The market continued to sell off today as the market adjusts to the Fed’s “higher rates for longer” narrative. The benchmark 10-year Treasury yield hit 16-year highs while the stock market indexes closed on their lows. Let’s see what else you missed. 👀
Today’s issue covers this week’s central bank bonanza, where traders see the S&P 500 index finding buyers, and more from the day. 📰
Here’s today’s heat map:
0 of 11 sectors closed green. Health care (-0.87%) led, and real estate (-3.47%) lagged. 🟥
Sales of existing homes were down 0.7% MoM in August vs. the 1.5% increase anticipated. Inventories were down 0.9% MoM, and the median price of existing homes sold rose 3.9% YoY to $407,100. Zillow, Redfin, Opendoor, and homebuilder stocks all fell sharply on the news. 🏘️
U.S. jobless claims continue to surprise to the downside, falling to an eight-month low as businesses remain hesitant to lay off workers during a period of industry-specific labor shortages. 🧑💼
Upward pressure remains on energy commodities after Russia temporarily banned gasoline and diesel exports to most countries as it deals with a domestic shortage. 🛢️
Fox and News Corp. shares rallied on news that Rupert Murdoch is stepping down as chairman of both companies. At 92, the conservative media mogul is passing the baton to his eldest son, Lachlan Murdoch, who will become the sole chairman of both companies. 📺
Cisco shares fell 4% on news that it’s acquiring cybersecurity software company Splunk for $28 billion, marking its largest acquisition ever. CEO Chuck Robbins highlighted the importance of using artificial intelligence with Splunk’s technology to protect networks. 🛡️
JPMorgan Chase analysts see things worsening for lower-income consumers, downgrading Dollar General to underweight from neutral. Meanwhile, Olive Garden parent Darden Restaurants experienced weakness in its fine dining brands, saying higher-income consumers dined out less. 💵
And Travere Therapeutics plunged 41% after the biopharmaceutical company reported mixed results from its kidney-disease treatment trial, causing analysts to downgrade it. 👎
Here are the closing prices:
The Federal Reserve set a hawkish tone yesterday, causing U.S. Treasury yields to break out to new cycle highs. The benchmark 10-year yield touched its highest level in sixteen years as rates approached their pre-financial crisis peaks. 📈
As a result, interest-rate-sensitive sectors like real estate followed bonds in their breakdown. Below is a great chart from ATMcharts, who shared his perspective on the breakdown in the real estate sector ETF. 📉
And bond ETF investors continue to feel the pain, as most of their gains from the last decade have been wiped out in just two short years. Talk about a round trip! 😱
But the U.S. central bank wasn’t the only one making its decision this week. So, let’s quickly review the other countries that announced changes. 📝
- Brazil cut rates by 50 bps to 12.75%
- Indonesia kept rates unchanged at 5.75%
- The Philippines kept rates unchanged at 6.25%
- South Africa kept rates unchanged at 8.25%
- Switzerland kept rates unchanged at 1.75%
- The U.K. kept rates unchanged at 5.25%
- China kept rates unchanged at 3.45% and 4.20%
- Norway raised rates by 25 bps to 4.25%
- Turkey raised rates by 500 bps to 30%
- Sweden raised rates by 25 bps to 4.00%
The Bank of Japan is expected to keep its negative interest rate policy intact at its meeting tonight, with most not anticipating the easy-money approach to change until at least late 2024 or 2025.
Overall, most developed market central banks have paused their rate hiking cycles after reaching a rate that they deem appropriately restrictive. However, they’re remaining hawkish in their stance, leaving further hikes on the table if inflation’s downward path does not continue. ⏯️
Over the last few months, core inflation has ticked up in several of these countries due to their economies and labor markets holding up better than anticipated. Central bankers will watch this closely as they make their future monetary policy decisions.
Meanwhile, many emerging markets have suffered major currency devaluation relative to the U.S. Dollar as their economic growth suffers. As a result, they’re having to cut rates in an attempt to stimulate growth at the risk of further reducing their currency’s attractiveness. 🔻
After years of bonds being the boring thing to talk about, they’re now the talk of the town as rates wreak havoc on the stock market’s recent gains. We’ll continue to keep you updated as these market moves develop. 👀
With the stock market selloff well underway, many technical analysts are pointing to a few key characteristics in the S&P 500. 👇
First is the 63-day (quarterly) rate of change, which just turned negative for the first time since May. At its core, this indicator is a medium-term momentum indicator, so its shift from positive to negative is seen as a confirmation that sellers have taken control over this specific timeframe.
So, if these analysts believe sellers have taken control, where do they see buyers reemerging? One area they’re watching closely is in the mid-410s, where several different levels converge. 🎯
The primary indicator used in this chart is the anchored volume-weighted average price (AVWAP). As its name suggests, the indicator uses price and volume data to calculate the “average” price a security was bought/sold at since the date you anchored it.
Plotting this data helps identify the overall trend in the market (and the underlying sentiment driving that trend). It does so by indicating whether the average buyer, since your selected starting point, is making or losing money on their trade. 🧮
As you can see in the chart above, the AVWAP from the S&P 500’s 2022 high and its 2022 low are both around 410-413. Since the index is currently trading around 430, that suggests the average person is still positive on their trade and may look to “buy the dip” in the market. 💸
And since those levels line up with a level the market broke out above earlier in the year, that seems to be a spot many traders and investors are focused on as potential “support.”
We’ll have to wait and see whether we get there. But for now, this is a chart many are watching. 👀
And if this brief explanation leaves you wanting to learn more about the anchored VWAP, be sure to follow Brian Shannon (aka alphatrends) on Stocktwits. He’s literally written the book(s) on this. 📚
Bullets From The Day:
🙅 Google denies change of relationship with AI chip supplier Broadcom. Alphabet responded to rumors that it was considering dropping the chipmaker as a supplier of artificial intelligence semiconductors as early as 2027. The comments send Broadcom shares down nearly 5% as fears that Google would make them in-house spread, potentially costing Broadcom billions in annual revenue. However, a Google spokesperson denied the claims, saying the company benefits significantly from collaborating with the chipmaker. Reuters has more.
🤖 YouTube unveils a suite of AI-powered tools for creators. Google’s video platform shared some major announcements at its Made on YouTube event, including AI-generated photo and video backgrounds, AI video topic suggestions, and music searches. In addition to those features, it showcased an AI dubbing feature that will allow creators to dub their videos into other languages. The industry’s leading long-form video platform rolling these tools out likely marks a significant shift in how creators plan, make, and structure their content. More from The Verge.
✂️ Roblox joins the growing list of companies reducing their hiring teams. If you plan to reduce or freeze hiring at your company, then it’s unlikely you’ll need all your human resources or recruiting people. As a result, many tech firms have been chopping away at those departments as they plan to squeeze more juice out of their existing workforces. Outside of the government-reported data, signs like this continue to point to a solid but cooling labor market. TechCrunch has more.
🚫 China just stopped exporting two minerals critical to the chipmaking industry. The country is ramping up its geopolitical battle with the U.S. and other Western countries, retaliating against U.S. export controls designed to keep key technology out of its hands. China produces about 80% of the world’s gallium and about 60% of germanium, two rare minerals essential for manufacturing semiconductors. However, its new curbs meant the country sold neither of those elements on international markets last month. More from CNN Business.
🙁 Japan’s Toshiba ends 74-year stock market history. The technology conglomerate will be taken private by a Japan Industrial Partners-led consortium that has purchased 78.65% of its shares. Although the company has been a significant player on the Tokyo Stock Exchange for over seven decades, its setbacks over the last decade have left it scrambling to get back on track. Most recently, it announced that it would break up the company into three separate businesses. However, after a close review, the board decided it was in its shareholders’ best interest to accept JIP’s offer to take the company private. BBC News has more.
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