Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Friday, Sept. 22.
State of Play
Stocks sold off again yesterday on these ‘higher for longer’ Fed fears. S&P 500 and Nasdaq dropped by more than 1.5% each. Overnight the Bank of Japan left its interest policy unchanged as expected. As of 0630 we are looking at a little bit of risk on developing:
Stock index futures are pointing to gains led by tech. The Nasdaq is up 0.4% with S&P 500 up 0.2%;
Commodities are gaining ground again, with copper up 1% and WTI crude oil up 1% to trade around $90.70/barrel;
Bonds are unchanged after another bout of selling. The 2-year yields 5.14%. The 10-year 4.48%.
Known Events
Fed Governor Lisa Cook is scheduled to give the keynote address at the National Bureau of Economic Research Economics of Artificial Intelligence Conference in Toronto at 0850. This is the first Fed speaker we get after the meeting, though it is a topical speech where she will surely stick to prepared remarks. Not sure if she’ll take questions. Probably not.
We then get the flash reading of S&P Purchasing Manager Indexes at 0945. This could provide some new intel on the state of manufacturing and services in the US. Economists expect the Services PMI to clock in at 50.6, essentially in line with the 50.5 seen last month. The Manufacturing PMI is expected at 48.0, also effectively in line with last month’s 47.9. Keep in mind that the 50 level separates expansion from contraction. So according to this manufacturing has been in a recession since May whilst services remains in expansion.
The Bottom Line©️
It’s been a pretty awful week for stocks, with the Nasdaq down 3.5% and S&P giving up 2.7%. They did tell us September was the worst month on the calendar for stocks and this year at least it seems to be living up to the billing.
This is the same playbook we’ve been following for at least a year now: Stocks rally on hope of a Fed pivot, then sink when the Fed comes out hawkish. Then there are intermittent rallies that seem to originate out of nowhere: this January and July come to mind.
Probably the overriding concern is that the Fed is going to break stuff. They did in March with the bank failures. That wasn’t enough to send the economy into recession, so now the expectation becomes that there will be more breakage.
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