The Magnificent Seven Too React To Interest Rates

Published on

In his Daily Market Notes report to investors, Louis Navellier wrote:

Bonds Leading Stocks

Stocks are trying to eke out a gain to the end of the week. Bonds are cooperating, but it’s no major rally. Energy is the one safe haven in September so far.

In between earnings season, the market defaults to economic data for guidance and how that may impact earnings estimates. Right now what the bond market does is leading stocks, by being a vote on inflation trends that will drive the Fed’s monetary moves.

This week we’ve watched the US 10yr go from below 4.20% to above 4.30%, and today back to just above 4.21% this morning. Stocks have generally followed these moves, though have taken more heat than bonds moves as the volatility on top of the cautious consideration of the weak seasonality of September has created more sellers than buyers.

The Magnificent Seven React

As of Friday morning, for the first 5 trading days of September we find the Dow down 0.9%, the S&P down 1.25%, both the NASDAQ and QQQ down 1.5%, with the Russell 2000 bringing up the rear at down 3.3%. The bias is to bigger, higher quality companies, though the Magnificent Seven megatech have certainly revealed they too react to interest rates.

Things would be better without the noise in Apple Inc (NASDAQ:AAPL), which has seen its worst worst back-to-back losses in almost 3 years on the news about China instructing government employees to not bring an iPhone to work. This has wiped out $200B in market value, though it is bouncing this morning, up 1.3% and still up 43.5% YTD. Energy prices are up again, with crude back over $87.50 and the XLE up 3% in September.

Looking Forward To CPI Data

Looking forward to next week, we’ll get the CPI data on Wednesday, with forecasts for the headline to be higher and core to be flat. PPI rolls out Thursday and has the same trends expected in the forecasts.

Importantly, housing rental rates have fallen to almost zero increase y-o-y, despite 94% occupancy rates, due to massive new supply, a 50-year high, and will be phased in over the months ahead putting downward pressure on inflation stats.

Expectations are almost a consensus that the Fed will skip an increase on September 20th, so the tea leaf reading is not nearly as important as it would be if a Fed increase was a real possibility. Recession fears continue to ebb and earnings estimates remain firm or inching higher.

With weakness continuing in China, and Europe appearing headed for a recession, the US should continue to see investment flows coming our way, and help us get to the 4th quarter without too much further damage.

Coffee Beans: Girl’s Best Friend

A 7-year-old girl on a birthday trip to Crater of Diamonds State Park in Arkansas found a big present — a 2.95-carat diamond. It is the second-largest found by a park visitor this year, with the largest 3.29-carat brown diamond found in March. Source: UPI. See the full story here.