Good morning contrarians!
Stock futures are mixed as of 0630. The S&P 500 and Dow Industrials are flat. Small caps are showing signs of life, with the Russell 2000 up 0.3%. Tech is down, with the Nasdaq off about 0.2% after some disappointing earnings reports from Snap (SNAP) and Intel (INTC). Short-term bonds are selling off, with the yield on 2-year up to 0.4554%.
This all follows a day when the S&P closed higher for a seventh straight day to set a fresh record close. It’s been quite a run for stocks this month after a disappointing September and it looks like things have resumed their upward trajectory:
Today we get the flash reading of purchasing managers index reports from Markit at 0945. The more crucial (for the U.S. economy) services PMI is expected to come in at 55, effectively in line with last month. The manufacturing PMI is expected to print at 60.3, also about the same as September. (The 50 level separates economist expansion from contraction). These readings usually hover pretty closely to economist estimates, though it’s worth pointing out that the August flash readings were a miss and precipitated the lousy month of September for equities.
Update: The services PMI beat expectations but manufacturing was lower than what economists had anticipated. Supply chain issues were to blame for that. On the whole it was a pretty positive report:
“Stronger growth was driven by the services sector, which registered the quickest rate of expansion since July. Meanwhile, the latest rise in factory production was the softest since July 2020 and only mild, as goods producers continued to be severely hampered by material shortages and supply chain delays. At the same time, inflows of new work to private sector firms rose further, extending the current sequence of improving demand to 15 months.“
We also have some more earnings today: American Express (AXP), Schlumberger (SLB), Cleveland Cliffs (CLF) and Honeywell (HON) report before the open. About a fifth of S&P 500 companies have reported third-quarter earnings, with 83% beating estimates, according to FactSet.
Update: HON earning were mixed but the company importantly cut sales forecasts due to supply chain issues. AXP and CLF beat on top- and bottom-line and Amex said 2022 earnings were likely to come in at the high end of guidance. SLB’s earnings were more mixed.
Federal Reserve Chair Jerome Powell is due to speak at 1100. It’s not clear if he’ll take questions. The calendar on the Fed website has a link to the proceedings.
Evergrande update: The embattled real estate developer made an overdue interest payment to offshore bond holders today. This allows Evergrande to avoid default for now. More importantly, it shows the Chinese government is willing to play ball with international capital markets and indicates they may not be willing to commit economic suicide quite yet.
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New S&P Record Close, Markit PMIs: Daily Contrarian, Oct. 22