Last day of the month. Last day of the quarter.
For the first time since January, the S&P 500 (-3.6%) is negative for the month. For the second time (May) since October 2020, the Nasdaq Composite (-4.9%) is negative for the month.
I would have said that this bodes well for the periodic pension fund reallocation of resources, but the bond market has been slapped around as well. For example, the iShares 20+ Year Treasury Bond ETF ( TLT) has surrendered 4.5% month to date, while the iShares Long-Term Corporate Bond ETF ( IGLB) has given back 2.2% this month. Both of these ETFs also had negative (-0.5%) Augusts.
So, here we are. Zero dark-thirty. Thursday, Sept. 30, 2021. One of those mornings, So much to say. So much ground to cover. Only one way to get there from here. Only one way to rock. Full battle rattle. Two sources of water. A continent sleeps. The man in the darkened window, so fired up…truly a madman…needs to run a mile right now, and do 50 push-ups. Be right back.

That Was Fast

Well, I mean for me. Equity index futures are acting strong to very strong through the overnight, after opening strong on Wednesday and giving most or all of it back, depending on the index, to close at the lows of the session.
What gives?
It appears that a deal has been struck in the U.S. Senate that would at least allow the federal government to remain open through Dec. 3. This deal, which really does not accomplish much beyond keeping the lights on, would need to obviously pass in the Senate, then pass a rushed vote in the House, and then hit President Biden’s desk for a signature — probably with just hours (if that) to spare.
Apparently, the bill has been stripped of language suspending the debt ceiling, which is how the left got the right on board. In a week still full of fiscal landmines, kicking this can down the road without really agreeing to anything more than avoiding an October default is by far the simplest and easiest task our esteemed legislators had to get done this week.
The battle lines of both debate and negotiation have, as far as we know, not eased. Hey, at least the congressional baseball game went off on Wednesday night without a hitch, and President Biden attended, handing out ice cream to legislators from both sides of the aisle. True story.

Serious Thursday

The deal is this. Speaker Pelosi affirmed her stated plan to bring the $1.2T ($550B in new money) bipartisan infrastructure bill (that has already passed in the Senate) to the House floor for a vote at some point today. House progressives, the extreme left of the Democratic party, have threatened to try to block passage of this bill if it comes without some kind of assurance that the much larger ($3.5T-ish ?) social/climate-focused tax-and-spend package that contains many “progressive” priorities will also pass in both chambers.
The problem there is that the Democratic caucus cannot lose more than three of their own in the House, nor a single vote in the Senate. There are close to a dozen fiscally conservative/politically moderate Democrats in the House that may be in line as far as the progressive left is concerned. The Senate, however, may be a tougher nut to crack, as Arizona Senator Kyrsten Sinema and West Virginia Senator Joe Manchin have been open about not being able to support such a large fiscal package with inflation running so far above trend.
The White House has been working over Sinema pretty hard this week, but Manchin stated again on Wednesday that he did not see negotiations over the larger package wrapping up by Thursday’s vote on infrastructure.

Weakish Wednesday

It was as much Fed Chair Jerome Powell as anything Nancy Pelosi did or said that knocked the equity rally off of its perch on Wednesday. While Madam Speaker was working on getting all of her ducks in a row, the Fed Chair participated in a panel discussion with ECB President Christine Lagarde, Bank of England Gov. Andrew Bailey, and Bank of Japan Gov. Haruhiko Kuroda.
Powell was blunt: “The combination of strong demand for goods and services and the bottlenecks has meant that inflation is running well above target. We expect that it will continue to do so in coming months before moderating as bottlenecks ease.”
Just a reminder, as of July, year-over-year PCE (the Fed’s acknowledged gauge for consumer-level inflation) ran at growth of 4.2% at the headline and 3.6% at the core, while for August, year-over-year CPI (everyone else on the planet’s acknowledged gauge for consumer-level inflation) ran at 5.3% growth at the headline and an even 4% at the core. The Bureau of Economic Analysis will go to the tape with August PCE data tomorrow (Friday) morning.
Powell added, “What people didn’t see coming was the supply-side constraints … that was a surprise. It’s not that inflation models are wrong. Although they certainly are not perfect, but just the scope and persistence of supply-side constraints were missed.”
I don’t know where you grew up. I grew up in Queens, N.Y., and where I come from, we used to call that “being wrong.”


While most indexes across the equity landscape closed close to where they started, the Dow Transports gave up more than half of one percent on airline weakness, while the S&P 500, and small-cap S&P 600 gained small, and the Nasdaq Composite, Nasdaq 100, and Russell 2000 all lost some small ground. The mid-cap S&P 400 closed exactly unchanged, which is really incredible in this electronic, algorithmic, decimalized age.
Breadth was rather ugly, or if not truly ugly, then just not so hot coming off of Tuesday’s beat-down. Winners beat losers at the NYSE by about 4 to 3, but declining volume bested advancing volume by a small margin, while trading volume tailed off significantly both for NYSE-listed names and for S&P 500 constituent members.
I want readers to notice the successive closes on Tuesday and Wednesday at the bottom of the day’s range, and the much higher S&P 500 trading volume for recent down days versus recent up days. These are negatives. However, the Wednesday candle also presents as an “inverted hammer” type doji. This is seen as an indicator of a bullish reversal.
In addition, Wednesday is an “Inside Day” compared to Tuesday, which is a two-day pattern that indicates both continuance of trend and reduced volatility. The trend? Since the cows came home? Up. Since very early September? That would be down, ladies and gentlemen. Not that we didn’t warn you in print and on TV in August.
Bottom line?
The S&P 500 has a negative feel, but is sending enough mixed messages to believe that there are places to go here. The value trade probably has legs right now if Congress can keep its collective head out of its grass.
Now, the Nasdaq Composite tells a different tale. For Wednesday, losers beat winners by more than 5 to 4, while declining volume bested advancing volume on dramatically higher aggregate trading volume. This makes the action across Nasdaq listed names much more meaningful than anything else seen on Wednesday.
For the Nasdaq Composite, there was no inside day, there was no inverted hammer, there were just successive closes at the lows of the day that undercut both Tuesday’s low and last Monday’s low. It’s hard for me to express how negatively I see this. Again, you’ll see that aggregate trading volume has been much higher on recent down days than on recent up days.
Investors did try to hide in defensive-type sectors on Wednesday. They sold growth, while for the most part, cyclicals filled the middle of the daily performance tables. Materials finished the day in last place on dollar strength.

My Thoughts

In the short-term, markets will react, perhaps with violence to the fiscal proceedings in our nation’s capital. Longer-term, let’s say from mid-October on out, markets are trying to price in risk associated with a steeper yield curve, a stronger dollar, higher prices, and lower margins.
The fact that at some point, political will to normalize monetary conditions will fail, but only if inflation cools is not part of today’s equation. NINA is still lurking.
The answer, at least for me, is to trade what’s offered. Adapt to your environment. It is very difficult to invest in uncertainty still close to the top of the chart. It’s not that hard to take low hanging fruit. Trade the market. You know when the algos start goosing each other. Take ’em to school.
Trust me, the guys behind those algos are busy giggling as they watch 15 year-olds fall off of skateboards on YouTube. They have forgotten how to work hard. They won’t even know you were ever there. They will never figure out that they were gamed. They came quite arrogantly for your money. Now, take theirs.


According to Covidestim, a modeling project including contributions from the Yale School of Public Health, Harvard’s TH Chan School of Public Health, and Stanford Medicine, a measure of new infections known as Rt (reproduction number) has fallen below 1 in 47 states plus the District of Columbia. Basically, the Rt number is akin to how many secondary infections are produced by an infected person. An Rt number greater than one means that infection is on the rise, below one means that the infection is in contraction.
Right now, only Wisconsin (1.3), Minnesota (1.1) and Alaska (1.1) have Rt numbers of greater than one. Infection rates are especially low in most of the southern states that had very tough summers. As seasons change, southerners tend to leave the air conditioning and venture outside. The opposite is true up north as folks head inside for warmth at this time of year.
Is Delta dying down, or is this the calm before the storm up north? Wish I could tell you.

On That Note…

Merck’s ( MRK) antiviral drug Molnupiravir appears to inhibit several major variants of Covid-19, including the Delta variant according to findings produced in laboratory research. Merck is developing this antiviral in collaboration with Ridgeback Biotherapeutics LP. The drug is intended for use in pill form for use by non-hospitalized patients showing symptoms for less than five days and at risk for severe disease.
Molnupiravir is being tested in a Phase 3 trial expected to conclude in November. This is, in my opinion, potentially huge. Imagine, your personal physician being able to prescribe something that keeps Covid in check that you can pick up at the pharmacy? This is potentially one way, if it works, that Covid eventually becomes just another seasonal flu.
Rooting for Merck hard. Long the stock.

Economics (All Times Eastern)

08:30 – Initial Jobless Claims (Weekly): Expecting 328K, Last 351K.
08:30 – Continuing Claims (Weekly): Last 2.845M .
08:30 – GDP Growth (Q2-F): Revised to 6.6% q/q SAAR.
09:45 – Chicago PMI (March): Expecting 65.1, Last 66.8.
10:30 – Natural Gas Inventories (Weekly): Last +76B cf.

The Fed (All Times Eastern)

11:00 – Speaker: New York Fed Pres. John Williams.
11:00 – Speaker: Atlanta Fed Pres. Raphael Bostic.
11:30 – Speaker: Philadelphia Fed Pres. Patrick Harker.
12:30 – Speaker: Chicago Fed Pres. Charles Evans.
13:05 – Speaker: St. Louis Fed Pres. James Bullard.

Today’s Earnings Highlights (Consensus EPS Expectations)

Before the Open: ( KMX) (1.88), ( MKC) (0.72), ( PAYX) (0.80)