A lot of plates spinning

We enter today with an image of spinning plates in mind. There are several on the table and whether they keep spinning, or lose momentum and crack on a fall to the surface, is indeed the great unknown.

What is spinning?

• The Israel-Hamas situation
• The House Speaker vote
• The response to earnings news
• A 12:00 p.m. ET speech from Fed Chair Powell about the economic outlook
• Economic data
• A 10-yr note yield flirting with 5.00%

These plates are not spinning in any particular order, but it is dizzying to try to focus on them all at the same time, which is perhaps why the equity futures market is spinning its wheels.

Currently, the S&P 500 futures are up seven points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 57 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 20 points and are trading roughly in-line with fair value.

The overnight trade had a pre-occupation with earnings results from Netflix (NFLX) and Tesla (TSLA), the specter of increased military action in the Israel-Hamas conflict, and a 10-yr note yield that made its way to the doorstep of 5.00%.

Netflix surprised in a big way with a huge beat on subscriber additions in the third quarter. It is up 14%, which is to say there is a lot of positive spin on that plate. Tesla, though, missed on its top and bottom lines, and saw a sharp, year-over-year downturn in its operating margin. Elon Musk then noted his concerns about higher interest rates and acknowledged that it will be roughly 12 to 18 months before Cybertruck is a significant positive cash flow contributor. TSLA is down 6.5%.

Those reports have been accompanied by results from the likes of Lam Research (LRCX), Las Vegas Sands (LVS), American Airlines (AAL), Taiwan Semi (TSMC), and AT&T (T) to name a few others, but in aggregate, the earnings news is not carrying the day for the broader market so much as it is for individual stocks.

The initial and continuing jobless claims report has done some lifting, however. Initial jobless claims for the week ending October 14 decreased by 13,000 to 198,000 (Briefing.com consensus 211,000). That is the first reading below 200,000 since January. Continuing jobless claims for the week ending October 7 increased by 29,000 to 1.734 million.

The key takeaway from the report is the remarkably low level of initial jobless claims — a leading indicator — which conveys a tight labor market that is a good portent for continued strength in consumer spending.

The latter point notwithstanding, Treasury yields have moved lower in a peculiar fashion following the news. This is the type of news that would typically invite concerns about inflation remaining stubbornly high and the the Fed potentially needing to raise rates further. 

Our spin on matters is that there was earlier resistance at 5.00% for the 10-yr note yield, and because there was no knee-jerk pop above 5.00% in the wake of this remarkable initial jobless claims data, technical buying efforts have persisted in its wake. Currently, the 10-yr note yield is at 4.92%, up two basis points from yesterday but down from 4.97% just ahead of the initial claims report.

Granted the October Philadelphia Fed Index was weaker than expected at -9.0 (Briefing.com consensus -6.5), but we’re not going to give it props for driving the decline in Treasury yields given that (1) it is a survey, meaning it is soft data and (2) it is far less influential as an economic indicator compared to the initial claims data.

On a related note, Fed Chair Powell will be dishing on the economic outlook in a speech at the Economic Club of New York at 12:00 p.m. ET. There are a lot of participants anxious to see what kind of spin he puts on that plate and how it will shape the market’s view of the policy outlook. 

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Originally Posted October 19, 2023 – A lot of plates spinning