It’s a good answer to creeping doubt, but major indices gave up sizable amounts of intraday gains into yesterday’s close. That was the exact opposite of the close I wanted to see in order to feel much better about the coast being clear. But, of course, there are a lot of questions and just the fact many issues will take time to resolve…mainly supply chain issues.

Comments from the Institute for Supply Management (ISM) Service Sector underscore this fact (yellow highlights). At the same time, demand is strong, and supply chain issues will be ironed out (green highlights). The key is how much demand will stay on hold and reemerge when supply catches up, and how much time it will take for higher prices to dissuade buyers.

 WHAT RESPONDENTS ARE SAYING

• “Transportation bottlenecks are increasing, resulting in longer lead times and missed appointments.” [Accommodation & Food Services]
• “Constraints on logistics from a cost and availability standpoint continue to be an issue.” [Construction]
• “Lead times on electronics and computer chips have greatly increased. Outlook for higher education remains flat for most colleges, not including elite and Ivy League institutions.” [Educational Services]
• “International and domestic demand remains very strong.” [Finance & Insurance]
• “Retaining clinical and temporary staffing is critical at this time. With the Delta variant’s spread, we continue to see increased (COVID-19) cases, but not as bad as January 2021. Vaccinations are clearly working. Most inpatient hospitalizations are of unvaccinated patients. The supply chain is still being impacted significantly by increased lead times for equipment and supplies.” [Health Care & Social Assistance]
• “The semiconductor (shortage is) impacting server delivery. Alternate parts and engineering efforts are being used to create workaround solutions.” [Information]
• “Both domestic and international logistics are increasing lead times about six weeks for ocean freight and two weeks for domestic freight.” [Management of Companies & Support Services]
• “Inventories shrinking due to global shipping logistics being a seller’s/provider’s market, with primary focus on yield versus market expansion.” [Professional, Scientific & Technical Services]
• “Lead times have improved slightly over the last period, but still remain lengthy relative to pre-pandemic levels. We continue to see rising costs for both supply and service inputs. The effects of these price increases have the potential to significantly impact our operations through the end of the year, especially if seasonal trends prove exceptionally strong.” [Public Administration]
• “Business volumes remain remarkably high, although material shortages persist.” [Real Estate, Rental & Leasing]
• “Still experiencing very strong demand. Supply chain is still a challenge.” [Retail Trade]
• “Demand far outweighs supply for goods and services.” [Transportation & Warehousing]
• “We continue to deal with extended delivery lead times and high costs. Stress on the supply chain beginning to be reflected in the quality of products offered and delivered. Current buying strategy is to wait — except with equipment, as (price) increases are expected.” [Utilities]
• “Continued constrained supply of many key product groups. Also, inflationary pressures in most areas of the business keep driving costs higher. Inconsistent COVID-19 restrictions throughout the country are creating unstable business conditions that are concerning. However, business continues to be strong overall.” [Wholesale Trade]

Better Breadth But…

Market breadth was better, but it was nothing to write home about, and there were still many more new lows than highs on the NASDAQ Composite. During the session, Financials took the momentum lead from Energy, and growth names staged a strong rebound.

Market Breadth	NYSE	NASDAQ
Advancing	1,913	2,604
Declining	1,380	1,831
52 Week High	106	103
52 Week Low	63	226
Up Volume	2.44B	2.29B
Down Volume	1.37B	1.80B

 

S&P 500 Index	+1.05%
Communication Services XLC	+1.49%
Consumer Discretionary XLY	+0.40%
Consumer Staples XLP	+0.51%
Energy XLE	+0.58%
Financials XLF	+1.96%
Health Care XLV	+0.60%
Industrials XLI	+1.12%
Materials XLB	+0.89%
Real Estate XLRE		-0.78%
Technology XLK	+1.43%
Utilities XLU		-0.25%

Big Tech & Communication Services Bring the Heat!

October Turn

I saw this chart online last night, and it’s a good reminder of how choppy October can be, but the month finishes off at the worst levels, and two-thirds of the time, October has closed higher over the past thirty years.

Mark Ungewitter

Trillion Dollar Solution

Things have gotten so crazy with the debt ceiling clock ticking closer and closer. Now, there is a growing chorus of folks saying the Treasury should authorize a $1,000,000,000,000 Platinum Coin and pass it to the Federal Reserve, which would then create a Treasury’s account with the same amount. For the record, Treasury Secretary Yellen calls the idea a gimmick. Still, there is no doubt in my mind the more progressive economists (oxymoron) jump on the idea, the more it will have the attractive power of the ring in “Lord of the Ring.”

It’s a world gone mad.

Portfolio Approach

We took profits in an Energy position yesterday in our Hotline Model Portfolio.

Today’s Session

The White House is playing a dangerous game of brinkmanship this morning, ignoring history and the fact these pronouncements are going to make thing worse.

“Biden says changing filibuster rules to raise debt ceiling is a ‘real possibility’”

“Biden summons bank CEOs, other business leaders as debt ceiling showdown with GOP escalates

The White House has warned of dire economic consequences if the borrowing limit isn’t increased”

On Sunday December 23, 2018 Secretary Mnuchin convened individual calls with the CEOs of the nation’s six largest banks in a move that smacked of desperation and the market tumbled.  Note: The S&P 500 closed at 2,416 on Friday December 21, 2018, then stumbled out the gate on Monday December 24, 2018, closing at the low of the session 2,351.  The good news is that was the low for the S&P 500 until the Covid19 crash in March 2020.

 

Meanwhile, ADP September jobs report came in better than expected at 568,000 versus consensus of 425,000. This was a temporary relief for the market, which struggled all morning long. 

Highlights

• 49,000 manufacturing
• 46,000 construction
• 466,000 service
• 226,000 leisure 

Worrisome

• only 63,000 small business (115,000 midsized and 390,000 large)
• august revised to 340,000 from 374,000 

There is a fare of amount of anxiety in the air but its not the same as panic.

Comments

All of this is "smoke and mirrors". The real issue is whether the Fed has "dropped the ball," getting behind the curve by insisting that inflation is "transitory". I, for one, believe they have. By the time they get around to tightening Monetary Policy...."The Horse has already left the barn" so to speak. Because they are so late, the solution will be draconian rather than manageable, small, incremental increases in interest rates. Imagine what happens when the 30 year mortgage rates and interest payments on 10-30 year US Treasuries double. Watch out below! Charles Haselberger on 10/6/2021 10:35:55 AM

Its dicey because these supply chain issues and the wildcard of Covid19 - Atlanta GDP above 1% now there was a time everyone was looking for 3Q growth of 6% to 10% - does the Fed exacerbate weakness now or cross fingers and hope supply chain issue play out as nations like Vietnam come back on line.   Mortgage rates edging higher could be a speed bump but historically still be extremely low but I do not think they will hike rates for a long time.  Charles Payne on 10/6/2021 10:42:11 AM

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