Good morning contrarians! It is Friday, Sept. 16.
Stocks dropped again yesterday, with tech seeing the worst of it. The Nasdaq fell by 1.4%. The S&P 500 declined by 1.1%. Things went from bad to worse after the close, with a profit warning from FedEx (FDX 0.00%↑). The company blamed macroeconomic weakness in Asia and Europe. Perhaps more importantly, its CEO told CNBC he expects a worldwide recession to ensue imminently. FDX shares dropped by 20% overnight.
State of Play
As of 0620, the risk off mood is dominant:
Stock futures are down, led by the Nasdaq (-1.1%). The S&P is off 0.9%;
Commodities are dipping. WTI crude oil is flat at $85/barrel but natural gas is down 2.5%. Silver has finally started to drop, down 2%. Copper is down 1% along with industrial commodities;
Cryptos are getting dumped, with bitcoin down 2% to drop below $20,000. That ethereum merger everybody was talking about? Ethereum is down 8% this morning. Good luck using that as a form of exchange;
Bonds are continuing to sell as well. The 2-year yield is up 3 basis points to 3.90%. You have to go back to the mid-2000s to see those levels. The 10-year is also at multi-year highs, up 2bps this morning to 3.47% (yields move inversely to prices).
Economic Data
Eurozone CPI just came in almost exactly as forecast: 9.1% year-over-year. Over the last month it was up 0.6% which was slightly ahead of the anticipated 0.5%. Core CPI was 4.3% YoY, exactly as forecast.
Here in the U.S., the University of Michigan Consumer Sentiment reading is the main report today, at 1000. There are a series of numbers that are produced with this report. The overall consumer sentiment reading is expected to increase to 60 from 58.2. We saw yesterday that retail sales are going strong in the U.S. That needs to change before the Fed can even start thinking about thinking about ending rate hikes (see what I did there?)
The Bottom Line©
It’s unclear what caused the selling yesterday. It all started well before the FedEx news hit. Whatever the cause, markets are now staring at their fourth losing week in five.
What FedEx is saying is disconcerting on a number of levels, but it’s worth keeping in mind that companies are quick to blame extraneous factors when things don’t go their way. Yeah, FedEx is certainly in a good position to speak to these things and there may very well be a lot of truth to them. But let’s not forget that the consumer data in the U.S. is (so far at least) not exactly confirming these reports. Maybe FedEx is in a better position where these numbers are concerned. Or maybe they’re just losing market share (like, hello, Amazon?) and looking for a boogeyman? Let’s not forget that these warnings used to be a regular occurrence from FedEx.
Where that leaves us is once again looking at selling in stocks and bonds. That kind of thing can’t be expected to persist for very long simply because it generates a ton of cash that investors will need to put to work somewhere. We aren’t quite at the point where people are stuffing bills in their mattresses (that would be deflationary anyway). Maybe bonds are starting to look appealing with a yield close to 4% on short-dated stuff? The Fed backdrop isn’t great, but if there continues to be all this uncertainty for the global economy then selling risk assets like stocks might make more sense, which would then generate more cash, which, well…
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