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It’s a Grind



Chief Market Analyst

The first few sessions this week have been about unwinding and grinding. The unwinding has occurred in the Treasury market and high-multiple growth stocks, while the grinding has occurred in the broader market, which has stood its ground with the help of a rotation into value-oriented stocks.

The S&P 500, over the last two sessions, which has included 13 total hours of trading from the opening bells to the closing bells, is up 0.02% for the week. Ah, but the Russell 2000, which houses many financial, energy, retail, and transport names, is up 2.5%.

The early indication on this solemn day — the 18th anniversary of 9/11 — is that there will be some more grinding action for the broader market.

The S&P 500 futures are up four points and are trading less than 0.1% above fair value. The Nasdaq 100 futures are up 13 points and are trading 0.1% above fair value. The Dow Jones Industrial Average futures are up 47 points and are trading 0.1% above fair value.

There hasn’t been a lot of news for market participants to sink their teeth into. China has released a list of products exempt from its retaliatory tariffs, yet key farm products like soybeans and pork are not on the list; the FTC is reportedly probing’s (AMZN) marketplace business; and the Hong Kong Stock Exchange is said to have made a $36.6 billion cash-and-stock offer for the London Stock Exchange.

There has been a smattering of earnings news from companies like GameStop (GME)RH, Inc. (RH)Dave & Buster’s (PLAY), and Zscaler (ZS) that has prompted notable moves in each of those stocks, but collectively, they don’t carry the weight to really move the market.

Zscaler, though, could succeed in keeping the pressure on high-multiple software stocks. It is down 20% in pre-market action after topping fiscal Q4 EPS and revenue estimates and issuing below-consensus guidance for fiscal Q1 and FY20.

Separately, the Producer Price Index for August has kept the pressure on Treasury yields. The index for final demand was up 0.1% m/m, as expected, but the index for final demand excluding food and energy, was up 0.3% ( consensus +0.1%), which was hotter than expected.

The month-over-month changes left the index for final demand up 1.8% yr/yr, versus 1.7% in July, and the index for final demand excluding food and energy up 2.3%, versus 2.1% in July.

The key takeaway from the report is that it could stoke concerns about margin pressures for producers that curtail earnings growth and/or bleed through to higher prices for consumers.

The 10-yr note yield, which dipped below 1.45% on September 3, is up another three basis points today to 1.73%. There could possibly be more upward pressure in Treasury yields if the ECB takes a less dovish turn than expected at tomorrow’s policy meeting. Stay tuned there.

In the meantime, the grind of the next work day — er, trading day — is upon us.

Originally Posted on September 11, 2019 – It’s a Grind

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