- September got off to its anticipated stormy start as all indexes lost ground last week.
- Markets reacted - or maybe overreacted - to some usually non-impactful, market moving economic data during a relatively quiet week. However this week, we should get some impactful market moving data in the monthly CPI and PPI reports.
YOUR WEEKLY ROADMAP
September got off to its anticipated stormy start as all indexes lost ground last week. Markets reacted - or maybe overreacted - to some usually non-impactful, market moving economic data during a relatively quiet week. However this week, we should get some impactful market moving data in the monthly CPI and PPI reports.
And speaking of storms, there is a major storm in Hurricane Lee churning off the east coast of the United States. While we are no meteorologists and can’t predict its path just yet, we know it could have a profound impact on tens of millions of people and possibly the stock market.
Hurricane Lee. It appears that the east coast may be able to dodge a direct hit from Hurricane Lee, but the threat of any major storm can make an impact on certain sectors of the stock market.
Watch Insurance stocks which are widely represented in the iShares US Insurance ETF (IAK). I learned how volatile they could get first hand while trading a few well known insurance stocks at the NYSE in 2005. If you ever want to hear a good story, ask me about Hurricanes Katrina and Rita and how the market reacted. They are classics.
But back to our focal point, what stocks may get volatile during a hurricane and why?
Overall, the S&P 500 doesn’t move much as a result of a Hurricane. The prevalent trend tends to remain despite any economic impact the storm may have.
The insurance stocks tend to sell-off ahead of landfall in anticipation of potential destruction. The stronger the storm, the more likely the decline. A downgrade in magnitude of a threatening storm and the stocks should rally. The two costliest storms since the index was formed - Harvey (2017) and Ian (2022) - both saw the IAK sell-off roughly 8%. On both occasions the ETF was higher a month later.
Once landfall is made the longer term ramifications will be easier to judge, but we tend to see knee jerk reactions to the upside in home improvement stocks like Home Depot (HD) and Lowe’s (LOW) as well as power generator company Generac (GNRC).
Inflationary Data.. If we were to choose what economic data point has moved markets more than any other over the past year, the answer would be easy - the CPI. The consumer price index declined at a rapid pace and has taken the market higher after its most recent downside surprises.
The CPI measures the overall change in consumer prices based on goods and services. The numbers have trended lower on a year-over-year basis since its June 2022 peak of 9.1%. Recently they have stabilized and are expected to rise slightly from 3.2% to 3.6%.
Any reading softer than that may be able to get the market to rebound after a volatile week. An upside surprise added to the seasonal effects of September could lead us to another sell-off.
Stock to Watch - Apple (AAPL). Usually we tend to focus on a sector, but when a stock makes up over 7% of the S&P 500, is in the Dow Jones Industrial Average, is roughly 50% of Warren Buffett’s Berkshire Holdings as well as the most widely owned stock in the world, then its a sector unto itself and worthy of the attention.
Shares of AAPL made all sorts of news last week and sold off as much as 8% before settling down and closing the week down -6% to finish at $178.18.
The big news was the negative reaction to a Wall St Journal story claiming that Chinese government workers were being banned from using iPhones. Rumors swirled that this could be just the beginning of a bigger ban or boycott of Apple products in a market that accounts for 18% of its revenue as well as much of its assembly.
UBS’s Art Cashin also pointed out to CNBC that the timing of this story also coincided with the release of China’s Huawei announcing the release of their new phone. Coincidence? Maybe, but a theory that was floated.
The big story this week should be when the company hosts “Wonderlust” where it plans to unveil many of its latest enhancements plus launch its iPhone 15. The event is scheduled for Tuesday, September 12th at 1:00 EST.
Also keep an ear out for any news about India operations and expansion. While much of the recent focus has been on China operations, don’t forget that CEO Tim Cook spent a week in India this summer to bolster and improve the company's influence in what is soon to be the world’s most populated country and fastest growing economy.
Technically, the stock remains stuck in its recent pullback and begs the question, has it peaked over the near term?
Stocks in Focus…
Oracle (ORCL) reports Monday after the close. The Austin based infrastructure software company is up 56% year-to-date and trading near all-time highs.
The stock gapped higher after last quarter’s report and on positive guidance due to AI talk. As we’ve seen lately, stocks like Nvidia (NVDA) and Broadcom (AVGO) have reported great earnings while trading near all-time highs and were unable to keep their positive momentum going.
Can ORCL break this string and also breakout to and close at new highs?
It may take one heck of a beat and guide to do so. Watch the $127.50 level. We want to see a break and close above that threshold to confirm the bullish momentum in the stock. If it fails here then watch the 50-day morning average around $117 as its first downside target.
Adobe (ADBE), like many of its peers, is trading at 52-week highs heading into earnings. The stock is up 66% year-to-date and has traded higher after its last three earnings reports.
Like ORCL, shares broke out in late May and never looked back. One difference in ADBE compared to other stocks in its sector is that it is still well below (-19%) its November 2021 all-time highs - see chart above. So unlike many of its peers it may have room to run higher based on past price precedence. Maybe this is a reason to be more optimistic that it may have a chance to continue climbing higher. We will find out when they report on Thursday after the close.
Economic Calendar
Monday - Never Forget!
Wednesday - expected CPI Aug. 0.6%; CPI (YoY) 3.6%
Thursday - Initial Jobless Claims; PPI Aug. 0.3%, Core PPI Aug. 0.2%; PPI (YoY) 0.2%, Core PPI (YoY) 2.2%; Retail Sales 8:30
Friday - Consumer Sentiment 10:00
THE WEEK THAT WAS
Despite limited economic data last week, jittery traders, possibly concerned about those seasonal September factors, reacted - or maybe over reacted - to the data points that did come out.
Take in point the sell-off that occurred after an unexpected rise is services and manufacturing prices. This triggered the major indexes to drop over 1% on fears that the Fed may have more work to do to fight inflation. Amazing considering the bigger and seemingly more critical inflationary report in the PCE spurred one of the summer's biggest rallies just a week earlier.
All indexes lost ground during the week with Apple (story above) being a primary catalyst. So far September is off to a rocky start.
New S&P 500 Members. On Monday, September 18th the S&P 500 will add two new members. This means that this Friday’s close will be a volume event as each of these names will be officially priced based on that close.
Joining the elite index are Blackstone (BX) and Airbnb (ABNB). They will be replacing Newell Brands (NWL) and Lincoln National (LNC) whose market caps and underperformance deemed them replaceable by the S&P Index Committee.
For the week, shares of BX rallied 7.8% and ABNB shares rose by 9.9%. While prices of the two deleted stocks both declined as expected. Shares of NWL dropped -7.2% and LNC fell 2%.
Heat Map. It was not a good week for the semiconductors. Nvidia (NVDA) and Broadcom (AVGO) continued their reversal from all-time highs. Add in tough weeks for Apple and Tesla and it truly accentuated the “heat” in the map last week.
Energy stocks rallied as did several prominent Healthcare names. Overall most sectors finished in the red, but there were a few bright spots throughout the map.
STOCKS IN THE NEWS
Airlines. Several of the nation’s top airlines, including Southwest (LUV), United (UAL), and Alaskan (ALK) cited that a spike as much as 30% in jet fuel costs may affect their bottom lines when they report this fall.
Despite a record summer travel season, demand is starting to slow and costs are now rising between labor and fuel. Even with these rumblings, none of the aforementioned companies cut their projected revenue forecasts.
For the week shares in all three declined. LUV dropped -5.5%, UAL lost -4.6%, and ALK was lower by -4.7%.
C3.Ai (AI) beat estimates when reporting quarterly earnings, but backed down from its projection to turn a profit by the fourth quarter of this year. Many believe the peak in AI euphoria has reached a crescendo and it's time for results to live up to the hype.
Technically, the stock broke below one key support level at $28.50 when it gapped lower on Thursday. It tested its 200-day moving average and held. Now watch to see if that old support level at $28.50 becomes resistance. For the stock to reverse it will need to start to fill the gap caused on earnings day and close back above $28.50.
For the week shares dropped -10.2%. Despite the quarterly setback, shares are still up 150% year-to-date.
Remember MEME. Two of the most prolific stocks during the heightened meme stock craze of early 2021 were AMC (AMC) and Gamestop (GME). Both reported earnings this week and neither report could revive the once, albeit briefly, mighty darlings of the meme movement.
AMC shares slid to another record low and dropped over 45% after the movie theater chain announced plans to sell more stock. The stock is now down 82% year-to-date and closed at an all-time low of $7.18. (Which would be $0.718 if the company didn't reverse split 1-for-10 just weeks ago.)
GameStop (GME) beat estimates as it reported a narrower than expected loss on Wednesday. The initial reaction to the news saw shares climb in the after hours. However, that reversed once the stock began trading in Thursday’s session.
Things got worse for GME shareholders after the bell on Thursday. The SEC announced they were investigating executive chairman, Ryan Cohen, for his ownership stake and subsequent trading activity in Bed Bath & Beyond. GME shares sold off 6% on that news Friday and finished the week lower by -3.8%.
MARKET STATS
Both the S&P 500 and Nasdaq closed slightly higher on Friday for their only day of gains during the week. Despite the positive finish to the week both indexes ended the shortened week to the downside and snapped a two week winning streak.
The road has been a little rockier for the Dow and Russell. Both indexes continue to lag year-to-date and the Russell struggles to hold on to the 14.5% gains it experienced in June and July.
Stat of the Week - What year is it again? 1999? Based on the following chart you could easily be fooled into believing it is.
Shares of Intel (INTC), Dell (DELL), and Cisco (CSCO) all traded at 52-week highs last week. While the headlines were about recent pullbacks in Apple and Nvidia, the big winners were some of the old tech stories which have been silently climbing under the radar.
Shares of INTC are up 45% year-to-date, DELL has gained 75%, while CSCO has lagged the two with a measly 30% gain over the last 12 months.
SECTOR WATCH
Energy (XLE) found its all too familiar spot on top of the weekly leaderboard thanks to another spike in the price of crude oil. It was one of only two winners as the defensive Utilities (XLU) finally got some love. They remain the weakest sector year-to-date as they are lower by 9%.
Overall 9 of 11 sectors finished the week in the red. Recent gainers in Industrials (XLI) and Materials (XLB) lost 2.9% and 2.4% respectively. Surprisingly, Technology (XLK) only lost 1.9% despite a tough week for its top component in Apple.
IPO ACTIVITY
This week SoftBank’s Arm Holdings (ARM) plans to raise close to $5 billion when it goes public on the Nasdaq on Thursday. While the amount is much less than the chip-designer had previously targeted, it could still be the biggest IPO since Rivian (RIVN) went public in November 2021.
The initial pricing range is between $47 to $51. If priced at the top end of the range it would give the company a valuation of just over $54 billion.
More significantly it could have an impact on the dozens of companies sitting on the sidelines thinking about testing the IPO markets.
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