Weekly Wrap

The market's attention was largely focused on China during the past week, as the country's officials announced a raft of measures aimed at boosting consumption, property demand, and stock market liquidity. The People's Bank of China lowered its reserve requirement ratio, the repurchase rate, the medium-term lending facility rate, and hinted at a potential cut to the loan prime rate. A flood of fiscal spending was also announced with upcoming bond issuance expected to reach roughly half of the amount spent to counter the Great Financial Crisis.

Chinese equities soared in response with the Shanghai Composite and Hong Kong's Hang Seng jumping 13.0% for the week while risk assets in Europe and the U.S. also showed strength, though ongoing pressure on the price of crude kept growth concerns at the back of the market's mind.

There was also renewed strength in semiconductor names after Micron (MU) beat quarterly expectations and issued strong guidance. The stock rallied to a two-month high, taking the PHLX Semiconductor Index for the ride (+4.3% for the week).

Longer-dated Treasuries ended the week with slight losses while the 2-yr note eked out a gain as rate cut expectations increased. At the end of the week, the fed funds futures market was pointing to a 54.8% implied likelihood of another 50-basis point cut in November, up from 50.4% a week ago.

Monday:

The Dow Jones Industrial Average (+0.2%) and S&P 500 (+0.3%) extended further into record territory and the Nasdaq Composite settled 0.1% higher. The Russell 2000 underperformed, dropping 0.3% after outperforming its peers of late.

Market breadth was mixed through the entire session, reflecting a lack of conviction from either buyers or sellers after the big run of late. Advancers led decliners by a 3-to-2 margin at the NYSE and decliners led advancers by a 4-to-3 margin at the Nasdaq.

Market participants remain optimistic about a soft landing scenario for the economy, but there's also a growing sense that stocks are due for some consolidation.

Many semiconductor stocks settled higher, leading the PHLX Semiconductor Index (SOX) to close 0.5% above Friday's settlement. TSMC (TSM 174.76, +0.68, +0.4%) was a story stock in the space after a Wall Street Journal report that TSMC and Samsung are considering new chip-making facilities in the United Arab Emirates.

Boeing (BA 156.30, +3.01, +2.0%) also made headlines today, turning sharply higher after confirming that it substantially increased the machinist contract offer, attempting to end the strike.

This price action helped boost the S&P 500 industrial sector (+0.7%). Other sectors that outperformed the index included the energy (+1.3%), consumer discretionary (+1.3%), real estate (+1.1%), and utilities (+1.0%) sectors.

The 10-yr yield settled one basis point higher at 3.74% and the 2-yr yield settled one basis point higher at 3.58%.

Reviewing today's economic data:

• September S&P Global US Manufacturing PMI - Prelim 47.0; Prior 47.9
• September S&P Global US Services PMI - Prelim 55.4; Prior 55.7

Tuesday:

There might not have been a lot of buying conviction in today's market, but more importantly there was no real selling conviction either. There was some buy-the-dip interest that coursed through NVIDIA (NVDA 120.87, +4.61, +4.0%) and the mega-cap space; and there was also an appreciation for a wave of policy stimulus measures announced in China that coursed through the materials (+1.4%) and industrials (+0.7%) sectors.

The People's Bank of China said the 7-day reverse repurchase rate will be lowered by 20 basis points to 1.50%, the required reserve ratio will be cut by 50 basis points, the down payment requirement for second-home buyers will be reduced to 15% from 25%, and there will be a CNY800 bln ($113 bln) liquidity support facility for stocks.

China's Shanghai Composite surged 4.2% on the news. That move was the basis for the outsized move in Chinese ADRs, like Li Auto (LI 24.72, +2.52, +11.4%) and Alibaba (BABA 97.19, +7.10, +7.9%), and the hefty gain logged by the iShares China Large-Cap ETF (FXI 30.40, +2.72, +9.8%).

The hope that China's stimulus measures will succeed in providing a needed boost to the Chinese economy spilled over to the commodities market, which was also eyeing the formation of Hurricane Helene in the Gulf of Mexico and the heightened military conflict between Israel and Hezbollah. Copper futures jumped 3.0% to $4.49/lb while WTI crude futures increased 1.7% to $71.56/bbl.

Freeport McMoRan (FCX 48.72, +3.58, +7.9%), a leading gold and copper producer, was the best-performing S&P 500 component followed by Estee Lauder (EL 91.98, +5.28, +6.1%), Las Vegas Sands (LVS 44.38, +2.25, +5.3%), Wynn Resorts (WYNN 84.16, +3.96, +4.9%), and Caterpillar (CAT 385.93, +14.76, +4.0%), all of which would stand to benefit from a pickup in economic activity in China.

Their gains contributed to the relative strength seen in the consumer discretionary (+0.8%) and industrials (+0.7%) sectors. NVIDIA for its part was a big contributor to the strength seen in the Philadelphia Semiconductor Index (+1.3%) and the relative strength in the information technology sector (+0.8%).

NVIDIA found support after briefly trading below its 50-day moving average (115.73) this morning. On a related note, Barron's reported that CEO Jensen Huang completed a preplanned stock sale several months ahead of an anticipated schedule. Investors presumably liked the thought that his preplanned sale will no longer be an overhang on the stock.

There was an overhang on the financial sector (-0.9%) today. It lost ground, undercut by weakness in the bank stocks. The SPDR S&P Bank ETF (KBE) and SPDR S&P Regional Banking ETF (KRE) declined 1.3% and 1.4%, respectively.

Treasury yields also declined following a weaker-than-expected Consumer Confidence Report for September. The 2-yr note yield, at 3.59% just before the 10:00 a.m. ET release, settled today's session at 3.55%, down three basis points from yesterday's settlement. The 10-yr note yield, at 3.79% just before the release, finished unchanged at 3.74%. The Treasury market also digested a $69 billion 2-yr note action that saw the high yield match the when-issued yield of 3.52%.

Reviewing today's economic data:

• July FHFA Housing Price Index (actual 0.1%; prior 0.0%)
• July S&P Case-Shiller Home Price Index (actual 5.9%; Briefing.com consensus 6.0%; prior 6.5%).
• The Conference Board's Consumer Confidence Index fell to 98.7 in September (Briefing.com consensus 102.9) from an upwardly revised 105.6 (from 103.5) in August. September's decline was the largest since August 2021.
  • The key takeaway from the report is that consumers' views of the current labor market situation continued to soften and became more pessimistic about future labor market conditions -- a sentiment that could weigh on consumer spending activity.

Wednesday:

There were some familiar sightings today. The People's Bank of China provided another piece of policy stimulus, cutting its Medium-Term Lending Facility by 30 basis points to 2.00%, and NVIDIA (NVDA 123.51, +2.64, +2.2%) continued to outperform. Both provided a measure of support for the stock market, yet neither was enough to excite the buying masses.

The major indices trudged through a lackluster session, succumbing to some consolidation interest that had the Dow, S&P 500, and Russell 2000 trading in negative territory for the bulk of today's trade. The Nasdaq for its part kept its ahead above water most of the day, riding on NVDIA's shoulders.

Still, market internals reflected a more cautious-minded tape. Decliners outpaced advancers by a better than 2-to-1 margin at the NYSE and Nasdaq; the equal-weighted S&P 500 declined 0.6%; the Russell 2000 declined 1.2%; and there were only two S&P 500 sectors that escaped with a gain: the utilities sector and information technology sector, both of which advanced 0.5%.

The "market" had the benefit of the information technology sector exhibiting relative strength, yet the broader market passed on rallying around it.

Nine of the 11 S&P 500 sectors finished with a loss. The energy sector (-1.9%) had the biggest struggle, keeping track with oil prices that slid despite reports of Hezbollah firing a missile at Tel Aviv, which was ultimately intercepted by Israel, and Israel teasing the possibility of moving ground troops into Lebanon. WTI crude futures dropped 2.5% to $69.78/bbl.

The health care sector (-0.9%) was another weak link, hurt by losses in Amgen (AMGN 312.86, -18.06, -5.5%), which reported disappointing data for two drugs, according to CNBC. Other laggards of note included the cyclical materials (-0.6%), financial (-0.6%), and industrials (-0.5%) sectors.

The consumer discretionary sector (-0.4%) was aided by Tesla (TSLA 257.02, +2.75, +1.1%), but its strength was not enough to overcome a pullback in Amazon.com (AMZN 192.53, -1.43, -0.7%), and losses in Ford (F 10.42, -0.45, -4.1%) and General Motors (GM 45.72, -2.35, -4.9%), which were downgraded at Morgan Stanley on concerns about Chinese competition and deteriorating credit quality in the U.S. Morgan Stanley also downgraded Rivian Automotive (RIVN 11.03, -0.81, -6.8%).

Homebuilders also dragged on the consumer discretionary sector even though new home sales in August were stronger than expected. A disappointing earnings report from KB Home (KBH 82.75, -4.68, -5.4%) acted as an offset.

Like the stock market, there wasn't much buying vigor in the Treasury market either. The 2-yr note yield settled the cash session unchanged at 3.55% while the 10-yr note yield jumped five basis points to 3.78% in a continued curve-steepening trade.

The $70 billion 5-yr note auction didn't cause much of a stir. Like the 2-yr note auction yesterday, the 5-yr note auction saw the high yield of 3.519% match the when-issued yield.

Reviewing today's economic data:

• MBA Mortgage Applications Index +11.0% wk/wk with refinance applications +20% and purchase applications +1%
• August New Home Sales 716K (Briefing.com consensus 695K); Prior was revised to 751K from 739K
  • The key takeaway from the report is that new home sales, which are tabulated when contracts are signed, were better than expected in August, aided by lower pricing and sliding mortgage rates. Notably, the South was the only region that saw a pickup in sales month-to-month.

Thursday:

The S&P 500 set a new record high today, bolstered by leadership from the semiconductor stocks following Micron's (MU 109.88, +14.11, +14.7%) better-than-expected earnings report and guidance, a tease from China that more policy stimulus is likely, and a reassuring initial jobless claims report.

While it was a record day for the S&P 500, it was a winning day all around for the other indices, which were supported by broad-based buying interest grounded in the view that global growth prospects should improve with the Fed, ECB, and People's Bank of China all moving toward more accommodative policy settings.

Other central banks are too, like the Swiss National Bank, which cut its key policy rate by 25 basis points today to 1.00% and suggested more cuts are likely to follow, and Mexico's central bank, which lowered its policy rate by 25 basis points to 10.50%. The upbeat economic view was reflected today in the outperformance of the materials sector (+2.0%), the 3.6% increase in copper futures prices to $4.65/lb., the 3.5% jump in the Philadelphia Semiconductor Index, and Dow component Caterpillar's (CAT 391.16, +12.91, +3.4%) move to an all-time high. Shares of CAT are up 27.4% from their August 5 low.

Notwithstanding the positive economic vibes, oil prices continued to slide with OPEC+ saying it will proceed with planned oil output increases in December. WTI crude futures declined 3.0% to $67.68/bbl. The weaknkess in oil prices derailed the energy sector (-2.0%), which was today's weakest area.

Caterpillar's move helped underpin the industrials sector (+0.5%), which was also fortified by a big gain in Southwest Airlines (LUV 29.82, +1.43, +5.0%) after the discount carrier raised its Q3 RASM guidance and announced a $2.5 billion share repurchase program.

There was also some notable strength across the consumer discretionary stocks, only it was hard to see at the surface level for the consumer discretionary sector (+0.1%) because Amazon.com (AMZN 191.16, -1.37, -0.7%) and Tesla (TSLA 254.22, -2.80, -1.1%) were influential laggards. CarMax (KMX 78.18, +3.69, +5.0%), for instance, made a nice move after its earnings report.

Treasury yields did not make a nice move after today's economic data. They backed up in response to the understanding that initial jobless claims -- a leading indicator -- are nowhere near recession-like levels. The 2-yr note yield, at 3.53% before the 8:30 a.m. ET releases, settled at 3.62%, up seven basis points from yesterday's settlement. The 10-yr note yield, at 3.75% before the releases, settled at 3.79%, up one basis point from yesterday's settlement.

Reviewing today's economic data:

• Initial jobless claims for the week ending September 21 decreased by 4,000 to 218,000 (Briefing.com consensus 224,000). Continuing jobless claims for the week ending September 14 increased by 13,000 to 1.834 million.
  • The key takeaway from the report is the continuing low level of initial jobless claims -- a leading indicator -- that isn't leading the market to think a recession is imminent.
• Durable goods orders were flat month-over-month in August (Briefing.com consensus -2.9%) following an unrevised 9.9% increase in July. Excluding transportation, durable goods orders were up 0.5% month-over-month (Briefing.com consensus 0.1%) following an upwardly revised 0.1% decline (from -0.2%) in July.
  • The key takeaway from the report is that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- increased 0.2% month-over-month, bouncing back from a 0.2% decline in July.
• The third estimate for Q2 GDP remained at 3.0% (Briefing.com consensus 3.0%). Similarly, the third estimate for the Q2 GDP Deflator remained at 2.5% (Briefing.com consensus 2.5%).
  • The key takeaway from this backward-looking report (we're just days away from the end of the third quarter) is that personal spending (+2.8%) was nowhere near a recession glide path, having exceeded the prior eight quarter average of 2.2%.
• Pending home sales were up 0.6% in August (Briefing.com consensus 1.0%) versus -5.5% in July.

Friday:

The stock market had some pep in its step to begin the day, aided by some pleasing economic data that featured a moderation in PCE price inflation and stronger than expected consumer sentiment. It was also still buzzing with the reverberations of China's surprise stimulus moves this week.

The major indices all started on a positive footing, but some slippage in the information technology sector (-1.0%) and some mega-cap stocks masked what was an otherwise healthy showing by the broader market.

The equal-weighted S&P 500 was up as much as 0.9% and at a new record high; the Russell 2000 was up as much as 1.5%; and 10 of the 11 S&P 500 sectors were in positive territory.

The opening momentum faded, however, as the session progressed without a clear-cut news catalyst. Some ostensible causes included a Bloomberg report that Israel had launched a major airstrike on Hezbollah headquarters in Beirut, a strengthening Japanese yen against the dollar (which upset things in early August), and a general sense that the market overall was short-term overextended given the remarkable rebound it has waged since early August.

Still, the fading momentum meant simply that most stocks pulled back from higher levels, not that there was any acute weakness -- at least not at the index level.

The sore thumb today was the information technology sector. Its underperformance was the difference in the losses registered by the Nasdaq Composite (-0.4%) and S&P 500 (-0.1%) versus the gains registered by the Dow Jones Industrial Average (+0.3%) and Russell 2000 (+0.7%). The equal-weighted S&P 500 closed 0.4% higher.

Even with today's 1.0% decline, the information technology sector ended the week 1.1% higher. In the same vein, the Philadelphia Semiconductor Index dropped 1.8% today but ended the week with a 4.3% gain.

The materials (-0.2%), consumer discretionary (-0.1%), health care (-0.04%), and consumer staples (-0.01%) posted negligible losses. The standout winners today were the energy (+2.1%) and utilities (+1.0%) sectors. The former was helped by rising energy prices, whereas the latter drafted off Treasury yields that moved lower in response to the PCE data and some geopolitical angst.

The 2-yr note yield fell six basis points to 3.56% and the 10-yr note yield declined four basis points to 3.75%. Pressured by the stronger yen, the U.S. Dollar Index slipped 0.1% to 100.43.

Reviewing today's economic data:

• August Adv. Intl. Trade in Goods balance (actual -$94.3 bln; prior -$102.8 bln), Adv. Retail Inventories (actual 0.5%; prior 0.8%), and Adv. Wholesale Inventories (actual 0.2%; prior 0.3%).
• Personal income increased 0.2% month-over-month in August (Briefing.com consensus 0.4%) following a 0.3% increase in July. Personal spending increased 0.2% (Briefing.com consensus 0.3%) following a 0.5% increase in July. The PCE Price Index rose 0.1% month-over-month (Briefing.com consensus 0.1%) following a 0.2% increase in July. The core-PCE Price Index, which excludes food and energy, increased 0.1% (Briefing.com consensus 0.2%) following a 0.2% increase in July. On a year-over-year basis, the PCE Price Index was up 2.2%, versus 2.5% in July, while the core-PCE Price index was up 2.7%, versus 2.6% in July.
  • The key takeaway from the report is that it shows tame inflation figures that support the Fed's progress in getting inflation back to its 2% target on a sustainable basis.
• The final reading for the September University of Michigan Index of Consumer Sentiment reached 70.1 (Briefing.com consensus 69.0) versus the preliminary reading of 69.0. The final reading for August was 67.9. In the same period a year ago, the index stood at 67.8.
  • The key takeaway from the report is that consumer sentiment picked up in September, and has been picking up as inflation pressures have moderated.