Philip Petit
I don’t know how many New Yorkers remember Philippe Petit. The fact that at 73 Petit is still with us might be the most surprising part of his story given his occupation, or should I call it a calling, because I don’t think what he did really paid him that much.
Wednesday night August 7, 1974, in New York City, the Yankees would hold on to defeat the Baltimore Orioles 4-3 in the Bronx as Roy White had three hits leading, Pat Dobson had his 10th win of the season, and Cecil Upshaw – yes, Cecil Upshaw – had to save Sparky Lyle from close quarters as the O’s attempted to rally towards the end of the game. Nobody was talking about baseball that night, though.
Earlier that day, a young Frenchman had, without permission, crossed between the Twin Towers of the World Trade Center on a cable, just 1,350 feet above the ground. Petit was arrested once safe after completing his feat. These were the days before the internet, so news traveled by word of mouth and on radio news bulletins around town.
I was playing wiffle ball on 58th Avenue in Queens when I heard the news. At 6 pm they were all home, yes to have dinner with mum, but also to watch the local news to see if it was true. For Petit, it was just the next step. He was a performance artist, not a daredevil. He was clear about this.
It had already successfully crossed between the two towers of Notre Dame Cathedral in Paris and between the pylons at the north end of the Sydney Harbor Bridge in Australia. Years later, Petit would cross Niagara Falls, and in what was perhaps his most difficult walk on a tightrope he climbed a 2,300-foot slope across the Seine to the second level of the Eiffel Tower. No, Philippe Petit may not have considered himself a daredevil, but he’ll tell you what. I’ve done crazy and even dangerous things. What this man did, I can’t even imagine.
Far to go
Maybe Thursday’s kid just has to go a long way because “go” rhymes with “trouble,” which is what Wednesday’s kid is supposed to be full of. Stock markets were generally positive on Thursday. Perhaps spurred on by Nvidia’s (NVDA) glorious race to victory, or should I say CEO Jensen Huang’s success on the conference call away from performance and driving (which were both slightly better than expected) and towards the cutting edge of high tech, where Nvidia has always been strong and now seems to be in charge. Perhaps it was also spurred by Treasury yields which actually fell later in the day despite a rather awful looking auction of US 7-year bonds.
The end result was a gain of 21 points, or 0.53% for the S&P 500, ending a three-day losing streak. The Nasdaq Composite gained 0.72% for the session, supported by the Philadelphia Semiconductor index which returned 3.33%, which in turn was supported by NVDA’s 14% charge. Among large-cap semiconductor stocks, Marvell Technology (MRVL) and Advanced Micro Devices (AMD) also showed impressive gains (5.31% and 4.1%, respectively) for the session. Dow Transports was also strong on Thursday (+1.06%) and that strength was spread rather evenly among shippers, airlines and railroads.
For the day, seven out of 11 sector-selected S&P SPDR ETFs were faded to green, obviously led by Technology (XLK). Energy (XLE) also had a good session. None of the 11 was down more than 0.52% on Thursday. The breadth has also improved from what we saw earlier this week. Winners beat losers by about 2 to 1 on the New York Stock Exchange and about 3 to 2 on the Nasdaq. The increase in volume brought the composite trading share for names listed on both exchanges closer to 55%. However, trading volume stalled a bit. Aggregate trading volume contracted on a daily basis for NYSE quotes and among S&P 500 constituent members. That said, aggregate trading increased by a very narrow margin day-over-day for Nasdaq quotes and constituent members of the Nasdaq Composite.
What surprised me
Actually, I was surprised more than once on Thursday. The Bureau of Economic Analysis revised its fourth-quarter GDP growth estimate from 2.9% (quarter-over-quarter, seasonally adjusted annual rate) to 2.7%, reflecting a reduced input to consumer spending. This as the BEA also revised up its estimate for the fourth quarter GDP price index from 3.5% to 3.9%. I really thought there was going to be more downward pressure on equities based on that unwelcome inflationary revision. These revisions have spilled over into the Fed Funds futures markets where there is now a 70% chance for a third 25bps rate hike in June (after also pricing in the March and May rate hikes). Incredibly, there is now a market for a fourth rate hike of 25 basis points (4% probability) in July.
I was also a little surprised that Treasuries rallied (albeit slightly) Thursday afternoon after the 1:00 PM ET Seven-Year Note auction showed a steep yield of 4.062%, which it was the highest yield awarded since the seven-year note was introduced in 2009. Even more disappointing at the time was the tail. The “when issued” was trading at 4.047% at the time the yield above 4.062% was announced. This “shadowing” is becoming commonplace for the Seven-Year Note.
Furthermore, the supply of cover fell to 2.49 from 2.69 last month as indirect offerors (foreign accounts, often central banks) withdrew “only” 65.5% of the issuance. Historically, this isn’t really bad, but it’s down massively from 77.1% in January. Direct bidders ended up pulling down 20.8% of this issuance, the most since last October, while dealers were stuck with 13.7% of the $35 billion auction.
Wile E. Coyote
In an appearance on Bloomberg Television, former Treasury Secretary Larry Summers, who I always (or perhaps almost never) agree with, was down on the economy. Summers said, “People might read the moment a little too much in terms of economic strength, versus how things might look very different in a quarter or two.” Summers cites building inventories “versus sales,” rising payrolls, and falling consumer savings rates as immediate economic headwinds.
Summers adds, “There are things (his word, not mine) when you look a little down the road that have to be basically concerning Wile E. Coyote kind of moment.” The reference is to the cartoon character constantly bumping into walls or falling off cliffs.
In closing, Summers noted that the US has never avoided a recession when the unemployment rate falls below 4% and the inflation rate exceeds 4%. On this reality, Summers says, “This is a powerful historical truth and I think it’s relevant to our situation.”
Walking the razor’s edge
Have you ever hiked outside the Grand Canyon or any other canyon? Have you ever had to hug a cliff while inching along, knowing that if you look down you might make a mistake? I can do it. Where it gets dangerous for me is if someone else freaks out on that ledge and you have to get that individual and yourself to point B safely, quickly, and quietly.
This is what the major indexes have been doing for three days. Consider the Fed as our guide on this journey. I have been showing you versions of these charts for several consecutive days because each day has added to the history. Take a look at the S&P 500 index…
The S&P 500 got close to the three support lines we talked about 24 hours ago on Tuesday. The index touched the 50-day simple moving average (SMA) on Wednesday. The S&P 500 actually broke through that moving average on Thursday before rallying again. Now, take a look at the Nasdaq Composite…
No real piercings here, but check out that awesome footwork around the all-important 200-day SMA. Note that both of these indices have recently been capped by their respective 21-day SMAs. This keeps the swing crowd from swinging, if you know what I mean. This keeps volume and volatility in check.
Who is this market?
So who is this market? This market is Philippe Petit, who can apparently stay focused on what he is doing and get from point A to point B despite him traveling great distances on a tightrope regardless of wind conditions or anything else that might distort his gate? Or is this market Wile E. Coyote, who despite all his best efforts always makes a single mistake that ends in a big fall with a sudden stop short?
On that note…
The same Bureau of Economic Analysis that brought you the revised GDP on Thursday will release January data for personal income, personal spending, personal consumption expenditure, and core PCE at 08:30 AM ET. The numbers, as we saw last week with the consumer price index, producer price index and retail sales should be positive or positive. Like last week, the Fed sent its leader on the hawkish side of football, Loretta Mester of Cleveland, as its messenger after these numbers were recorded. Mester speaks at 10:30 ET.
Today we will also hear from Susan Collins of Boston, who impressed me as a pragmatist, and Philip Jefferson of the Board of Governors, whom I have not yet formed an opinion on due to my ignorance of his past thinking on politics. He doesn’t make mistakes, though. Mester is the Hawks’ thought leader, especially with Esther George’s retirement in Kansas City and her public appearance when she is, likely intentional.
Yes, James Bullard of St. Louis has also been a hawk, but he is impulsive as an economist and speaks his mind too often at the moment. Mester knows what he means and he knows what he wants you to understand from what he says. By the way, Loretta Mester has always been one of my favorite economists. My economist side is a big fan. My trader side knows enough to tread lightly and show some respect.
Economy (All Eastern Time)
08:30 – Personal Income (January): Forecast 1.0% m/m, latest 0.2% m/m.
08:30 – Consumer spending (January): Expected 1.1% m/m, latest -0.2% m/m.
08:30 – PCE Price Index (January): Forecast 0.3% m/m, latest 0.1% m/m.
08:30 – PCE Price Index (January): Forecast 4.8% y/y, latest 5.0% y/y.
08:30 – Core PCE Price Index (January): Forecast 0.4% y/y, latest 0.3% y/y.
08:30 – Core PCE Price Index (January): Forecast 4.3% y/y, latest 4.4% y/y.
10am – U of M Consumer Sentiment (Feb-Fri): Flashing 66.4.
10am – New Home Sales (January): Expected 618K, Latest 616K SAAR.
1pm – Baker Hughes Total Equipment Count (Weekly): Last 760.
1pm – Baker Hughes Oil Rig Count (Weekly): Last 607.
The Federal (All Eastern Time)
10:15 – Speaker: Reserve Board, Governor Philip Jefferson.
10:15 – Speaker: Cleveland Fed Chairman. Loretta Mestre.
1.30pm – Speaker: Boston Fed Chairman. SusanCollins.
Highlights from today’s earnings (Consensus EPS Expectations)
Before the Open: (DINO) (3.60), (LAMR) (1.29)
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