Mr Market wobbled Wednesday. So what’s with Thursday’s rally?
WASHINGTON – After some recent irrational exuberance, Mr Market wobbled Wednesday. He finally decided to take a brief pause in his upward trajectory. The Dow Industrials in particular suffered modest damage. But that major stock average, along with the S&P 500 and the tech-heavy NASDAQ decided to show a bit of buoyancy during Thursday’s rally. Which came as a pleasant surprise.
As of 2 p.m. ET today, all three averages continue trending up somewhat. Surprisingly, the NASDAQ, struggling for the most part over the last calendar quarter, seems happiest thus far. We shall see.
Having settled down over the past upside week, the VIX volatility index ticked up modestly Wednesday. That likely indicated at least a bit of investor restlessness. In firmly positive territory recently after a disastrous September decline, the McClellan Oscillator, our favorite market direction indicator suffered its second downward wobble in a week, also on Wednesday, confirming the uncertainty.
Any reasons why Mr Market wobbled Wednesday?
Our always-cheery friends the Twin Tylers over at ZeroHedge might have discovered the reason behind Mr Market’s iffy attitude recently. As the Clintonistas loved to say (rather insultingly), “It’s the economy, stupid.” Minus that final word, ZH decided to point out something the current holographic administration in Washington may not want the public to know.
“With the Atlanta Fed cutting its GDPNow estimate to just 0.2% yesterday…
“… there were big worries that today the BEA could reveal a shocker of a number, one far below the rapidly falling consensus estimate of 2.6%. Well, the Q3 GDP number just came out and it was bad, but not nearly as bad as it could have been: at 2.0%, it did indeed miss the 2.6% consensus by a lot but it could have been far worse.
ZH has more on the GDP collapse
“The third quarter GDP, which was the lowest since the Covid-collapse quarter of Q2 2020 when GDP crashed more than 30%, was a big drop from the 6.7% final Q2 GDP estimate, and the question now is how much further will subsequent revisions shrink the initial print and whether Q3 marks the lowpoint for US GDP or will Q4 be even worse.
“The deceleration in real Q3 GDP was led by a slowdown in consumer spending, which dropped to 1.6% from 12.0%, but was nonetheless a beat to expectations of an even worse, 0.9% print. Shortages, transportation bottlenecks, rising prices and the delta variant of the coronavirus weighed on both goods and services spending. Meanwhile, investment was a positive contribution, thanks mainly to businesses restocking depleted inventories. Trade was a negative, but has been a negative for some time. Government was a marginal factor, as it has been in recent quarters. It comes down to consumers not being able to buy as much as they want, effectively, thanks to supply-chain issues.”
(Bold text via ZH. Final bolded line highlighted by this columnist.)
But maybe Mr Market wobbled due to oil and gas pricing weakness…
Oil prices weakened for the second day in a row Thursday. Like Mr Market himself, crude remains wobbly due to this week’s report of a surprising inventory build. The reasons behind the build, following on a fairly consistent run of inventory shortfalls, remain unclear.
But pessimists tend to view a stat like this as a sign the economy has begun to slow, even as prices continue to soar. Back in the Carter years, economists called this “stagflation.” I.e., the economy slows or stagnates but prices continue to soar. But hey, that’s just the brilliance of Bidenomics, right.
One begins to wonder… Where are those “Miss me, yet?” billboards festooned with a happy, optimistic image of President Trump? The media also remains silent on this potentially ominous undercurrent. Like the Tar Baby in (the now likely canceled writer) Joel Chandler Harris’ tales, “The MSM, they say nothin’.”
Some specifics on the oil patch as Thursday’s rally tries to build
But for the first time in a long time our once seemingly off-the-wall bets in the oil patch remain fairly weak today. The seemingly indefatigable oil and gas giant EOG (NYSE:EOG) returned to bullish mode today after getting clipped Wednesday. This is about the third time we’ve been in the green in this issue during calendar year 2021, and we’re reluctant to part with it. But if things get shaky, it may prove time to exit profitably once again.
Somewhat lesser plays like MPLX (NYSE:MPLX), a limited partnership currently boasting a nearly 9% dividend, seem stable for now. But if oil and gas continue to wobble, that situation might change. Ditto with another one of our faves, major refiner Valero (NYSE:VLO) a consistent (but consistently volatile) high yielder (~5%) that now looks a bit toppy around the $78-80 per share mark. Watchful waiting dead ahead.
We recently decided to press our luck by placing small bets on two European oil and gas majors, Italy’s Eni Spa Roma (NYSE:E) and Norway’s Equinor (NYSE:EQNR). But we did so just in time to see those always clever Eurocrats boost interest rates in the Eurozone, which fact subsequently pounded both these decent companies. Particularly EQNR. We’re assessing our current Euromove. Advisors always tell us we should balance our portfolios with some foreign stocks. But that “balance” has rarely worked out in our favor. Maybe our timing is off.
Techs finally perking up during Thursday’s rally?
Techs, for the first time in a long time, look good during Thursday’s rally, a nice surprise. Massive semiconductor and software giant Broadcom (NYSE:AVGO) finally made a big move this week after oscillating in a holding pattern for what seemed like months. All of a sudden, we find ourselves with a roughly 10% gain in this one today. Given this stock’s volatile price action, should we stay or should we go? We don’t know. At the moment, we lack all conviction, as Yeats once opined in an entirely different context.
All in all, not a bad Thursday thus far. But we remain quite wary. Our holographic but decidedly Marxist betters in Washington continue to undermine the guts of American success. So perhaps we see Mr Market attempting a last bullish gasp before AOC & Co. lead us at last to a socialist, quasi-Venezuelan paradise.
Headline image link: Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.