Closing Recap

Monday, August 14, 2023

Equity Market Recap

·     The morning held something for everyone in US equities. An overnight fade and weak open was accompanied by stronger US Treasury yields and a gaining Dollar, but buyers took advantage of the dip and generated a rally in both the S&P 500 and NASDAQ. Despite the bounce in the indices, late-morning breadth continued to lag with decliners outweighing advancers by almost 2:1. There was no market-moving economic news today, so investors were left on their own to find direction. Sector leaders heading into midday were Technology, Healthcare, Communications and Industrials, all in the green. Primary laggards included Utilities, Energy and Real Estate.

·     In interesting datapoints today, The NY Fed July survey of consumers puts the one-year ahead expected inflation rate at 3.5%, marking the lowest since April 2021. The response is modestly below June’s reading of 3.8% but still above the historical average of 3.4% and pre-Covid 2.8% average. The three-year and five-year were both 3%. The July expected rent increase also dipped to its lowest since January 2021. In contrast, @MarketRebels pointed out US mortgage rates are up over 7.5% for the first time in 23 years. Also on the subject of rates, @charliebilello highlights current expectations for the Fed to remain on pause into 2024, with the first rate cut now priced in for May, 2024 versus expectations just a few month ago for the first cut to come September, 2023. Separately, @bespokeinvest notes the $XLU is underperforming the broader market over the last 12 months by about 20 percentage points compared to outperforming by more than 20 percentage points at this time a year ago.

·     Heading into the final hour of trading, US equity indices were generally holding gains from the morning rally. The gains remained narrow, with breadth about 3:2 in favor of decliners; slightly improved versus earlier but clearly not robust. Sector-wise, Technology remained the leader (XLK, +1.32%), with Communications (XLC, +0.48%), Healthcare (XLV, +0.15%) and Materials (XLB, +0.04%) also in the green. Utilities were the primary laggard (XLU, -0.94%). Growth and value were split, with growth the outperformer. The Russell 1000 Growth gained +0.78% compared to its counterpart Russell 1000 Value in the red at -0.26%.

Commodities

·     December gold slipped $2.60/oz, or -0.13%, to settle at $1,944 under the same upward pressure in US Treasury yields and the Dollar we saw dragging equities lower in the morning. Unlike equities, the initial rally back in gold was sold off and never really found strong footing. The settlement marked the lowest close in more than a month following a tough last week.

·     WTI September crude slid $0.68/bbl, or -0.82%, to settle at $82.51 despite an EIA report indicating US oil output from top shale-producing regions expected to fall in September to the lowest since May. Brent crude similarly faded $0.60/bbl, or -0.69%, to $86.21. 

Sector News Breakdown

Energy, Industrials & Materials

·     Shares of US Steel, X, rallied 40% following news on Sunday that peer CLF had offered to purchase the company for $32 per share. X announced that they rejected the deal but said that they were “reviewing “strategic alternatives.” Later in the day, at 3pm, Esmark, a privately held family company with a portfolio of industrial companies with strong roots in the steel industry, made an all-cash $35 per share bid for X.

·     NKLA shares tumbled following a late Friday report that the EV maker was voluntarily recalling its Tre battery-electric trucks.

Financials

·     Shares of PYPL were higher following a pre-market announcement that the company named Intuit exec Alec Chriss as next CEO and President, taking over from CEO Dan Schulman in 2024.

Technology, Media & Telecom

·     In the communications and software sector: MNDY shares gained after reporting strong earnings and higher forward guidance.

·      Shares of OKTA rallied after a double upgrade to Buy from Sell by Goldman Sachs, who sees a path to 12m outperformance driven by cRPO and ARR acceleration.

·     Shares of AI-chip maker NVDA reversed an early loss and a down prior 5-trading days with a +6% rally, a Morgan Stanley note reiterated the company as one of their top picks because of AI demand.