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Briefing.com Summary:
*A strong economic dataset diminishes expectations for multiple rate cuts before year end.
*Mega-cap stocks are trending weaker in pre-market action, weighing on the futures trade.
*The market has operated in a consolidation mode to start the week.
We talked yesterday about participants' attentiveness to the price action, as they aimed to test a buy-the-dip approach. Yesterday, that approach failed. Early buying interest was eventually supplanted by selling interest, as well as a lack of follow-through buying interest, that led to additonal losses for the major indices.
Before getting too worked up about that, keep in mind that the S&P 500 is down just 0.4% after two consecutive losing sessions this week. The damage is a little more for the Nasdaq Composite, which is down 0.6%, yet that is a drop in the bucket compared to the 52% gain since the April low.
For now, there is no reason to think that this week's price action is suggestive of anything more than a normal consolidation trade after a big run that might also be under the influence of month-end and quarter-end dynamics.
Similar patterns are apparent this morning. Equity futures are signaling a continuation of the weakness, with losses in the mega-cap space applying most of the pressure. To that end, NVIDIA (NVDA) is down 1.3% on further scrutiny of its OpenAI investment, Tesla (TSLA) is down 1.9% amid a report that new car registrations in the EU were down 36.6% yr/yr, and Oracle (ORCL) is down 3.8% after Rothschild & Redburn initiated coverage with a Sell rating.
Currently, the S&P 500 futures are down 34 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 178 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 141 points and are trading 0.3% below fair value.
Another primary catalyst for this morning's weakness is a counterintuitive assessment that this morning's economic data was too good. The stock market's assumption is that it will stand in the way of multiple rate cuts from the Fed.
- The third estimate for Q2 GDP was revised up to 3.8% (Briefing.com consensus: 3.3%) from the second estimate of 3.3%, spurred on by an upward revision to consumer spending. The GDP Price Deflator was revised up to 2.1% (Briefing.com consensus: 2.0%) from the second estimate of 2.0%.
- The key takeaway from the report is that the consumer and the economy in aggregate were still operating in a solid state in Q2. Real final sales to private domestic purchasers were up 2.9% versus 1.9% in the second estimate.
- Weekly initial jobless claims for the week ending September 20 decreased by 14,000 to 218,000 (Briefing.com consensus: 238,000), while continuing jobless claims for the week ending September 13 decreased by 2,000 to 1.926 million.
- The key takeaway from the report is the recognition that initial jobless claims—a leading indicator—are running at levels more consistent with a strong labor market than a weak one. If nothing else, there certainly wasn't a lot of firing activity in the week ending September 20.
- Durable goods orders increased 2.9% month-over-month in August (Briefing.com consensus: -0.5%) following an upwardly revised 2.7% decline (from -2.8%) in July. Excluding transportation, durable goods orders rose 0.4% month-over-month (Briefing.com consensus: -0.1%) following a downwardly revised 1.0% increase (from 1.1%) in July.
- The key takeaway from the report is the nondefense capital good orders, excluding aircraft—a proxy for business spending—jumped 0.6% on the heels of a 0.8% increase in July.
- The Advance International Trade in Goods deficit narrowed to $85.5 billion from an upwardly revised $102.8 billion (from -$103.6 billion) in July. Advance Retail Inventories were flat following a downwardly revised 0.1% increase (from 0.2%) in July, and Advance Wholesale Inventories were down 0.2% following a downwardly revised unchanged reading (from 0.2%) in July.
- The key takeaway from the report is that it had tariff policies written on it, evidenced by the fact that imports were $19.6 billion less than July imports, while exports were $2.3 billion less than July exports.
The 2-yr note yield is up six basis points to 3.66%, and the 10-yr note yield is up four basis points to 4.19%. The probability of a 25 basis-point rate cut at the December FOMC meeting has been reduced to 65.1% from 73.3% a day ago, according to the CME FedWatch Tool. The probability of a rate cut at the October meeting sits at a high 85.5% versus 91.9% a day ago.
