On Tuesday, the Conference Board’s consumer confidence index fell to 98.7 from 105.6 in August, the biggest one month decline since August 2021 as fears grew about jobs, inflation and business conditions. Consensus was for a reading of 104. In contrast, the index was at 132.6 in February 2020, one month prior to the start of the Covid pandemic. Following the report, the 2-year Treasury note fell 3 basis points to 3.544% while the 10-year note remained flat at 3.730%.
S&P 500
The S&P 500 rose to a new record high on Tuesday as it shook off the weak consumer confidence report, and was fueled by a sharp rise in Nvidia. The index closed up 0.1%, the Dow made a new high earlier in the session, but pulled back to close up 0.04%. The Nasdaq gained 0.4%. Nvidia climbed over 4% along with other stocks in the chipmaker sector. So far, the DJIA is up 1.5% in September, while the S&P 500 and Nasdaq have gained 1.4% and 1.9% respectively.
sources: Bloomberg, CNBC
Closing snapshot
source: MarketWatch
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A lot of cuts
A number of Fed officials opened the door for additional large interest rate cuts, noting that current rates still weigh heavily on the U.S. economy. Chicago Fed President Austan Goolsbee said in a moderated event that “Over the next 12 months, we have a long way to come down to get the interest rate to something like neutral to try to hold the conditions where they are.
Though neither Goolsbee nor any of his colleagues said that they favor repeating the half-point cut made by the Fed on September 18, they stated that “incoming data would decide their decision making.” The Chicago Fed chief said that in his estimate the Fed’s current benchmark rate was “hundreds” of basis points above neutral, the level at which policy neither restricts nor stimulates economic growth.
Goolsbee, who sounded more resolute in calling for lower borrowing costs, emphasized that employment conditions and inflation are each at favorable levels but wouldn’t remain so unless the Fed lowered rates “significantly” in the coming months. “If you’re restrictive for too long you’re not going to be at the sweet spot on the dual mandate (low inflation and full employment) for much longer.”
source: Bloomberg, WSJ, CME Group, QuikStrike
“Normal is an illusion. What is normal for the spider is chaos for the fly” – Morticia Addams
China unveils stimulus in attempt to boost economy
China’s central bank (PBOC) unveiled a broad range of monetary stimulus measures in an attempt to revive the world’s second-largest economy. These moves underscore the mounting alarm with Xi Jinping’s government over slowing growth and depressed investor confidence. PBOC governor Pan Gongsheng cut a ket short-term interest rate and announced plans to reduce the reserve levels banks must hold to the lowest level since at least 2018.
These moves were followed by a number of other announcements that fueled gains in China’s beleaguered stock market. The central bank head also detailed a plan to fortify the nation’s troubled property sector, including lowering borrowing costs on as much as $5.3 trillion in mortgages and easing rules on second-home purchases.
Pan also said that the central bank will provide up at least $113 billion of liquidity support, adding that officials are studying setting up a market stabilization fund. Though several of the measures had been anticipated, the highly publicized nature of the announcement showed how seriously officials are taking warnings that China risks missing its growth target of around 5% this year. While the steps the PBOC announced may be enough to put that goal within reach, doubts remain as to whether it will be enough to break China’s longer-term deflationary woes and real estate crisis; more forceful measures may be needed to spur a consumer recovery.
China’s policymakers have been trying to revive the economy without resorting to the kind of massive stimulus they’ve deployed in the past, but piecemeal efforts have been ineffective. Growth has slowed to its worst pace in five quarters, which is testing leadership’s tolerance to missing its annual growth targets for the second time in three years.
source: Bloomberg
So much money
Novo Nordisk’s Ozempic and Wegovy are making so much money that their cumulative sales will soon surpass the drugmaker’s entire research budget for the past three decades, which undercuts a critical argument for their unusually high prices. The pair of medicines for diabetes and obesity have sold nearly $50 billion as of the second quarter and are on track to make $65 billion by the end of the years according to research conducted by Bloomberg News.
After adjusting for inflation, that would eclipse the $68 billion that Novo will have spent on R&D since the mid-1990s, when the company started ramping up work on this class of drugs. Novo CEO Lars Fruergaard Jørgensen is was grilled yesterday on the drugs’ prices at a hearing led by Vermont Senator Bernie Sanders. The company is facing pressure to make its medicines more affordable as demand surges for use in weight loss and inconsistent insurance coverage forces many patients to pay out of pocket.
The pharma industry has argued for decades that it needs huge windfalls from successful drugs to offset the cost of the many experimental drugs that fails during testing. Bloomberg’s research suggests that this argument may not apply to Novo’s popular new shots.
sources: Bloomberg, WSJ
Blackstone, Vista to buy Smartsheet
In perhaps one of the biggest take-private deals of the year, Vista Equity and Blackstone agreed to buy collaboration software maker Smartsheet for $8.4 billion or $56.5 a share. Motivated by the prospects for lower interest rates, private equity firms such as Blackstone have been looking to the the tech sector for acquisition targets.
Smartsheet went public in 2018 along with a host of other business software companies, including DocuSign. The deal, offering an almost 25% premium to Smartsheet’s stock prince in July, includes a period in which it can weigh competing proposals as well as additional concessions.
Smartsheet’s shares were up 6.5% Tuesday after the news broke.
sources: Bloomberg, Reuters
Ether outpouring
Ether (ETH) exchange traded funds recorded their biggest net outflows since July, with over $79 million leaving the market early this week in signs that institutional demand for the world’s second largest token is waning. The outflow comes at a time when the broader crypto market is rallying fueled by last week’s Fed rate cut. Despite an 11% rise in ether prices over the past week, the outflows indicate a “disconnect between prices and investor sentiment toward ether’s future.” Some analysts speculate that either may not appeal to investors as much as BTC does for a crypto play or gold as an inflation hedge.
source: Coindesk
Movers
Chinese shares reacted favorably to the series of moves by the PBOC with Alibaba, Baidu and JD.com all rallying sharply.
At-home food related stock don’t receive much press but look at the YTD returns for these stocks to date:
Walmart +52.9%
Kellanova + 44.2%
Costco Wholesale +38.9%
Phillip Morris +28.7%
Altria Group +26.5
Kroger +22.8%
Coca-Cola +21.7%
McCormick +21.6%
source: IBD
Chart of the day
TSLA
Tesla is another stock to watch as it has performed well early in the week, with a gain of 1.6% early Tuesday, following a 4.9% advance on Monday. The EV maker’s shares continue their march higher, building time and volume above the longer-term 230 support area.
source: ThinkOrSwim
In other news:
Spot gold continues its trek higher, trading near record highs of around $2,626 per ounce. That’s up about 27% on the year versus a 21% gain for the S&P 500. At this pace, the precious metal is on track for its best year since 2010, with a recent boost from the Fed rate cut.
Saudi Arabia’s sovereign wealth fund has become one of the world’s biggest investors, doling out $3 billion every year. As a part of a push into AI, it has take stakes in France’s AI Mistral, Databricks and a handful of other AI startups.
Boeing said it made its “best and final offer” contract to 30,000 machinists as their strike continues to stifle jet production.
sources: WSJ, CNBC, Bloomberg, Forbes, IBD
The stinger
Disclaimer
This letter is not offering investment, trading, or investment advice nor is based on any individual portfolio or business operation. We are are not a registered investment, stock nor commodity advisor. One should consult with their own registered advisor to discuss investment strategies that are appropriate for their business or personal goals, risk tolerance and financial situation. Information in this report and on any website is derived from a variety of source believed to be reliable however no representation is made that the information is accurate, complete or correct. These lessons, newsletter and site content is not intended nor shall not constitute or be construed as an offer or recommendation to “buy”, “sell”, “trade” or invest in any securities, commodities, futures, options or other asset referred to in said lessons, reports or newsletters. Rather, this research is intended to identify situations and circumstances that those in the trading community should be aware of to better help assess and improve their own risk management skills.
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