CAPITAL MARKET COMMENTARY
WORLD STOCK MARKETS ARE LOWER THIS MORNING:
And this weakness is rather pervasive as all the major world indices are lower on average by -0.5%...give or take a tenth here or there. China and Hong Kong however, are down a bit more heavily – on the order of -1.0% or more. Commodity prices too are lower, what did show strength yesterday has not carried over into today’s opening; crude oil is lower by 75 cents to $67.85…the lowest we can remember in about 3-months; gold, silver and copper – all lower by -0.5%. The base metals…they too are lower. And finally, the major world currencies are lower…with the US dollar showing strength against all save for the Japanese Yen.
Yesterday, we noted we were “glad” that traders were to have returned from their summer retreats in The Hamptons or wherever their adventuresome hearts had taken them. But in reality it would appear…they remained on vacation, for volume across the board was as “punk” as it was during the holiday period. We have noted that volume is related to “validation” of the recent rally, and if yesterday was any validation… then stock prices are in rarified territory, for no one wants to trade – either long or short!. Generally, we find this bearish, and this morning we find the US stock futures all pointing towards lower prices with the S&P down 4.50. As a result of many factors such as the divergence between large cap vs. small cap vs. technology, the fact that many of our indicators are overbought, and that the 4-year cycle as well as the mid-term election cycle both bottom in the next two months – we are moving to an “initial” short position in Global ETF Portfolio via QQQQ and IWM this morning.
We say “initial”, for recent we have traded rather badly in being aggressively short this summer rally; however, we are quite comfortable putting on a short position into today’s early weakness, with an eye towards adding to that position in the days ahead as our initial position gains momentum and becomes profitable – insulating us from random noise. Perhaps this occurs with a break below the S&P 500 level of 1285; certainly we will add once again once the 1242 level is violated. Too, we are moving to become more aggressively short in the PTP Portfolio via exiting a long position and putting two short positions on. This will put us at an overweight short stance – one we are comfortable with given the state of our indicators. Quite simply, the risk/reward dynamic we like to trade has come into our “comfort zone”, and therefore we want
to act with impunity.
TODAY’S ECONOMIC AGENDA: This morning, 2Q Productivity was released, and was revised upwards to +1.6% vs. an expectation of +1.5% due to GDP being revised higher. The initial estimate was +1.1%. However, unit labor costs rose by +4.9% vs. an expectation of +4.2%; Q1 unit labor costs rose +9.0%. For the past year, unit labor costs have risen by +5.0%...the highest in 16-years. As a result of these higher than expected labor numbers, the markets didn’t take too kindly to them as both the bond and stock futures sold off further. Remember, the markets have rallied based on the premise the “Fed is done”, and that inflation will cool down; after this report – this premise will be called into question. We remain on record as believing the Fed will move to raise rates perhaps one or two more times.
At 10am EST, we have the ISM Services report for August, which is expected to have risen to 55.1 from 54.8. We won’t disagree, but certainly the more important number in the report will be the “prices paid” component, which relates to inflation. Too, we must wonder aloud if the report is lowerthan- anticipated…and…and the price paid component is higher-than-expected – what will stagflation expectation due to stock prices. Therefore, we are waiting in great anticipation.
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