Trading volumes on the consolidated tape were above average, lending credence to the fact that volume validates the move. We saw over 7.7 billion shares change hands compared to the monthly average of 7.2 billion and the year-to-date average of 7.07 billion shares on the consolidated tape. Yesterday was the 7th most active Monday of the year, by traded volume.
Today, markets are trading mixed to flat as traders take pause ahead of FOMC policy meeting. Saudi Aramco also stated it will have the damaged facilities back on line quicker than expected, which is helping calm the markets.
Currently, six of 11 major S&P 500 sectors are trading higher. Real Estate and Utilities, as a safe play are both up about 1% while Energy leads lower, giving back some of yesterday’s gains. Crude oil is down 5% while Gold is trades flat to slightly higher. The dollar is lower while the yield on the 10-yr sits at 1.8%.
China – U.S. trade talks are slated to kick-off tomorrow as a Chinese trade delegation is expected to arrive in Washington to set the agenda for upcoming higher-level meetings in October. This is a hopeful sign that the 2 countries can begin to work out their differences.
The September FOMC meeting kicks off today and the Fed will announce its rate cut decision tomorrow at 2pm ET. A 25bps is baked into the market already. The question will be in Powell’s press conference afterwards and his reaction to inflation data and impact to GDP. The 2/10 yr Treasury spread sits at +8bp but the short end of the curve is inverted with the 3m/10yr at -16. Very odd. Does cutting rates fix this inversion? Economists will be digesting the updated Summary of Economic Projections or SEP dot plot for clues. The SEP indicates just how much each FED official thinks it will cost to borrow money in the future. Most economists are expecting the dot plot to remain in-line with market expectations for three total rate cuts this year. Anything else could potentially lead market volatility.
Brexit gaining headlines as the U.K. Supreme Court ended their 1st day of hearings into Prime Minister Boris Johnson’s decision to suspend Parliament. According to Bloomberg, “It’s a landmark case that not only threatens to undermine his position as prime minister, but could also force him to recall the legislature -- giving opponents of a no-deal Brexit more time to pass laws to force his hand. While it’s notoriously difficult to determine how a case will turn out from judges’ questions, lawyers observing the proceedings said opponents of a so-called no-deal Brexit had the better day.”
Sector Recap
Brian’s Technical Take
Yields are pulling back from powerful upswings over the prior two weeks and accordingly the defensive REITs(+1%) and Utilities (+0.8%) sectors are leading todays activity. More interesting is the activity in the short term money markets where various funding measures are reflecting a dollar liquidity shortage.
Yesterday overnight repo rates and related dollar funding measures (SOFR, TGCR, BGCR) ballooned higher which is more commonly seen at month and quarter ends. The overnight fed funds rate reached the top of the 2% - 2.25% range, and for numerous quarters has already been trading above the IOER (interest on excess reserves) despite three separate adjustments by the Fed going back to 2018. In theory, the IOER is supposed to act as a ceiling to overnight fed funds but is currently 15 bps below, as seen in the below chart. This drove the New York Fed to inject funds into the banking system via an overnight repurchase-agreement operation for the first time in ten years.
The Fed meets today and tomorrow and is widely expected to cut the overnight rate by 25bps. The committee will likely also be working on ways to better implement its policies (overnight repo facility?) in order to address dollar liquidity needs given the increased supply of treasuries coming to market and year end window dressing ahead.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen-based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen-based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq, Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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