Market Wrap
Narratives
Higher-for-longer oil, USD, yields and tighter financial conditions remain the September / October risk for risk assets and raise the hard landing probability in the next six months. If there’s a negative payrolls print this fall that serves to ease financial conditions via lower yields and a weaker dollar (on Fed easing bets), we would sell any accompanying rally. There’s no doubt that a negative NFP print or another credit event could send yields tumbling; but the bond vigilantes still see a bloated US federal budget deficit, surging US government debt and elevated government expenditures globally for public sector investment, infrastructure, rearmament and net zero commitments — Michael Hartnett, Bank of America
Week Ahead
This could be a big week for the stock and bond markets. There will be lots of market-moving inflation indicators: Inflation expectations (Monday), small business pricing intentions (Tuesday), CPI (Wednesday), PPI (Thursday), and import & export prices (Friday). There will also be a couple of business cycle indicators that could move the markets: retail sales (Thursday) and industrial production (Friday). On balance, we expect that the inflation stats will confirm that it remains on a moderating trend, while the sales and output data should suggest that the strength in the Atlanta Fed's GDPNow model (with real GDP up 5.6% during Q3) is a temporary aberration from the soft-landing scenario that has prevailed since the start of last year.
The problem is that the markets may already be priced for this happy scenario. The unhappily surprising alternative would be higher-than-expected inflation and stronger-than-expected economic activity that would send both stock and bond prices lower. This week will be an important one for which scenario the markets will discount. Now consider the following:
- Inflation. The rise in gasoline and meat prices during August will boost the headline CPI. Wholesale used-vehicle prices increased 0.2% m/m in August. The CPI's health insurance component is very volatile (and flawed). It plunged 29.5% m/m (not annualized in July!). It might have bounced back in August.
- Growth. Retail sales rose 0.7% m/m during July partly because of Amazon's Prime Day. Non-store retail sales rose 1.6% m/m. Another big jump came from a 2.3% increase in food services and drinking places--boosted perhaps by fans going to, or coming from, Taylor Swift's concerts. Retail sales were probably weaker last month, though August's employment report showed that wages & salaries rose solidly during the month. That report also showed a small 0.2% increase in aggregate hours worked in manufacturing, suggesting that production rose slightly last month.
- Deficit. August's federal budget release (Wed) will confirm that the fiscal 2023 deficit will be around $2 trillion. There is no way to put lipstick on this pig that Washington continues to feed - Yardeni Research
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
---|---|---|---|---|---|
Forward 4-qtr Estimate | 🔴 | 233.38 | 233.4 | 228.39 | January 1, 2023 |
Forward 4-qtr PE | 🔴 | 19.1 | 19.5 | 17.2 | January 1, 2023 |
Nominal Earnings Yield | 🔵 | 5.24 | 5.17 | 5.86 | January 1, 2023 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
SPX Implied Volatility | 🔵 | 11.83 | 10.86 | 0.97 | 8.93% |
SPX GEX Flip | 🔴 | 4,477.5 | 4,482.5 | -5 | -0.11% |
SPX Skew Adjusted GEX | 🔴 | -2,872,723,571 | 4,813,487,338 | -7,686,210,909 | -159.68% |
Equity Put/Call Ratio (CBOE) | 🔵 | 0.75 | 0.65 | 0.1 | 15.37% |
VIX Put/Call Ratio (CBOE) | 🔴 | 0.32 | 0.65 | -0.33 | -50.77% |
SPX/W Put/Call Ratio (CBOE) | ⚪️ | 1.54 | 1.54 | 0 | 0% |
Futures
Sep E-mini S&P 500 futures settled at 4461.75 Friday, up by 5.50, in higher trade across the board. Combined volume came in at a one month high of 2,574,270, with Sep seeing a heavy 1,686,158 done. Across all maturities, open interest ended the session at a one month high of 2,340,638, gaining 68,212, or 3.00%. Sep open interest decreased 325,190 (15.41%), to 1,785,119.
Option trading centered around the Sep 4475 calls with 7,788 changing hands and the Sep E2B 3825 puts with volume of 37,498. Options with the greatest open interest are the Sep EW3 2100 call with 20,799, and the Sep E2B 3825 put with 37,499.
As measured by the 30-day at-the-money, implied volatility ended the day moderately down, off by 0.65% to finish at a one week low of 11.50%. The 30-day historical volatility ended the day lower by 0.37% to a one week low of 11.09%.
Bull v Bear
This Week (30d ATM IV 11.50% v 30d RVOL 11.09%)Bulls will seek to extend DTF 1TFU > 4526.75. Upside: WVAH 4541.00 (+0.66%); WHI 4580.25 (+1.53%); 4600 is above +1σ (W) 4584.00 (+1.61%). YHI 4634.50 is within +2σ (W) 4660.00 (+3.30%).Bears will seek to break DTF 1TFU < 4491.75. Downside: WLO 4483.25 (-0.62%); WLO.1 4414.50 (-2.14%) is beyond -1σ (W) 4439.00 (-1.60%). 4400 (-2.47%) is within -2σ (W) 4368.00 (-3.18%).
Last Week (4521.50 SEP23 +1.29%)Bulls will seek to recapture WHI > 4547.75 on a closing basis. Upside: 4580 Supply Zone iswithin+1σ (W) 4592.00 (+1.56%). YTD HI 4634.50 (+2.5%) iswithin+2σ (W) 4662.50 (+3.12%).Bears will seek to further extend 1TFD and ideally < 50d MA 4492.50 on a closing basis. Downside: WLO 4414.50 is beyond -1σ (W) 4453.50 (-1.50%). LL 4350 is beyond -2σ (W) 4385.50 (-3.01%).
Indicators
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