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02/08/22 Briefing

Updated: Aug 16




The stock market opened on a softer note before finding resilience to the selling effort, which was mostly thanks to falling oil prices and leadership from the mega caps. The resilience couldn't stick and the market closed the first session in August with modest losses, but well off early intraday lows.

The trade today was marked by expectations that the market is due for a consolidation period after the July rally. Market participants were also weighing geopolitical concerns after CNN reported that House Speaker Nancy Pelosi would visit Taiwan despite China's warning against it.

Higher growth areas outpaced the broader market in the early going on the heels of the July ISM Manufacturing Index before losing their influence by the close.

The July ISM Manufacturing Index, which fell to 52.8% from 53.0%, highlights a slowdown in the pace of manufacturing expansion. The real attention grabber, however, was the prices index, which plunged to 60.0% from 78.5% in June.

The Treasury market reacted to this welcome indicator of weakening inflation pressures. The 2s10s inversion widened today with the 10-yr note yield falling four basis points to 2.61% while the 2-yr note yield rose one basis point to 2.91%.

The drop in long-term rates and the festering growth concerns contributed to the outperformance of growth stocks early on. The Vanguard Mega Cap Growth ETF (MGK), which was up 0.9% this morning, closed down 0.2% and just a hair in front of the S&P 500. The PHLX Semiconductor Index was up 1.3% at its high but closed with a modest gain of 0.4%.

S&P 500 sector performance was driven by constituents' news catalysts today. The defensive-oriented consumer staples sector (+1.2%) was at the top of the leaderboard with Colgate-Palmolive (CL 81.10, +2.36, +3.0%) being upgraded today to Equal Weight from Underweight at Wells Fargo. The consumer discretionary sector followed, up 0.5%.

The energy sector (-2.2%) was the top laggard in the face of falling oil prices. WTI crude oil futures fell 4.7% to $93.93/bbl. Natural gas futures fell 0.7% to $8.26/mmbtu. Unleaded gasoline futures fell 3.2% to $3.00/gal.

On an individual basis, Dow component Boeing (BA 169.07, +9.76, +6.1%) was a big winner today following reports that the FAA approved the company's plan that would allow for the resumption of 787 Dreamliner deliveries.

Arconic (ARNC), BP (BP), Caterpillar (CAT), DuPont (DD), Eaton (ETN), JetBlue (JBLU), Marriott (MAR), Molson Coors Brewing (TAP), and Uber (UBER) are all due to report earnings ahead of tomorrow's open.

Tuesday's economic data is limited to the June JOLTS Job Openings (prior 11.254 million).

Reviewing today's economic data:

  • July IHS Markit Manufacturing PMI - Final 52.2%; Prior 52.3%

  • July ISM Manufacturing Index 52.8% (Briefing.comconsensus 52.5%); Prior 53.0%

  • The key takeaway from the report is that it connotes a clear slowdown in manufacturing activity, highlighted by the contraction in new order activity, employment, and the biggest monthly drop in the prices index since June 2010 (and fourth steepest decline on record going back to 1948).

  • June Construction Spending -1.1% (Briefing.comconsensus 0.2%); Prior was revised to 0.1% from -0.1%

  • The key takeaway from the report is the downturn seen in residential spending, which featured a 3.1% decline in new single family construction. The latter is consistent with weak homebuilder sentiment, which has deteriorated on the back of higher mortgage rates crimping affordability for prospective buyers.

Dow Jones Industrial Average: -9.7% YTD S&P 400: -11.6% YTD S&P 500: -13.6% YTD Russell 2000: -16.1% YTD Nasdaq Composite: -20.9% YTD

The stock market opened on a softer note before finding some upside momentum and lifting well off its lows. Each of the major indices has been trading in a fairly narrow range below session highs.

The upside momentum is being driven by continued leadership from the mega-cap stocks, a drop in oil prices ($93.70, -4.92, -5.1%) ahead Wednesday's OPEC meeting, and a July ISM Manufacturing Index that corroborated the market's thinking that the Fed can ease up on the pace of its rate hikes.

Briefly, the ISM Manufacturing Index for July slipped to 52.8% from 53.0% in June. A number above 50.0% is indicative of expansion, but the dip from June connotes a slowdown in the pace of expansion. The real attention grabber, though, was the prices index, which plunged to 60.0% from 78.5% in June.

That understanding has driven the 10-yr note yield down to 2.59% (versus 3.50% in mid-June). The 2-yr note yield is sitting unchanged at 2.90%, which means the 2s10s inversion -- viewed as a harbinger of economic weakness -- is widening.

The drop in long-term rates and the festering growth concerns continue to underpin growth stocks as market leaders. The Vanguard Mega Cap Growth ETF (MGK) is up 0.2% versus a 0.1% loss in the Invesco S&P 500 Equal Weight ETF (RSP) while the S&P 500 is trading flat. Also, the Russell 3000 Growth Index (+0.3%) is outpacing the Russell 3000 Value Index (-0.1%).

The S&P 500 sector performance reflects both growth concerns and mega cap leadership. The defensive-oriented consumer staples sector (+1.4%) has been at the top of the leaderboard for most of the day. It's followed by consumer discretionary (+1.2%) and information technology (+0.2%), which have Tesla (TSLA 903.73, +12.32, +1.4%) and NVIDIA (NVDA 185.42, +3.77, +2.1%) to thank for their gains.

To be fair, both sectors would have larger gains but have been held back by some notable laggards. Royal Caribbean Cruises (RCL 35.10, -3.61, -9.3%), which announced a $900 million senior convertible note offering, has been a drag on the consumer discretionary sector. Meanwhile, ON Semiconductor (ON 64.31, -2.51, -3.8%), which reported better-than-expected earnings and guidance and received a downgrade today to Hold from Buy at Summit Insights, and Apple (AAPL 162.06, -0.44, -0.3%) and Microsoft (MSFT 278.69, -2.02, -0.7%) have weighed on the information technology sector.

As oil prices have trended lower, the energy sector (-2.9%) has been at the bottom of the pack this session with every component trading in the red.

Reviewing today's economic data:

  • July IHS Markit Manufacturing PMI - Final 52.2%; Prior 52.3%

  • July ISM Manufacturing Index 52.8% (Briefing.comconsensus 52.5%); Prior 53.0%

  • The key takeaway from the report is that it connotes a clear slowdown in manufacturing activity, highlighted by the contraction in new order activity, employment, and the biggest monthly drop in the prices index since June 2010 (and fourth steepest decline on record going back to 1948).

  • June Construction Spending -1.1% (Briefing.comconsensus 0.2%); Prior was revised to 0.1% from -0.1%

  • The key takeaway from the report is the downturn seen in residential spending, which featured a 3.1% decline in new single family construction. The latter is consistent with weak homebuilder sentiment, which has deteriorated on the back of higher mortgage rates crimping affordability for prospective buyers.


Major European indices trade on a mostly higher note while Spain's IBEX (UNCH) underperforms. Eurozone's Manufacturing PMI returned into contractionary territory for the first time in two years in the July reading. The European Central Bank noted that eurozone output could decrease by 0.8% in the medium term due to higher oil prices. There are growing expectations that Liz Truss will be the next prime minister of the U.K.

  • In economic data:

  • Eurozone's June Unemployment Rate 6.6%, as expected (last 6.6%). July Manufacturing PMI 49.8 (expected 49.6; last 52.1)

  • Germany's June Retail Sales -1.6% m/m (expected 0.2%; last 1.2%); -8.8% yr/yr (expected -8.0%; last 1.1%). July Manufacturing PMI 49.3 (expected 49.2; last 52.0)

  • U.K.'s July Manufacturing PMI 52.1 (expected 52.2; last 52.8)

  • France's July Manufacturing PMI 49.5 (expected 49.6; last 49.6)

  • Italy's June Unemployment Rate 8.1%, as expected (last 8.2%). July Manufacturing PMI 48.5 (expected 49.1; last 50.9)

  • Spain's July Manufacturing PMI 48.7 (expected 50.2; last 52.6)

---Equity Markets---

  • STOXX Europe 600: +0.2%

  • Germany's DAX: +0.4%

  • U.K.'s FTSE 100: +0.5%

  • France's CAC 40: +0.3%

  • Italy's FTSE MIB: +1.6%

  • Spain's IBEX 35: UNCH

---FX---

  • EUR/USD: +0.1% to 1.0236

  • GBP/USD: +0.4% to 1.2222

  • USD/CHF: -0.2% to 0.9495

Equity indices in the Asia-Pacific region began the week on a higher note. China's Manufacturing PMI dipped back into contraction in the July reading, Japan's Manufacturing PMI expanded for the 18th month in a row, and South Korea's Manufacturing PMI fell into contraction for the first time in 22 months. The Chinese government is reportedly planning to seize undeveloped land from troubled developers. Banks in China are facing up to $350 bln in potential losses related to the mortgage boycott and stalled development projects. House Speaker Pelosi reportedly plans to visit Taiwan on Thursday.

  • In economic data:

  • China's July Manufacturing PMI 49.0 (expected 50.4; last 50.2) and Non-Manufacturing PMI 53.8 (expected 53.9; last 54.7). July Caixin Manufacturing PMI 50.4 (expected 51.5; last 51.7) o South Korea's July trade deficit $4.67 bln (expected deficit of $4.06 bln; last deficit of $2.58 bln). July Imports 21.8% yr/yr (expected 20.7%; last 19.4%) and Exports 9.4% yr/yr, as expected (last 5.2%). July Nikkei Manufacturing PMI 49.8 (last 51.3)

  • India's July Manufacturing PMI 56.4 (expected 53.8; last 53.9)

  • Hong Kong's Q2 GDP 0.9% qtr/qtr (last -3.0%); -1.4% yr/yr (last -4.0%)

  • Australia's July AIG Manufacturing Index 52.5 (last 54.0), July Manufacturing PMI 56.2 (last 55.7), and July MI Inflation Gauge 1.2% m/m (last 0.3%)

  • New Zealand's June Building Consents -3.0% m/m (last -0.5%)

---Equity Markets---

  • Japan's Nikkei: +0.7%

  • Hong Kong's Hang Seng: +0.1%

  • China's Shanghai Composite: +0.2%

  • India's Sensex: +1.0%

  • South Korea's Kospi: UNCH

  • Australia's ASX All Ordinaries: +0.6%

---FX---

  • USD/JPY: -0.7% to 132.20

  • USD/CNH: +0.2% to 6.7591

  • USD/INR: -0.4% to 79.05


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