The market tried to rally yesterday, but after coming out the gate with a little gusto, stocks began to wane on the same combination of mounting doubt about the Federal Reserve and Covid19 headlines.
S&P 500 Index | -0.18% | |
Communication Services XLC | -0.23% | |
Consumer Discretionary XLY | +0.29% | |
Consumer Staples XLP | -0.42% | |
Energy XLE | -0.75% | |
Financials XLF | +0.03% | |
Health Care XLV | +0.14% | |
Industrials XLI | -0.69% | |
Materials XLB | -1.21% | |
Real Estate XLRE | +0.04% | |
Technology XLK | -0.36% | |
Utilities XLU | +0.77% |
The session tilted toward growth stocks for most of the session as bond yields continued to plunge. The fact is bond yields are coming down so fast its hard for me to believe so many economists continue to dismiss that maybe the mission is we could see a rapid shift in growth.
Ooh, you know I
I found the simple life ain't so simple
When I jumped out, on that road
I got no love, no love you'd call real
Ain't got nobody, waitin' at home
Van Halen
Messaging from the Federal Reserve is not helping the situation. Yesterday, the market stalled after comments from Federal Reserve Governor Christopher Waller suggested the Fed may begin to taper if jobs for July and August come in above 800,000 each month.
His suggestion “go early and go fast!” certainly slowed the market, but it gives investors some type of guidance.
Materials was the worst performing sector in the S&P 500 as PMI numbers came in weaker than expected in China and then missed in the United States as well.
In addition, constructions pending in the United States was also a miss coming up +0.1% the street was looking for +0.5%
Construction Spending | Annualized | Change |
Residential | $772.3 | +1.1% |
Non-Residential | $779.9 | -0.9% |
Total | $1,552 | +0.1% |
- ISM Manufacturing came in at 59.5, its weakest monthly outcome since January and below consensus of 61.0.
- Seventeen of 18 industries reported growth as textile mills were the only industry to report decreased activity.
WHAT RESPONDENTS ARE SAYING
“Supply chains are slowly, very slowly filling up. Like a water hose, starting upstream and slowly flowing downstream. Rumor is a full return to ‘normal’ may be nearer to year’s end, but the situation is progressing. Transportation (equipment and drivers) is the current pinch point, more so than material shortages.” [Chemical Products]
“Strong sales continue, and inventories are low as the chip shortage is keeping production numbers down — we have idled several of our assembly plants to reduce the strain on the chip supply base.” [Transportation Equipment]
Index | Series Index Jul | Series Index Jun | Percentage Point Change |
|---|---|---|---|
Manufacturing PMI® | 59.5 | 60.6 | -1.1 |
New Orders | 64.9 | 66.0 | -1.1 |
Production | 58.4 | 60.8 | -2.4 |
Employment | 52.9 | 49.9 | +3.0 |
Supplier Deliveries | 72.5 | 75.1 | -2.6 |
Inventories | 48.9 | 51.1 | -2.2 |
Customers’ Inventories | 25.0 | 30.8 | -5.8 |
Prices | 85.7 | 92.1 | -6.4 |
Backlog of Orders | 65.0 | 64.5 | +0.5 |
New Export Orders | 55.7 | 56.2 | -0.5 |
Imports | 53.7 | 61.0 | -7.3 |
These weak reports coupled with the global spread of the Delta variant also sent crude oil much lower. Crude stocks have been extreme underperformers and now crude is pulling back.
There is a direct correlation with ISM Manufacturing and the stock market. The good news is 59.5 is still very elevated.
Portfolio Approach
We added to Financials yesterday in our Hotline Model Portfolio.
Today’s Session
Clashing headlines cast a shadow over the morning. Tyson Foods (TSN) is now mandating all workers be vaccination by November 1st and McDonalds (MCD) is bringing back masks for workers and customers. Then there’s financial results and guidance from Clorox (CLX), which had become the safe stock for many portfolio managers in a Covid19 and post Covid19 world.
Managed offered guidance for fiscal year 2022 that sees organic sales down two to six percent. That doesn’t match the hype of a world with reoccurring strains of the coronavirus and need for greater safeguards, including cleaning products.
I continue to find it difficult to believe the Fed is going to force the issue and I’m reluctant to ignore the message of the bond market for such a long stretch of time. We will proceed with a degree of caution, but I won’t panic on hunches about the Fed.
With that in mind, however, we have to make sure we aren’t crushed by the stampeding herd mentality of Wall Street.
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