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Briefing.com Summary:
*Oil prices are down on a "new" Iran offer to reopen the Strait of Hormuz.
*Treasury yields have risen appreciably this month and have taken a toll on the broader market.
*Business spending was robust in August.
The 10-yr note yield has risen 44 basis points this month to 5.18%. The market cap-weighted S&P 500 has barely flinched. It is up 0.2% for the month. That isn't the real story, however.
The real story is that the equal-weighted S&P 500 is down 4.2%, the Russell 2000 is down 4.1%, the S&P MidCap 400 is down 3.3%, and nine of the 11 S&P 500 sectors are down—and down big in several cases. The utilities sector is down 6.3%, the materials sector is down 5.2%, the financials sector is down 5.2%, the real estate sector is down 4.8%, the consumer discretionary sector is down 4.6%, and the industrials sector is down 3.4%.
To say the stock market has not felt the impact of rapidly rising interest rates is misleading. It has. One just has to look beneath the surface of the S&P 500 Index, which is riding the relative and absolute strength of its mega-cap components and semiconductor stocks, captured in the 3.4% month-to-date gain registered by the Vanguard Morningstar Mega-Cap Growth ETF (MGK) and the 8.3% gain for the Philadelphia Semiconductor Index.
It is that slice of the market that is accounting for the whole pie that goes down well in market headlines.
Those headlines are looking appetizing again this morning. The S&P 500 futures are up 18 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 104 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 144 points and are trading 0.2% above fair value.
The ostensible catalyst for the upside bias is the drop in oil prices. WTI crude futures are down 2.2% to $92.49/bbl, driven by Iran's offer to reopen the Strait of Hormuz within seven days if the U.S. accepts its conditions. It is a dubious offer considering Iran hasn't changed its conditions from before, and the result then was an oil market feeling the angst of supply constraints.
We'll see how long the glow of Iran's offer lasts. Oil prices will be a key guide in that respect.
For now, the stock market is riding the leadership of the mega-cap stocks and semiconductor stocks, the twin pillars of the AI trade. It has glossed over the Trump-Xi meeting, appreciative of the fact that the two leaders have met but cognizant that the meeting didn't produce any truly game-changing economic breakthroughs.
This morning's economic data, however, showed a breakthrough of note below the surface of the headlines. Durable goods orders were flat month-over-month in August (Briefing.com consensus: -0.4%) following a downwardly revised 0.9% increase (from 1.1%) in July. Excluding transportation, orders were up 0.3% month-over-month (Briefing.com consensus: 0.5%) following an upwardly revised 0.7% increase (from 0.4%) in July.
The key takeaway from the report—and the breakthrough of note—is that nondefense capital goods orders, excluding aircraft, which are a proxy for business spending, jumped a robust 1.6% month-over-month.
The latter is a reflection of an economy in growth mode, which of course has also contributed to the jump in Treasury yields this month. Currently, the 2-yr note yield is down one basis point to 4.90%, and the 10-yr note yield is unchanged at 5.18%.
