The Take Five Report: 10/3/23

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Markets:

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Global Market Recap:

United States:

  • S&P: +0.01%
  • Dow: -0.22%
  • Nasdaq: +0.67%
  • Russell 2k: -1.58%

It was an extremely mixed day for U.S. stocks to open the new month. The Dow opened the day low, and would stay within the red through the close. The S&P hovered around the breakeven line, but was red for the majority of the day until a late day rally brought it back. The Nasdaq remained in positive territory for the entire session as tech stocks saw the bulk of gains. The Russell 2000 small cap index however declined the entire session, and this is concerning. For a more detailed discussion on this see the 9/28/23 report.

Asia:

  • Shanghai: closed
  • Hong Kong: -2.69%
  • Japan: -1.64%
  • India: -0.48%

Hong Kong stocks paced declines in this morning’s session following their return from a national holiday while Shanghai markets will be closed for the remainder of the week. A private survey that showed India's manufacturing sector grew the least in five months in September also dented sentiment. Investors were cautious ahead of the RBI interest rate decision later this week amid rising bets that the central bank may continue to maintain the interest rate.

Europe:

  • UK: -1.28%
  • Germany: -0.91% 
  • France: -0.94%
  • Italy: -1.39%

European stocks gave up early gains to open up October as the most recent data to come out of the region showed the purchasing managers’ index revealed an outgoing downturn in manufacturing output, as new orders fell by a near record level.

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U.S. Sectors Snapshot:

  • Communication Services: +1.47%

  • Consumer Discretionary: +0.21%

  • Consumer Staples: -0.64%

  • Energy: -1.91%

  • Financials: -0.84%

  • Health Care: -0.11%

  • Industrials: -0.91%

  • Info Tech: +1.33%

  • Materials: -1.31%

  • Real Estate: -1.75%

  • Utilities: -4.72%

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Technicals:

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Volatility Index: (VIX)

Monday Recap:

The VIX opened Monday’s session at $17.31 and would reach a low of $16.93 fairly early on. Prices would climb to a high of $18.55 as stocks declined, but the late day rally caused the VIX to fall and ultimately close at $17.61.

Daily Chart:

VIX daily chart October 3, 2023 with MACD, Channels, RSI, Impulse system and dual moving averages on thinkorswim

Strength moved in favor of the VIX bears to open the week, and for the third straight session as prices consolidate more in between $16-$18, which may serve as the new consolidation range for the time being while inertia continues to move more towards the upside, but is starting to temper more.

This week holds key labor market reports that will influence the VIX’s direction. Now that bad news has become bad news again, a poor report will send the VIX upward. The same thing will happen with a good report as well, because it supports higher for longer. The VIX will likely consolidate between $16-$18 for a short time, but if prices were to breakout we'd have the expectation that it’ll be to the upside.

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S&P 500: (SPX)

Monday Recap:

The S&P opened up October at $4,284, and work to a high of $4,300 where the bears met the bulls with resistance. Prices would slide to a low of $4,260, but would ultimately close just above the open at $4,288.

Daily Chart:

S&P 500 daily chart October 3, 2023 with MACD, RSI, channels, impulse system and dual moving averages on thinkorswim

Strength moved in favor of the bulls as prices continue their consolidation beneath the $4,300 level which we expected to be the case. If strength rises back above the centerline because of consolidation rather than price action, expect that cycle above it to be extremely weak from the bulls. This would allow bears to have an easier time making their next move. Inertia continued shifting to the downside, but is tempering compared to earlier.

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Fundamentals:

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Headlines:

1.) MarketWatch: Utility stocks suffer worst day since 2020 as Treasury Yields resume climb

  • T5 note: Utilities is the most interest rate sensitive sector (more or less), and higher for longer hurts them the most arguably. Hence why we’ve seen massive dumping of utilities over the last few weeks

2.) MarketWatch: Rates have cracked stocks below the surface, Bank of America derivatives strategists say

3.) Bloomberg: Treasury 30 year yield rises to highest level since 2007

4.) Barron’s: Evergrande shares up 28% at market close in Hong Kong

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U.S. Government Shutdown Averted for Now:

Kevin McCarthy:

Congress on Saturday passed a stopgap continuing resolution bill to avert a shutdown until November 17, a total of 45 days. The continuing resolution bought time, but they still need to pass 12 appropriation bills to keep everything running. The GOP has passed four so far, which McCarthy said account for an estimated 70% of spending.

House Speaker McCarthy threw practically everything on the table to dodge a shutdown. He brought up a clean bill in order to get Democrat support, going behind some of his colleagues’ backs in order to do so, which hasn’t gone over too well with Matt Gaetz and certain other members. The continuous resolution bill passed the House on Saturday 335 to 91. After numerous attempts to pass a CR with Republican wish list items went up in flames, McCarthy brought up the “clean bill”. Absent from the deal was additional support for Ukraine, but Democratic leadership indicated a separate supplemental package will come up for a vote at some point, which has opposers up in arms who wanted limited to no funding in that area. McCarthy also added that the border is his top priority, but supported more foreign aid to Ukraine as well.

Matt Gaetz:

As we know (see 9/28/23 report), Matt Gaetz is seeking to end the omnibus/continuing resolution patches that McCarthy and most of Congress has been so fond of over the last 30 years. His goal is to split the 5,000 page document into single subject spending bills that allow for more programmatic analysis of what’s working and not working, more review of individual subjects, the ability to isolate some of the more weaponized and useless programs in order to get them removed, and more bipartisanship and negotiation between Congress rather than division. When has more research, analysis, negotiation, bipartisanship, and *effort* ever been a bad thing? McCarthy’s response, “Gaetz is trying to work with Democrats, he’s reached out to Swalwell, AOC, and others. But if that’s the way we’re going to govern, I don’t think America is going to be successful.” No, America will be successful because of people like Gaetz. Better yet, he’s the one who ended up working with the "opposition" to pass the one thing that nobody, including many of the American people wanted, showing that he caved once again, just as he did with the debt ceiling deal.

Get Him Out:

Matt Gaetz because of this, has now filed a motion to oust McCarthy as speaker of the House because he hasn’t fulfilled his promises that he made when he took the position. Democratic members of Congress “erupted in laughter” as Gaetz left the floor, and he said that if the motion fails, he will continue filing until McCarthy is out. In response, House GOP members are seeking to expel Gaetz if the Democratic launched probe (in 2021) for “ethics misconduct”, “misappropriated funds”, “drug use”, “sexual misconduct”, “shared inappropriate images on House floor”, misused state ID records”, and “accepted bribes” which is ludicrous.

It’s fairly obvious at this point that we are fans of Gaetz, and the reason we highlight this is because there are people in Congress and in government that are fighting to get things done. Fighting to improve the economy, get things back under control, and put a stop to the establishment. But in order to stop that from happening, people like McCarthy (who is as establishment as it gets in many regards) play games like this, and it’s insane. Instead of actually working towards improving things, they choose the lazy route that makes their jobs much easier, but our lives much harder.

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Market Psychology & Final Thoughts:

Futures, European markets and crude oil are all falling in the early premarket while bond yields are continuing their never ending rise and the VIX rallies back as well. Market participants are still on edge, and will be for some time. Recently, Costco started selling gold bars in stores for $1,949. Apparently, shoppers rushed to get them and they completely sold out. When you have regular people making a run on gold, similar to a bank run, it’s worrying.

The JOLTS data is the lesser of the three job reports coming out this week, but it is still important nonetheless and will have an impact on price action today. The ADP employment report comes out tomorrow, followed by the unemployment rate, nonfarm payrolls, average hourly earnings and average workweek on Friday. Per usual, we hope you found this to be informative, learned something about our dysfunctional Congress, and have a satisfactory Tuesday.